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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) APRIL 4, 1999
SCOPE INDUSTRIES
(Exact name of registrant as specified in its charter)
CALIFORNIA 1-3552 95-1240976
(State or other jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
233 WILSHIRE BLVD. STE. 310, SANTA MONICA, CA 90401
(Address of principal executive offices)
Registrant's telephone number, including area code: 310-458-1574
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FORM 8-K CURRENT REPORT
SCOPE INDUSTRIES
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
Effective April 4, 1999, Scope Industries, (the "Registrant") through
its wholly owned subsidiary, Scope Products, Inc. acquired 100% of the
outstanding capital stock of International Processing Corporation
("IPC") and International Transportation Service, Inc. ("ITS") in
accordance with a Stock Purchase Agreement dated February 9, 1999
between Scope Products, Inc. and Darling International Inc. ("Seller").
Pursuant to the Stock Purchase Agreement, the purchase price for the
capital stock of IPC and ITS was $21,500,000 subject to certain
adjustments as set forth in the Stock Purchase Agreement and an
additional $500,000 payment for a non-compete covenant. The purchase
price was paid in cash and was determined by agreement between the
Registrant and the Seller. The Registrant funded the purchase price with
cash and liquid securities on hand.
IPC processes by-products collected from bakeries, pasta manufacturers,
confectioners and snack food producers for sale to the animal feed
industry. ITS provides trucking services solely for IPC. The Registrant
intends to continue operating the business and assets of IPC and ITS in
a similar manner as they were operated prior to the acquisition.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements of Businesses Acquired
For the acquisition reported in Item 2 above, it is not
practicable to include the financial statements of the acquired
business as required by Rule 3-05(b) of the Regulation S-X at
this time. The Registrant intends to file such information on or
before June 18, 1999.
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FORM 8-K CURRENT REPORT
SCOPE INDUSTRIES
(b) Pro Forma Financial Information
For the acquisition reported in Item 2 above, it is not
practicable to include the pro forma financial information as
required by Article II of Regulation S-X. The Registrant intends
to file such information on or before June 18, 1999
(c) Exhibits
2 Stock Purchase Agreement dated February 9, 1999 between
Scope Products, Inc. and Darling International, Inc.
99.1 News releases dated February 10, 1999, and April 6, 1999
regarding the purchase of the business of International
Processing Corporation for $22 million in cash.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCOPE INDUSTRIES
DATE: April 19, 1999 BY: /s/ John J. Crowley
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John J. Crowley
Vice President and
Chief Financial Officer
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), is entered into as of
February 9, 1999, by and between Darling International Inc., a Delaware
corporation ("Seller"), and Scope Products, Inc., a California corporation
("Buyer").
RECITALS
A. Seller owns all of the issued and outstanding shares of common
stock (collectively, the "Shares") of International Processing Corporation, a
Georgia corporation ("IPC"), and International Transportation Service, Inc., a
Delaware corporation ("ITS"). ITS owns all of the issued and outstanding common
stock of Food By-Product Recycling, Inc., an Illinois corporation ("FBR").
B. IPC, ITS and FBR (collectively, the "Companies") are engaged in
the business of processing solids collected from bakeries, pasta manufacturers,
snack food producers and others to produce animal feed (the "Acquired
Business").
C. Seller desires to sell and Buyer desires to purchase the Shares
upon the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and undertakings contained in
this Agreement, Seller and Buyer hereby agree as follows:
1. DEFINITIONS. All terms in this Agreement having an initial
capital shall be defined as set forth in that Glossary which is attached hereto
as Exhibit A and incorporated herein by reference.
2. SALE AND PURCHASE OF THE SHARES. Subject to the terms and
conditions set forth in this Agreement, as of the Closing Date, Seller shall
sell, transfer and convey to Buyer, and Buyer shall purchase from Seller, all of
the Shares free and clear of all Liens.
3. PURCHASE PRICE.
3.1 TOTAL AMOUNT. The total purchase price for the Shares
shall be $21,500,000, subject to adjustment as provided in this Agreement, and
the consideration for the covenant not to compete set forth in Section 12 shall
be $500,000 (collectively, the "Purchase Price") .
