FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1998
Commission file number 1-19254
Lifetime Hoan Corporation
(Exact name of registrant as specified in its charter)
Delaware 11-2682486
(State or other jurisdiction (I.R.S.Employer Identification No.)
of incorporation or organization)
One Merrick Avenue, Westbury, NY 11590
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(516) 683-6000
Not applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months
(or for such shorter periods that the registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 Par Value 12,588,058 shares outstanding
as of October 31, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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September 30
1998 December 31
(unaudited) 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $609 $7,773
Accounts receivable, less allowances
of $1,406 in 1998 and $851 in 1997 16,980 13,274
Merchandise inventories 54,663 42,763
Prepaid expenses 3,064 3,290
Deferred income taxes 1,003 439
Other current assets 3,395 2,170
TOTAL CURRENT ASSETS 79,714 69,709
PROPERTY AND EQUIPMENT, net 9,923 9,434
EXCESS OF COST OVER NET ASSETS
ACQUIRED,net 8,434 1,841
OTHER INTANGIBLES, net 10,654 10,950
OTHER ASSETS 1,082 1,023
TOTAL ASSETS $109,807 $92,957
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $9,200 $ -
Accounts payable and trade acceptances 3,651 5,360
Accrued expenses 8,810 6,152
Income taxes 1,340 539
TOTAL CURRENT LIABILITIES 23,001 12,051
STOCKHOLDERS' EQUITY
Common Stock, $0.01 par value, authorized
25,000,000 shares;
issued and outstanding 12,586,727 in 1998
and12,522,246 in 1997 126 125
Paid-in capital 75,628 75,307
Retained earnings 12,010 6,443
Notes receivable for shares issued to (908) (908)
stockholders
Deferred compensation (50) (61)
TOTAL STOCKHOLDERS' EQUITY 86,806 80,906
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $109,807 $92,957
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Net Sales $31,313 $24,516 $77,365 $67,757
Cost of sales 16,003 12,105 39,646 34,440
Gross profit 15,310 12,411 37,719 33,317
Selling, general and 9,079 7,463 24,571 23,553
administrative expenses
Other expense (income) 112 (29) 1 (41)
Income before income taxes 6,119 4,977 13,147 9,805
Provision for federal, state
and local income taxes 2,425 1,923 5,225 3,850
NET INCOME $3,694 $3,054 $7,922 $5,955
BASIC EARNINGS PER SHARE $0.29 $0.24 $0.63 $0.48
Weighted average shares 12,585 12,470 12,565 12,440
DILUTED EARNINGS PER SHARE $0.29 $0.24 $0.62 $0.47
Weighted average shares 12,809 12,674 12,842 12,649
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Nine Months Ended
September 30,
1998 1997
OPERATING ACTIVITIES
Net income $7,922 $5,955
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 1,808 1,358
Deferred tax (564) (256)
Provision for losses on accounts receivable 78 393
Reserve for sales returns and allowances 790 1,562
Changes in operating assets and
liabilities:
Accounts receivable (3,332) (2,697)
Merchandise inventories (7,456) (4,870)
Prepaid expenses, other current assets
and other assets (263) 469
Accounts payable, trade acceptances
and accrued expenses (5,131) (638)
Income taxes payable 801 (3)
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (5,347) 1,273
INVESTING ACTIVITIES
Purchase of property and equipment, net (1,383) (1,754)
Purchase of marketable securities (256) -
Acquisition of Roshco, Inc. (4,758) -
NET CASH (USED IN INVESTING ACTIVITIES (6,397) (1,754)
FINANCING ACTIVITIES
Proceeds (repayments) from short-term
borrowings, net 9,200 (1,000)
Payment of note payable of acquired
business (2,586) -
Proceeds from the exercise of stock options 321 426
Cash dividends paid (2,355) -
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,580 (574)
(DECREASE) IN CASH AND CASH EQUIVALENTS (7,164) (1,055)
Cash and cash equivalents at beginning of
period 7,773 1,093
CASH AND CASH EQUIVALENTS AT END OF PERIOD $609 $38
See notes to condensed consolidated financial statements.
LIFETIME HOAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interimfinancial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. It is suggested
that these condensed financial statements be read in conjunction with
the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Note B - Inventories
Merchandise inventories, principally finished goods, are recorded at the
lower of cost (first-in, first-out basis) or market.
Note C - Line of Credit Agreement
The Company has available an unsecured $25,000,000 line of credit with
a bank (the "Line") which may be used for short-term borrowings or
letters of credit. As of September 30, 1998, the Company had
$6,704,000 of letters of credit and trade acceptances outstanding and
$9,200,000 of borrowings. The Line is cancelable by either party at any
time. Borrowings under the Line bear interest payable daily at a
negotiated short-term borrowing rate. The average daily borrowing rate
was 6.65%. The Company is also charged a nominal fee on the entire Line.
Note D - Capital Stock
Cash Dividends: On July 22, 1998 the Board of Directors declared a
regular quarterly cash dividend of $0.0625 per share to shareholders of
record on August 5, 1998 paid on August 19, 1998 and on October 21, 1998,
the Board of Directors of the Company declared another regular quarterly
cash dividend of $0.0625 per share to shareholders of record on November
5, 1998, payable on November 19, 1998.
Earnings Per Share: In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings Per Share. Statement No. 128
replaced the calculation of primary earnings per share and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts have been
presented, and where appropriate, restated to conform to Statement No. 128
requirements.
The following tables set forth the computation of basic and diluted
earnings per share for the three month and nine month periods ended
September 30, 1998:
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Three Months Ended
September 30,
(in thousands, except per share data)
1998 1997
Numerator for basic and diluted earnings
per share - net income $3,694 $3,054
Denominator:
Denominator for basic earnings per
share-weighted average shares 12,585 12,470
Effect of dilutive stock options 224 204
Denominator for diluted earnings per
share-weighted-average shares and
assumed conversions 12,809 12,674
Net income per share - basic $0.29 $0.24
Net income per share - diluted $0.29 $0.24
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Nine Months Ended
September 30,
(in thousands, except per share data)
1998 1997
Numerator for basic and diluted earnings $7,922 $5,955
per share - net income
Denominator:
Denominator for basic earnings per
share-weighted average shares 12,565 12,440
Effect of dilutive stock options 277 209
Denominator for diluted earnings per
share-weighted-average shares and
assumed conversions 12,649 12,842
Net income per share - basic $0.63 $0.48
Net income per share - diluted $0.62 $0.47
Note E - Roshco Acquisition
On August 10, 1998, the Company acquired Roshco, Inc. ("Roshco"), a
privately held bakeware and baking-related products distributor, located
in Chicago, Illinois. Roshco markets its bakeware and baking-related
products under the Roshco and Baker's Advantage trade names, and its
revenues were approximately $10 million in 1997. The purchase price
consisted of an initial cash payment of $5.0 million and future payments
totalling $1.5 million. The Company is also obligated to make additional
contingent payments based on annual sales volume for bakeware and baking-
related products for a period of two years. The Company also assumed
bank debt of $2.6 million that was paid at the closing. Roshco products
accounted for $2.2 million of the Company's total sales for the quarter
and was accretive to earnings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth income statement data of the Company as a
percentage of net sales for the periods indicated below.
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Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 51.1 49.4 51.2 50.8
Gross profit 48.9 50.6 48.8 49.2
Selling, general and 29.0 30.4 31.8 34.8
administrative expenses
Other (income), expense 0.4 (0.1) - (0.1)
Income before income taxes 19.5 20.3 17.0 14.5
Tax provision 7.7 7.8 6.8 5.7
Net Income 11.8 % 12.5 % 10.2 % 8.8 %
Three Months Ended September 30, 1998
Compared to Three Months ended September 30, 1997
Net Sales
Net sales for the three months ended September 30, 1998 were $31.3
million, an increase of $6.8 million or 27.7% over the comparable 1997
quarter. The recent acquisition of Roshco, Inc., completed in August
1998, added $2.2 million to sales in the quarter. Excluding the impact
of Roshco product sales, quarterly sales for the Company grew 18.6%.
The sales growth was due principally to increased shipments of Hoffritz
and Farberware branded products, partially offset by lower sales in non-
branded products.
Gross Profit
Gross profit for the three months ended September 30, 1998 was $15.3
million, an increase of 23.4% from the comparable 1997 period. Gross
profit as a percentage of net sales decreased to 48.9% from 50.6% in
the comparable 1997 period. This decrease resulted primarily from the
addition of the Roshcor product sales which carry lower gross profit
margins, and changes in the Company's overall product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
September 30, 1998 increased by $1.6 million, 21.7% higher than the
comparable 1997 quarter, however, as a percentage of sales these expenses
decreased to 29.0% compared to 30.4% in the 1997 quarter. The higher
expenses were primarily attributable to the added expenses of Roshco's
office and warehousing operations in Chicago, and to increased selling,
warehousing and distribution expenses associated with the higher sales
levels. The majority of Roshco's office and warehousing operations are
expected to be absorbed into the Company's major facilities over the
next two quarters.
Nine Months Ended September 30, 1998
Compared to Nine Months ended September 30, 1997
Net Sales
Net sales for the nine months ended September 30, 1998 were $77.4 million,
an increase of $9.6 million or 14.2% over the comparable 1997 period. The
sales growth was due principally to increased shipments of Hoffritz and
Farberware branded products, partially offset by lower sales in non-
branded products.
Net sales from the Farberwarer outlet stores were $4.7 million for the
1998 period, as compared to $6.5 million for the comparable period in
1997. The lower sales in 1998 resulted from the July 1997 restructuring
of the operations of the outlet stores, which effectively transferred
responsibility for the sale of cookware products and a significant portion
of the store operating expenses to the Meyer Corporation.
Gross Profit
Gross profit for the nine months ended September 30, 1998 was $37.7
million, an increase of 13.2% from the comparable 1997 period. Gross
profit as a percentage of net sales decreased slightly to 48.8% from
49.2% in the comparable 1997 period due primarily to changes in the
overall sales product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
September 30, 1998 were $24.6 million, an increase of 4.3% from the
comparable 1997 period. Selling, general and administrative expenses
for the Farberware outlet stores decreased by $1.3 million in 1998 as
compared to the comparable period in 1997, reflecting the restructuring
of the operations of the outlet stores. Excluding the expenses related
to the outlet stores and those associated with Roshco, selling, general
and administrative expenses increased by 8.8% in the 1998 year-to-date
period. These higher expenses were primarily attributable to increased
selling, warehousing and distribution expenses related to the higher
sales volume.
Forward Looking Statements: This Quarterly Report on Form 10-Q
contains certain forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, including statements concerning the Company's future
products, results of operations and prospects. These forward-looking
statements involve risks and uncertainties, including risks relating
to general economic and business conditions, including changes which
could affect customer payment practices or consumer spending; industry
trends; the loss of major customers; changes in demand for the
Company's products; the timing of orders received from customers; cost
and availability of raw materials; increases in costs relating to
manufacturing and transportation of products; dependence on foreign
sources of supply and foreign manufacturing; risks relating to Year
2000 issues; and the seasonal nature of the business as detailed
elsewhere in this Quarterly Report on Form 10-Q and from time to time
in the Company's filings with the Securities and Exchange Commission.
Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in the
forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $25,000,000 unsecured line of credit with a bank
(the "Line") which may be used for short-term borrowings or letters of
credit and trade acceptances. Borrowings under the Line bear interest
payable daily at a negotiated short-term borrowing rate. The Company
is also charged a nominal fee on the entire Line. As of September 30,
1998, the Company had $6,704,000 of letters of credit and trade
acceptances outstanding under the Line and $9,200,000 of borrowings and,
as a result, the availability under the Line was $9,096,000. The average
daily borrowing rate was 6.65%. The Line is cancelable by either party
at any time.
At September 30, 1998, the Company had cash and cash equivalents of
$600,000 versus $7.8 million at December 31, 1997.
The decrease in cash and increase in short-term borrowings during the
first nine months of 1998 were used primarily to fund the Company's
increased inventory levels and the acquisition of Roshco, Inc.
On August 10, 1998, the Company acquired Roshco, Inc. ("Roshco"), a
privately held bakeware and baking-related products distributor, with
net sales of approximately $10 million in 1997. The purchase price
consisted of an initial cash payment of $5.0 million and future payments
totalling $1.5 million. The Company is also obligated to make additional
contingent payments based on annual sales volume for bakeware and baking-
related products for a period of 2 years. The Company also assumed bank
debt of $2.6 million that was paid at the closing.
On October 21, 1998 the Board of Directors declared another regular
quarterly cash dividend of $0.0625 per share to shareholders of record
on November 5, 1998, to be paid on November 19, 1998. The dividend to
be paid will be $787,000.
The Company estimates that approximately $5.0 million of capital
expenditures will be incurred in 1998. These expenditures are
primarily for equipment and a management system to be used in a new, more
modern, leased distribution facility, and the installation of a new
financial reporting system.
The Company believes that its cash and cash equivalents, internally
generated funds and its existing credit arrangements will be sufficient
to finance its operations and planned capital expenditures for at least
the next 12 months.
The results of operations of the Company for the periods discussed have
not been significantly affected by inflation or foreign currency
fluctuation. The Company negotiates its purchase orders with its foreign
manufacturers in United States dollars. Thus, notwithstanding any
fluctuation in foreign currencies, the Company's cost for any purchase
order is not subject to change after the time the order is placed.
