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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): April 23, 1998
THE COLONEL'S INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
MICHIGAN 2-98277C 38-3262264
(State or other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
620 SOUTH PLATT ROAD
MILAN, MICHIGAN 48160
(Address of principal executive offices) (Zip Code)
(734) 439-4200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 23, 1998, The Colonel's International, Inc., a Michigan
corporation (the "Company"), through its newly formed wholly owned
subsidiary The Colonel's Rugged Liner, Inc., a Pennsylvania corporation
(since renamed Rugged Liner, Inc.) ("MergerSub"), acquired by merger (the
"Mergers") four related Pennsylvania corporations (collectively, the
"Rugged Liner Companies"): Rugged Liner, Inc., Triad Management Group,
Inc., Aerocover, Inc., and Ground Force, Inc.
In the Mergers, each of the Rugged Liner Companies merged with
and into MergerSub. MergerSub was the surviving corporation in the
Mergers. Pursuant to the Mergers, MergerSub's name was changed to "Rugged
Liner, Inc." Articles of Merger were filed with and deemed effective by
the Commonwealth of Pennsylvania on April 24, 1998.
The Mergers were conducted pursuant to an Agreement and Plan of
Merger dated March 13, 1998, as amended by a First Amendment to Merger
Agreement dated April 23, 1998 (collectively, the "Merger Agreement").
Under the Merger Agreement, the former shareholders of the Rugged Liner
Companies were to receive cash in an aggregate amount of $4,250,000 and a
number of shares of the Company's common stock, $0.01 par value per share
("Common Stock") equal to $4,250,000 divided by the Average Trading Price
(as defined in the Merger Agreement), all subject to the adjustments set
forth in the Merger Agreement. After adjustments, the former shareholders
of the Rugged Liner Companies received approximately $1,725,303 in cash and
454,027 shares of Common Stock valued (based on the Average Trading Price)
at approximately $3,724,407. In addition, Mark German, the former majority
shareholder of the Rugged Liner Companies, received $750,000 in
satisfaction of certain obligations of the Rugged Liner Companies to Mr.
German.
The amount of and adjustments to Merger Consideration (as defined
in the Merger Agreement) were arrived at pursuant to negotiations between
the Company and Mr. German.
Mr. German is a nominee for election as a Director of the Company
at the Company's forthcoming annual meeting of shareholders, which is
scheduled to be held on May 29, 1998.
In connection with the Mergers, MergerSub and Mr. German entered
into a four-year employment contract, providing for Mr. German's employment
as the President of MergerSub. In addition, MergerSub entered into leases
of two facilities owned by entities controlled by Mr. German.
Funds for the cash portion of the Merger Consideration were
obtained by the Company through an acquisition line of credit with Comerica
Bank, N.A., the Company's primary lender.
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Prior to the Mergers, the Rugged Liner Companies were involved in
the manufacture, sale and distribution of certain truck accessories, such
as pickup truck bedliners. The Company and MergerSub plan to continue
these operations, which the Company's believes will complement the business
conducted by The Colonel's Truck Accessories, Inc., a wholly owned
subsidiary of the Company.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND
EXHIBITS.
(a) Not required.
(b) Not required.
(c) Exhibits:
2(a) Agreement and Plan of Merger dated March 13, 1998
2(b) First Amendment to Agreement and Plan of Merger, dated
April 23, 1998
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 thereunto duly authorized.
Dated: May 8, 1998 THE COLONEL'S INTERNATIONAL, INC.
By /S/RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Vice President-Finance and Chief
Financial Officer
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EXHIBIT 2(a)
AGREEMENT AND PLAN OF MERGER
by and among
RUGGED LINER, INC.,
(Rugged Liner),
AEROCOVER, INC.,
(Aerocover)
GROUND FORCE, INC.,
(Ground Force)
TRIAD MANAGEMENT GROUP, INC.
(Triad),
THE COLONEL'S INTERNATIONAL, INC.,
(Buyer)
and
THE COLONEL'S RUGGED LINER, INC.
(MergerSub)
and joined in by
MARK GERMAN (Mr. German)
AND THE OTHER SHAREHOLDERS OF RUGGED LINER,
AEROCOVER, GROUND FORCE AND TRIAD
(Shareholders)
and
DONALD J. WILLIAMSON
(Mr. Williamson)
Dated as of March 13, 1998
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is made as of
March 13, 1998 between THE COLONEL'S INTERNATIONAL, INC., a Michigan
corporation ("BUYER"), THE COLONEL'S RUGGED LINER, INC., a Pennsylvania
corporation ("MERGERSUB"), RUGGED LINER, INC., a Pennsylvania corporation
("RUGGED LINER"), AEROCOVER, INC., a Pennsylvania corporation
("AEROCOVER"), GROUND FORCE, INC., a Pennsylvania corporation ("GROUND
FORCE"), and TRIAD MANAGEMENT GROUP, INC., a Pennsylvania corporation
("TRIAD"), and is joined in by MARK GERMAN, a shareholder of the Rugged
Liner Companies ("MR. GERMAN"), the other shareholders of the Rugged Liner
Companies (each a "SHAREHOLDER" and, collectively with Mr. German, the
"SHAREHOLDERS") and DONALD J. WILLIAMSON, a shareholder of Buyer ("MR.
WILLIAMSON"). Rugged Liner, Aerocover, Ground Force and Triad are referred
to collectively as the "RUGGED LINER COMPANIES." The Rugged Liner
Companies and MergerSub are sometimes collectively referred to as the
"CONSTITUENT CORPORATIONS."
The Rugged Liner Companies are engaged in the manufacture of
pickup truck bedliners and other accessories (the "BUSINESS"). Buyer
desires to become affiliated with the Rugged Liner Companies through their
merger with and into MergerSub. Mr. German owns a majority of the shares
of the Rugged Liner Companies' stock and joins in this Agreement for the
limited purpose of those provisions of this Agreement that directly impose
obligations on him by specific reference. The Shareholders join in this
Agreement for the purposes set forth in Sections 2.9.2, 3.3(b), 3.5, 3.25,
3.26, 5.8 and 5.9 of this Agreement. Mr. Williamson joins in this
Agreement to guarantee Buyer's performance of its obligations under Section
2.4.
ARTICLE 1 THE MERGERS
1.1 THE MERGERS. At the Effective Time (as defined below), each of
the Rugged Liner Companies shall be merged with and into MergerSub (each, a
"MERGER" and collectively the "MERGERS"). MergerSub shall be the surviving
corporation (the "SURVIVING CORPORATION") in each of the Mergers. At the
Effective Time, the separate existence of each of the Rugged Liner
Companies shall cease. The name of the Surviving Corporation shall be
"Rugged Liner, Inc." The Mergers shall have the effect on the Rugged Liner
Companies and MergerSub as provided under the Pennsylvania Associations
Code (the "PENNSYLVANIA CODE"). Specifically, (a) the Articles of
Incorporation and Bylaws of MergerSub shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation until thereafter
amended and (b) the executive officers and directors of MergerSub
immediately prior to the Effective Time shall be the initial executive
officers and directors, respectively, of the Surviving Corporation.
1.2 EFFECTIVE TIME. The Mergers shall become effective at the time
(the "EFFECTIVE TIME") of filing of, or at such later time specified in the
articles of merger (the "ARTICLES OF MERGER"), in the form required by and
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executed in accordance with the Pennsylvania Code, filed with the
Pennsylvania Secretary of State (the "SECRETARY OF STATE").
ARTICLE 2 VOTING AND CONVERSION OF SHARES
2.1 EFFECT ON SHARES AND MERGERSUB'S CAPITAL STOCK. In the
aggregate, the Shareholders are entitled to receive (a) Four Million Two
Hundred Fifty Thousand Dollars ($4,250,000) in cash and (b) a number of
shares of Buyer's Common Stock determined by dividing Four Million Two
Hundred Fifty Thousand Dollars ($4,250,000) by the average of the per share
closing prices of Buyer's Common Stock on the Nasdaq SmallCap Market for
each of the thirty trading days immediately prior to the Closing Date (the
"AVERAGE TRADING PRICE"), all as set forth below and subject to adjustments
in Sections 2.2, 2.3, 2.4 and 2.5 (the "MERGER CONSIDERATION"):
2.1.1 RUGGED LINER'S COMMON STOCK. As of the Effective Time,
each share of Rugged Liner's common stock (each a "RUGGED LINER SHARE"
and collectively the "RUGGED LINER SHARES") outstanding immediately
prior to the Effective Time shall be converted into the right to
receive (a) the amount of cash set forth on Exhibit 2.1, which exhibit
shall be delivered by the Rugged Liner Companies to Buyer at least
five days prior to the Closing Date divided by the number of Rugged
Liner Shares outstanding immediately prior to the Closing, net to the
holder in cash, and (b) a number of shares of Buyer's common stock,
$0.01 par value ("BUYER'S COMMON STOCK") equal to the amount set forth
on Exhibit 2.1 divided by (i) the Average Trading Price and (ii) the
number of Rugged Liner Shares outstanding immediately prior to the
Closing.
2.1.2 AEROCOVER'S COMMON STOCK. As of the Effective Time,
each share of Aerocover's common stock (each a "AEROCOVER SHARE" and
collectively the "AEROCOVER SHARES") outstanding immediately prior to
the Effective Time shall be converted into the right to receive (a)
the amount of cash set forth on Exhibit 2.1 divided by the number of
Aerocover Shares outstanding immediately prior to the Closing, net to
the holder in cash, and (b) a number of shares of Buyer's Common Stock
equal to the amount set forth on Exhibit 2.1 divided by (i) the
Average Trading Price and (ii) number of Aerocover Shares outstanding
immediately prior to the Closing.
2.1.3 GROUND FORCE'S COMMON STOCK. As of the Effective Time,
each share of Ground Force's common stock (each a "GROUND FORCE SHARE"
and collectively the "GROUND FORCE SHARES") outstanding immediately
prior to the Effective Time shall be converted into the right to
receive (a) the amount of cash set forth on Exhibit 2.1 divided by the
number of Ground Force Shares outstanding immediately prior to the
Closing, net to the holder in cash, and (b) a number of shares of
Buyer's Common Stock equal to the amount set forth on Exhibit 2.1
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divided by (i) the Average Trading Price and (ii) the number of Ground
Force Shares outstanding immediately prior to the Closing.
2.1.4 TRIAD'S COMMON STOCK. As of the Effective Time, each
share of Triad's common stock (each a "TRIAD SHARE" and collectively
the "TRIAD SHARES") outstanding immediately prior to the Effective
Time shall be converted into the right to receive (a) the amount of
cash set forth on Exhibit 2.1 divided by the number of Triad Shares
outstanding immediately prior to the Closing, net to the holder in
cash, and (b) a number of shares of Buyer's Common Stock equal to the
amount set forth on Exhibit 2.1 divided by (i) the Average Trading
Price and (ii) the number of Triad Shares outstanding immediately
prior to the Closing.