3.2 PAYMENTS. At the Closing, Buyer shall pay directly to
Seller by wire transfer $19,500,000 for the Shares and $500,000 for the covenant
not to compete set forth in Section 12 ("Payments at Closing"). The balance of
$2,000,000 ("Escrow") shall be deposited by Buyer with the Escrow Agent in
accordance with Section 8.2 and held and disbursed in accordance with that
Escrow Agreement attached as Exhibit B.
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4. CLOSING.
4.1 "CLOSING". The consummation of the purchase and sale of
the Shares (the "Closing") shall take place at 10:00 a.m. (California time) at
the offices of Arter & Hadden LLP, 725 South Figueroa Street, Suite 3400, Los
Angeles, California 90017, and shall be as of the last Saturday of the
Companies' fiscal month end following satisfaction of the conditions set forth
in Sections 10 and 11, or at such other place or on such other date as Seller
and Buyer may mutually agree, but no later than April 5, 1999. The Closing shall
be deemed to take place at midnight on the Closing Date. Seller and Buyer, on or
before the close of business on the Monday immediately following the Closing
Date, shall exchange, in person or by overnight courier or by facsimile, all
documents required by Sections 10 and 11. As of the Closing Date, a physical
inventory of the Companies' inventories of raw materials, finished feed or other
finished products and miscellaneous inventories shall be taken by
representatives of Seller and Buyer at each of the Facilities in accordance with
Section 8.2(b).
4.2 DELIVERY. At the Closing, Seller shall deliver to Buyer
the certificates representing all of the Shares, duly endorsed for transfer or
accompanied by duly executed stock powers, and Buyer shall deliver (i) to Seller
the Payments at Closing, subject to adjustment as provided in this Agreement,
and (ii) to the Escrow Agent the Escrow, and the parties shall deliver such
other documents as may be required by Sections 10 and 11 of this Agreement.
4.3 FACSIMILE TRANSMISSIONS. Any agreements, documents or
certificates transmitted by one party to the other party by facsimile shall be
deemed to have full force and effect as if the facsimile signatures were
originals. This Agreement and any originally-executed documents required for the
Closing may be transmitted by facsimile, and the party so transmitting such
documents shall promptly forward the originals to the other party by overnight
courier, no later than three business days following the facsimile transmission.
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller acknowledges
and confirms that Buyer is relying upon the representations and warranties of
Seller contained in this Agreement in connection with the execution, delivery
and performance of this Agreement and makes the following representations and
warranties to Buyer, which representations and warranties shall be true and
correct on the date of this Agreement and on the Closing Date:
5.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware; IPC is a corporation duly organized, validly existing and in good
standing under the laws of Georgia; ITS is a corporation duly organized, validly
existing and in good standing under the laws of Delaware; and FBR is a
corporation duly organized, validly existing and in good standing under the laws
of Illinois. Each of the Companies is duly qualified to do business as a foreign
corporation in each jurisdiction where the nature of the business conducted by
it or its ownership of property or assets or its employment of employees
requires that it be so qualified. IPC is qualified as a foreign corporation in
the States of Illinois, Indiana, Kansas, New Jersey, North Carolina, Ohio and
Texas; ITS is qualified as a foreign corporation in the States of Illinois and
Indiana, and FBR is not qualified as a foreign corporation in any jurisdiction.
Seller and the Companies each have the corporate power and authority to own,
lease and operate their respective assets, properties
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and business and to carry on the Acquired Business and such other business as is
now being conducted. Seller and the Companies shall deliver to Buyer or its
counsel certified copies of their respective certificates or articles of
incorporation and bylaws, and all amendments or restatements thereto, all of
which are true, correct and complete.
5.2 OWNERSHIP OF SHARES; CAPITALIZATION. Seller is the only
record and beneficial owner of the Shares and the Shares are held free and clear
of all Liens and Liabilities, except that the Shares have been pledged, and the
assets of IPC and ITS are subject to a security interest under a Security
Agreement, dated as of January 22, 1999, with Bank Boston, N.A. as agent for the
Secured Parties (as defined therein) (collectively, the "Bank Liens"), all of
which Bank Liens will be released on or before the Closing. The Shares
constitute all of the issued and outstanding capital stock of IPC and ITS. The
number of Shares issued by each of the Companies is set forth on Schedule 5.2.