However, any weakening of the United States dollar against local
currencies could lead certain manufacturers to increase their United
States dollar prices for products. The Company believes it would be able
to compensate for any such price increase.
Year 2000
The Company is in the process of investigating issues that could affect
its operations regarding Year 2000 compliance issues. The Year 2000
compliance issues revolve around the fact that most computer systems do
not recognize a year by its traditional four digit format. Instead,
computer systems recognize the last two digits for a specified year. If
not properly addressed, these issues could potentially have an adverse
material impact on the Company's operations.
The Company is in the process of installing new financial/accounting
systems and a separate newwarehouse management system. These systems
are expected to be fully operational by the middle of 1999 and be Year
2000 compliant. Testing of these systems to ensure that they are in
fact Year 2000 compliant has begun and should be fully completed by the
end of the first quarter in 1999. As results of this testing process
become available over the next six months, the Company will make
contingency plans where it deems necessary to become Year 2000 compliant.
The Company relies on third parties for inventory, supplies, financial
products and other key services. Third party entities that could have
a potential material impact on the operations of the Company's business
have been contacted to determine the progress that each has made in
connection with Year 2000 compliance issues. The Company will make
contingency plans for any entity it feels has not made satisfactory
progress towards being Year 2000 compliant. Contingency plans may
include increasing inventory levels, securing alternate supply sources
and taking other appropriate measures.
The Company is also dependent upon its customers for sales and cash flow.
Interruption in our customer operations due to Year 2000 issues could
result in reduced sales and cash flow, and higher inventories. We are,
however, taking steps to monitor the status of our customers as a means
of determining potential risks and developing possible alternatives.
Failure of the Company, third party vendors or customers, to be Year
2000 compliant could have an adverse material impact on the operations
of the Company's business. With the implementation of the new
financial/accounting and warehouse management systems, along with the
evaluation process of significant third party entities, the Company
believes the possibility of significant interruptions of normal
operations should be reduced.
Notwithstanding Year 2000 issues, the Company decided to install the
new financial/accounting systems and a separate new warehouse
management system to accommodate the Company's growth. The Company's
estimated costs relating to Year 2000 compliance activities will not
be significant.
PART II - OTHER INFORMATION
Item 6. Exhibit(s) and Reports on Form 8-K.
(a) Exhibit(s) in the third quarter of 1998:
Exhibit No. Description
27 Financial Data Schedule
10.28 Stock Purchase Agreement between Lifetime
Hoan Corporation and Roshco, Inc. dated
August 10, 1998.
(b) Reports on Form 8-K in the third quarter of 1998: NONE
Exhibit 27. Financial Data Schedule
Lifetime Hoan Corporation
Financial Data Schedule
Pursuant to Item 601(c) of Regulation S-K
This schedule contains summary financial information extracted from
the financial statements included in the form 10-Q and is qualified
in its entirety by reference to such financial statements for the
Nine Months ended September 30, 1998.
(in thousands, except per share data)
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Item Number Item Description Amount
5-02(1) Cash and Cash Items $ 609
5-02(2) Marketable Securities $ 281
5-02(3)(a)(1) Notes and Accounts Receivable-Trade $ 17,055
5-02(4) Allowances for Doubtful Accounts $ 75
5-02(6) Inventory $ 54,663
5-02(9) Total Current Assets $ 79,714
5-02(13) Property, Plant and Equipment $ 16,637
5-02(14) Accumulated Depreciation $ 6,714
5-02(18) Total Assets $ 109,807
5-02(21) Total Current Liabilities $ 23,001
5-02(22) Bonds, Mortgages and Similar Debt $ 0
5-02(28) Preferred Stock-Mandatory Redemption $ 0
5-02(29) Preferred Stock-No Mandatory Redemption $ 0
5-02(30) Common Stock $ 126
5-02(31) Other Stockholders' Equity $ 86,680
5-02(32) Total Liabilities and Stockholders'
Equity $ 109,807
5-03(b)1(a) Net Sales of Tangible Products $ 76,889
5-03(b)1 Total Revenues $ 77,365
5-03(b)2(a) Cost of Tangible Goods Sold $ 39,646
5-03(b)2 Total Costs and Expenses Applicable
to Sales and Revenues $ 39,646
5-03(b)3 Other Costs and Expenses $ 0
5-03(b)5 Provision for Doubtful Accounts and
Notes $ 78
5-03(b)(8) Interest and Amortization of Debt
Discount $ 0
5-03(b)(10) Income Before Taxes and Other Items $ 13,147
5-03(b)(11) Income Tax Expense $ 5,225
5-03(b)(14) Income/Loss Continuing Operations $ 7,922
5-03(b)(15) Discontinued Operations $ 0
5-03(b)(17) Extraordinary Items $ 0
5-03(b)(18) Cumulative effect - Changes in
Accounting Principles $ 0
5-03(b)(19) Net Income or Loss $ 7,922
5-03(b)(20) Earnings Per Share - Primary $ 0.63
5-03(b)(20) Earnings Per Share - Fully Diluted $ 0.62
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.
Lifetime Hoan Corporation
November 14, 1998
/s/ Milton Cohen
________________________________
Milton L. Cohen
Chairman of the Board of Directors
and President (Principal Executive Officer)
November 14, 1998
/s/ Robert McNally
________________________________
Robert McNally
Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
Exhibit 10.28 Stock Purchase Agreement between Lifetime Hoan
Corporation and Roshco, Inc. dated August 10, 1998
Stock Purchase Agreement dated as of
August 10, 1998 among LIFETIME HOAN CORPORATION, a
Delaware corporation (the "Purchaser") and SHELDON
STONE, AS TRUSTEE UNDER DECLARATION OF TRUST DATED
JANUARY 4, 1996, GLORIA STONE, AS TRUSTEE UNDER
DECLARATION OF TRUST DATED JANUARY 4, 1996, ADAM
STONE and LISA STONE (each referred to herein as a
"Stockholder" and collectively as the
"Stockholders") and SHELDON STONE and GLORIA STONE.
W I T N E S S E T H:
WHEREAS, the Stockholders own all of the
outstanding shares of capital stock (the "Shares") of
Roshco, Inc., an Illinois corporation (the
"Company"); and
WHEREAS, the Purchaser desires to purchase
the Shares from the Stockholders and the Stockholders
desire to sell the Shares to the Purchaser, upon the
terms and subject to the conditions set forth in this
Agreement.
ACCORDINGLY, in consideration of the
premises and the mutual representations, warranties,
covenants and agreements hereinafter set forth, the
parties hereto do hereby agree as follows:
1. Definitions.
As used in this Agreement, the following
terms have the meanings specified or referred to in
this Section 1.
"ACP Notes" shall have the meaning set forth in
Section 3.1.
"Additional Cash Payments" shall have the
meaning set forth in Section 2.2(b).
"Applicable Environmental Law" shall mean
CERCLA, RCRA, the Federal Waste Pollution Control
Act, 33 U.S.C. 1261 et seq., the Clean Air Act, 42
U.S.C. 7401 et seq., any similar provisions of
state or local law in the jurisdictions where the
properties of the Company are located and the
regulations thereunder and any other local, state
and/or federal laws or regulations, that govern:
(a) the existence, cleanup and/or remedy of
contamination on property;
(b) the protection of the environment
from spilled, deposited or otherwise emplaced
contamination;
(c) the control of hazardous wastes; or
(d) the use, generation, transport,
treatment, storage, disposal, removal or recovery of
Hazardous Materials, including building materials.
"Balance Sheets" shall have the meaning set
forth in Section 5.7.
"Business and Condition" means the
business, operations, properties, assets, material
contracts, cash flow, revenues, net income prospects
or condition (financial or otherwise) of the Company.
"Business Day" means any day that is not a
Saturday or Sunday or a day on which banks located in
the City of New York are authorized or required to be
closed.
"CERCLA" means the Comprehensive
Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601 et
seq.
"Closing" shall have the meaning set
forth in Section 2.4.
"Closing Balance Sheet" shall have the
meaning set forth in Section 3.3.
"Closing Date" shall have the meaning set
forth in Section 2.4.
"Code" means the Internal Revenue Code of
1986, as amended.
"Company" shall have the meaning set forth
in the first recital of this Agreement.
"Contemplated Transactions" means the sale
of the Shares by Stockholders to Purchaser, the
purchase of the Shares by Purchaser from
Stockholders, performance of and compliance with all
agreements, covenants and indemnities contained in
this Agreement.
"Contingent Payments" shall have the
meaning set forth in Section 2.2(c).
"Damages" shall have the meaning set forth
in Section 8.1.
"Employee Plans" shall have the meaning
set forth in Section 5.21(b).
"Employment Agreements" shall have the
meaning set forth in Section 2.5(h).
"Encumbrance" means any security interest,
mortgage, lien, charge, adverse claim or restriction
of any kind, including, but not limited to, any
restriction on the use, voting, transfer, receipt of
income or other exercise of any attributes of
ownership.
"ERISA" means the Employee Retirement
Income Security Act of 1974, as amended.
"GAAP" means Generally Accepted Accounting
Principles of the United States.
"Governmental Body" means any domestic,
national, state or municipal or other local
government body, any subdivision, agency, commission
or authority thereof, or any quasi-governmental or
private body exercising any regulatory or taxing
authority thereunder.
"Hazardous Materials" shall mean any
substance which as of the date of this Agreement
shall be identified as "hazardous" or "toxic" or
otherwise regulated under CERCLA or RCRA or which has
been determined by any agency or court to be a
hazardous or toxic substance under Applicable
Environmental Law. The term "Hazardous Material"
shall also include, with limitation, raw materials,
building components, the products of any
manufacturing or other activities on the properties,
wastes, petroleum, and source, special nuclear or by-
product material as defined by the Atomic Energy Act
of 1954, as amended (42 U.S.C. 3011 et seq., as
amended.)
"Initial Purchase Price" shall have the
meaning set forth in Section 2.2(a).
"Inventory" shall have the meaning set
forth in Section 5.12(b).
"Lease" shall have the meaning set forth in
Section 2.5(j).
"Net Sales" shall have the meaning set
forth in Section 3.2(b).
"Non-Competition Agreements" shall have the
meaning set forth in Section 2.3.
"Person" means any individual, corporation,
partnership, joint venture, trust, association,
unincorporated organization, other entity, or
Governmental Body.
"Plans" shall have the meaning set forth in
Section 5.21(a).
"Proprietary Rights" means all patents,
patent licenses, trademarks, tradenames, service
marks, brand marks, brand names, copyrights,
technologies, know-how, formulae, processes, names
and likeness.
"Purchaser" shall have the meaning set
forth in the first paragraph of this Agreement.
"RCRA" means the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq.
"Recent Balance Sheet" shall have the meaning
set forth in Section 5.7.
"Related Party" means (a) the Stockholders,
(b) any individual who is a director or officer of
the Company or who is an employee of the Company with
aggregate compensation at an annual rate in excess of
$100,000 during the most recent fiscal year or the
current fiscal year, (c) any member of the family (as
defined in section 267(c)(4) of the Code) of, or any
individual who has the same home as, any individual
(or the spouse of any such individual) described in
clause (a) or (b) of this section, or (d) any trust,
estate or partnership of which an individual
described in clause (a), (b) or (c) of this section
is a grantor, fiduciary, beneficiary or partner.
"Shares" shall have the meaning set forth
in the first recital to this Agreement.
"Stockholders" shall have the meaning set
forth in the first paragraph of this Agreement.
"Stones" shall have the meaning set forth
in Section 2.8.
"Subsidiary" means with respect to any
Person, any corporation of which securities having
the power to elect a majority of that corporation's
Board of Directors (other than securities having that
power only upon the happening of a contingency that
has not occurred) are held by such Person or one or
more of its Subsidiaries.
"Taxes" means all taxes, duties, charges,
fees, levies, interest, penalties, additions to tax
or other assessments, including, but not limited to,
income, excise, employment, withholding, property,
gross receipts, ad valorem, profits, occupation,
transfer, property, license, severance, stamp,
premium, windfall, excess profits, environmental,
capital stock, disability, unemployment, alternative
or add-on minimum, estimated, sales, use, value added
and franchise taxes and customs duties, imposed by
any Governmental Body and any payments with respect
thereto required under any tax-sharing agreement and
all costs incurred in contesting or protesting any
Tax or Tax assessment or prosecuting any refund claim
with respect to Taxes.
"Tax Returns" means any return, report,
election,
schedule, declaration, information return or other
document (including any related or supporting
information) filed or required to be filed with any
Governmental Body in connection with the
determination, assessment or collection of any Taxes
or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
2. The Acquisition.
2.1 Purchase and Sale. Subject to the
terms and conditions of this Agreement, Stockholders
shall sell the Shares to Purchaser and Purchaser shall
purchase the Shares, free and clear of all Encumbrances,
for the purchase price set forth in Sections 2 and 3.
2.2 Purchase Price. The aggregate
purchase price
(the "Purchase Price") for the Shares shall be the
sum of (a) $5,000,000 in cash, which shall be paid by
Purchaser to Stockholders at the Closing in
proportion to the Stockholders' ownership of the
Shares as set forth in Schedule 4.2 hereof (the
"Initial Purchase Price"); plus (b) $1,500,000 which
shall be paid by Purchaser to Stockholders in
accordance with Section 3.1 (the "Additional Cash
Payments"); plus (c) the contingent payments
described in Section 3.2 (the "Contingent Payments").