The Rugged Liner Shares, the Aerocover Shares, the Ground Force Shares
and the Triad Shares are collectively referred to as the "SHARES." The
parties expressly acknowledge and agree that the Aggregate Merger
Consideration to be paid in respect of the Shares is subject to the
adjustments set forth in Sections 2.2, 2.3., 2.4 and 2.5 of this Agreement.
2.1.5 CASH IN LIEU OF FRACTIONAL SHARES; TREASURY SHARES.
Notwithstanding the above, certificates representing fractional shares
of Buyer Common Stock shall be not issued. In lieu of any such
fractional shares, a Shareholder who would otherwise have been
entitled to a fraction of a share will be paid an amount in cash
(without interest) equal to such fraction of a share multiplied by the
Average Trading Price. Furthermore, notwithstanding the above, all
Shares in the treasury of a Rugged Liner Company or held by any wholly
owned subsidiary of Rugged Liner shall not be converted into the
Merger Consideration but shall be canceled.
2.1.6 RESTRICTED STOCK. All of Buyer's Common Stock issued
under this Agreement shall be a "restricted security," as that term is
defined in Securities and Exchange Commission ("SEC") Rule 144,
promulgated under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
2.1.7 MERGERSUB'S COMMON STOCK. As of the Effective Time,
each share of common stock of MergerSub, $0.01 par value ("MERGERSUB
COMMON STOCK"), outstanding immediately prior to the Effective Time
shall be converted into one full share of common stock, $0.01 par
value, of the Surviving Corporation.
2.2 ADJUSTMENTS TO CASH PORTION OF MERGER CONSIDERATION.
2.2.1 GAS CAN LITIGATION, ACCOUNTS PAYABLE AND OTHER DEBT,
AND RENTAL PAYMENTS. The cash portion of the Merger Consideration set
forth in Section 2.1 shall be reduced, on a dollar-for-dollar basis,
by the following amounts: (i) $150,000, representing the amount that
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the parties agree to be Rugged Liner Companies' aggregate liability
resulting from or arising out of certain pending class action lawsuits
in which the Rugged Liner Companies (or any of them) are named
defendants (the "GAS CAN LITIGATION"); (ii) the aggregate amount of
those accounts payable of the Rugged Liner Companies as of the Closing
Date that are listed in Exhibit 2.2-1, (iii) the aggregate amount of
the Rugged Liner Companies' indebtedness to any financial institution
as of the Closing Date, and (iv) the aggregate unpaid rental amounts
for the remaining terms of all the tractor-trailer leases listed in
Exhibit 2.2-2.
2.2.2 CASH ON HAND. The cash portion of the Merger
Consideration set forth in Section 2.1 shall be increased, on a
dollar-for-dollar basis, by the aggregate amount of cash on hand of
the Rugged Liner Companies as of the Closing Date.
2.3 ADDITIONAL ADJUSTMENTS TO MERGER CONSIDERATION.
2.3.1 DEFINITIONS. For purposes of this Section:
(a) "AGGREGATE INVENTORY VALUE" meanS the total
aggregate cost basis of the Rugged Liner Companies' Merchandise
Inventory (defined below), as reflected on their books and
records, and determined in accordance with generally accepted
accounting principles, consistently applied ("GAAP");
(b) "MERCHANDISE INVENTORY" means all of the
Rugged Liner Companies' merchandise on hand as of the Closing
Date, including without limitation all finished and unfinished
goods, works-in-progress, raw materials and related supplies used
in the manufacture of the Rugged Liner Companies' products; and
(c) "AGGREGATE ACCOUNTS RECEIVABLE VALUE" means the
total aggregate value of all of the Rugged Liner Companies'
accounts receivable outstanding as of the Closing Date (defined
below), net of allowances for doubtful accounts, as determined in
accordance with GAAP.
2.3.2 PHYSICAL INVENTORY; INSPECTION OF AGGREGATE ACCOUNTS
RECEIVABLE VALUE. On the Closing Date, Buyer and the Rugged Liner
Companies shall jointly conduct or cause to be conducted (a) a
physical inventory (the "PHYSICAL INVENTORY") of the Merchandise
Inventory and (b) an inspection or review of the Aggregate Accounts
Receivable Value (the "A/R INSPECTION"). The Physical Inventory and
the A/R Inspection shall be conducted in accordance with GAAP. Upon
completion of the Physical Inventory and the A/R Inspection, Buyer and
the Rugged Liner Companies shall use their best efforts to agree upon
the Aggregate Inventory Value and the Aggregate Accounts Receivable
Value.
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2.3.3 ADJUSTMENTS TO MERGER CONSIDERATION.
(a) ADJUSTMENT AMOUNT.
(i) If the Aggregate Inventory Value (as
determined pursuant to Section 2.3.2) is less than One Million
Eight Hundred Thousand Dollars ($1,800,000), the Merger
Consideration shall be decreased by the amount that the Aggregate
Inventory Value is less than such amount. If such Aggregate
Inventory Value is greater than One Million Eight Hundred
Thousand Dollars ($1,800,000), the Merger Consideration shall be
increased by the amount that the Aggregate Inventory Value is
greater than such amount.
(ii) If the Aggregate Accounts Receivable Value
(as determined pursuant to Section 2.3.2) is less than Seven
Hundred Fifty Thousand Dollars ($750,000), the Merger
Consideration shall be decreased by the amount that the Aggregate
Inventory Value is less than such amount. If such Aggregate
Accounts Receivable Value is greater than Seven Hundred Fifty
Thousand Dollars ($750,000), the Merger Consideration shall be
increased by the amount that the Aggregate Inventory Value is
greater than such amount.
(b) PAYMENT TERMS. If the aggregate Merger
Consideration for the Shares is increased pursuant to this
Section 2.3, the adjustment payment shall be paid as follows:
(i) 50 percent by a cash payment by Buyer to the Shareholders,
and (ii) 50 percent by the issuance of additional shares of
Buyer's Common Stock to the Shareholders, with the number of
shares of Buyer's Common Stock to be so issued to be determined
based on the Average Trading Value. If the aggregate Merger
Consideration for the Shares is decreased pursuant to this
Section 2.3, the adjustment payment shall be paid as follows:
(i) 50 percent by a cash payment from the Shareholders to Buyer,
and (iii) 50 percent by the cancellation of a portion of Buyer's
Common Stock previously issued to the Shareholders, with the
number of shares of Buyer's Common Stock to be so canceled to be
determined based on the Average Trading Value.
2.4 POST-CLOSING STOCK PRICE ADJUSTMENT; PUT OPTION.
2.4.1 PRICING PERIOD. The average of the per share closing
prices of Buyer's Common Stock on the Nasdaq SmallCap Market for each
trading day during the thirty days before the one year anniversary of
the Effective Time (the "PRICING PERIOD") shall be deemed to be the
"AVERAGE ANNIVERSARY TRADING PRICE."
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2.4.2 ADJUSTMENT. If, at the end of the Pricing Period, the
Average Anniversary Trading Price does not equal or exceed the Average
Trading Price, Buyer shall pay each Shareholder the difference between
the Average Trading Price and the Average Anniversary Trading Price
multiplied by the number of shares of Buyer Common Stock received by
that Shareholder in the Merger.
2.4.3 METHOD OF PAYMENT. Subject to Section 2.5, payment
shall be made in cash, within 10 days after the end of the Pricing
Period.
2.4.4 PUT OPTION. Each share of Buyer's Common Stock issued
to the Shareholders under this Agreement shall be subject to the right
of the Shareholders to require Buyer to redeem such shares, as set
forth in this section (the "PUT OPTION"). During any calendar year
beginning with 1999 and ending with 2002, a Shareholder may exercise
his or her Put Option with respect to up to twenty-five percent (25%)
of the shares of Buyer Common Stock received by that Shareholder
hereunder by delivering written notice of the exercise thereof to
Buyer, specifying the identity of the Shareholder and number of shares
to be redeemed. The redemption price for such redeemed shares of
Buyer's Common Stock shall be (a) the Average Trading Price, less (b)
the amounts, if any, paid by Buyer to the redeeming Shareholder
pursuant to Sections 2.4.2 and 2.4.3 above. For purposes of
determining the amounts, if any, previously paid by Buyer to the
redeeming Shareholder pursuant to Sections 2.4.2 and 2.4.3, the value
of shares of Buyer Common Stock issued to the Shareholder pursuant to
such sections shall be as determined under Section 2.4.3. Upon
receipt of the original stock certificates representing the redeemed
shares of Buyer's Common Stock or a stock power with respect thereto
in form and substance satisfactory to Buyer, but in no event less than
thirty days after the receipt of the redemption notice, Buyer shall
pay to the redeeming Shareholder the amounts determined hereunder. If
a Shareholder does not fully exercise his or her Put Option during any
of the four calendar years specified above, he or she shall lose the
right to exercise the Put Option with respect to such shares in later
years. Notwithstanding anything in this Agreement to the contrary,
Buyer and Mr. Williamson represent and warrant, jointly and severally,
that neither the status of the shares of Buyer's Common Stock issued
as "restricted securities" nor anything else shall interfere with or
prevent the exercise by each Shareholder of his or her rights with
respect to the Put Options granted under this Section 2.4.4.
2.4.5 GUARANTEE BY MR. WILLIAMSON. In consideration of the
Rugged Liner Companies and Mr. German entering into this Agreement and
the performance of their respective obligations hereunder (and the
cooperation and approval of the Shareholders connected therewith), Mr.
Williamson absolutely, unconditionally and irrevocably guarantees
prompt payment and performance when due by Buyer of Buyer's
obligations under this Section 2.4.
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2.4.6 LETTER OF CREDIT OPTION. Mr. German is hereby granted
an option (the "L/C OPTION"), which may be exercised any time
following the Closing Date through December 31, 2002, to require Buyer
to obtain one or more letters of credit containing such terms and
conditions and issued by such federally insured banking and/or savings
and loan institutions as are reasonably satisfactory to Mr. German
(the "LETTERS OF CREDIT"), to secure the payment obligations of Buyer
to the Shareholders upon the exercise of the Put Options. The
amount(s) to be secured by such Letter(s) of Credit would not exceed
the aggregate redemption price (determined in accordance with Sections
2.4.1, 2.4.2, 2.4.3 and 2.4.4) for shares of Buyer's Common Stock held
by the Shareholders that are still subject to unexpired Put Options at
the time the L/C Option is exercised. Mr. German and/or the
Shareholders shall be solely responsible for the price of the Letters
of Credit from the issuer thereof. The Letters of Credit shall
provide for payments pursuant to the exercise of the Put Options to be
made directly from the issuer of the Letters of Credit to the holders
of any Put Options which may be exercised, upon receipt by such
institutional lender of a notice in the form and during the applicable
option exercise period with respect thereto as referenced in Section
2.4.4. The L/C Option shall be exercisable by the giving of written
notice thereof to Buyer, which notice shall identify the Put Options
to be secured by the Letter(s) of Credit involved and the aggregate
payment amounts thereunder to be so secured. The Letter(s) of Credit
shall be issued no more than thirty (30) days after such notice of the
exercise of the L/C Option has been given.