Seller represents that it has good and marketable title to the Shares, free and
clear of all Liens, and has the right, title, power and authority to sell,
assign, transfer and deliver the Shares to Buyer. Upon delivery to Buyer at the
Closing of the certificates representing the Shares, duly endorsed by Seller for
transfer to Buyer, Buyer shall be the lawful owner of the Shares, free and clear
of all Liens, other than Liens arising from Buyer's acts. IPC is authorized to
issue 1,500,000 shares of Class A common stock, $1.00 par value, of which
750,000 Class A shares, and 1,500,000 shares of Class B common stock, $1.00 par
value, of which 750,000 Class B shares, together constituting the Shares shown
as issued by IPC on Schedule 5.2, are as of the date of this Agreement and will
be on the Closing Date all of the issued and outstanding shares of IPC. ITS is
authorized to issue 50 shares of Class A common stock, $100.00 par value, and 50
shares of Class B common stock, $100.00 par value, of which 7.5 Class A shares
and 7.5 Class B shares, together constituting the Shares shown as issued by ITS
on Schedule 5.2, are as of the date of this Agreement and will be on the Closing
Date all of the issued and outstanding shares of ITS. All of the Shares have
been duly authorized and validly issued and are fully paid and nonassessable,
and none of them was issued in violation of any preemptive or other similar
right. Seller represents that ITS owns 13,500 shares of the common stock of FBR,
that ITS is the only record and beneficial owner of all of the issued and
outstanding shares of FBR capital stock, and that all of the FBR shares are free
and clear of all Liens.
5.3 CONSENTS, AUTHORIZATIONS, BINDING EFFECT, ETC. Seller
may execute, deliver and perform this Agreement without the necessity of the
Companies or Seller's obtaining any consent, approval, authorization or waiver,
giving any notice, making any filings or disclosures or otherwise, except for
the filing required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder (the "HSR
Act"). Seller and the Companies have obtained, or shall have obtained prior to
Closing, from the New Jersey Department of Environmental Protection a "Letter of
Non-Applicability" stating that the Companies and the Facilities and other
Property owned or leased by the Companies in the State of New Jersey, and the
transactions under this Agreement, are not subject to the New Jersey Industrial
Site Recovery Act, as amended, and the rules and regulations promulgated
thereunder ("ISRA") and shall provide a copy of such letter to Buyer. Except as
described on Schedule 5.3 hereto, no consent, approval, authorization or waiver
and no giving of any notice, making of any filings or disclosures or otherwise
in connection with the execution, delivery or performance of this Agreement is
necessary to assure to the Acquired
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Business the continuance of its relationships with its present customers or
suppliers or the right of Buyer and the Companies to continue to receive the
benefits under the contracts (including without limitation, leases, agreements,
instruments, licenses, permits, commitments, orders and quotations) of the
Acquired Business. This Agreement has been duly authorized, executed and
delivered by Seller, and this Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement by Seller will not (whether with or
without notice or the passage of time or both):
(a) constitute a violation of the certificate or
articles of incorporation or the bylaws, as amended, of Seller or any of the
Companies;
(b) except as described on Schedule 5.3 hereto,
conflict with, result in the breach of, constitute a default or result in the
acceleration of any Lien, Liability or obligation under any contract, lease,
agreement, instrument, license, commitment, order or quotation to which any of
the Companies is a party or is bound or to which Seller is a party or is bound
and which would affect the Acquired Business;
(c) constitute a violation of any statute, judgment,
order, decree or regulation or rule of any court, governmental authority,
administrative agency or arbitrator applicable or relating to any of the
Companies or Seller or their respective assets or businesses, including, but not
limited to, the Acquired Business; or
(d) result in the creation of any Lien upon any of
the assets of any of the Companies or Seller or the Acquired Business.
5.4 MINUTE BOOKS AND STOCK RECORDS. Seller has made
available to Buyer and its counsel all of the minute books and stock records of
each of the Companies that are in the possession of Seller or any of the
Companies, and such minute books and stock records reflect in all Material
respects the corporate actions of the Board of Directors and the shareholders of
the Companies.
5.5 FINANCIAL STATEMENTS AND FINANCIAL CONDITION.
(a) Each of the Companies has maintained its books
of account in accordance with generally accepted accounting principles
consistently applied, and such books and records (i) are and, during the periods
covered by the Financial Statements were, correct and complete in all Material
respects, fairly and accurately reflect (or reflected as of the date therein)
the income, expenses, assets and Liabilities of the Companies and the Acquired
Business required to be reflected therein, including the nature thereof and the
transactions giving rise thereto, and (ii) provide (or provided as of or at the
date therein) a fair and accurate basis for the preparation of the Financial
Statements. Without limiting the generality of the foregoing, the assets,
Liabilities, and financial condition of the Companies and the Acquired Business
are fairly described and properly recorded in all Material respects in the
financial and accounting records of the Companies and the Acquired Business
underlying the Financial Statements.