2.3 Non-Competition Agreements. At the
Closing, theCompany and each of Sheldon Stone and Adam Stone will
enter into a Non-Competition Agreement in the form of
Exhibit 2.3 hereto ("Non-Competition Agreements").
2.4 Place and Time. The closing of the
Contemplated
Transactions (the "Closing") shall take place at the
offices of Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York at 10:00 a.m. (New
York City time) on the date of the execution of this
Agreement, or at such other place, date and time as
the parties may agree in writing. The actual date on
which such Closing shall occur is referred to herein
as the "Closing Date".
2.5 Deliveries by Stockholders. At the
Closing, the
Stockholders shall deliver the following to
Purchaser:
(a) certificates representing the
Shares, duly endorsed for transfer to Purchaser and
accompanied by any applicable stock transfer tax
stamps;
(b) duly executed resignations, dated
the Closing Date, of all members of the Boards of
Directors of the Company;
(c) a duly executed incumbency
certificate of Stockholders, in form reasonably
satisfactory to Purchaser;
(d) the releases referred to in
Section 2.7 duly executed by the Stockholders;
(e) an opinion from Rosenthal
Schanfield, P.C., counsel to the Stockholders, dated
the Closing Date, in substantially the form of
Exhibit 2.5(e);
(f) Certificates of the Secretary of
State of the State of Illinois with respect to the
Company, and of each state in which the Company is
qualified to do business as a foreign corporation as
of a recent date showing the Company to be validly
existing or qualified as a foreign corporation in its
states of existence and qualification, as the case
may be, and in good standing and that all franchise
taxes required to be paid and all
reports required to be filed have been duly paid and
filed, and with respect to the Certificate of the
Secretary of State of the State of Illinois, listing
all documents filed and attaching certified copies
thereof;
(g) a Certificate of the Secretary of
the Company, stating that (i) no document has been
filed relating to or affecting the Certificate of
Incorporation of the Company after the date of the
Certificate of the Secretary of State of the state of
its incorporation furnished pursuant to Section
2.5(f), and (ii) attached to the Certificate is a
true and complete copy of the By-Laws of the Company,
as in full force and effect immediately prior to the
Closing Date;
(h) Sheldon Stone and Adam Stone
shall have executed employment agreements with the
Company ("Employment Agreements") effective as of the
Closing Date, in substantially the forms of Exhibit
2.5(h)(A) and (h)(B);
(i) Sheldon Stone and Adam Stone
shall have entered into the Non-Competition
Agreements with the Company; and
(j) Sheldon Stone and Gloria Stone
shall have executed an amended and restated lease
(the "Lease") relating to the Company's facility at
1151 West 40th Street, Chicago, Illinois, in
substantially the form of Exhibit 2.5(j).
2.6 Deliveries by Purchaser. At the Closing,
Purchaser shall deliver the following to the
Stockholders:
(a) A certified or bank cashier's
check or wire transfer in immediately available funds
to accounts to be designated by the Stockholders no
later than three days prior to the Closing Date in an
aggregate amount equal to the Initial Purchase Price;
(b) an opinion from Bachner, Tally,
Polevoy & Misher LLP, counsel to Purchaser, dated the
Closing Date, in substantially the form of Exhibit
2.6(b);
(c) the Lease duly executed by the
Company;
(d) the Employment Agreements duly
executed by the Company;
(e) option agreements (the "Option
Agreements") executed by the Purchaser granting
Sheldon Stone and Adam Stone options to purchase
25,000 and 10,000 shares of Purchaser's common stock,
respectively, pursuant to Purchaser's 1996 Incentive
Stock Option Plan, in the form of Exhibit 2.6(e); and
(f) the ACP Notes.
2.7 Release. The Stockholders shall be
deemed, without any further action, to have released
Purchaser and the Company from all agreements,
commitments, indebtedness, obligations and claims
existing on or prior to the Closing Date, including
such as may arise after the Closing Date, by reason
of or in connection with any act, omission or state
of facts taken or existing at or prior to the Closing
Date, except to the extent such agreements,
commitments, indebtedness, obligations and claims
arise under this Agreement, the ACP Notes, the Non-
Competition Agreements, the Employment Agreements or
the Option Agreements. Each of the Stockholders (a)
shall execute and deliver to the Company at the
Closing a release embodying the terms of this Section
in the form of Exhibit 2.7 and (b) shall
not assert in any manner (including, but not limited
to, by way of defense, offset or counterclaim) any
matter purported to be released by the preceding
sentence.
2.8 Stockholders Agreement. Each of
Sheldon Stone and Gloria Stone and the Stockholders (collectively,
the "Stones"), hereby waive all rights under the
Stockholder Agreement dated July 26, 1996 among the
Company and the Stones ("Stockholder Agreement"), and
the Stones agree that effective on the date of this
Agreement, the Stockholder Agreement is terminated.
2.9 Insurance. Effective on the date of
this Agreement, the Split Dollar Insurance Agreement dated
June 1, 1995 ("Insurance Agreement") between the
Company and Howard Feinstein, as Trustee (the
"Trustee"), of the Gloria Stone and Sheldon Stone
Irrevocable Insurance Trust Agreement shall be
terminated and, on or prior to the Closing Date, the
Company shall have received $40,700 in connection
with such Insurance Agreement and shall be deemed,
without any further action, to have released the
Trustee from any claim, interest in or collateral
assignment into or under the Policy of Life Insurance
which is the subject of the Insurance Agreement.
2.10 Repayment of Indebtedness. Sheldon
Stone shall have repaid $100,000 of indebtedness owed
to the Company, on or prior to the Closing Date.
3. Post-Closing Payments.
3.1 Additional Cash Payments. Purchaser
shall pay or shall cause the Company to pay to the
Stockholders, on each of September 30, 1999, September
30, 2000 and September 30, 2001, $500,000 in cash.
The Additional Cash Payments shall be allocated to the
Stockholders in proportion to their ownership of the
Shares on the Closing Date. The Additional Cash
Payments shall be evidenced by promissory notes (the
"ACP Notes") in the form of Exhibit 3.1 hereto.
3.2 Contingent Payments. (a) Purchaser
shall pay or shall cause the Company to pay to the
Stockholders, on each of September 30, 1999 and
September 30, 2000 (each, a "Contingent Payment Date"),
an amount equal to the lesser of (i) $700,000 and (ii)
three and one-half percent (3.5%) of the Company's
"Net Sales" (as defined below) for the twelve month
period ending on the June 30 immediately preceding the
applicable Contingent Payment Date (the "Computation
Period").
(b) "Net Sales" shall mean gross sales of
the Company reduced by returns, credits, allowances and
write-offs. In determining gross sales of the Company,
there shall be included (i) all product lines sold by
the Company on the date hereof; (ii) any new product
lines sold by the Company subsequent to the date
hereof; (iii) product lines of the Purchaser sold
through distribution channels of the Company and (iv)
bakeware products of the Company or the Purchaser
sold through distribution channels of the Purchaser.
Net Sales for each Computation Period shall be
determined in accordance with GAAP based on the
Company's and the Purchaser's regularly prepared
financial statements, subject only to the adjustments
required in accordance with this Section 3.2(b). Net
Sales for the Computation Period ending June 30, 1999
shall be determined by utilizing the Net Sales for
the period from July 1, 1998 through June 30, 1999.
(c) Within 45 days after the end of each
Computation Period, Purchaser shall furnish to the
Stockholders a calculation setting forth in reasonable
detail the calculation of Net Sales for such Computation
Period certified as accurate, to the best of the knowledge
of Purchaser's chief financial officer. The
Stockholders shall be deemed to have agreed to and
accepted such calculation unless no later than 20
days after the delivery of the calculation by
Purchaser to the Stockholders, any of the
Stockholders shall give notice to Purchaser objecting
to the calculation and setting forth in reasonable
detail the basis for such objection. The
Stockholders and their representatives shall be given
a reasonable opportunity to review the Company's
books and records to determine the accuracy of such
calculation.
(d) If the Stockholders furnish a notice
of objection, the Stockholders and Purchaser agree to
use their best efforts, in good faith, during the 30
day period following the furnishing of such notice of
objection to resolve the disagreement. If the
parties are unable to agree on the Net Sales for the
relevant Computation Period during such 30 day
period, the amount of the Net Sales shall be
determined by the accounting firm of Ernst & Young in
Melville, New York or, if Ernst & Young is unable to
serve for any reason, an accounting firm agreed to by
Purchaser and Stockholders. If Purchaser and
Stockholders are unable to agree on an accounting
firm, a firm shall be selected by the New York office
of the American Arbitration Association from among
the 100 largest firms of independent certified public
accountants in the United States (Ernst & Young, or
the firm selected by either the Purchaser and
Stockholders or the American Arbitration Association
being hereinafter referred to as the "Accountants").
If the amount of the Net Sales is to be determined by
the Accountants, (i) each party shall furnish to the
Accountants such workpapers and other documents and
information relating thereto as the Accountants may
request and are available to that party or its
Subsidiaries (or its independent public accountants)
and shall be afforded the opportunity to present to
the Accountants such material relating to the
determination as it may wish and to discuss such
determination with the Accountants, (ii) the
determination by the Accountants of the amount of Net
Sales as set forth in a notice delivered to both
parties by the Accountants, shall be binding and
conclusive on the parties, (iii) the Accountants
shall consider only those amounts or items as to
which the Stockholders have objected and shall base
their determination only on the information submitted
to them, and (iv) Purchaser and the Stockholders
shall each bear 50% of the fees of the American
Arbitration Association, if any, and the Accountants,
in connection with such determination.
(e) The Contingent Payments pursuant to
this Section 3.2 shall be made by certified or bank
cashier's check or wire transfer not later than the
applicable Contingent Payment Date or, if there is a
dispute concerning the amount of the Contingent
Payment that is due, within ten (10) days after such
dispute is resolved. The Contingent Payments shall
be allocated to the Stockholders in proportion to
their ownership of the Shares immediately prior to
the Closing Date.
4. Representations and Warranties of the
Stockholders.
Each Stockholder, severally and not
jointly, represents and warrants to, and agrees with,
Purchaser as follows:
4.1 Stockholders; Authorization. Such
Stockholder is of full age and has full right, power,
legal capacity and authority to execute and deliver
this Agreement and to perform
its, his or her respective obligations hereunder.
The execution, delivery and performance of this
Agreement and the performance of such Stockholder's
obligations hereunder constitute valid and binding
obligations of such Stockholder, enforceable against
it, him or her in accordance with its terms.
4.2 Ownership of Shares. Such
Stockholder owns the Shares shown as held by it, him
or her on Schedule 4.2 hereto, of record and
beneficially, free and clear of all Encumbrances.
4.3 No Conflict as to Stockholders.
Neither the execution and delivery of this Agreement
nor the consummation of any or all of the
Contemplated Transactions will (a) violate, or be in
conflict with, or constitute a default (or an event
which, with notice or lapse of time or both, would
constitute a default) under, or result in the
termination of, or accelerate the performance
required by, or excuse performance by any Person of
any of its obligations under, or cause the
acceleration of the maturity of any debt or
obligation pursuant to, or result in the creation or
imposition of any Encumbrance upon any property or
assets of such Stockholder under, any agreement or
commitment to which such Stockholder is a party or by
which any of his or her respective property or assets
is bound, or to which any of the property or assets
of such Stockholder is subject, or (b) violate any
statute or law or any judgment, decree, order,
regulation or rule of any court or other Governmental
Body applicable to such Stockholder.
5. Representations and Warranties of the
Stockholders. The Stockholders jointly and
severally, represent and warrant to, and agree with,
Purchaser as follows:
5.1 Ownership of Company Stock and
Capitalization. The delivery of certificates to
Purchaser in the manner provided in Section 2.5(a)
will result in Purchaser being the record beneficial
owner of all of the issued and outstanding Shares,
free and clear of all Encumbrances.
5.2 Capitalization. (a) The authorized
capital stock of the Company consists of 1,000 shares
of common stock, $1.00 par value, of which 1,000 are
validly issued and outstanding, fully paid and non-
assessable.
(b) There are no outstanding options,
rights, conversion rights, agreements or commitments
of any kind relating to the issuance, sale, purchase,
redemption, voting or transfer of any equity
securities or other securities of the Company. There
are no preemptive or other similar rights with
respect to any equity securities or other securities
of the Company. None of the outstanding equity
securities of the Company was issued in violation of
the Securities Act of 1933, as amended or any state
securities laws. The Stockholders have delivered to
Purchaser true and complete copies of the Certificate
of Incorporation and By-Laws of the Company, as
currently in effect, and of any agreements referred
to in this Section 5.2(b).
5.3 Organization of Company. The Company
is a corporation duly organized, validly existing and
in good standing under the laws of the State of
Illinois, with full corporate power and authority to
own its properties and to engage in its business as
presently conducted or contemplated, is duly
qualified and in good standing as a foreign
corporation under the laws of each jurisdiction in
which the ownership of its property or the conduct of
its business requires such qualification. Schedule
5.3 sets forth the jurisdictions in which the Company
is authorized to do business. The Company has no
subsidiaries, nor
does it own any equity interest in, or control
directly or indirectly, any other entity. The
Company is not a party to any joint venture or
partnership agreement.