2.5 STOCK TO CASH RATIO; TAX CONSEQUENCES. If, for any reason, the
fair market value of the portion of the Merger Consideration to be paid in
Buyer Common Stock is less than 50% (the "TARGET PERCENTAGE") (valuing
Buyer's Common Stock as of the trading day immediately prior to the
proposed Closing Date), then either Buyer or the Rugged Liner Companies
shall have the right to adjust the amount of consideration to be paid in
Buyer Common Stock so that the Target Percentage is met. Any such
adjustment shall be made pro rata among the Shareholders.
2.6 SHAREHOLDERS' MEETINGS. Each of the Rugged Liner Companies,
acting through its board of directors shall, in accordance with the
Pennsylvania Code, duly call, give notice of, convene, and hold a special
meeting of its Shareholders (or obtain written consents in lieu thereof) as
soon as practicable following the execution of this Agreement for the
primary purpose of considering and adopting this Agreement and approving
the transactions contemplated by it.
2.7 PLACE AND DATE OF CLOSING. The closing of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the
offices of the Rugged Liner Companies on the later of (a) April 2, 1998;
(b) satisfaction or written waiver of the conditions set forth in Article 6
and Article 7; or (c) such other time and place as the parties may agree.
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The date on which the Closing concludes shall be referred to as the
"CLOSING DATE."
2.8 CONSUMMATION OF THE MERGER. As soon as practicable after the
satisfaction or waiver of the conditions set forth in Articles 6 and 7, the
parties shall execute and file the Articles of Merger with the Secretary of
State and take such other actions as may be required by law to make the
Mergers effective as promptly as is practicable.
2.9 CLOSING OBLIGATIONS.
2.9.1 BUYER'S OBLIGATIONS. At the Closing, Buyer shall
deliver:
(a) CASH. In the aggregate, cash of $4,250,000 (subject to
adjustment in accordance with Sections 2.2 and 2.3), (pro rata to
each Shareholder in accordance with Section 2.1 above), by
certified check or wire transfer to accounts specified by the
respective Shareholders.
(b) STOCK. In the aggregate, a number of shares of Buyer's
Common Stock determined by dividing $4,250,000 (subject to
adjustment in accordance with Sections 2.2 and 2.3) by the
Average Trading Price. Such shares shall be issued in the names
of each Shareholder, pro rata in accordance with Section 2.1
above.
(c) ARTICLES OF MERGER. Articles of Merger, as required by
the Pennsylvania Code and reasonably acceptable to counsel for
the Rugged Liner Companies, executed by MergerSub.
(d) EMPLOYMENT AGREEMENT OF MR. GERMAN. An employment
agreement (the "EMPLOYMENT AGREEMENT") in the form attached as
Exhibit 2.9, executed by Buyer.
2.9.2 RUGGED LINER COMPANIES' AND SHAREHOLDERS' OBLIGATIONS.
At or prior to the Closing, the Rugged Liner Companies and/or the
Shareholders shall deliver to Buyer:
(a) OLD CERTIFICATES. Certificates representing the
Shares, duly endorsed (or accompanied by duly executed stock
powers) for transfer to Buyer.
(b) ARTICLES OF MERGER. Articles of Merger, as required by
the Pennsylvania Code and reasonably acceptable to counsel for
Buyer, executed by each of the Rugged Liner Companies.
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(c) LEASE. The consent to the deemed assignment of the
lease of the real property located in Ontario, California (the
"LEASE"), executed by the landlord thereof.
(d) EMPLOYMENT AGREEMENT. The Employment Agreement, as
executed by Mr. German.
2.10 CLOSING BALANCE SHEET. Within 90 days after the Closing, Buyer
may prepare a balance sheet, dated as of the Closing, reflecting the assets
and liabilities of the Rugged Liner Companies (the "CLOSING BALANCE
SHEET"). If prepared, the Closing Balance Sheet shall be prepared in a
manner that is consistent with past practice and the books and records of
the Rugged Liner Companies and that fairly presents the Rugged Liner
Companies' financial condition and results of operations as of the Closing.
2.11 STUB PERIOD. The Rugged Liner Companies shall be required to
file income tax returns for the period between the end of their 1997 fiscal
years and the Effective Time.
ARTICLE 3 REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF THE SHAREHOLDERS
Mr. German and the Rugged Liner Companies, jointly and severally,
and the other Shareholders, to the extent required by Sections 3.3(b), 3.5,
3.25 and 3.26, represent and warrant to, and agree with, Buyer as follows:
3.1 DISCLOSURE SCHEDULE. Schedules (collectively, the "DISCLOSURE
SCHEDULE") corresponding to the sections of this Article 3 will be prepared
by the Rugged Liner Companies and delivered to Buyer within 15 days
following the date of this Agreement. The Disclosure Schedule will include
the numbered schedules specifically referred to in this Article 3 and each
individual schedule in the Disclosure Schedule will contain all exceptions
to the applicable section contained in this Article 3 and set forth each
exception in reasonable detail, regardless of whether the applicable
section in this Article 3 references the Disclosure Schedule. The
information contained in the Disclosure Schedule will be complete and
accurate in all respects, and all documents that are attached to or form a
part of the Disclosure Schedule are true and complete copies of the genuine
original documents they purport to represent.
3.2 ORGANIZATION AND GOOD STANDING. Each of the Rugged Liner
Companies is a corporation duly organized, validly existing, and in good
standing under Pennsylvania law. Each of the Rugged Liner Companies has
all requisite corporate power and authority to carry on it business as
presently conducted.
3.3 CAPITALIZATION OF THE RUGGED LINER COMPANIES.
(a) SCHEDULE 3.3. Schedule 3.3 sets forth, with respect to each
of the Rugged Liner Companies: (i) the numbers of shares of each class
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and series of the capital stock of such company, (ii) the names of all
record holders of such shares, (iii) the certificate numbers of the
share certificates held by such Shareholders, and (iv) the total
number of shares of each class and series of stock owned by each
Shareholder.
(b) GENERAL. The Shareholders are, and will be immediately
prior to the Effective Time, the record and beneficial owners and
holders of all of the Shares, free and clear of all encumbrances and
adverse claims; there are no other issued or outstanding equity
securities or other securities of any of the Rugged Liner Companies;
and there are no agreements relating to the issuance, sale, or
transfer of any equity securities or other securities of any of the
Rugged Liner Companies.
3.4 ENFORCEABILITY. Each of the Rugged Liner Companies and Mr.
German has full capacity, power, and authority to execute and perform this
Agreement. This Agreement is binding upon each of the Rugged Liner
Companies and Mr. German and is enforceable against each of the Rugged
Liner Companies and Mr. German in accordance with its terms.
3.5 NO CONFLICT WITH OTHER INSTRUMENTS OR PROCEEDINGS. The execution
and performance of this Agreement will not (a) result in a breach of or
constitute a default under any agreement or obligation to which any of the
Rugged Liner Companies or the Shareholders is now a party or by which they
or any of their assets may be bound or affected; (b) result in the
imposition of any tax or encumbrance on any of the Rugged Liner Companies
or any of their assets; or (c) affect in any way the terms of any of the
Rugged Liner Companies' indebtedness.
3.6 COMPLIANCE WITH LAWS AND OTHER REGULATIONS. To the knowledge of
Mr. German and each of the Rugged Liner Companies, each Rugged Liner
Company is in full compliance with all laws, rules, regulations and other
requirements applicable to the conduct of its business or its assets or
properties, or any premises occupied by it, except where such non-compliance
could not reasonably be expected to have or result in a material
adverse effect on the Rugged Liner Companies, or any of them.
3.7 FINANCIAL STATEMENTS. To the knowledge of Mr. German and each of
the Rugged Liner Companies, the audited financial statements (the
"FINANCIAL STATEMENTS") of the Rugged Liner Companies as of and for the
fiscal years ended December 31, 1997 and December 31, 1996, as reported on
by their independent accountants, Deloitte & Touche, LLP, including all
schedules and notes relating to such statements, are correct and complete
in all material respects and fairly present the Rugged Liner Companies'
financial condition and results of operations on the dates and for the
periods indicated, and have been prepared in conformity with GAAP applied
consistently throughout the periods indicated.
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3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on
Schedule 3.8 of the Disclosure Schedule, and except for liabilities
incurred since the date of this Agreement in the ordinary course of
business that would not, individually or in the aggregate, reasonably be
expected to adversely affect any of the Rugged Liner Companies or the
Business, none of the Rugged Liner Companies have any debts, liabilities,
or obligations of any nature, and there is no basis for the assertion
against any of them of any debt, liability, or obligation.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997,
each of the Rugged Liner Companies has conducted its Business in the
ordinary course of business and has maintained its records and books of
account relating to its Business in a manner that fairly and accurately
reflects its transactions, assets, and liabilities in accordance with
standard accounting practices consistently applied, and, since December 31,
1997, there has been no adverse change in the condition of the Business,
financial or otherwise, or in any of the Rugged Liner Companies' business
or properties. In particular, since December 31, 1997, none of the Rugged
Liner Companies have: (a) subjected any assets to any type of encumbrance
or other restriction, other than encumbrances of record as of December 31,
1997; (b) sold or otherwise disposed of any assets except in the ordinary
course of business; (c) disposed of or permitted a lapse of any license,
permit, patent, trademark, trade name, or copyright; (d) disposed of or
disclosed to any person any trade secret, formula, process, or know-how; or
(e) to the knowledge of Mr. German or any of the Rugged Liner Companies,
violated any federal, state, local, or foreign law, statute, ordinance,
regulation, or order, except where such violation could not reasonably be
expected to have or result in a material adverse effect on the Rugged Liner
Companies, or any of them.
3.10 CUSTOMERS AND SUPPLIERS. Since December 31, 1997, there has not
been any adverse change in any of the Rugged Liner Companies' relationship
with any of their respective ten (10) largest customers, dealers, or
suppliers, nor has any of the Rugged Liner Companies or Mr. German received
information from such customers, dealers, or suppliers that an adverse
change should be reasonably anticipated as a result of this Agreement,
except where such change could not reasonably be expected to have or result
in a material adverse effect on the Rugged Liner Companies, or any of them.
There are no known claims against any of the Rugged Liner Companies to
return merchandise in excess of an aggregate of Ten Thousand Dollars
($10,000) by any one purchaser, or Twenty-five Thousand Dollars ($25,000)
for all purchasers considered collectively.
3.11 TAXES. To the knowledge of the Rugged Liner Companies and Mr.
German, except as disclosed on Section 3.11 of the Disclosure Schedule:
3.11.1 FILINGS. Each of the Rugged Liner Companies has filed
on a timely basis since 1992 all federal, state, local and other tax
returns that are or were required to be filed. Each of the Rugged
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Liner Companies has paid, or made provision for the payment of, all
taxes that have or may have become due pursuant to those tax returns
or otherwise, or pursuant to any assessment received by it.