The following unaudited financial statements of the
Companies have been delivered by Seller to Buyer:
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(1) the combined consolidated balance sheet (the
"1997 Balance Sheet") of the Companies as of January 3, 1998, and the related
combined consolidated statements of income for the fiscal year ended on such
date (the 1997 Balance Sheet and related statements being herein together
referred to as the "1997 Financial Statements");
(2) the combined consolidated balance sheet (the
"1996 Balance Sheet") of the Companies as of December 28, 1996 and the related
consolidating statements of income for the fiscal period ended on such date; and
(3) the combined consolidated balance sheet (the
"Interim Balance Sheet") of the Companies as of October 3, 1998, and the related
combined consolidated statements of income for the nine months ended on such
date.
(b) The Interim Financial Statements (i) have been
reviewed by Seller's accountants as part of Seller's Consolidated Financial
Statements from September 1, 1996 to the end of Seller's 1996 fiscal year and
for Seller's 1997 fiscal year, but no separate audit reports were given, (ii)
have been prepared in conformity with generally accepted accounting principles
consistently applied, (iii) are correct and complete in all Material respects
and (iv) present fairly the combined consolidated financial position of the
Companies as of the date of such statements and the results of operations of the
Companies for the periods covered by such statements, subject in the case of the
Interim Financial Statements to normal year-end recurring adjustments, which are
not Material in the aggregate, and the absence of notes and schedules thereto.
(c) The Companies, on the Closing Date, will have no
Liabilities or obligations (absolute, contingent or otherwise) of a nature
required by generally accepted accounting principles applied on a basis
consistent with the Audited Financial Statements to be reflected in financial
statements, other than
(i) those set forth or reserved against in
the Audited Financial Statements; and
(ii) those incurred since the most recent
date of the Audited Financial Statements in the ordinary course of business in
arm's-length transactions, and which do not have and cannot reasonably be
expected to have, in the aggregate, an adverse effect on the Companies taken as
a whole.
The Financial Statements do not include or reflect any
assets, liabilities, equity, results of operations or cash flows of any person,
corporation, partnership or other business other than the Companies. Except as
set forth on Schedule 5.5, there are, and as of the Closing Date there shall be,
no existing, undisclosed Liabilities of the Companies of any nature (absolute,
accrued, contingent or otherwise) that are not fully reflected or reserved
against in the Financial Statements except for those incurred in the ordinary
course of business consistent with past practice subsequent to the most recent
date of any of the Financial Statements and except for those incurred in
connection with the Corn Price Exceptions.
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5.6 TITLE AND CONDITION OF ASSETS. This Section 5.6 does not
apply to environmental matters which are covered by Section 5.10. Seller has
provided Buyer a list of all personal property owned, leased or used by any of
the Companies in connection with the Acquired Business. Schedule 5.6 lists all
real property owned, leased or used by the Companies in connection with the
Acquired Business. Each of the Companies has good and marketable title to the
real property (in fee simple), and has good and unencumbered title to the
interests (including without limitation leasehold interests) in real property
listed on Schedule 5.6 and to the tangible personal property used by any of the
Companies in connection with the Acquired Business free and clear of Liens,
other than Liens described on Schedule 5.6 hereto, including, but not limited
to, the Bank Liens which will be released on or before the Closing. To the best
knowledge of Seller, no improvement or structure on any Real Property encroaches
on any adjacent property or conflicts with the rights of any owner thereof, and
no improvement or structure on any property owned or leased by any other person
encroaches on any property owned or leased by the Companies.
The improvements, fixtures and appurtenances on or to
the Real Property or owned or leased by the Companies, and the tangible assets
of the Companies, taken as a whole, are sufficient to operate the Companies and
the Acquired Business in the ordinary course consistent with past practice,
except as described on Schedule 5.6 hereto, subject to the need to effect
ordinary course repairs which, until effected, will not adversely affect the
Companies or the Acquired Business, or the financial condition, results of
operations or operations thereof, or require any cost to effect in excess of
ordinary course repairs reflected on the Financial Statements. Notwithstanding
the foregoing, Buyer acknowledges that Seller shall not be in any way liable
under this Agreement for any capital expenditures or other improvements that
Buyer may make or desire to make to the Facilities or any equipment therein
after the Closing Date other than as a result of Seller's breach of this
representation.