5.4 No Conflict as to the Company.
Neither the execution and delivery of this Agreement
nor the consummation of any or all of the
Contemplated Transactions will (a) violate any
provision of the Certificate of Incorporation or By-
Laws of the Company or (b) violate, or be in conflict
with, or constitute a default (or an event which,
with notice or lapse of time or both, would
constitute a default) under, or result in the
termination of, or accelerate the performance
required by, or excuse performance by any Person of
any of its obligations under, or cause the
acceleration of the maturity of any debt or
obligation pursuant to, or result in the creation or
imposition of any Encumbrance upon any property or
assets of the Company under, any agreement or
commitment to which the Company is a party or by
which any of its property or assets is bound, or to
which any of the property or assets of the Company is
subject, or (c) violate any statute or law or any
judgment, decree, order, regulation or rule of any
court or other Governmental Body applicable to the
Company.
5.5 Consents and Approvals of
Governmental Authorities. No notice to, consent,
approval or authorization of, or declaration, filing
or registration with, any Governmental Body is
required in connection with the execution, delivery
and performance of this Agreement or the consummation
of the Contemplated Transactions.
5.6 Other Consents. No consent of, or
notice to, any Person is necessary in connection with
the execution, delivery and performance of this
Agreement or the consummation of the Contemplated
Transactions.
5.7 Financial Statements. The
Stockholders have delivered to Purchaser: (a)
unaudited balance sheets of the Company as at
September 30 for each of the years 1996 and 1997 (the
"Balance Sheets"), and the related unaudited
statements of operating results and retained earnings
and cash flows for each of the fiscal years then
ended, together with the report thereon of
independent certified public accountants and (b) an
audited balance sheet of the Company as at June 30,
1998, attached hereto as Exhibit 5.7 (the "Recent
Balance Sheet") and the related unaudited statements
of income and cash flow for the nine-month period
then ended, including in each case the notes thereto.
Such financial statements and notes are complete and
correct and fairly present the financial condition
and results of operations of the Company as at the
respective dates thereof and for the periods therein
referred to (subject, in the case of the interim
statements, to normal year-end adjustments). The
Recent Balance Sheet has been prepared in accordance
with GAAP consistently applied by the Company
throughout the periods involved (except as may be
indicated on the notes thereto).
5.8 No Undisclosed Liabilities. The
Company has no liabilities or obligations of any
nature (absolute, accrued, contingent or otherwise)
that were not fully reflected or reserved against in
the Balance Sheets and the Recent Balance Sheet,
except (i) as and to the extent disclosed in any
schedule to this Agreement and (ii) for liabilities
and obligations incurred in the ordinary course of
business and consistent with past practice (in nature
and scope) since the respective dates thereof. The
reserves reflected in the Balance Sheets and the
Recent Balance Sheet are adequate, appropriate and
reasonable and the reserves reflected in the Recent
Balance Sheet are in
accordance with GAAP consistently applied.
5.9 Absence of Certain Changes. Except
as set forth in Schedule 5.9, since the date of the
Recent Balance Sheet, there has not been, occurred or
arisen, with respect to the Company:
(a) any change or amendment in the
Company's Certificate of Incorporation or By-Laws, or
other governing instruments;
(b) any reclassification, split up or
other change in, or amendment of or modification to,
the rights of the holders of any of the Company's
equity securities;
(c) any declaration, setting aside,
or payment of any dividend or other distribution in
respect of the capital stock of the Company or any
direct or indirect redemption, purchase or
acquisition by any person of any such stock or of any
interest in or right to acquire any such stock;
(d) any damage, destruction or loss
adversely affecting the Company's business, assets or
properties (whether or not covered by insurance);
(e) any incurrence or assumption of
any indebtedness for money borrowed or the guaranty
of any indebtedness or other obligation by the
Company (other than borrowings under the Credit
Agreement or trade payables in the ordinary course of
business and consistent with past practice);
(f) any of the Company's property or
assets (real, personal or mixed, tangible or
intangible) being subjected to any Encumbrance (other
than liens in the ordinary course of business and
consistent with past practice under the Credit
Agreement);
(g) the cancellation of any debts or
waiver of any claims or rights of value of the
Company or the settlement of any action, suit,
proceeding against the Company or its business or
assets;
(h) transfer or other disposition of
any of the properties or assets of the Company
(whether tangible or intangible), except for sales of
inventory in the ordinary course of business and
consistent with past practice;
(i) any increase by the Company in
the compensation of officers or employees (including
any such increase pursuant to any of the Plans) of
the Company;
(j) the purchase of any properties or
assets, other than in the ordinary course of business
and consistent with past practice;
(k) any capital expenditures or
additions to property, plant or equipment or the
acquisition of any other property or assets (other
than raw materials, supplies and inventory) at a cost
in excess of $10,000 in the aggregate, by the
Company;
(l) any payment, loan or advance made
by the Company of any amount to, or the lease by the
Company of any of the properties or assets to or
from, or the entering into any other agreement or
arrangement with, any Related Party;
(m) any sale, transfer, assignment or
conveyance of any property or asset to, or the purchase
or acquisition of any property or assets from, or any
other transaction or commitment with, any Related Party;
(n) any write-off or write-down of
any assets of the Company or any determination to
write-off or write-down any of its assets;
(o) any agreement or commitment,
whether in writing or otherwise, to do any of the
foregoing.
5.10 No Material Adverse Change. Since
the date of the Recent Balance Sheet, there has not
been any material adverse change in the Business and
Condition or, to the knowledge of the Stockholders,
any event, condition or contingency that could
reasonably be expected to result in such a material
adverse change.
5.11 Real Property; Leases of Real
Property; Title to Properties; Encumbrances;
Condition. (a) The Company does not own any real
property. Schedule 5.11(a) hereto contains a
complete and correct list of all leases of real
property to which Company is a party and of all
assignments relating thereto, all of which leases and
assignments are in full force and effect. Complete
and correct copies of each such lease and of the
assignments relating thereto have been furnished or
made available to Purchaser. All such leases are
valid and binding, have not been amended or modified,
and upon consummation of the Contemplated
Transactions, will continue to entitle the Company to
the use and possession of the real property specified
in such leases and for the purposes for which such
real property is now being used by the Company. The
Company is not in default nor has the Company
received written notice of default under any such
lease, and to the best knowledge of the Stockholders,
there has been no default thereunder by any third
party.
(b) Schedule 5.11(b) describes all
personal property or interests therein owned or
leased by the Company. The Company has good and
valid title to all such properties (personal and
mixed, tangible and intangible) that it purports to
own, including, without limitation, all the properties
reflected in the Balance Sheets and the Recent Balance
Sheet as being owned by the Company (except for personal
property sold since the dates of the Balance Sheets
and the Recent Balance Sheet, as the case may be, in
the ordinary course of business and consistent with
past practice), and all the properties and assets
purchased or otherwise acquired by the Company since
the date of the Recent Balance Sheet, which
subsequently purchased or acquired properties and
assets (other than inventory and short term
investments) are listed in Schedule 5.11(b).
(c) Except as set forth in Schedule
5.11(c), all properties and assets reflected in the
Recent Balance Sheet as being owned by the Company
are owned free and clear of all Encumbrances, except
(i) mortgages or security interests shown on the
Balance Sheets or the Recent Balance Sheet as
securing specified liabilities or obligations, with
respect to which no default (or event which, with
notice or lapse of time or both, would constitute a
default) exists and (ii) mortgages or security
interests incurred in connection with the purchase of
property or assets in the ordinary course of business
after the date of the Recent Balance Sheet (such
mortgages and security interests being limited to the
property or assets so acquired), with respect to
which no default (or event which, with notice or
lapse of time or both, would constitute a default)
exists.
(d) The properties and assets of the
Company include all rights, properties and other
assets necessary to permit the Company to conduct its
business in all material respects in the same manner
as it is conducted on, and has been conducted prior
to, the date of this Agreement and the Company owns,
or has the right to use, all rights, properties and
other assets presently used in the conduct of such
business.
(e) To the knowledge of the
Stockholders, the buildings, plants, structures and
equipment of the Company are in good operating
condition and repair and are adequate for their
present and contemplated uses to which they are
being, or are contemplated to be, put, and none of
such buildings, plants, structures or equipment is in
need of maintenance or repairs except for ordinary,
routine maintenance and repairs that are not material
in nature or cost. The Company has not received
written notice of nor, to the knowledge of the
Stockholders, has the Company been notified that it
is in violation of any applicable building, zoning,
anti-pollution, health or other law, ordinance or
regulation in respect of its buildings, plants or
structures or their operations, and, to the knowledge
of Stockholders, no such violation exists.
5.12 Accounts Receivable; Inventory.
(a) The accounts receivable of the Company reflected
in the Recent Balance Sheet arose from bona fide
transactions in the ordinary course of business and
reflect credit terms consistent with the past
practices of the Company, are valid and enforceable
in accordance with their terms. The Company has not
received written notice of, nor are there any known
or asserted, counterclaims, refusals to pay, defenses
or other rights of setoff against such accounts
receivable for which reserves have not been
established in the Recent Balance Sheet in accordance
with GAAP.
(b) The raw materials, work in
process and finished goods inventory of the Company
(the "Inventory") to the extent reflected on the
Recent Balance Sheet net of reserves are usable or
saleable in the ordinary course of business of the
Company. Such Inventory is recorded on the books of
the Company at the lower of cost or market value
(First In-First Out method) or net realizable value
in accordance with GAAP. The location of the
Inventory is set forth on Schedule 5.12(b).
5.13 Litigation. Except as set forth
on Schedule 5.13 hereof, there is no action, suit,
inquiry, proceeding or investigation by or before any
court or Governmental Body pending or, to the knowledge
of the Stockholders, threatened against or involving the
Company or which questions or challenges the validity
of this Agreement or any action taken or to be taken
by the Company pursuant to this Agreement or in
connection with the Contemplated Transactions and the
Company has not received any notice of any event or
occurrence which could result in any such action,
suit, inquiry, proceeding or investigation nor, to
the knowledge of the Stockholders, is there any valid
basis for any such action, suit, inquiry, proceeding
or investigation. The Company is not subject to any
judgment, order or decree.
5.14 Taxes.
(a) The Company has filed or caused
to be filed on a timely basis all income, sales,
withholding and other material Tax Returns that are
or were required to be filed by or with respect to
it, either separately or as a member of a group of
corporations pursuant to the laws, regulations or
administrative requirements of each Governmental Body
with taxing power over it or its assets. The Stockholders
have delivered to the Company true, complete and correct
copies of, and Schedule 5.14(a) lists, all federal
and state income Tax Returns filed since June 30,
1993;
(b) The Company (and to the extent
the Company may be liable therefor, the Stockholders)
has paid, or made provision in the Balance Sheets and
the Recent Balance Sheet for the payment of all
income, sales, withholding and other material Taxes
that have or may have become due for all periods
through the Closing Date, whether pursuant to those
Tax Returns, any assessment received by the
Stockholders or the Company, or otherwise, except
such Taxes, if any, as are set forth in Schedule
5.14(b) and are being contested in good faith and as
to which adequate reserves (determined in accordance
with GAAP consistently applied) have been provided in
the Recent Balance Sheet. All Tax Returns filed by
the Company (and to the extent the Company may be
liable therefor, the Stockholders) have been prepared
in accordance with applicable law, are true, correct
and complete in all material respects and reflect all
Taxes required to be paid thereunder;
(c) The United States federal, state
and local income Tax Returns of the Company have been
audited by the Internal Revenue Service or relevant
state or local tax authorities or are closed by the
applicable statute of limitations for all taxable
years through September 30, 1993.
All deficiencies proposed as a result of such audits
have been paid, reserved against, settled, or, as
described in Schedule 5.14(c) are being contested in
good faith by appropriate proceedings;
(d) Schedule 5.14(d) describes all
adjustments to the United States federal, state or
local income tax returns filed by the Company or any
group of corporations including the Company for all
taxable years since December 31, 1993, and the
resulting deficiencies proposed by the Internal
Revenue Service or other Governmental Body;
(e) Except as set forth in Schedule
5.14(e), neither the Stockholders nor the Company has
given or been requested to give waivers or extensions
(or is or would be subject to a waiver or extension
given by any other entity) of any statute of
limitations relating to the payment of Taxes by the
Company or for which the Company may be liable;
(f) The charges, accruals and
reserves with respect to Taxes on the Recent Balance
Sheet of the Company are adequate (determined in
accordance with GAAP consistently applied) and are at
least equal to the Company's liability for Taxes in
all material respects;
(g) To the knowledge of the
Stockholders, there exists no proposed tax assessment
against the Company (or, to the extent the Company
may be liable therefor, against the Stockholders)
except as disclosed in the Balance Sheets or in
Schedule 5.14(g);
(h) No consent to the application of
section 341(f)(2) of the Code has been filed with
respect to any property or assets held or acquired or
to be acquired by the Company;
(i) All Taxes that the Company is or
was required by law to withhold or collect have been
duly withheld or collected and, to the extent
required, have been paid to the proper Governmental
Body or other Person;
(j) There is no tax sharing agreement
that will require any payment by the Company after
the date of this Agreement other than tax sharing
agreements with the Company or its affiliates
pursuant to this Agreement;
(k) The Company has never filed or
been included in a combined, consolidated or unitary
Tax Return;
(l) During that portion of the
consistency period (as defined in Section 338(h)(4)
of the Code with respect to the sale of the Company
Common Stock to Purchaser) ending on the Closing
Date, neither the Company nor any target affiliate
(as defined in Section 338(h)(6) of the Code with
respect to the sale of the Company Common Stock to
Purchaser) has sold any property or assets to
Purchaser or to any member of the affiliated group
(as defined in Section 338(h)(5) of the Code) that
includes Purchaser, other than in the ordinary course
of business of the Company or such target affiliate;
(m) There is no claim, audit, action,
suit, proceeding, or investigation with respect to
Taxes due or claimed to be due from the Company or
any Tax Return filed or required to be filed by the
Company pending or, to the knowledge of the
Stockholders, threatened against or with respect to
the Company;
(n) There are no closing agreements,
requests for rulings, or technical advice, in respect
of any Tax pending between the Company or any
affiliate thereof and any Governmental Body;
(o) The Company made a valid election
to be taxed as an S Corporation under applicable
provisions of the Code effective October 1, 1990,
such election has never been revoked, terminated,
suspended or discontinued and remains in effect. The
Company has since October 1, 1990 continuously
qualified as an S Corporation under the Code, no
Governmental Body has asserted or notified the
Company that the Company did not so qualify and the
Company will continue to so qualify and such election
to be taxed as an S corporation under the Code will
remain in effect at all times until the transfer of
the shares to the Purchaser pursuant to this
Agreement.