3.11.2 AUDITS. No Rugged Liner Company has ever had an audit
with respect to any of its tax returns in the past six years. All tax
returns are closed by the applicable statute of limitations for all
taxable years through 1992. No Rugged Liner Company has given or been
requested to give waivers or extensions of any limitation period
relating to the payment of taxes.
3.11.3 RESERVES. The charges, accruals, and reserves with
respect to taxes on the books of each of the Rugged Liner Companies
are adequate (determined in accordance with GAAP) and are at least
equal to such Rugged Liner Company's liability for taxes during fiscal
year 1997. There exists no proposed tax assessment against any of the
Rugged Liner Companies. No consent to the application of Section
341(f)(2) of the Code has been filed with respect to any property or
assets held, acquired, or to be acquired by any of the Rugged Liner
Companies. All taxes that the Rugged Liner Companies are or were
required to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper person or
entity.
3.11.4 TRUE, CORRECT, AND COMPLETE. All tax returns filed by
(or that include on a consolidated basis) each of the Rugged Liner
Companies are true, correct, and complete. There is no tax sharing
agreement that will require any payment by any of the Rugged Liner
Companies after the date of this Agreement.
3.12 ACCOUNTS RECEIVABLE. The Rugged Liner Companies have provided or
will prior to the Closing Date provide Buyer and its representatives the
opportunity to review their records regarding accounts receivable;
PROVIDED, HOWEVER, that until the Closing Date, such information shall not
include the name or other identifying information of any customer of any
Rugged Liner Company. To the knowledge of the Rugged Liner Companies and
Mr. German, such information regarding such accounts receivable is and will
be accurate and complete.
3.13 INVENTORY. Substantially all of the inventory of each of the
Rugged Liner Companies consists of a quality and quantity usable and
salable in the ordinary course of business, except as set forth on Schedule
3.13. The quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable
in the present circumstances.
3.14 REAL PROPERTY. To the knowledge of Mr. German and each of the
Rugged Liner Companies, no building or improvement that any of the Rugged
Liner Companies owns or uses encroaches on any easement or property owned
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by another and no building or improvement owned by another encroaches on
any property that any of the Rugged Liner Companies owns or uses or on any
easement the benefit of which runs to any of the Rugged Liner Companies.
To the knowledge of Mr. German and each of the Rugged Liner Companies, none
of the Rugged Liner Companies is in violation of any law, order,
regulation, or other requirement relating to any real property that it owns
or uses. To the knowledge of Mr. German and each of the Rugged Liner
Companies, there are no ground subsidences or slides on any real property
that any of the Rugged Liner Companies owns or uses. All buildings and
improvements that the Rugged Liner Companies own or use are in good
condition (normal wear and tear excepted), are structurally sound and not
in need of repairs and are adequately serviced by all necessary utilities.
3.15 CONDITION OF PERSONAL PROPERTY. The personal property (whether
owned or leased) of the Rugged Liner Companies is in good condition and
repair, normal wear and tear excepted, except for items that could not
reasonably be considered, alone or in the aggregate, material to the
Business.
3.16 INTELLECTUAL PROPERTY. To the knowledge of the Rugged Liner
Companies and Mr. German, Section 3.16 of the Disclosure Schedule correctly
and completely lists all "Intellectual Property" (as defined below) of the
Rugged Liner Companies. The term "INTELLECTUAL PROPERTY" includes all
corporate names, fictional business names, trading names, registered
trademarks, registered service marks, and applications, patents and patent
applications and registered copyrights. None of the Rugged Liner Companies
has infringed or unlawfully used any Intellectual Property of any other
person or entity.
3.17 CONTRACTS. All agreements and other arrangements of each of the
Rugged Liner Companies with a third party are valid and enforceable in
accordance with their terms. Neither the Rugged Liner Companies nor, to
the knowledge of the Rugged Liner Companies and Mr. German, any other party
are in default or in arrears under the terms of any of those agreements.
Except as set forth on Schedule 3.17 of the Disclosure Schedule and except
for such items that could not reasonably be expected to have or result in a
material adverse effect on the Rugged Liner Companies, or any of them, none
of the Rugged Liner Companies is a party to: (a) any agreement with respect
to any real property; (b) any joint venture, distributor, dealer, agency,
manufacturer's representative, sales representative, sales agent,
franchise, license, or similar agreement; (c) any loan agreement, security
agreement, mortgage, indenture, or promissory note; (d) any consulting or
employment agreement; (e) any contract of guaranty or indemnification;
(f) any contract purporting to limit the freedom of a Rugged Liner Company
to compete in any line of business; or (g) any other contract that might
involve payment by or to a Rugged Liner Company in an amount in excess of
$10,000 AND that was entered into other than in the ordinary course of
business. Except for customers in the ordinary course of business, no
person or entity has any agreement or understanding for the purchase of any
assets from any Rugged Liner Company.
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3.18 EMPLOYEE RELATIONS. None of the Rugged Liner Companies has had,
within the last three years, any union organizational effort; asserted
claim of unfair labor practice, wrongful discharge or employment
discrimination; or sexual harassment dispute. To the knowledge of Mr.
German and each of the Rugged Liner Companies, each of the Rugged Liner
Companies has complied with all applicable laws, rules, and regulations
respecting employment practices, occupational safety, wages, and hours. A
copy of each employee handbook governing the Rugged Liner Companies'
employees, and a copy of the employment application forms currently used by
the Rugged Liner Companies are attached to Schedule 3.18. No key employee
of any of the Rugged Liner Companies has notified it of an intention to
terminate employment.
3.19 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 3.19 of
the Disclosure Schedule, no Rugged Liner Company has ever maintained any
employee pension benefit plans, employee welfare benefit plans, incentive
compensation plans, benefit plans for retired employees, or any other
employee benefit plans ("PLANS"). True, correct, and complete copies of
all Plan texts and all agreements in any way relating to the Plans have
been delivered to Buyer. To the knowledge of Mr. German and each of the
Rugged Liner Companies, all Plans are and always have been, in compliance
with all applicable laws and no Plan has been involved in a prohibited
transaction. Each of the Rugged Liner Companies has made full and timely
payment of all required contributions to the Plans and no unfunded
liability or accumulated funding deficiency exists with respect to any
Plan. In the past three years, each of the Rugged Liner Companies has
provided, and until the Closing Date, shall provide, all notices required
under COBRA.
3.20 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.20 of
the Disclosure Schedule:
3.20.1 ORDERS. There is no consent decree, consent order, or
other written agreement to which any Rugged Liner Company is a named
party in relation to any environmental matter and no such agreement is
necessary for any Rugged Liner Company's continued compliance with
applicable environmental laws and regulations. There have been no
orders or written notices issued to any Rugged Liner Company that have
not been complied with in all material respects and no investigations
conducted, or other proceedings taken by any person or entity or, to
the knowledge of Mr. German or any of the Rugged Liner Companies,
threatened by any governmental entity under or pursuant to any
Environmental Law (as defined below) with respect to the Business or
its assets and no Rugged Liner Company has received any written
communications from a governmental entity that have not been fully
complied with and cleared concerning alleged violations of any
Environmental Law or alleged Environmental Contamination (as defined
below).
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3.20.2 PERMITS. Except as set forth in the environmental
reports listed on Section 3.20 of the Disclosure Schedule
(collectively, the "ENVIRONMENTAL REPORTS"), each Rugged Liner Company
has received all permits, licenses, and approvals, has kept all
records, and has made all filings and disclosures required by
Environmental Laws. A true and complete copy of each Environmental
Report will be included in the Disclosure Schedule.
3.20.3 PROPERTIES. The only real properties that are
currently, or were previously, owned, operated, leased, or used by the
Rugged Liner Companies are located at the locations set forth in
Section 3.20 of the Disclosure Schedule (collectively, the
"PROPERTIES"). No underground storage tanks or other similar
underground containers or depositories are, or to the knowledge of Mr.
German or any of the Rugged Liner Companies, ever have been, present
on any of the Properties. To the knowledge of Mr. German or any of
the Rugged Liner Companies, none of the Properties is listed on or
being considered for listing on any list of contaminated sites
maintained under any Environmental Law or is subject to or being
considered for enforcement action under any Environmental Law, and
none of the Properties have been designated as an area under the
control of any conservation authority.
3.20.4 WASTE DISPOSAL. To the knowledge of Mr. German and
each of the Rugged Liner Companies, no Rugged Liner Company has been
identified as a potentially responsible party with respect to any site
at which its wastes have been treated, stored, or disposed. To the
knowledge of Mr. German and each of the Rugged Liner Companies, no
Hazardous Materials (as defined below), and no other materials
intended for use or generated by any of the Rugged Liner Companies,
have been or are used, stored, treated, or otherwise disposed of, in
violation of Environmental Laws. All Hazardous Materials removed or
emitted from any of the Properties as a result of operations on the
Properties were and are documented, transported, and disposed of, in
compliance with Environmental Laws. To the knowledge of Mr. German
and each of the Rugged Liner Companies, no materials including,
without limitation, effluents, leachate, emissions, or Hazardous
Materials, generated on or emitted from any of the Properties have
caused or will cause, in whole or in part, any Environmental
Contamination. No Rugged Liner Company has disposed of, permitted the
disposal of, or knows of the disposal of any waste or Hazardous
Material on any of the Properties.
3.20.5 OTHER. To the knowledge of Mr. German and each of the
Rugged Liner Companies, the Business as currently conducted does not
constitute a nuisance and no claim or allegation of nuisance has been
made with respect to the Business by any adjoining land owner or other
person or entity.
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3.20.6 DEFINITIONS. For purposes of this Section:
(a) "ENVIRONMENTAL LAW" means any federal, state, or local, statute,
ordinance, rule, or regulation relating to air quality, water quality,
solid waste management, Hazardous Materials, toxic substances, or the
protection of public health or protection or remediation of the
environment; (b) "HAZARDOUS MATERIAL" means any substance defined,
designated, or classified as hazardous, toxic, or radioactive, or that
is otherwise regulated by any Environmental Law; and
(c) "ENVIRONMENTAL CONTAMINATION" means the presence of any Hazardous
Material in, on, or under the air, soil, groundwater, or surface
water, so as to result in any liabilities, fines, penalties, or
remedial obligations under any Environmental Law or judicial
interpretations thereof.
3.21 LITIGATION. Except as disclosed in Section 3.21 of the
Disclosure Schedule and except for the Gas Can Litigation: there is no
pending or, to the knowledge of Mr. German or any of the Rugged Liner
Companies, threatened, suit, proceeding or inquiry affecting any Rugged
Liner Company or the Shareholders (in their capacity as such). To the
knowledge of Mr. German and each of the Rugged Liner Companies, there is no
factual basis upon which any suit, proceeding, or inquiry could be asserted
or based.