Except as described on Schedule 5.6 hereto, all of the
properties and assets used by the Companies in the Acquired Business and the
operations thereof are owned or leased by the Companies, and Seller has no
interest in such properties and assets. The Acquired Business is not conducted
under any specific restriction imposed upon the Companies or the Acquired
Business (but not imposed upon other persons conducting similar businesses or
operating similar assets for similar purposes in the localities where its
business and assets are located) by any zoning, anti-pollution, health or other
law, ordinance or regulation.
Except as described on Schedule 5.6 hereto, none of the
assets owned or leased by any of the Companies has been affected by any fire,
accident, act of God or any other casualty that Materially adversely impairs the
Companies or the Acquired Business, or the financial condition, results of
operations or operations thereof.
Schedule 5.6 hereto includes a complete and correct list
of all Real Property and all interests in Real Property (including without
limitation leases of real property) identifying such interests, showing also the
present use of such Real Property. Seller provided Buyer a complete and correct
list of all tangible personal property in the nature of machinery and equipment
owned, operated or leased by any of the Companies and used in connection with
the Acquired Business. Since September 1, 1996, the Companies have not owned,
used, operated or
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leased any real property other than the properties listed on Schedule 5.6 hereto
and do not own, use, operate or lease any personal property other than that on
the list provided by Seller to Buyer. Seller has provided Buyer with copies of
all lists of real and personal property provided to Seller in connection with
the IPC Acquisition Agreement
5.7 INVENTORIES. The inventories of the Companies are
merchantable and have been valued at the lower of cost or market in accordance
with generally accepted accounting principles applied on a consistent basis.
None of the Companies is under any liability or obligation with respect to the
return of inventory shipped at any time prior to the Closing Date other than
returns in the ordinary course of business consistent with the amount of returns
shown on the Financial Statements for similar periods.
5.8 RECEIVABLES. The trade accounts and other receivables of
the Companies, are bona fide receivables, arose out of arm's-length
transactions, are recorded correctly on the applicable books and records of the
Companies and, except as set forth on Schedule 5.8 hereto, are collectible
within one hundred eighty (180) days after the Closing Date in an amount equal
to the aggregate face amount of such receivables, less the amount of any
reserves against such receivables which are reflected in the Interim Financial
Statements. Except for those described on Schedule 5.8 hereto, such trade
accounts and other receivables are not subject to any counterclaim or set-off,
and no basis presently exists for the assertion of any counterclaim or set-off
(or the repayment of any receivables or payments heretofore received by the
Companies).
5.9 INSURANCE. Schedule 5.9 hereto contains a list of all
policies of insurance maintained by Seller under which the Companies are
covered, including insurance providing benefits for employees, in effect on the
date hereof and generally describing the coverage thereunder, all of which will
be in effect on the Closing Date. Except as described on Schedule 5.9 hereto,
there are no claims pending or, to the best knowledge of Seller, threatened
under said policies or disputes with underwriters, and all premiums due and
payable have been paid, and all such policies are in full force and effect in
accordance with their respective terms. Except for amounts deductible under
policies of insurance and/or as described on Schedule 5.9 hereto, none of the
Companies has at any time been subject to any liability as a self-insurer of the
business and assets of the Companies or is, or on the Closing Date shall be,
liable for any premiums becoming due and payable after the date hereof under any
retrospective policies except to the extent that such premiums are reflected on
the Closing Financial Statements.
5.10 LITIGATION AND COMPLIANCE; ENVIRONMENTAL MATTERS.
(a) Except as described on Schedule 5.10 hereto,
there are no actions, suits, claims or proceedings, whether in equity or at law,
pending or, to the best knowledge of Seller, threatened, and there are no
governmental or administrative investigations pending or, to the best knowledge
of Seller, threatened, against any of the Companies or which question or
challenge the validity of this Agreement or any action taken or to be taken
pursuant to this Agreement, or pending or, to the best knowledge of Seller,
threatened against any asset or property owned, leased or used by any of the
Companies.