5.15 Patents, Trademarks, Trade Names,
Etc. The Company owns, or is licensed or otherwise has the
rights to use, all Proprietary Rights used in or
necessary for the conduct of its business as
heretofore conducted, and as presently contemplated
to be conducted. Schedule 5.15 contains an accurate
and complete description of (a) all Proprietary
Rights owned, used or proposed to be used by the
Company, all applications therefor, and (b) a summary
of the terms of all agreements relating to
Proprietary Rights which the Company is licensed or
authorized to use by others. Except as set forth in
Schedule 5.15, the Company has the sole and exclusive
right to use the Proprietary Rights referred to
therein, and the consummation of the Contemplated
Transactions will not alter or impair any such
rights; no claims have been asserted by any Person to
the use of any such Proprietary Rights or challenging
or questioning the validity or effectiveness of any
such licenses or agreements and there is no valid
basis for any such claim; and, to the knowledge of
the Stockholders, the use of such Proprietary Rights
by the Company does not violate or infringe the
rights of any Person. Neither the Company nor any
other Person is in default under any license or other
agreement relating to such Proprietary Rights, and
all such licenses and agreements are valid, in full
force and effect and, to the knowledge of the
Stockholders, enforceable.
5.16 Banking Relationships. Schedule
5.16 sets forth the names and locations of all banks,
trust companies, savings and loan associations and other
financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature and the
names of all persons authorized to have access
thereto, draw thereon or make withdrawals therefrom.
The Stockholders have delivered to Purchaser copies
of all records, including all signatures or
authorization cards, pertaining to such safe deposit
boxes and bank accounts.
5.17 Contracts and Commitments. Schedule
5.17 contains a true and complete and accurate list
of each of the following contracts, agreements,
understandings or other obligations (whether written
or oral) to which the Company is a party or by which
any of its assets or properties are bound:
(a) any contracts, agreements,
commitments or other obligations with officers,
employees, agents, consultants, advisors, or salesmen
that (i) are not cancelable by it on notice of not
longer than 30 days without penalty or premium or
other liabilities, or (ii) provide for the payment of
any bonus or commission based on sales or earnings;
(b) all leases, subleases or rental
or use agreements, contracts, covenants or
obligations;
(c) indentures, notes, loans, letters
of credit or credit agreements or other contract,
agreement, commitment or other obligation with
respect to indebtedness for borrowed money; any
guarantee of, or contract, agreement, commitment or
obligation to acquire any such indebtedness of
others; and any other contract, agreement, commitment
or other obligation under which the Company has any
obligations or liabilities (whether absolute,
accrued, contingent or otherwise) as guarantor,
surety, co-signer, endorser, co-maker or indemnitor
in respect of the obligation of any Person;
(d) security agreement, mortgage or
other contract, agreement, commitment or obligation
that creates or may create any Encumbrance on any of
its properties or assets;
(e) any outstanding agreement,
contract, commitment or obligation as to loans or
advances made, or to be made, by the Company to any
Person;
(f) any contract, agreement,
commitment or obligation to make any capital
expenditures;
(g) contracts, agreements,
commitments or other obligations with any Person
containing any provision or covenant limiting the
ability of the Company to engage in any line of
business or to compete with or to obtain products or
services from any Person or limiting the ability of
any Person to compete with or to provide products or
services to, or obtain products or services from, the
Company;
(h) any partnership, joint venture,
profit-sharing or similar contract, agreement,
understanding or obligation with any Person;
(i) outstanding proxies, powers of
attorney, or similar delegations of authority of the
Company, except for powers of attorney for the
service of process on Governmental Bodies pursuant to
applicable insurance or securities laws;
(j) contracts, agreements,
commitments or other obligations with respect to the
purchase or sale by or to the Company of any product,
equipment, facility, or similar item that by their
respective terms do not expire or terminate or are
not terminable by the Company, without penalty,
premium or other liability within 30 days or may
involve the payment by or to the Company of more than
$5,000;
(k) license, royalty, franchise,
distributorship, dealer, service, sales agency,
public relations or advertising contracts,
agreements, commitments or other obligations;
(l) contracts, agreements,
commitments or other obligations to provide services
or facilities by or to the Company or to or by
another Person which is not terminable by the Company
within 30 days without penalty, premium or other
liability or involving payment by the Company or the
other Person of more than $5,000, except for
advertising contracts entered into in the ordinary
course of business and consistent with past practice
which, in the aggregate, do not require payments to
be made in excess of $50,000; and
(m) all other contracts, agreements,
commitments, or other obligations whether or not made
in the ordinary course of business which either (i)
may involve the expenditure by the Company of funds
in excess of $5,000 per commitment (or under a group
of similar commitments), or (ii) are not terminable
within 30 days from the date hereof without penalty,
premium or other liability, or are otherwise material
to the Company.
5.18 Status of Agreements. All
material contracts, agreements, commitments,
obligations, plans, leases, policies and licenses
whether, in writing or oral, to which the Company is
a party are in full force and effect and constitute
valid and binding obligations of the Company and, to
the knowledge of the Stockholders, are binding on the
other parties thereto; there are no existing defaults
(or events which, with notice or lapse of time or
both, would constitute a default) by the Company or,
to the knowledge of the Stockholders, any other party
thereunder. Except as disclosed in Schedule 5.18,
the Company is not a party to any contract,
agreement, commitment or other obligation that was
not entered into in the ordinary course of business
and consistent with past practice or that, whether or
not entered into in the ordinary course of business,
has or may reasonably be expected to have
individually or in the aggregate with any other
contracts, agreements, commitments or other
obligations a material adverse effect on the Business
and Condition.
5.19 Insurance. Schedule 5.19 contains an
accurate and complete list of all policies of
insurance of any kind or nature, including but not
limited to, fire, liability, workmen's compensation,
liability and other forms of insurance owned or held
by or covering the Company, its operations or all or
any portion of its property and assets. All such
policies are in full force and effect, all premiums
with respect thereto covering all periods up to and
including the Closing Date have been paid, to the
extent due prior to the Closing Date, or accrued on
the Company's books, and no notice of cancellation or
termination has been received with respect to any
such policy.
To the knowledge of the Stockholders, such policies
are sufficient for compliance with all requirements
of law and of all agreements to which the Company is
a party, are valid, outstanding and enforceable
policies, are in such amounts and cover such risks as
are customarily carried by businesses comparable to
the business conducted by the Company and will not
in any way be affected by, or terminate or lapse by
reason of, the Contemplated Transactions. No
insurance has been refused with respect to any of the
operations, properties or assets of the Company, nor
has the coverage of any insurance been limited, by
any insurance carrier which has carried, or received
any application for, any such insurance during the
last three years.
5.20 Labor Relations. Schedule 5.20
lists the employees of the Company, including their
current positions and compensation (and any increases
in wage rate or compensation of which such employees
have been notified). Except as set forth in Schedule
5.20, the Company is not obligated under any employment
contract, nor is it a party to any union, collective
bargaining or similar agreement, any profit-sharing,
deferred compensation, bonus, stock option, stock
ownership, stock purchase, pension, consulting,
retirement, welfare or incentive plan or agreement,
or any plan providing for "fringe benefits" to its
employees, including but not limited to salary
continuation, service awards, severance pay, welfare,
medical, hospitalization, disability, life insurance
and other insurance plans or related benefits with
respect thereto. The Company is not liable for any
severance pay or other payments on account of
termination of any former employee. Except as set
forth in Schedule 5.20, (a) to the knowledge of the
Stockholders, the Company is in compliance with all
applicable laws respecting employment and employment
practices, terms and conditions of employment and
wages and hours, and Company is not nor has been
engaged in any unfair labor practice, (b) there is no
unfair labor practice complaint against the Company
pending before the National Labor Relations Board,
(c) there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of the
Stockholders, threatened against or affecting the
Company, (d) no representation question exists
respecting the employees of the Company, (e) the
Company has not experienced any strike, work stoppage
or other labor difficulty, (f) the Company's
relations with its employees are satisfactory, and
(g) the Company is not a party to, or subject to, a
collective bargaining agreement, and no collective
bargaining agreement relating to employees of the
Company is currently being negotiated.
5.21 Employee Benefit Plans. (a)
Except as set forth in Schedule 5.21(a), the Company
does not have, none of its current or former employees
are covered by, and the Company has no obligation with
respect to, any bonus, deferred compensation, pension,
profit-sharing, retirement, insurance, stock purchase,
stock option, group life insurance, hospitalization
insurance, severance, vacation, sick pay or other
fringe benefit plan, arrangement or practice, or any
other employee benefit plan (as defined in section
3(3) of ERISA), whether formal or informal
(collectively, "Plans"). To the knowledge of the
Stockholders, the Company has performed and complied
with all of its obligations under or with respect to
such Plans and such Plans have operated in accordance
with their terms. The Company does not have any
commitment, whether formal or informal and whether
legally binding or not, to create any additional
Plan.
(b) (i) General Definitions. For the
purposes of this Section 5.21(b), the following
definitions shall apply:
(A) "Employee Plan" shall mean
each "employee benefit plan", as
defined in Section 3(3) of ERISA, that
is maintained, administered or
contributed to by the Company or any
of its Affiliates (as described below
for purposes of this Section 5.21(b)
or to which the Company or any of its
Affiliates is or has been obligated to
contribute.
(B) "Affiliate" shall mean any
other entity which, together with the
Company, would be treated as a single
employer under Section 414 of the
Code.
(C) "Multiemployer Plans" shall
mean any Employee Plan that meets the
definition of a "multiemployer plan"
in Section 3(37) of ERISA.
(D) "Title IV Plan" shall mean any
Employee Plan that is subject to Title
IV of ERISA.
(E) "PBGC" shall mean the Pension
Benefit Guaranty Corporation.
(F) "Benefit Arrangement" shall
mean any compensation arrangements, bonus
or benefit plans, programs or other
arrangements maintained by the
Company, including without limitation,
all arrangements, policies, plans and
programs relating to retirement,
disability, insurance, (including any
self-insured arrangements), severance
pay, supplemental unemployment
benefits, vacation, leave of absence,
equity participation, stock purchase,
stock option, stock appreciation right
or any other incentive arrangements.
(ii) Disclosure. Schedule 5.21(b)
hereof sets forth all Employee Plans and identifies
each Employee Plan which is (A) a Multiemployer Plan,
(B) a Title IV Plan, (C) maintained in connection
with any trust described in Section 501(c)(9) of the
Code or (D) another type of Employee Plan.
(iii) Delivery of Documents and
Information. The Stockholders have heretofore
delivered to Purchaser correct and complete copies of
the following items:
(A) the plan document for each
Employee Plan and related trust agreement
(and all amendments thereto), all written
interpretations and communications
with respect to each such Employee
Plan, and if applicable, written
descriptions of any oral
communications or oral representations
concerning such Plan;
(B) the most recent annual
report (Form 5500 including, if applicable,
Schedule B thereto) prepared in
connection with each Employee Plan;
(C) the most recent determination
letter from the Internal Revenue Service
relating to each Employee Plan
covering employees of the Company
which is intended to be qualified
under Section 401(a) of the Code.
(iv) Except as specifically set forth
in Schedule 5.21(b) hereof, with respect to each
Employee Plan:
(A) No "prohibited transaction", as defined
in Section 406 of ERISA or Section 4975 of the Code, has
occurred, and no tax or penalty has been imposed or can
reasonably be expected to be imposed under Section 502(i)
of ERISA or Sections 4975(a) or (b) of the Code.
(B) At no time has the Company or any
trade or business which together with the Company
would be treated or at any time has been treated as
a single employer under Section 4001(b)(1) of ERISA
or Section 414 of the Code, contributed to,
maintained or been obligated to contribute to (x)
any plan which is or has been subject to Title IV
of ERISA, including any multiemployer plan as such
term is defined under Section 3(37) of ERISA, (y)
any plan which is or has been subject to Section
412 of the Code or (z) any employee stock ownership
plan as such term is defined in Section 407(d)(6)
of ERISA and Section 4975(e)(7) of the Code.
(C) Each Employee Plan that is intended to
be qualified under Section 401(a) of the Code has
received a determination letter from the Internal
Revenue Service stating that such Employee Plan is
a qualified plan and that each trust created under
any such Employee Plan is exempt from taxation
under Section 501(a) of the Code. Further, each
such Plan and related trust has been materially
operated in accordance with all applicable laws as
of the effective date thereof, notwithstanding the
actual terms of the Employee Plan documents.