3.22 PRODUCT LIABILITIES AND WARRANTIES. Section 3.22 of the
Disclosure Schedule sets forth (a) a copy of the form of written warranties
covering each product sold in the Business; and (b) a summary of any
modification of such warranty given to any customer that is still in
effect. During the past five years, the aggregate amount of expenses
incurred by the Rugged Liner Companies relating to warranty claims has not
exceeded $____________. There have been no personal injury product
liability claims asserted against any Rugged Liner Company during the last
five years.
3.23 INSURANCE. All of the Rugged Liner Companies' insurance policies
are outstanding and in full force and, to the extent that they are due, all
premiums are currently paid, and all duties of the insured have been fully
discharged. The Schedule 3.23 contains a list and complete description of
all insurance policies and all other forms of insurance that each Rugged
Liner Company owns or holds.
3.24 PERMITS AND LICENSES. All permits, licenses, orders, and
approvals necessary to carry on the Business as presently conducted are
identified in the Disclosure Schedule and are in full force and effect and
have been complied with. All fees and charges incident to those permits,
licenses, orders, and approvals have been fully paid and are current, and
no suspension or cancellation of any such permit, license, order, or
approval has been, to the best of the Shareholders' knowledge, threatened
or could result by reason of this Agreement.
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3.25 SHAREHOLDER QUESTIONNAIRE. Each Shareholder will, upon his or
her execution of this Agreement, deliver to Buyer a duly executed
Shareholder Questionnaire in the form attached as EXHIBIT 3.25 that is
correct, complete, and not misleading. Each Shareholder is acquiring
Buyer's Common Stock for his or her own account for the purpose of
investment and not with a view to distribution or resale.
3.26 ACKNOWLEDGMENTS REGARDING BUYER'S RESTRICTED COMMON STOCK.
3.26.1 RESTRICTED. Each Shareholder has been advised that
Buyer's Common Stock to be received in connection with this Agreement
has not been registered under the Securities Act, or registered or
qualified under any state securities law (a "BLUE SKY LAW"). Each
Shareholder understands that Buyer is relying on the representations
of the Shareholders for purposes of claiming exemptions from
registration under the Securities Act and applicable Blue Sky Laws and
that the basis for such exemptions may not be present if a Shareholder
intends to acquire Buyer's Common Stock for resale on the occurrence
or non-occurrence of some predetermined event. No Shareholder has any
such intention.
3.26.2 RULE 144. Each Shareholder understands that Buyer's
Common Stock received in connection with this Agreement will be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. Each Shareholder understands that Buyer is under no
obligation to register or qualify the restricted shares under the
Securities Act or any Blue Sky Law.
3.26.3 LEGEND. Each Shareholder understands and agrees that
any certificates representing or relating to the restricted Buyer's
Common Stock may bear such legends as Buyer may consider necessary or
advisable to facilitate compliance with the Securities Act, Blue Sky
Laws, and any other securities law.
3.27 BOOKS AND RECORDS. All of the corporate record books and
shareholder records of each of the Rugged Liner Companies (a) have been
made available to Buyer and (b) are complete and correct and have been
maintained in accordance with sound business practices.
3.28 BROKERS. Neither any Rugged Liner Company nor Mr. German has
retained or employed any broker, finder, investment banker, or other
person, or taken any action that would give any person any claim against
Buyer, the Shareholders, or any Rugged Liner Company for a commission,
brokerage fee, or other compensation relating to this Agreement.
ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Rugged Liner and the
Shareholders as follows:
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4.1 BUYER'S ORGANIZATION AND GOOD STANDING. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Michigan.
4.2 ENFORCEABILITY. Buyer has full capacity, power, and authority to
enter into this Agreement and to carry out the transactions contemplated by
this Agreement. This Agreement is binding upon Buyer and is enforceable
against Buyer in accordance with its terms.
4.3 CAPITALIZATION OF MERGERSUB. Buyer will, immediately prior to
the Effective Time, be the record and beneficial owner and holder of the
issues and outstanding shares of MergerSub Common Stock, free and clear of
all encumbrances and adverse claims. There are no other issued or
outstanding equity securities or other securities of MergerSub. MergerSub
has engaged in no business operations.
4.4 SEC FILINGS. In the last two years, Buyer has filed in a timely
manner all required filings with the SEC. All such filings, as amended,
were complete and accurate in all material respects as of the dates of such
filings.
4.5 ISSUANCE OF BUYER'S COMMON STOCK. The shares of Buyer's Common
Stock to be issued in connection with this Agreement have been duly
authorized and, when issued as contemplated by this Agreement, will be
legally issued, fully paid, and nonassessable shares.
ARTICLE 5 COVENANTS
5.1 ACCESS AND INVESTIGATION. Subject to the following sentence,
between the date of this Agreement and the Effective Time or such time as
this Agreement is terminated pursuant to Article 8 (the "TERM"), each
Rugged Liner Company shall (a) allow Buyer and its representatives
reasonable access to its personnel, properties, contracts, books and
records, and other documents and data, and (b) furnish Buyer with copies of
all such documents, data and additional information as Buyer may reasonably
request. Buyer's investigation shall not (i) interfere with the normal
day-to-day operations of any of the Rugged Liner Companies or (ii) pose an
unreasonable risk of the unauthorized disclosure or use of any
"Confidential Information" (as that term is defined in the Confidentiality
Agreement entered into by and between the Rugged Liner Companies and Buyer
dated February 25, 1998 (the "CONFIDENTIALITY AGREEMENT")). All
information provided to Buyer relating to the Rugged Liner Companies shall
be governed by the Confidentiality Agreement.
5.2 ENVIRONMENTAL INVESTIGATION. Prior to the Closing Date, Buyer
may cause to be conducted a Phase I Environmental Assessment on the
Properties, the costs of which shall be solely borne by Buyer. If the
results of the Phase I Environmental Assessment indicate the need for a
Phase II Environmental Assessment or a Baseline Environmental Assessment,
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Buyer shall also be solely responsible for the costs of such Phase II
Environmental Assessment or Baseline Environmental Assessment.
5.3 OPERATION OF THE BUSINESS. During the Term, each Rugged Liner
Company shall: (a) conduct its business (including the Business) only in
the ordinary course of business; (b) use commercially reasonable efforts to
preserve intact its current business organization, keep available the
services of the current officers, employees, and agents, and maintain the
relations and goodwill with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with it; and
(c) confer with Buyer concerning operational matters of a material nature.
5.4 NEGATIVE COVENANT. Except as otherwise expressly permitted by
this Agreement, during the Term, neither any Rugged Liner Company nor Mr.
German will take any affirmative action, or fail to take any reasonable
action within their or his control, as a result of which any of the changes
or events listed in Section 3.9 would be likely to occur.
5.5 REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, Buyer and the Rugged Liner Companies shall make all legal
filings and obtain all consents required to be made or obtained by them in
order to consummate the transactions contemplated by this Agreement.
5.6 NOTIFICATION. During the Term, each party promptly will notify
the other in writing of any fact or condition of which that party has
knowledge that causes or constitutes a breach of any of their respective
representations and warranties as of the date of this Agreement, or if they
become aware of the occurrence of any fact or condition that would cause or
constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. If any such fact or condition
requires any change in the Disclosure Schedule if the Disclosure Schedule
were dated the date of the occurrence or discovery of any such fact or
condition, the Rugged Liner Companies will promptly supplement the
Disclosure Schedule. During the same period, each party will promptly
notify the other of the occurrence of any breach of any covenant in this
Article 5 by them or of the occurrence of any event of which that party has
knowledge that may make their satisfaction of the respective conditions in
Articles 6 or 7 impossible or unlikely.
5.7 NO NEGOTIATION. During the Term, neither the Rugged Liner
Companies nor Mr. German shall solicit, initiate, or encourage any
inquiries or proposals from, discuss or negotiate with, provide any
information to, or consider the merits of any unsolicited inquiries or
proposals from, any person or entity (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
ordinary course of business) or capital stock of any Rugged Liner Company
or any merger or business combination involving any Rugged Liner Company.
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5.8 RESALE RESTRICTIONS. For a period of one year following the
Closing, no Shareholder shall pledge, hypothecate, sell, transfer, assign,
or otherwise dispose of any restricted Buyer's Common Stock, nor receive
any consideration for such shares from any person, unless and until: (a)
such shares shall be effectively registered or qualified under the
Securities Act and applicable Blue Sky Laws or (b) the Shareholder shall
have furnished Buyer with an opinion of counsel in form and substance
satisfactory to Buyer to the effect that such disposition will not require
such registration or qualification and counsel for Buyer shall have
concurred in such opinion and advised the Shareholder of such concurrence;
PROVIDED, HOWEVER, that nothing contained in this Section 5.8 shall prevent
a Shareholder from exercising his or her Put Options in accordance with
their terms.
5.9 RELEASE OF CLAIMS. Effective as of the Effective Time and upon
receiving the Merger Consideration in full, each Shareholder shall be
deemed to have released and forever discharged each Rugged Liner Company
and its affiliates (including each Shareholder) (collectively, the
"RELEASED PERSONS") from any and all claims, demands, proceedings, causes
of action, orders, obligations, contracts, agreements, debts, and
liabilities whatsoever, that each of the Shareholders now has, has ever
had, or may hereafter have against the Released Persons arising at or prior
to the Effective Time or on account of or arising out of any matter, cause,
or event occurring at or prior to the Effective Time.
ARTICLE 6 CONDITIONS PRECEDENT TO BUYER'S
OBLIGATION TO CLOSE
Buyer's obligation to consummate the Merger and to take the other
actions required of it at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS. All of the Rugged Liner Companies'
and Mr. German's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects
as of the date of this Agreement, and must be accurate in all material
respects as of the Closing as if then made.
6.2 RUGGED LINER COMPANIES' PERFORMANCE. All of the covenants and
obligations that the Rugged Liner Companies are required to perform or to
comply with at or prior to the Closing (considered collectively), and each
of these covenants and obligations (considered individually), must have
been duly performed and complied with in all material respects.
6.3 CONSENTS. All consents, approvals or authorizations of, or
declarations, filings or registrations with, any third parties or
governmental bodies required of the Rugged Liner Companies in connection
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with the execution, delivery and performance of this Agreement must have
been obtained and must be in full force and effect. In addition, the
landlord under the Lease shall have signed a reasonably acceptable consent
to the transactions contemplated by this Agreement.
6.4 ADDITIONAL DOCUMENTS. Each of the following documents must have
been delivered to Buyer: such documents as Buyer may reasonably request for
the purpose of (a) evidencing the accuracy of any of Rugged Liner's or Mr.
German's representations and warranties, or the performance by Rugged Liner
or Mr. German of, or the compliance by Rugged Liner or Mr. German with, any
covenant or obligation required hereunder, (b) evidencing the satisfaction
of any condition in this Article 6, or (c) otherwise facilitating the
consummation or performance of any of the transactions contemplated by this
Agreement.