(b) Except as described on Schedule 5.10 hereto,
each of the Companies is in, and has conducted its operations in compliance
with, and is not in default or
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violation in any respect under, and has not conducted its operations in
violation in any respect of, any law, rule, regulation, decree or order
applicable to it where the failure to be in compliance or such default or
violation might result in the imposition upon any of the Companies, the Acquired
Business or Buyer of any penalty, liability, payment or obligation not reserved
for on the Interim Financial Statements which might have an adverse effect upon
any of the Companies taken as a whole, the Acquired Business or Buyer or the
business, financial condition, results of operations or operations thereof.
(c) Neither Seller nor any of the Companies nor any
of the assets of the Companies is subject to any judgment, order, decree,
settlement or consent agreement entered in any lawsuit or proceeding
specifically against Seller or any of the Companies or to which Seller or any of
the Companies is a party, which might continue to affect any of the Companies,
the Acquired Business, or the business, financial condition, results of
operations or operations thereof taken as a whole.
(d) Except as described on Schedule 5.10 hereto,
each of the Companies has duly filed all reports and returns required to be
filed by it with governmental authorities and has obtained all governmental
permits and licenses and other governmental consents which are required in
connection with the Acquired Business and the operations thereof, where the
failure to file such reports and returns or the failure to obtain such permits,
licenses or consents (individually or in the aggregate) might result in the
imposition upon the Companies or the Acquired Business of any penalty,
liability, payment or obligation not reserved for on the Interim Financial
Statements or might have an adverse effect upon the Companies or the Acquired
Business taken as a whole, or the business, financial condition, results of
operations or operations thereof taken as a whole; provided that this
representation shall not extend to Environmental Laws, with respect to which
Seller makes the representations in the following sentence. Except as described
on Schedule 5.10 hereto, to the best knowledge of Seller, each of the Companies
has duly filed all reports and returns required by Environmental Laws to be
filed by it with governmental authorities and has obtained all governmental
permits and licenses and other governmental consents which are required by
Environmental Laws in connection with the Acquired Business and the operations
thereof, where the failure to obtain such permits, licenses or consents
(individually or in the aggregate) might result in the imposition upon any of
the Companies or the Acquired Business of any penalty, liability, payment or
obligation not reserved for on the Interim Financial Statement or might have an
adverse effect upon the Companies or the Acquired Business taken as a whole, or
the business, financial condition, results of operations or operations thereof
taken as a whole. All permits, licenses and consents held by the Companies are
set forth on Schedule 5.10 hereto, all of such permits, licenses and consents
are in full force and effect, and no proceedings for the suspension or
cancellation of any of them is pending or, to the best knowledge of Seller,
threatened.
(e) Except as described in Schedule 5.10 hereto,
neither Seller nor any of the Companies has received any notice, citation,
summons or order and, to the best knowledge of Seller, no notice, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
governmental or other entity (i) with respect to any alleged violation of any
Environmental Laws by any of the Companies or the Acquired Business; or (ii)
with respect to any alleged failure by
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any of the Companies to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with its
business; or (iii) with respect to any use, possession, generation, handling,
labeling, treatment, storage, recycling, transportation or disposal of any
Hazardous Substance by or on behalf of any of the Companies or the Acquired
Business.
(f) Except as described on Schedule 5.10 hereto,
neither Seller nor any of the Companies has received any request for
information, notice of claim, demand or notification that any of the Companies
or any subsidiaries is or may be potentially responsible with respect to any
investigation or clean-up of any threatened or actual release of any Hazardous
Substance.
(g) Except as described on Schedule 5.10 hereto,
none of the Companies has used, generated, treated, stored, recycled or disposed
of any Hazardous Substance on any Real Property, nor, to the best knowledge of
Seller, has anyone else treated, stored, recycled or disposed of any Hazardous
Substances on any Real Property.
(h) Except as described on Schedule 5.10 hereto, to
the best knowledge of Seller, no Hazardous Substance has been released, spilled,
leaked, discharged, disposed of, pumped, poured, emitted, emptied, injected,
leached, dumped or allowed to escape (a "Release") originating at, on, about,
under or from any Real Property.
(i) Except as described on Schedule 5.10 hereto, no
oral or written notification of a Release or, to the best knowledge of Seller,
threat of Release of a Hazardous Substance has been filed by or on behalf of the
Companies on any Real Property. No such Real Property is listed or, to the best
knowledge of Seller, proposed for listing on the National Priority List
promulgated pursuant to CERCLA, on CERCLIS or on any similar state list of sites
requiring investigation or clean-up, except as disclosed on Schedule 5.10.