(D) Each Employee Plan has been maintained
in compliance in all material respects with its
terms and with the requirements prescribed by any
and all laws, including but not limited to ERISA
and the Code, that are applicable to such plans.
(E) No tax or penalty under any provision
of the Code or ERISA has been imposed or can
reasonably be expected to be imposed as a result of
actions or inactions which occurred prior to the
Closing Date.
(F) No post-retirement medical and life
insurance benefit obligations exist with respect to
employees or former employees of the Company other
than obligations which exist pursuant to the health
care continuation requirements under Section 601
et. seq. of ERISA and Section 4980B of the Code.
(G) There are no pending actions, claims
or lawsuits which either have been asserted or
instituted or can reasonably be expected to be
asserted or instituted against any of the Employee
Plans, the assets of any of the trusts under such
Plan, the plan sponsor, the plan administrator,
trustee or any other fiduciary of such Plans with
respect to any aspect of such Employee Plans
(except for routine benefit claims or routine
expenses).
(H) There are no pending or ongoing
audits, or inquiries or investigations by any
governmental agency.
(I) All returns, reports and notices for
any Employee Plan which are required under the Code, ERISA or any
other applicable law and the regulations thereunder have been timely
provided to governmental agencies, employees, participants or
beneficiaries.
(J) The Company has timely made all payments and contributions
due from them through the Closing Date with respect to each Employee Plan
and no payments or contributions are owed by either the Stockholders or
the Company with respect to any Employee Plan for all periods ending on
or before the Closing Date.
(v) Except as set forth in Schedule 5.21(b) with
respect to each Employee Plan, neither the Company nor any of its
Affiliates has failed to comply with any of the health care
continuation coverage requirements or related notice requirements
under Section 601, et. seq. of ERISA and Section 4980B of the
Code.
(vi) There is no contract, Employee Plan or Benefit
Arrangement covering any current or former employee of the Company
that, individually or collectively, could give rise to the payment
of any amount that would not be deductible pursuant to the terms
of Section 280G of the Code.
(vii) Except as specifically set forth in
Schedule 5.21(b), no payment, award, bonus, severance payment or
other amount under any contract, Employee Plan or Benefit
Arrangement will be triggered as a result of the events
contemplated by this Agreement other than accrued vacation pay
(which shall in no event in the aggregate exceed $12,000) and
distributions arising under the Roshco, Inc. Profit Sharing Plan.
(viii) No Employee Plan or Benefit Arrangement
has any restrictions against termination or modification, either
by its terms or due to any written or oral communications by the
Stockholders or any representative of the Company.
(ix) Neither the Stockholders nor the Company have
engaged in any transaction or series of transactions which, in the
aggregate, would cause the notice provisions of the WARN Act to be
applicable to the transactions contemplated by this Agreement.
(x) The Recent Balance Sheet properly and
adequately reflects any and all liabilities and obligations of the
Company relating to any period ending on or prior to the Closing
Date in respect of the employees of the Company, for (a) unpaid
compensation, salaries, wages, disability payments and other
payroll items (including, without limitation, bonus, incentive or
deferred compensation, vacation or other paid leave), (b) unpaid
contributions, costs and expenses to or in respect of any Employee
Plan, and (c) severance or other termination benefits relating to,
resulting from or arising in respect of any termination of
employment occurring on or prior to the Closing Date.
5.22 Compliance with Law. Schedule 5.22 is a true and
complete list of each license, permit, order or approval of
Governmental Bodies held or obtained by the Company or any
employee of the Company which is required in connection with the
business conducted by the Company immediately prior to the Closing
Date. The operations of the Company have been conducted in all
material respects in accordance with all applicable laws,
regulations and other requirements of all Governmental Bodies
having jurisdiction over the Company, including, without
limitation, all such laws, regulations and requirements relating
to antitrust, consumer protection, currency exchange, equal
opportunity, health, occupational safety, pension and securities
matters. To the knowledge of the Stockholders, the Company has
not received any notification of any asserted present or past
failure to comply with any such laws, rules, regulations or
licenses. The Company and each employee of the Company have all
licenses, permits, orders or approvals from Governmental Bodies
required for the conduct of the Company's business and, to the
knowledge of the Stockholders, are not in violation of any such
license, permit, order or approval. All such licenses, permits,
orders and approvals are in full force and effect and, to the
knowledge of the Stockholders, no suspension or cancellation
thereof has been threatened.
5.23 Environmental Protection. (a) Except as set forth
in Schedule 5.23(a), to the knowledge of the Stockholders, the
Company has obtained all permits, licenses and other
authorizations which are required with respect to the Company
under all Applicable Environmental Laws. Except as set forth in
Schedule 5.23(a), the Company is in compliance in all material
respects with all terms and conditions of the required permits,
licenses and authorizations, and is also in compliance in all
material respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Applicable Environmental
Laws or any final plan, order, decree or judgment affecting the
Company. Except as set forth in Schedule 5.23(a), there does not
exist as a result of any action or inaction of the Company or, to
the knowledge of the Stockholders, as a result of any action or
inaction of any other person, nor has the Company received notice
of, any events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent
continued compliance, or which may give rise to any common law or
legal liability, or otherwise form the basis of any claim, action,
suit, proceedings, hearing or investigation, based on or related
to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of
any pollutant, contaminant, or hazardous or toxic material or
waste.
(b) Except as set forth in Schedule 5.23(b), no
Hazardous Material has been incorporated in, used on, stored on or
under, released from, treated on, transported to or from, or
disposed of by the Company on or from any property owned or leased
by the Company or, to the knowledge of the Stockholders, by any
other Person such that, under Applicable Environmental Laws (i)
any such Hazardous Material is required to be removed, cleaned-up
or remediated before the property owned or leased by the Company
is altered, renovated, demolished or transferred, or (ii) the
owner or lessee of the property (as applicable to the Company) is
subjected to liability for the removal, clean-up or remediation of
such Hazardous Material; and neither the Stockholders nor the
Company has received notification from any Governmental Bodies or
other third parties relating to Hazardous Material on or affecting
any property owned or leased by the Company or relating to any
potential or known liability under Applicable Environmental Laws
arising from the ownership or leasing of any property.
5.24 Related Party Transactions and Interests. (a)
Except as set forth in Schedule 5.24(a) and except for normal
compensation arrangements and travel, entertainment and other
expense reimbursements in the ordinary course of the Company's
business, (i) since the beginning of the third full fiscal year of
the Company preceding the date of this Agreement there have been
no transactions between the Company and any Related Party or any
payment (however characterized) by the Company to any Related
Party or by any Related Party to the Company, and (ii) there is no
lease, agreement or commitment between the Company and any Related
Party. As used in the preceding sentence, the term "transaction"
includes, but is not limited to, any sale or other transfer of
property of assets, the lease or other use of property or assets,
the provision of services and the furnishing of personnel, whether
or not for consideration.
(b) Except as set forth in Schedule 5.24(b), (i)
no Related Party has any material interest in any property, real
or personal, tangible or intangible, including, without
limitation, any Proprietary Rights, used in or pertaining to the
business of the Company, (ii) no Related Party is indebted to the
Company and (iii) the Company is not indebted to any Related
Party.
(c) Except as set forth in Schedule 5.24(c), no
Related Party owns any direct or indirect interest of any kind in,
or controls or is a director, officer, employee or partner of, or
consultant to, or lender to or borrower from, or has the right to
participate in the profits of, any person, firm or corporation
which is (i) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (ii) engaged in a business
related to the business of the Company or (iii) participating in
any transaction to which the Company is a party (other than as a
stockholder of a corporation listed on a national securities
exchange or whose stock is actively traded in the over-the-counter
market).
5.25 No Brokers or Finders. Neither the Stockholders
nor the Company or any of its officers, directors or employees,
has employed any broker or finder or incurred any liability for
any brokerage or finder's fees or commissions or similar payments
in connection with any of the Contemplated Transactions.
5.26 Books and Records. The financial records and
books of account of the Company, all of which have been or will be
made available to Purchaser, have been maintained in the ordinary
course of business, in accordance with sound business practices
and reflect the transactions entered into by the Company. The
minute books, stock record books and other records of the Company
have been maintained in the ordinary course of the Company's
business.
5.27 Absence of Certain Commercial Practices. Neither
the Company nor, to the knowledge of the Stockholders, any
director, officer, agent, employee or other Person acting on
behalf of the Company, has (a) given or agreed to give any gift or
similar benefit of more than nominal value to any customer,
supplier, or governmental employee or official or any other Person
who is or may be in a position to help or hinder the Company in
connection with any proposed transaction, which gift or similar
benefit, if not given in the past, might have materially and
adversely affected the business or prospects of the Company, or
which, if not continued in the future, might materially and
adversely affect the business of the Company after the Closing
Date, or (b) used any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any
unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or
unrecorded funds in violation of Section 30A of the Securities
Exchange Act of 1934, as amended.
5.28 Major Customers. Schedule 5.28 contains a list of
the 25 largest customers, including distributors, of the Company
since October 1, 1995 (determined on the basis of the total dollar
amount of net sales) showing the total dollar amount of net sales
to each such customer during each such year. The Stockholders
have no knowledge or notice of any facts indicating that any of
the top 25 customers listed on Schedule 5.28 will not continue to
be customers of the business of the Company after the Closing.
5.29 Product Warranty and Product Liability. Schedule
5.29 contains a true, correct and complete copy of the Company's
standard warranty or warranties for sales of Products (as defined
below) and, except as stated therein, there are no warranties,
commitments or obligations with respect to the return, repair or
replacement of Products. There are no defects in design,
construction or manufacture of Products which would create an
unusual risk of injury to persons or property other than those
implicit in the Products. None of the Products has been the
subject of any replacement, field fix, retrofit, modification or
recall campaign by the Company. To the knowledge of the
Stockholders, the Products have been designed and manufactured so
as to meet and comply with all governmental standards and
specifications currently in effect. To the knowledge of the
Stockholders, the Products have received all governmental
approvals necessary to allow their sale and use. As used in this
Section 5.29, the term "Products" means any and all products
manufactured, distributed or sold by the Company since June 30,
1993.
5.30 Disclosure. No representations or warranties by
the Stockholders in this Agreement and no statement contained in
any schedules, exhibits or certificates furnished or to be
furnished to the Purchaser or any of its representatives pursuant
to the provisions hereof, contains or will contain any untrue
statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which
it was made, in order to make the statements herein or therein not
misleading. Documents delivered or to be delivered to Purchaser
pursuant to this Agreement are or will be true and complete copies
of what they purport to be.
6. Representations and Warranties of Purchaser.
Purchaser represents and warrants to, and agrees with,
the Stockholders as follows:
6.1 Organization of Purchaser; Authorization.
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware with full
corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action of Purchaser and
this Agreement constitutes a valid and binding obligation of
Purchaser, enforceable against it in accordance with its terms.
6.2 No Conflict as to Purchaser. Neither the
execution and delivery of this Agreement nor the performance of
Purchaser's obligations hereunder will (a) violate any provision
of the Certificate of Incorporation or By-Laws (or other governing
instrument) of Purchaser, (b) violate, be in conflict with, or
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under any agreement or
commitment to which Purchaser is party or (c)
violate any statute or law or any judgment, decree, order,
regulation or rule of any court or other Governmental Body
applicable to Purchaser.
6.3 Acquisition of Shares For Investment. Purchaser
is acquiring the Shares for its own account for investment and not
with a view to the distribution thereof.
6.4 No Brokers or Finders. Neither Purchaser nor any
of its officers, directors or employees, has employed any broker
or finder or incurred any liability for any brokerage or finder's
fees or commissions or similar payments in connection with any of
the Contemplated Transactions.
6.5 Consents and Approvals of Governmental
Authorities. No notice to, consent, approval or authorization of,
or declaration, filing or registration with, any Governmental Body
is required in connection with the execution, delivery and
performance of this Agreement by Purchaser or the consummation of
the Contemplated Transactions by Purchaser.
6.6 Other Consents. No consent of, or notice to, any
Person is necessary in connection with the execution, delivery and
performance of this Agreement or the consummation of the
Contemplated Transactions by Purchaser.
6.7 Litigation. There is no action, suit, inquiry,
proceeding or investigation by or before any court or Governmental
Body pending or, to the knowledge of the Purchaser, threatened
which questions or challenges the validity of this Agreement or
any action taken or to be taken by Purchaser pursuant to this
Agreement or in connection with the Contemplated Transactions.
7. Post-Closing Covenants of Stockholders and
Purchaser.
7.1 Access Following Closing. Following the Closing
Date, (a) the Stockholders shall give the Company and its
authorized representatives, (i) access to their books and records
(and permit Purchaser to make copies thereof) to the extent
relating to the Company, as Purchaser may reasonably request and
(ii) assistance with the audit of the financial statements of the
Company, any proceedings relating to Tax Returns or any
investigations by Governmental Bodies, to the extent relating to
periods prior to the Closing Date, as Purchaser may reasonably
request.
(b) Following the Closing Date, Purchaser shall
cause the Company to give the Stockholders and their authorized
representatives, access to its books and records (and permit the
Stockholders to make copies thereof) to the extent relating to
periods prior to the Closing Date as the Stockholders may
reasonably request for purposes of preparing Tax Returns and
conducting proceedings relating to Taxes.
7.2 Tax Matters.
(a) (i) On or prior to the Closing Date, the
Stockholders shall have caused the Company to prepare and file on
a timely basis all Tax Returns required to be filed by it and
which are due on or prior to the Closing Date, and the
Stockholders shall pay or cause the Company to pay all Taxes due
with respect to such Tax Returns.