6.5 NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced or threatened against Buyer or any of its affiliates,
any proceeding (a) involving any challenge to or relating in any way to
this Agreement, or (b) that may prevent, delay, make illegal, or otherwise
interfere with any of the transactions contemplated by this Agreement.
6.6 NO CLAIM REGARDING SALE PROCEEDS. No person or entity (other than
the Shareholders) shall have made or threatened any claim asserting that
such person or entity is entitled to all or any portion of the Merger
Consideration paid to the Shareholders in connection with the Merger.
6.7 NO PROHIBITION. The consummation of any of the transactions
contemplated by this Agreement will not materially contravene, conflict
with, or result in a material violation of, or cause Buyer or any of its
affiliates to suffer any material adverse consequence.
6.8 REAL ESTATE DOCUMENTS. Buyer and the German Brothers
Partnership shall have entered into a real estate sales agreement, pursuant
to which German Brothers Partnership would sell, and Buyer would buy, the
warehouse property leased by Rugged Liner and located in Mt. Braddock,
Pennsylvania (the "WAREHOUSE PROPERTY") and the German Brothers Partnership
shall have delivered such deeds, instruments of title and other documents
as are necessary to transfer the Warehouse Property to Buyer, free and
clear of all liens and encumbrances.
6.9 ASSUMPTION OF LIABILITIES. Mr. German shall have executed such
documents and instruments necessary for his full and complete assumption,
without any recourse against Buyer of any of the Rugged Liner Companies, of
(a) the liabilities set forth on Exhibit 6.9 and (b) all liabilities and
expenses relating to taxes for periods prior to the Effective Time.
6.10 DUE DILIGENCE REVIEW. Buyer must be reasonably satisfied with
the results of its investigation of each Rugged Liner Company's business,
properties and assets, including its review of the Disclosure Schedule
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delivered pursuant to Section 3.1 and the Phase I Environmental Assessment,
and with its due diligence review of the Warehouse Property.
6.11 AGREEMENT OF AGGREGATE INVENTORY VALUE AND AGGREGATE ACCOUNTS
RECEIVABLE VALUE. Buyer and the Rugged Liner Companies shall have agreed
upon the amounts of each of the Aggregate Inventory Value and the Aggregate
Accounts Receivable Value.
6.12. NO DISSENTERS' RIGHTS. None of the Shareholders shall have
exercised any dissenters' rights with respect to any of the Mergers.
ARTICLE 7 CONDITIONS PRECEDENT TO SELLERS'
OBLIGATION TO CLOSE
The Rugged Liner Companies' and the Shareholders' obligation to
consummate the Merger and to take the other actions required to be taken by
the Rugged Liner Companies and the Shareholders at the Closing is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Shareholders, in whole or in
part):
7.1 ACCURACY OF REPRESENTATIONS. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must
be accurate in all material respects as of the Closing as if then made.
7.2 BUYER'S PERFORMANCE. All of the covenants and obligations that
Buyer is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been
performed and complied with in all material respects.
7.3 ADDITIONAL DOCUMENTS. Buyer must have caused to be delivered to
Rugged Liner such documents as Rugged Liner may reasonably request for the
purpose of (a) evidencing the accuracy of any representation or warranty of
Buyer, (b) evidencing the performance by Buyer of, or the compliance by
Buyer with, any covenant or obligation required to be performed or complied
with by Buyer, (c) evidencing the satisfaction of any condition in this
Article 7, or (d) otherwise facilitating the consummation of any of the
transactions contemplated hereby.
7.4 NO INJUNCTION. There must not be in effect any legal requirement
or any injunction or other order that prohibits the Merger.
ARTICLE 8 TERMINATION
8.1 TERMINATION EVENTS. This Agreement may, by notice given prior to
or at the Closing, be terminated:
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8.1.1 BREACH. By either Buyer or the Rugged Liner Companies
if a material breach of this Agreement has been committed by the other
and such breach has not been waived;
8.1.2 CONDITIONS. (a) By Buyer if any of the conditions in
Article 6 has not been satisfied as of the Closing or if satisfaction
of such a condition is or becomes impossible (other than through
Buyer's fault) and Buyer has not waived such condition on or before
the Closing; or (b) by the Rugged Liner Companies, if any of the
conditions in Article 7 has not been satisfied as of the Closing or if
satisfaction of such a condition is or becomes impossible (other than
through a Rugged Liner Company's or Mr. German's fault) and the Rugged
Liner Companies have not waived such condition on or before the
Closing;
8.1.3 CONSENT. By mutual consent of Buyer and the Rugged
Liner Companies; or
8.1.4 UPSET DATE. By either Buyer or the Rugged Liner
Companies if the Closing has not occurred (other than through the
fault of the party seeking to terminate this Agreement) on or before
April 15, 1998, or such later date as the parties may agree upon.
8.2 EFFECT OF TERMINATION. The exercise of a party's right of
termination under Section 8.1 will not be an election of remedies. If this
Agreement is terminated pursuant to Section 8.1, all further obligations of
the parties under this Agreement will terminate, except that the
obligations in Sections 10.3 and 10.5 will survive; PROVIDED, HOWEVER, that
if this Agreement is terminated by a party because of the breach of the
Agreement by the other party or because one or more of the conditions to
the terminating party's obligations under this Agreement is not satisfied
as a result of the other party's failure to comply with its obligations
under this Agreement, the terminating party's right to pursue all legal
remedies will survive unimpaired.
ARTICLE 9 INDEMNIFICATION
9.1 INDEMNIFICATION AND REIMBURSEMENT BY MR. GERMAN. Subject to the
limitations set forth in Section 9.6, Mr., German will indemnify and hold
harmless Buyer, MergerSub, the Rugged Liner Companies, and their respective
representatives, shareholders, controlling persons, and affiliates
(collectively, the "INDEMNIFIED PERSONS"), and will reimburse the
Indemnified Persons, for any loss, liability, claim, damage, expense
(including costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third-party claim
(collectively, "DAMAGES"), arising from or in connection with: (a) any
breach of any representation or warranty made by any Rugged Liner Company,
Mr. German or any Shareholder in this Agreement or any other certificate or
document delivered by any Rugged Liner Company, Mr. German or any
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Shareholder pursuant to this Agreement; or (b) any breach by any Rugged
Liner Company, Mr. German or any Shareholder of any covenant or obligation
in this Agreement.
9.2 INDEMNIFICATION AND REIMBURSEMENT BY BUYER. Buyer will indemnify
and hold harmless the Shareholders and will reimburse the Shareholders for
Damages arising from or in connection with: (a) any breach of any
representation or warranty made by Buyer or MergerSub in this Agreement or
any other certificate or document delivered by Buyer or MergerSub pursuant
to this Agreement; or (b) any breach by either Buyer or MergerSub of any
covenant or obligation of such entity in this Agreement.
9.3 INDEMNIFICATION PERIOD. An indemnified party's right to seek
indemnification under this Article shall survive for a period of 24 months
from the Closing, except that for claims with respect to representations,
warranties, covenants regarding taxes, the indemnity period shall not
expire, but shall survive for a period of six years from the date that such
taxes were due (as extended by any extension agreements). The making of a
claim for indemnification under this Agreement shall toll the running of
the limitation period with respect to that claim. For purposes of the
preceding sentence, a claim shall be deemed made upon the commencement of
an independent judicial proceeding or receipt by the indemnifying party of
a written notice of claim setting forth the amount of the claim (if known
by the indemnified party) and a general description of the facts underlying
the claim.
9.4 THIRD-PARTY CLAIMS.
9.4.1 NOTICE OF THIRD-PARTY CLAIMS. If any action, suit, or
proceeding shall be threatened or commenced against an indemnified
party in respect of which the indemnified party may demand
indemnification under this Agreement, the indemnified party shall
notify the indemnifying party to that effect with reasonable
promptness after receiving written notice of the action, suit, or
proceeding, and the indemnifying party shall have the opportunity to
defend against the action, suit, or proceeding, at the indemnifying
party's sole expense, subject to the limitations set forth below.
9.4.2 DEFENSE OF CLAIMS. If the indemnifying party elects to
defend against an action, suit, or proceeding and the indemnified
party does not decide to retain control of the matter as provided in
this Section, the indemnifying party shall promptly notify the
indemnified party to that effect. The indemnified party may employ
its own counsel and participate in the defense of the case, but the
fees and expenses of the indemnified party's counsel shall be at the
expense of indemnified party, unless (a) the employment of the
indemnified party's counsel at the expense of indemnifying party shall
have been authorized in writing by the indemnifying party in
connection with the defense of the action, suit, or proceeding;
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(b) the indemnifying party shall have decided not to defend against
the action, suit, or proceeding; or (c) the indemnified party shall
have reasonably concluded that the action, suit, or proceeding
involves to a significant extent matters beyond the scope of the
indemnity agreement contained in this Article. In any case described
in clause (c) of the preceding sentence, the indemnifying party shall
not have the right to direct the defense of the action, suit, or
proceeding on behalf of indemnified party, provided that only that
portion of the fees and expenses reasonably related to matters covered
by the indemnity agreement contained in this section shall be borne by
the indemnifying party.
9.4.3 CONDUCT OF DEFENSE. Any party granted the right to
direct the defense of a claim pursuant to this Article shall:
(a) keep the other parties to this Agreement fully informed of the
action, suit, or proceeding at all stages of the matter, whether or
not represented; (b) promptly submit to the other parties copies of
all pleadings, responsive pleadings, motions, and other similar legal
documents and papers received in connection with the action, suit, or
proceeding; (c) permit the other parties to this Agreement and their
counsel, to the extent practicable, to confer on the conduct of the
defense of the action, suit, or proceeding; and (d) to the extent
practicable, permit the other parties to this Agreement and their
counsel an opportunity to review all legal papers to be submitted
before the submission. Subject to an appropriate confidentiality
agreement, the parties shall make available to each other and each
other's counsel and accountants all of the books and records relating
to the action, suit, or proceeding, and each party shall render to the
other any assistance as may be reasonably required in order to insure
the proper and adequate defense of the action, suit, or proceeding.
9.5 ASSERTION OF CLAIMS. A party shall notify the others in writing
with reasonable promptness after the discovery of any claim upon which he,
it, or they will demand indemnification from the other under this
Agreement. To the extent possible, the notice shall describe in reasonable
detail the basis for the claim, include an itemized accounting of the
claim, and provide a good faith estimate of the amount of the Damages.
Within 21 days after receipt of the notice, the indemnifying party shall
either reimburse indemnified party for the amount of the claim (or
acknowledge a right of offset) or notify the indemnified party of the
indemnifying party's intent to dispute the claim.
9.6 LIMITS ON INDEMNIFICATION. Mr. German shall not be obligated to
indemnify Buyer unless and until, and only to the extent that, the
aggregate amount of Damages exceeds $300,000 (the "BASKET"), in which case
Mr. German shall be liable for all claims to the extent they exceed the
Basket amount; PROVIDED, HOWEVER, that the Basket shall not apply to, and
Mr. German shall fully indemnify Buyer for any fraudulent or intentional
breach of this Agreement by Mr. German or any Rugged Liner Company.
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Notwithstanding anything to the contrary in this Agreement, in no event
shall the aggregate amount of the indemnification obligations of Mr. German
under this Article 9 exceed the total amount of the Merger Consideration.
9.7 SOLE AND EXCLUSIVE REMEDY. After the Closing Date, the parties'
sole and exclusive source for the payment of Damages arising out of this
Agreement shall be the provisions of this Article 9.
ARTICLE 10 GENERAL
10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS, AND
INDEMNITIES. Subject to and except as limited by Section 9.3, all
representations, warranties, covenants, agreements and indemnities made by
any party to this Agreement and all other documents related hereto shall
survive the Closing for a period of 24 months and any investigation made by
or on behalf of any party, except that covenants and agreements that by
their terms contemplate performance more than 24 months after the date of
this Agreement shall survive until fully performed or otherwise discharged.
10.2 ASSIGNMENT AND BENEFITS. No party to this Agreement may assign
or transfer this Agreement, either directly or indirectly, without the
prior written consent of all parties to this Agreement. Any assignment of
this Agreement shall not release the assignor from the duty to perform the
assignor's obligations under this Agreement. This Agreement shall be
binding upon, inure to the benefit of, and may be enforced by and against
the respective successors and permitted assigns of each of the parties to
this Agreement.
10.3 CONFIDENTIALITY. Unless otherwise required by law, the parties
to this Agreement shall not make any disclosure of the existence or terms
of this Agreement without the prior written consent of the other party or
parties, except that each party may disclose the transactions contemplated
by this Agreement to persons that have a professional need to know thereof.
10.4 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered, sent by telecopy, or sent by express delivery service with
charges prepaid and receipt requested, or, if those services are not
reasonably available, mailed (postage prepaid) by certified mail with
return receipt requested:
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TO BUYER: WITH A COPY TO: AND:
The Colonel's International, Warner Norcross & Judd Ted M. Gans
Inc. LLP
620 South Platt Road 900 Old Kent Building Ted M. Gans, P.C.
Milan, Michigan 48160 111 Lyon Street, N.W. 100 West Long Lake Road
Attn: Richard S. Schoenfeldt Grand Rapids, Michigan Suite 200
Telephone: (313) 439-4200 49503-2489 Bloomfield Hills,
Fax: (313) 439-0835 Attn:Stephen C. Waterbury Michigan 48909-1122
Telephone:(616) 752-2137 Telephone:(248) 642-2220
Fax: (313) 752-2500 Fax: (248) 646-4648
TO RUGGED LINER OR SHAREHOLDERS: WITH A COPY TO:
c/o Mark German Edwin J. Hull
Rugged Liner, Inc. 977 Perry Highway
P.O. Box 230 Pittsburgh, Pennsylvania 15237
Mt. Braddock, Pennsylvania 15465 Telephone: (412) 635-3167
Facsimile: (412) 635-3169
Any party may change that party's address by prior written notice to the
other parties.
10.5 EXPENSES. Each party to this Agreement shall pay that party's
respective expenses, costs, and fees (including professional fees) incurred
in connection with the negotiation, preparation, execution, and delivery of
this Agreement and the consummation of the transactions contemplated by
this Agreement.
10.6 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement, and the exhibits
and schedules (including the Disclosure Schedule) to this Agreement (which
are incorporated in this Agreement by reference), the Confidentiality
Agreement, and the agreements referred to in this Agreement, contains the
entire agreement and understanding of the parties and supersede all prior
agreements, negotiations, arrangements, and understandings relating to the
subject matter of this Agreement. This Agreement may be signed in
counterparts, each of which shall be deemed to be an original, and the
counterparts shall together constitute one document.
10.7 AMENDMENTS AND WAIVERS. This Agreement may be amended,
superseded, or canceled, and any of the terms or conditions of this
Agreement may be waived, only by a written instrument signed by each party
to this Agreement or, in the case of a waiver, by or on behalf of the party
waiving compliance. The failure of any party at any time to require
performance of any provision in this Agreement shall not affect the right
of that party at a later time to enforce that or any other provision. No
waiver by any party of any condition, or of any breach of any term,
covenant, representation, or warranty contained in this Agreement, in any
one or more instances, shall be deemed to be a further or continuing waiver
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of any condition or of any breach of any other term, covenant,
representation, or warranty.
10.8 NO THIRD-PARTY BENEFICIARIES. The provisions of this Agreement
are solely between and for the benefit of the respective parties to this
Agreement, and do not inure to the benefit of, or confer rights upon, any
third party.
10.9 SEVERABILITY. This Agreement shall be interpreted in all
respects as if any invalid or unenforceable provision were omitted from
this Agreement. All provisions of this Agreement shall be enforced to the
full extent permitted by law.
10.10 GOVERNING LAW. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of
Michigan, without regard to conflicts of law principles.
This Agreement and Plan of Merger is signed as of March 13, 1998.
THE COLONEL'S INTERNATIONAL, INC.
By /S/RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Its Chief Financial Officer
THE COLONEL'S RUGGED LINER, INC.
By /S/RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Its Secretary and Treasurer
RUGGED LINER, INC.
By /S/MARK GERMAN
Mark German
Its President
AEROCOVER, INC.
By /S/MARK GERMAN
Mark German
Its President
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GROUND FORCE, INC.
By /S/MARK GERMAN
Mark German
Its President
TRIAD MANAGEMENT GROUP, INC.
By /S/MARK GERMAN
Mark German
Its President
/S/MARK GERMAN
MARK GERMAN
/S/JOHN GERMAN
JOHN GERMAN
/S/LOUISE GERMAN
LOUISE GERMAN
/S/MICHELLE STEVENSON
MICHELLE STEVENSON
/S/DONALD J. WILLIAMSON
DONALD J. WILLIAMSON
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EXHIBIT INDEX
Exhibit 2.1 Division of Merger Consideration
Exhibit 2.2-1 Accounts Payable
Exhibit 2.2-2 Tractor-Trailer Leases
Exhibit 2.9 Employment Agreement
Exhibit 3.2.6 Shareholder Questionnaire
Exhibit 6.9 Assumed Liabilities
<PAGE>
EXHIBIT 2(b)
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "AMENDMENT")
amends and supplements the provisions of the Agreement and Plan of Merger
dated as of March 13, 1998 (the "MERGER AGREEMENT") by and among RUGGED
LINER, INC. ("RUGGED LINER"), AEROCOVER, INC. ("AEROCOVER"), GROUND FORCE,
INC. ("GROUND FORCE"), and TRIAD MANAGEMENT GROUP, INC. ("TRIAD"), THE
COLONELS' INTERNATIONAL, INC. (the "BUYER") and THE COLONEL'S RUGGED LINER,
INC. ("MERGERSUB"), MARK GERMAN ("MR. GERMAN") and the other Shareholders
of Rugged Liner, Aerocover, Ground Force and Triad (the "SHAREHOLDERS"),
and DONALD J. WILLIAMSON ("MR. WILLIAMSON") as follows:
Unless indicated to the contrary in this Amendment, terms defined in
the Merger Agreement shall have the same meanings when used herein.
1. AMENDMENTS TO MERGER AGREEMENT. The parties agree that the
Merger Agreement shall be amended as follows:
(a) SECTION 2.1. The firs paragraph of Section 2.1 of the
Merger Agreement shall be amended to read in its entirety as follows:
2.1 EFFECT ON SHARES AND MERGERSUB'S CAPITAL STOCK.
In the aggregate, the Shareholders are entitled to receive (a)
Four Million Two Hundred Fifty Thousand Dollars ($4,250,000) in
cash and (b) a number of shares of Buyer's Common Stock
determined by dividing Four Million Two Hundred Fifty Thousand
Dollars ($4,250,000) by the average of the per share closing
prices of Buyer's Common Stock on the Nasdaq SmallCap Market for
each of the thirty trading days immediately prior to April 2,
1998 (the "AVERAGE TRADING PRICE"), all as set forth below and
subject to adjustments in Sections 2.2, 2.3, 2.4 and 2.5 (the
"MERGER CONSIDERATION"). The parties agree that the Average
Trading Price is $8.203 per share of Buyer's Common Stock.
(b) SECTION 2.2. Section 2.2 of the Merger Agreement shall be
amended to read in its entirety as follows:
2.2 ADJUSTMENTS TO MERGER CONSIDERATION.
2.2.1 ACCOUNTS PAYABLE AND OTHER DEBT, AND RENTAL
PAYMENTS. The cash portion of the Merger Consideration set forth
in Section 2.1 shall be reduced, on a dollar-for-dollar basis, by
the following amounts: (i) the aggregate amount of the accounts
payable of the Rugged Liner Companies as of the Closing Date,
including without limitation all obligations of the Rugged Liner
Companies under the promissory notes payable to Mr. German
attached as Exhibit A to this Amendment (including principal and
<PAGE>
accrued interest), (ii) the aggregate amount of the Rugged Liner
Companies' indebtedness to any financial institution as of the
Closing Date, and (iii) the aggregate unpaid rental amounts for
the remaining terms of all the tractor-trailer leases listed in
Exhibit 2.2-2. Accounts payable shall not include Inter-Company
Payables. As used herein, the term "Inter-Company Payables"
means all accounts payable by one of the Rugged Liner Companies
or any other corporation or entity in which Mr. German is a
shareholder or owner (each, a "RELATED ENTITY") to any other
Related Entity or Entities. The parties agree that all of these
adjustment amounts are set forth on the Closing Memorandum dated
April 23, 1998.
2.2.2 CASH ON HAND; TAX GROSS-UP. The cash portion
of the Merger Consideration set forth in Section 2.1 shall be
increased, (a) on a dollar-for-dollar basis, by the aggregate
amount of cash on hand of the Rugged Liner Companies as of the
Closing Date and (b) by Eight Hundred Twenty Thousand Dollars
($820,000), which amount the parties agree represents the
Shareholders' estimated additional tax liability resulting from
the 338 Election (as defined below). The parties agree that all
of these adjustment amounts are set forth on the Closing
Memorandum dated April 23, 1998.
2.2.3 GAS CAN LITIGATION. The Merger Consideration
shall be reduced by $150,000, representing the amount that the
parties agree to be the Rugged Liner Companies' aggregate
liability resulting from or arising out of certain pending class
action lawsuits in which the Rugged Liner Companies (or any of
them) are named defendants (the "GAS CAN LITIGATION"). This
adjustment shall be made as follows: (i) 50 percent ($75,000) by
a decrease in the cash payable to the Shareholders, and (ii) 50
percent ($75,000) by a decrease in the number of shares of
Buyer's Common Stock issuable to the Shareholders, with the
number of shares of Buyer's Common Stock to be determined based
on the Average Trading Value.