(ii) The Purchaser shall permit the Stockholders
and the Stones to, and the Stockholders and the Stones shall,
direct and supervise the Company in preparing and timely filing
its Federal Income Tax Return for the "S short year" as defined in
Code Section 1362(e)(1)(A) and created as a result of the Closing
hereunder, and any equivalent Tax Returns required under state or
local law for Tax periods which end on or before the Closing Date
but which are due thereafter. However, the preparation of such
Tax Returns shall be on the basis described in the third sentence
of Section 7.2(a)(iii) hereof and to the extent that any aspect of
any such Tax Returns may affect any Tax liability of the Company
or Purchaser in a Tax period ending at any time after the Closing
Date, shall be subject to the approval of Purchaser, which shall
not be unreasonably withheld; provided, however, that all aspects
of such Tax Returns which relate to any election made by
Purchaser, Stockholders or the Company under Code Section 338,
including the reporting of the deemed sale of the Company's assets
and the deemed liquidation of the Company described in Treasury
Regulations Section 1.338(h)(iv)(e), shall be exclusively
supervised and controlled by Purchaser.
Purchaser, the Company and their accountants shall be entitled to
participate in the preparation of such Tax Returns and shall be
kept fully informed with respect thereto by the Stockholders. If
any such completed draft Tax Return is not furnished to Purchaser
by the Stockholders or the Stones at least forty-five (45) days
prior to the due date thereof, and such delay is not due to the
fault of the Purchaser or the Company, or if any dispute between
Purchaser and the Stockholders with respect to such Tax Returns
cannot be resolved within fifteen (15) days prior to the due date
thereof, such Tax Returns shall be timely filed in the form
prepared or proposed by Purchaser, as the case may be, and any
dispute shall be resolved as provided in Section 7.2(b) hereof.
Stockholders or Stones shall at the time such Tax Returns are
filed pay to Purchaser all Taxes due with respect to such Tax
Returns to the extent such Taxes exceed the reserve for Taxes
(excluding any deferred Taxes or the contingent Tax reserve)
accrued in the Recent Balance Sheet, which payment obligation
shall not be subject to Section 8.5 hereof.
(iii) Except as provided in Section 7.2(a)(ii)
above, Purchaser shall cause the Company to prepare and file its
Tax Returns due after the Closing Date, including any Tax Returns
due for the Company's "C short year", as defined in Section
1362(e)(1)(B) of the Code, and created as a result of the Closing
hereunder, and any equivalent Tax Returns required under state or
local law. Copies of any such federal or state income Tax Returns
for periods which include the Closing Date, but which are due
thereafter, shall be furnished to the Stockholders by the Company
at least 30 days prior to the filing thereof and shall be subject
to the approval of the Stockholders, which shall not be
unreasonably withheld. Any such Tax Returns for periods which
include the Closing Date but which are due thereafter shall be
prepared in a manner that, to the extent consistent with
applicable laws and regulations and with any election made under
Code Section 338 pursuant to Section 7.2(g) hereof is consistent
with the positions taken and accounting methods employed by the
Company, provided that the Stockholders advise Purchaser of such
positions and methods, in the preparation of similar Tax Returns
for prior periods and minimize the Taxes payable by the Company
and/or the Stockholders (to the extent consistent with applicable
law and without (in Purchaser's reasonable judgment) risking
imposition of a penalty). All Tax Returns required to be
furnished to Stockholders hereunder shall be filed in the form
delivered to the Stockholders, unless the Stockholders, within 15
days after their receipt of that Tax Return, give notice to
Purchaser of their objection to that Tax Return and setting forth
in reasonable detail the basis for that objection. If a
Stockholder gives such a notice with respect to a Tax Return, that
Tax Return shall be filed in the form proposed by Purchaser, and
the dispute shall be resolved as provided in Section 7.2(b)
hereof.
(b) If Purchaser and the Stockholders, after good
faith negotiations, are unable to reach agreement prior to the
filing date of any Tax Return, with respect to which their mutual
consent or agreement under this Agreement is required, then such
Tax Return shall be filed as proposed by Purchaser and after such
filing, the dispute shall be referred to an accounting firm
selected as described in Section 3.2(d) hereof, whose
determination shall be final; except that the accounting firm
selected must be mutually agreed upon by Purchaser and the
Stockholders and in the absence of such agreement shall be
selected by the American Arbitration Association in the manner set
forth in said Section 3.2(d) hereof. In the event that such
accounting firm determines that the disputed amount of such Taxes,
or any portion thereof, should not have been included with such
Tax Return, Purchaser shall cause the Company to take all
necessary steps, including, without limitation, preparing an
amendment to such Tax Return or a request for a refund of Taxes
paid thereunder, in order to enable the Stockholders to receive a
refund of such disputed amount (or portion thereof) or, at its
option, shall reimburse Stockholders for any tax paid by them as a
result of such disputed amount. The fees and expenses of such
accounting firm shall be paid by the Stockholders and Purchaser or
the Company as follows: (i) the Stockholders shall pay that
portion of the fees and expenses which is equal to the product
obtained by multiplying (A) such fees and expenses by (B) a
fraction, the numerator of which is the portion of the disputed
amount that such accounting firm determines should have been
included with the Tax Return and the denominator of which is the
disputed amount; and (ii) Purchaser or the Company shall pay the
balance, if any, of the fees and expenses of such accounting firm.
(c) The Stockholders agree to assist in and
execute, to the extent required, any Tax Returns required to be
filed by Purchaser or the Company in connection with the
Contemplated Transactions on or after the Closing Date, including
without limitation, Tax Returns related to any State or local
taxes payable as a result of the Contemplated Transactions.
(d) The Stockholders agree to join in making any
elections permitted under the Code or other applicable tax statute
so that the Company's income for its S short year, C short year or
equivalent short period under state or local tax statutes shall be
computed on the basis of a closing of the Company's books as of
the end of each such short year or other short period. All Tax
liabilities of the Company for Tax periods which include the
Closing Date shall be allocated between the period ending on the
Closing Date, and the period thereafter, on the same basis.
(e) Subject to Section 8.5, the Stones shall be
responsible for, and shall pay on a timely basis, and shall
indemnify the Purchaser and the Company from and against, all Tax
liabilities of the Company for all periods ending on or prior to
the Closing Date, including, without limitation, the Company's
short year described in Section 7.2(a)(ii) hereof, and Tax
liabilities allocated to the period ending on or prior to the
Closing Date (as provided in Section 7.2(d) hereof) for Tax
periods which include, but do not end on, the Closing Date, to the
extent such liabilities exceed the amount of the reserve for Taxes
(excluding any deferred Taxes or the contingent Tax
reserve) accrued on the Recent Balance Sheet; provided, however,
that any income Tax liabilities for all periods ending on or prior
to the Closing Date or so allocated to periods ending on or prior
to the Closing Date shall not be subject to Section 8.5. Without
limiting the generality of the foregoing, the Stones shall also
pay, and indemnify and hold the Purchaser and the Company harmless
from and against, any and all Tax liabilities whenever incurred,
due or payable, arising from or attributable to the consummation
of the Contemplated Transactions or the payment of any amount
(including the Purchase Price) to the Stockholders and the Company
pursuant to this Agreement or any related document or agreement.
(f) Each of the Stockholders and the Company shall
provide the other parties with such assistance as may reasonably
be requested by any of them in connection with the preparation of
any Tax Return or any Tax contest and each will retain and provide
the others with any records or information which may be relevant
to any such Tax Return or Tax contest.
(g) Notwithstanding anything in this Agreement to
the contrary, in the event that Purchaser (or any successor) makes
or is deemed to have made an election under Section 338 of the
Code (or any comparable provision of state or local law) to treat
the acquisition of Company Common Stock hereunder as an
acquisition of the assets of the Company, then, at the request of
the Purchaser, the Stockholders shall join in a Code
Section 338(h)(10) election with respect to the acquisition of the
Company's Common Stock hereunder. Specifically, Stockholders
agree to join with Purchaser at its request in making a timely
joint election pursuant to Section 338(h)(10) of the Code,
Treasury Regulation 1.338(h)(10) promulgated thereunder and the
rules provided under Code Sections 338(a) and 338(g) (a "Section
338(h)(10) Election") and to execute and cooperate with Purchaser
in filing Internal Revenue Service Form 8023 (or any successor
form) and any other required forms or documents in each case in
the form prepared by Purchaser in connection with the purchase and
sale of the Shares. Stockholders agree at the request of
Purchaser to make elections similar to the Section 338(h)(10)
Election as in effect under any applicable state or local Tax law,
in each case with respect to the acquisition of the Shares,
including, if no Section 338(h)(10) Election may be made under
applicable state or local Tax law, the election under Section
338(g) of the Code. Notwithstanding anything in this Agreement to
the contrary, the Company and Purchaser shall be jointly and
severally responsible and liable for and shall pay to the
Stockholders or as the Stockholders direct, ten (10) days prior to
the date when due and payable, and agree to and shall, indemnify
Stockholders from and against, any and all Federal, state and
local income Taxes associated with, or resulting or arising from
and/or attributable to any election made pursuant to this Section
7.2(g) after taking into account the deemed asset sale and the
deemed liquidation by the Company pursuant to the Section
338(h)(10) Election, to the extent they exceed in the aggregate
the aggregate Taxes which would have been payable by Stockholders
in connection with the sale to Purchaser of the Shares and the
other Contemplated Transactions in the absence of such election
(the "Additional Section 338 Taxes"), but only to the extent that
any such additional Tax liability is not attributable to
misrepresentation or breach of warranty or covenant made by the
Stockholders under this Agreement or in connection with the
Contemplated Transactions or failure of Stockholders to perform
their obligations hereunder. Any dispute as to the amount of the
Additional Section 338 Taxes shall be resolved by the Accountants
pursuant to Section 3.2(d) hereof.
(h) Purchaser and Stockholders agree to allocate the
Purchase Price as required by Section 338(h)(10) of the Code and
the regulations thereunder. In furtherance thereof, the parties
agree to allocate the Purchase Price among the classes of the
Company's assets (and to file any Tax forms when required by
applicable law) substantially in accordance with Schedule 7.2(h)
hereof modified to reflect facts and circumstances arising as of
the Closing Date.
(i) Purchaser, with the cooperation of Stockholders,
shall prepare such forms as are necessary to make all applicable
Section 338(h)(10) Elections and any other forms or schedules that
are referred to in Sections 7.2(g) or (h) hereof and all portions
of any corporate Tax Returns of the Company which report the
deemed sale of the Company's assets under Section 338(h)(10) of
the Code (including any portions which report gain subject to the
tax imposed by Section 1374 of the Code) and any equivalent
returns under state or local law. The Stockholders shall execute
such forms as necessary and shall not take positions on their
personal Tax Returns which are inconsistent with the positions
taken by Purchaser on the Tax Returns or portions thereof prepared
by Purchaser relating to any Section 338(h)(10) Election or any
equivalent election under state or local law.
7.3 ERISA. (a) The Stockholders shall have caused the
Company to, and the Company shall, terminate the Roshco, Inc.
Profit Sharing Plan (the "Plan") prior to the Closing Date and
shall take all actions necessary to effectuate such termination.
(b) The Stockholders shall cooperate with
Purchaser in taking all necessary actions as Purchaser shall deem
necessary or desirable to obtain, as soon as practicable after the
Closing Date, a determination letter from the Internal Revenue
Service with respect to tax-qualified status of the Plan in
connection with its termination. The Stockholders shall select
those individuals or entities whom it decides are appropriate in
obtaining this determination letter, which selection shall be
subject to approval by Purchaser, which will not be unreasonably
denied.
(c) The Stockholders shall reimburse Purchaser for
all reasonable fees, amounts and expenses paid or incurred by
Purchaser in connection with (i) the administration, operation,
termination and liquidation of the Plan as a tax-qualified plan,
including, but not limited to, any actions deemed necessary by
counsel to Purchaser to maintain the Plan as a tax-qualified plan
(e.g., utilization of the Internal Revenue Service's Employee
Plans Compliance Resolution System), (ii) requesting and obtaining
a determination letter from the Internal Revenue Service regarding
the tax-qualified status of the Plan in connection with its
termination (including, but not limited to, any actions deemed
necessary by counsel to Purchaser in order to obtain such a
determination letter) and (iii) the liquidation of the Plan and
related trust following the receipt of such a determination
letter.
7.4. The Guarantee. Purchaser agrees to use its
reasonable commercial efforts to procure the release of Sheldon
Stone from the Guarantee dated November 5, 1996 (the "Guarantee")
in favor of The First National Bank of Chicago within 30 days of
the Closing Date. The Stockholders shall give Purchaser such
assistance and execute such documentation as Purchaser may
reasonably request in procuring the release of the Guarantee. It
is understood and agreed that responsibility for the discharge of
any mortgage, security agreement or other document securing the
Guarantee, including, without limitation, the preparation and
recording or filing of any necessary documentation and the payment
of any fees and expenses in connection therewith, shall be for the
account of the Stockholders.
8. Survival of Representations and Warranties;
Indemnification.