(c) SECTION 2.3.1 Section 2.3.1(c) shall be amended to read in
its entirety as follows:
(c) "AGGREGATE ACCOUNTS RECEIVABLE VALUE" means the total
aggregate value of all of the Rugged Liner Companies' accounts
receivable outstanding as of the Closing Date (defined below),
net of allowances for doubtful accounts, as determined in
accordance with GAAP. As used herein, the term "Inter-Company
Receivables" means all accounts receivable of each Related Entity
from any other Related Entity or Entities.
(d) SECTION 2.3.2 Section 2.3.2 of the Merger Agreement shall
be amended to read in its entirety as follows:
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2.3.2 PHYSICAL INVENTORY; INSPECTION OF AGGREGATE
ACCOUNTS RECEIVABLE VALUE. On or before the Closing Date, Buyer
and the Rugged Liner Companies shall jointly conduct or cause to
be conducted (a) a physical inventory (the "PHYSICAL INVENTORY")
of the Merchandise Inventory and (b) an inspection or review of
the Aggregate Accounts Receivable Value (the "A/R INSPECTION").
The Physical Inventory and the A/R Inspection shall be conducted
in accordance with GAAP in a manner consistent with prior years.
Upon completion of the Physical Inventory and the A/R Inspection,
Buyer and the Rugged Liner Companies shall use their best efforts
to agree upon the Aggregate Inventory Value and the Aggregate
Accounts Receivable Value.
(e) SECTION 2.3.3. Section 2.3.3 of the Merger Agreement shall
be amended to read in its entirety as follows:
2.3.3 ADJUSTMENTS TO MERGER CONSIDERATION.
(a) ADJUSTMENT AMOUNT.
(i) If the Aggregate Inventory Value (as
determined pursuant to Section 2.3.2) is less than One Million
Eight Hundred Thousand Dollars ($1,800,000), the Merger
Consideration shall be decreased by the amount that the Aggregate
Inventory Value is less than such amount. If such Aggregate
Inventory Value is greater than One Million Eight Hundred
Thousand Dollars ($1,800,000), the Merger Consideration shall be
increased by the amount that the Aggregate Inventory Value is
greater than such amount.
(ii) If the Aggregate Accounts Receivable
Value (as determined pursuant to Section 2.3.2) is less than
Seven Hundred Fifty Thousand Dollars ($750,000), the Merger
Consideration shall be decreased by the amount that the Aggregate
Inventory Value is less than such amount. If such Aggregate
Accounts Receivable Value is greater than Seven Hundred Fifty
Thousand Dollars ($750,000), the Merger Consideration shall be
increased by the amount that the Aggregate Inventory Value is
greater than such amount.
(b) PAYMENT TERMS. If the aggregate Merger
Consideration for the Shares is increased pursuant to this
Section 2.3, the adjustment payment shall be paid by a cash
payment by Buyer to the Shareholders. If the aggregate Merger
Consideration for the Shares is decreased pursuant to this
Section 2.3, the adjustment payment shall be paid as follows:
(i) 50 percent by a cash payment from the Shareholders to Buyer,
and (ii) 50 percent by the cancellation of a portion of Buyer's
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Common Stock previously issued to the Shareholders, with the
number of shares of Buyer's Common Stock to be so canceled to be
determined based on the Average Trading Value.
The parties agree that all of these adjustment amounts are set forth
on the Closing Memorandum dated April 23, 1998.
(f) SECTION 2.11. Section 2.11 of the Merger Agreement is
amended to read in its entirety as follows:
2.11 STUB PERIOD. The Rugged Liner Companies shall be
required to file income tax returns for the period between the
end of their 1997 fiscal years and the Effective Time. Prior to
filing such tax returns, the Rugged Liner Companies shall allow
Buyer and its representatives a reasonable time to review and
comment on such filings.
(g) SECTION 3.7. Section 3.7 of the Merger Agreement is amended
to read in its entirety as follows:
3.7 FINANCIAL STATEMENTS. To the knowledge of Mr. German
and each of the Rugged Liner Companies, the audited financial
statements (the "FINANCIAL STATEMENTS") of the Rugged Liner
Companies and other related entities as of and for the fiscal
years ended December 31, 1997 and December 31, 1996, as reported
on by their independent accountants, Deloitte & Touche LLP,
including all schedules and notes relating to such statements,
are correct and complete in all material respects and fairly
present the Rugged Liner Companies' financial condition and
results of operation on the dates and for the periods indicated
and have been prepared in conformity with GAAP applied
consistently throughout the periods indicated. The Financial
Statements were not prepared exclusively for the Rugged Liner
Companies, but include related entities.
(h) SECTION 3.11 Section 3.11 of the Merger Agreement is
amended to read in its entirety as follows:
3.11 TAXES. Each of the Rugged Liner Companies is an S
corporation for both Federal and State tax purposes. As such,
the various items of income and expenses pass through to the
Shareholders for inclusion on their individual tax returns. The
Rugged Liner Companies are responsible for Pennsylvania Capital
Stock Tax (all) and California Franchise Tax (Rugged Liner and
Ground Force only) and have filed the appropriate returns and
paid the tax for all open years. Since the Rugged Liner
Companies are S corporations, no deferred taxes have been
provided for on the books of such Companies. To the knowledge of
the Rugged Liner Companies and Mr. German, except as discussed in
Section 3.11 of the Disclosure Schedule:
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3.11.1 FILINGS. Each of the Rugged Liner Companies
has filed on a timely basis since 1992 all federal, state,
local and other tax returns that are or were required to be
filed, except for tax returns that are currently on
extension until September 15, 1998. Each of the Rugged
Liner Companies has paid, or made provision for the payment
of, all taxes that have or may have become due pursuant to
those tax returns (including tax returns on extension) or
otherwise, or pursuant to any assessment received by it.
3.11.2 AUDITS. No Rugged Liner Company has ever had
an audit with respect to any of its tax returns in the past
six years. All tax returns are closed by the applicable
statute of limitations for all taxable years through 1992.
No Rugged Liner Company has given or been requested to give
waivers or extensions of any limitation period relating to
the payment of taxes.
3.11.3 RESERVES. The charges, accruals, and reserves
with respect to taxes on the books of each of the Rugged
Liner Companies are adequate (determined in accordance with
GAAP) and are at least equal to such Rugged Liner Company's
liability for taxes during fiscal year 1997. No deferred
taxes have been recorded on the books. There exists no
proposed tax assessment against any of the Rugged Liner
Companies. No consent to the application of Section
341(f)(2) of the Internal Revenue Code of 1986, as amended
(the "CODE") has been filed with respect to any property or
assets held, acquired, or to be acquired by any of the
Rugged Liner Companies. All taxes that the Rugged Liner
Companies are or were required to withhold or collect have
been duly withheld or collected and, to the extent required,
have been paid to the proper person or entity.
3.11.4 TRUE, CORRECT AND COMPLETE. All tax returns
filed by each of the Rugged Liner Companies are true,
correct, and complete. There is no tax sharing agreement
that will require any payment by any of the Rugged Liner
Companies after the date of this Agreement.
(i) SECTION 3.22. Section 3.22 of the Merger Agreement is
amended to read in its entirety as follows:
3.22 PRODUCT LIABILITIES AND WARRANTIES. Section
3.22 of the Disclosure Schedule sets forth (a) a copy of the form
of written warranties covering each product sold in the Business;
and (b) a summary of any modification of such warranty given to
any customer that is still in effect. During the past five
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years, the aggregate amount of expenses incurred by the Rugged
Liner Companies relating to warranty claims has not exceeded
$230,000. There have been no personal injury product liability
claims asserted against any Rugged Liner Company during the last
five years.
(j) SECTION 6.3. Section 6.3 of the Merger Agreement is amended
to read in its entirety as follows:
6.3 SECTION 338 ELECTION AND OTHER ACTIONS.
(a) SECTION 338 ELECTION. Buyer and the Rugged
Liner Companies and the Shareholders (for purposes of this
Section 6.3(a), the Rugged Liner Companies and the Shareholders
being referred to as the "Sellers") shall make an election under
Section 338(h)(10) of the Code (the "338 Election"), and any
comparable elections under state and local tax laws, with respect
to the purchase of the Shares hereunder pursuant to the Mergers.
Buyer and the Sellers shall cooperate fully with each other in
making the 338 Election, including but not limited to the joint
execution and filing of all necessary copies of IRS Form 8023 and
the attachments thereto on or before the due date thereof,
including extensions. Buyer and the Sellers agree that the
Merger Consideration shall be allocated to the assets acquired at
the fair market value, as the parties may agree, as of the
Closing Date with any excess Merger Consideration being treated
as goodwill. Buyer and the Sellers agree that this allocation
meets the requirements of Section 1060 of the Code.
(b) CONSENTS. All consents, approvals or
authorizations of, or declarations, filings or registrations
with, any third parties or governmental bodies required of the
Rugged Liner Companies in connection with the execution, delivery
and performance of this Agreement must have been obtained and
must be in full force and effect. In addition, the landlord
under the Lease shall have signed a reasonably acceptable consent
to the transactions contemplated by this Agreement.
(k) SECTION 6.8. Section 6.8 of the Merger Agreement is deleted in
its entirety.
2. POST-CLOSING IRS EXAMINATION. The Rugged Liner Companies are and
have been "S corporations" for all of the years which are not closed by the
applicable statute of limitations. Should any of the Rugged Liner
Companies be selected for audit by the Internal Revenue Service or any
state where returns have been filed, the Shareholders shall have the right
to participate in the handling of such audits and examinations. If such
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audits or examinations result in adjustments that create increases in
taxable income for the Shareholders and corresponding increases in tax
deductions for the Surviving Corporation, the Surviving Corporation, its
successors or assigns shall make a payment to the Shareholders equal to the
additional tax deductions for the Surviving Corporation, multiplied by
thirty seven percent (37%).
3. CONTINUED EFFECTIVENESS. As amended and supplemented hereby, the
provisions of the Merger Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have executed this Amendment as of the 23rd day of April, 1998.
RUGGED LINER, INC.
By: /S/MARK GERMAN
Mark German
Title: President
AEROCOVER, INC.
By: /S/MARK GERMAN
Mark German
Title: President
GROUND FORCE, INC.
By: /S/MARK GERMAN
Mark German
Title: President
TRIAD MANAGEMENT GROUP, INC.
By: /S/MARK GERMAN
Mark German
Title: President
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THE COLONEL'S INTERNATIONAL,
INC.
By: /S/RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Title: Chief Financial Officer
THE COLONEL'S RUGGED LINER,
INC.
By: /S/RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Title: President
/S/MARK GERMAN
Mark German
/S/JOHN GERMAN
John German
/S/LOUISE GERMAN
Louise German
/S/MICHELLE STEVENSON
Michelle Stevenson
/S/DONALD J. WILLIAMSON
Donald J. Williamson
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