8.1 Indemnification by the Stones. The Stones shall
jointly and severally indemnify and hold harmless Purchaser, and
shall reimburse Purchaser for, any loss, liability, claim, damage,
expense (including, but not limited to, costs of investigation and
defense and reasonable attorneys' fees) (collectively, "Damages"),
arising from or in connection with (a) any inaccuracy in any of
the representations and warranties of the Stockholders in this
Agreement or in any certificate delivered by the Stockholders
pursuant to this Agreement, or any actions, omissions or
statements of facts inconsistent with any such representation or
warranty, (b) any failure by the Stockholders to perform or comply
with any agreement in this Agreement, (c) any claim by any Person
for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been
made by any such Person with the Stockholders (or any Person
acting on their behalf) in connection with any of the Contemplated
Transactions, (d) Taxes attributable to any transaction or event
occurring on or prior to the Closing to the extent such
liabilities exceed the amount of the reserve for Taxes accrued on
the Recent Balance Sheet, (e) any claims made against the Company
or Purchaser based upon or relating to benefits due, but unpaid,
under the Employee Plans, or any fees, amounts or expenses which
the Stockholders are required to reimburse Purchaser pursuant to
Section 7.3(d) or (f) any claims made against the Company in
connection with item 1 set forth on Schedule 5.13 hereto.
8.2 Indemnification by Purchaser. Purchaser shall
indemnify and hold harmless Stockholders, and shall reimburse
Stockholders for, any Damages arising from or in connection with
(a) any inaccuracy in any of the representations and warranties of
Purchaser in this Agreement or in any certificate delivered by
Purchaser pursuant to this Agreement, or any actions, omissions or
statements of facts inconsistent with any such representation or
warranty, (b) any failure by Purchaser to perform or comply with
any agreement in this Agreement, (c) any claim by any Person for
brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been
made by such Person with Purchaser (or any Person acting on its
behalf) in connection with any of the Contemplated Transactions or
(d) obligations of Sheldon Stone in connection with the Guarantee.
8.3 Survival. All representations, warranties,
covenants and agreements of the Stones and Purchaser contained in
this Agreement or in any certificate delivered pursuant to this
Agreement shall survive the Closing for the time period set forth
in Section 8.4 notwithstanding any investigation conducted with
respect thereto.
8.4 Time Limitations. The Stones shall have no
liability (for indemnification or otherwise) with respect to any
representation or warranty, or agreement to be performed and
complied with prior to the Closing Date, other than those set
forth in Sections 4.1, 4.2, 5.1, 5.2, 5.14, 5.21, 5.23 and 7.2,
unless on or before the eighteen month anniversary of the Closing
Date, the Stones are given notice asserting a claim with respect
thereto and specifying the factual basis of that claim in
reasonable detail to the extent then known by Purchaser; a claim
with respect to Sections 4.1, 4.2, 5.1, 5.2, 5.14, 5.21, 5.23 and
7.2 may be made at any time until expiration of 30 days following
the expiration of the applicable statute of limitations. Purchaser
shall have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or agreement to be
performed and complied with prior to the Closing Date, unless on
or before the eighteen month anniversary of the Closing Date,
Purchaser is given notice of a claim with respect thereto and
specifying the factual basis of that claim in reasonable detail to
the extent then known by the Stockholders. However, the provisions
of this Section 8.4 shall not apply to any liability resulting
from any intentional misrepresentation, wilful neglect, fraud or
intentional failure to perform or comply with any agreement.
8.5 Limitations as to Amount -- Stones. (a) The
Stones shall have no liability (for indemnification or otherwise)
with respect to the matters described in clause (a) or (b) of
Section 8.1 until the total of all Damages with respect thereto
exceeds $75,000, and then only for the amount by which such
Damages exceed $75,000, and the Stones shall have no liability
(for indemnification or otherwise) with respect to matters
described in clause (f) of Section 8.1 until the total of all
Damages with respect thereto exceeds $20,000, and then only for
one-half of the amount by which such Damages exceed $20,000; (b)
the Stones' aggregate liability (for indemnification or otherwise)
pursuant to Section 8.1, shall not exceed the Purchase Price,
provided that this Section 8.5 shall not apply to any Damages
resulting from any intentional misrepresentation or breach of
warranty or any intentional failure to perform or comply with any
agreement or covenant, in which case the Stones shall be liable
for all Damages with respect thereto and the limitations set forth
in this Section 8.5 shall not apply.
8.6 Limitations as to Amount -- Purchaser.
Purchaser's aggregate liability (for indemnification or otherwise)
pursuant to Section 8.2 shall not exceed the sum of the Purchase
Price, the additional 338 Taxes and any Damages incurred by
Sheldon Stone by reason of Purchaser's failure to cause the
Guarantee to be released pursuant to Section 7.4, provided that
this Section 8.6 shall not apply to any Damages resulting from any
intentional misrepresentation or breach of warranty or any
intentional failure to perform or comply with any agreement or
covenant, in which case Purchaser shall be liable for all Damages
with respect thereto.
8.7 Procedure for Indemnification. Promptly after
receipt by an indemnified party under Section 8.1 or 8.2 of notice
of the commencement of any action for which indemnification is
available under Section 8.1 or 8.2, such indemnified party shall,
if a claim in respect thereof is to be made against an
indemnifying party under such section, give notice to the
indemnifying party of the commencement thereof, but the failure so
to notify the indemnifying party shall not relieve it of any
liability that it may have to any indemnified party except to the
extent the indemnifying party demonstrates that the defense of
such action is prejudiced thereby. In case any such action shall
be brought against an indemnified party and it shall give notice
to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and,
to the extent that it shall wish, to assume the defense thereof
with counsel satisfactory to such indemnified party and, after
notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such
section for any fees of other
counsel or any other expenses, in each case subsequently incurred
by such indemnified party in connection with the defense thereof,
other than reasonable costs of investigation and costs and
expenses of legal counsel, if the indemnified party and the
indemnifying party are both parties to the action and the
indemnified party has been advised by counsel that there may be
one or more defenses available to it and not available to the
indemnifying party. If an indemnifying party assumes the defense
of such an action: (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's
consent (which subject to clause (c) below shall not be
unreasonably withheld) unless (i) there is no finding or admission
of any violation of law or any violation of the rights of any
Person and no effect on any other claims that may be made against
the indemnified party and (ii) the sole relief provided is
monetary damages that are paid in full by the indemnifying party;
(b) the indemnifying party shall have no liability with respect to
any compromise or settlement thereof effected without its consent
(which shall not be unreasonably withheld); and (c) with respect
to Tax claims for which the Stockholders are or may be liable to
Purchaser or the Company, if the proposed settlement may affect
the Tax liability of the Company or Purchaser for periods ending
after the Closing Date, the Purchaser's consent to such proposed
settlement may not be unreasonably withheld. If notice is given
to an indemnifying party of the commencement of any action and it
does not, within ten days after the indemnified party's notice is
given, give notice to the indemnified party of its election to
assume the defense thereof, the indemnifying party shall be bound
by any determination made in such action or any compromise or
settlement thereof effected by the indemnified party.
Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that an
action may adversely affect it or its affiliates other than as a
result of monetary damages, such indemnified party may, by notice
to the indemnifying party, assume the exclusive right to
defend, compromise or settle such action, but the indemnifying
party shall not be bound by any determination of an action so
defended or any compromise or settlement thereof effected without
its consent (which shall not be unreasonably withheld). An
indemnified party may make payment of any Taxes at the time the
same is due and payable, whether or not a proceeding relating
thereto has been commenced, and such payment shall not affect its
right to indemnification hereunder.
9. Miscellaneous.
9.1 Notices. All notices, consents and other
communications under this Agreement shall be in writing and shall
be deemed to have been duly given when (a) delivered by hand, (b)
sent by telex or telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by
Express Mail, Federal Express or other express delivery service
(receipt requested), in each case to the appropriate addresses,
telex numbers and telecopier numbers set forth below (or to such
other addresses, telex numbers and telecopier numbers as a party
may designate as to itself by notice to the other parties):
(a) If to Purchaser:
Lifetime Hoan Corporation
One Merrick Avenue Westbury, NY
11590
Telecopier No.: (516) 683-6006 Attention: Milton
L. Cohen
with a copy to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10022
Telecopier No.: (212)
682-5729 Attention:
Alison S. Newman, Esq.
(b) If to the Stockholders or
the Stones:
161 East Chicago Avenue
Chicago, Illinois 60611 Attention: Sheldon
Stone
with, in each case, a copy to:
Rosenthal Schanfield, P.C.
55 East Monroe Street, 46th Floor Chicago,
Illinois 60603 Telecopier No.: (312) 236-
7274
Attention: David M. Alin, Esq. and Joel C.
Levin, Esq.
9.2 Expenses. Each party shall bear its own expenses
incident to the preparation, negotiation, execution and delivery
of this Agreement and the performance of its obligations hereunder
including attorneys', accountants' and other advisors' fees and
expenses and the fees and expenses of any broker, finder or agent
retained by such party in connection with the transactions
contemplated hereby.
9.3 Setoff. In addition to the indemnity provided in
Section 8.1 hereof, Purchaser shall have the right, in its
discretion, to the extent that the Stones have not otherwise
satisfied in full their obligations pursuant to Section 8.1 to set
off and apply against: (i) any payments due pursuant to Section
2.2 of this Agreement, including the Additional Cash Payments
under the ACP Notes and the Contingent Payments and any payment
due pursuant to Section 3.3, an amount equal to the amount of any
Damages claimed to be owed by the Stones to Purchaser or the
Company, for which Damages the Stones are obligated to indemnify
Purchaser or the Company pursuant to Section 8.1; provided,
however, Purchaser shall not be entitled to effect such setoff
unless and until the Damages exceed the amount set forth in
Section 8.5 hereof, in which event the amount of such set off may
be applied against the aggregate amount of such Damages. The
amount of such set off shall be equal to the amount of such
Damages as determined in a final, nonappealable judgment or
determination of a court or other tribunal, agency, authority or
body of competent jurisdiction; provided, however, that if a
competent court has not rendered a final judgment as to the amount
of Damages prior to a date on which Purchaser or the Company is
required to make a payment to the Stockholders pursuant to this
Agreement, Purchaser shall estimate in good faith the amount of
Damages to be set off against such payment. The amount of
estimated Damages shall, in the sole discretion of Purchaser, be
placed into escrow with an independent escrow agent pursuant to a
customary escrow agreement. In the event that the amount of
Damages, as determined by a competent court in a final judgment,
exceeds the amount of estimated Damages, the Stones shall remain
obligated to indemnify the Company for such excess in accordance
with Section 8.1. In the event that the amount of estimated
Damages exceeds the amount of Damages, as determined by a
competent court in a final judgment, Purchaser shall cause the
escrow agent to pay to the Stockholders, as soon as practicable
after such final judgment, an amount equal to such excess, and
Purchaser shall be entitled to receive any remaining amounts held
in escrow. Any interest actually earned on the amount held in
escrow shall be distributed to Purchaser and/or the Company and
the Stockholders, in proportion to the amounts Purchaser and/or
the Company and the Stockholders are entitled to receive upon the
distribution of the escrow account.
9.4 Specific Performance. The parties acknowledge
that the subject matter of this Agreement (i.e., the business and
assets of the Company) is unique and that no adequate remedy of
law would be available for breach of this Agreement.
Accordingly, each party agrees that the other parties will be
entitled to an appropriate decree of specific performance or other
equitable remedies to enforce this Agreement (without any bond or
other security being required) and each party waives the defense
in any action or proceeding brought to enforce this Agreement that
there exists an adequate remedy at law.
9.5 Captions. The captions in this Agreement are for
convenience of reference only and shall not be given any effect in
the interpretation of this Agreement.
9.6 No Waiver. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or
any other term of this Agreement. Any waiver must be in writing.
9.7 Exclusive Agreement; Amendment. This Agreement
supersedes all prior agreements among the parties with respect to
its subject matter (including, but not limited to, the letter of
intent dated June 18, 1998), is intended (with the documents
referred to herein) as a complete and exclusive statement of the
terms of the agreement among the parties with respect thereto and
cannot be changed or terminated except by a written instrument
executed by the party or parties against whom enforcement thereof
is sought.
9.8 Knowledge Defined. As used in this Agreement,
"knowledge of the Stockholders" or "best knowledge of the
Stockholders" means the actual knowledge of each of the
Stockholders, in each case after review of each such person's own
files and inquiry of those employees and advisors of the Company
who the Stockholders would reasonably expect to have knowledge of
the specific matter at issue.
9.9 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be considered an
original, but all of which together shall constitute the same
instrument.
9.10 Governing Law. This Agreement and (unless
otherwise provided) all amendments hereof and waivers and consents
hereunder shall be governed by the internal law of the State of
New York, without regard to the conflicts of law principles
thereof.
9.11. Successors and Assigns. Except as otherwise
specifically provided herein, this Agreement and all of its
provisions are and shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, executors,
administrators, personal representatives, successors, and assigns,
except that neither party may assign its rights or obligations
hereunder without the prior written approval of the other party
having first been obtained.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
STOCKHOLDERS:
Sheldon Stone as Trustee under
Declaration of Trust dated January 4, 1996
By:
Sheldon Stone, Trustee
Gloria Stone as Trustee under
Declaration of Trust dated January 4, 1996
By:
Gloria Stone, Trustee
Adam Stone
Lisa Stone
Sheldon Stone
Gloria Stone
LIFETIME HOAN CORPORATION
By:
Milton Cohen
Chairman and President
The Company agrees to be bound by
the indemnity provisions of
Section 7.2(g) hereof.
ROSHCO, INC.
By:
Sheldon Stone
President
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