(j) Except as described on Schedule 5.10 hereto,
there are no actions pending or, to the best knowledge of Seller, threatened on
any Real Property, and no government actions have been taken or are in process
or pending specifically against any of the Companies which could subject any of
such Real Property to such Liens.
(k) Except as listed on Schedule 5.10 hereto, there
have been no environmental inspections, investigations, studies, audits, tests,
reviews or other analyses conducted by or on behalf of any of the Companies or
in their possession or control on any Real Property or the Acquired Business,
specifically excluding any inspections, investigations, studies, audits, tests,
reviews or other analyses conducted by or on behalf of Buyer on any Real
Property or the Acquired Business and any routine, periodic monitoring testing
reviews or analyses, with respect to which Seller has notified Buyer that they
exist and has provided to Buyer. Copies of all such reports, summaries,
analyses, test results, studies or other documents reflecting this information
have been provided to Buyer or made available to Buyer for review.
(l) Without limiting the generality of the
foregoing, except as described on Schedule 5.10 hereto, to the knowledge of
Seller, there exists no Environmental Condition affecting or with respect to the
Companies or the Acquired Business, or any Real
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Property, including without limitation any of the foregoing (individually or in
the aggregate) which might result in the imposition, payment or obligation upon
the Companies or the Acquired Business not reserved for on the Interim Financial
Statements or which might have a Material adverse effect upon the Companies or
the Acquired Business or the business, financial condition, results of
operations or operations thereof taken as a whole.
5.11 TAXES.
(a) Each of Seller and the Companies has filed
timely, or shall file timely, all Federal, state, local and foreign Tax returns
and information returns of or related to the income of the Companies for all
periods that they are, or that they will be, required to file as of or prior to
the Closing Date, and such returns as filed are or shall be true and correct in
all material respects as of the date of filing. Seller has made available to
Buyer all Federal, state, local and foreign income or franchise Tax returns of
the Companies for the fiscal periods beginning on or after August 30, 1996 and
ending on January 3, 1998.
(b) All Taxes that the Companies were, or will be,
required by law to pay, withhold, deposit or collect prior to the Closing Date
have been, or will be, duly paid, withheld, deposited or collected and, to the
extent required, have been, or will be, paid to the relevant taxing authority or
accrued.
(c) The Companies have not received notice of any
Tax deficiency outstanding, proposed or assessed nor have they executed any
waiver or extension of any statute of limitations on the assessment or
collection of any Taxes nor are there any powers of attorney in force with
respect to Taxes of the Companies.
(d) There are no Tax Liens upon, pending against or,
to the best knowledge of Seller, threatened against any asset of the Companies,
other than Liens for Taxes arising in the ordinary course and not yet due and
payable.
(e) None of the Companies has filed a consent under
Section 341(f) of the Code.
(f) There is no contract, agreement, plan or
arrangement covering any Person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by reason of
Section 280G of the Code.
5.12 INTANGIBLE ASSETS. Schedule 5.12 hereto sets forth:
(a) All patents, patent applications, trademarks,
trademark registrations, pending applications for trademark registrations, trade
names and copyrights which the Companies own or in which the Companies have any
proprietary interest which the Companies are presently using or operating under;
and
(b) All license agreements with respect to any of
the foregoing as to which the Companies are licensor or licensee.
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No patents, trademarks, trade names or copyrights not described on Schedule 5.12
are necessary in connection with the conduct of the Acquired Business. Except as
described on Schedule 5.12 hereto, there are no pending or, to the best
knowledge of Seller, threatened claims against the Companies by any person with
respect to any of the items, or their use, listed on Schedule 5.12 or claims of
infringement by the Companies of the rights of any person, and, to the best
knowledge of Seller, no valid basis exists for any such claims.
5.13 EMPLOYEE BENEFITS.
(a) All employee pension benefit plans (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), welfare benefit plans (as defined in Section 3(1) of ERISA),
bonus, stock purchase, stock ownership, stock option, deferred compensation,
incentive, severance, termination or other compensation plan or arrangement, and
other material employee fringe benefit plans, other than multiemployer plans as
defined in Section 3(37) of ERISA, presently maintained by, or contributed to by
any of the Companies or for which any of the Companies could have any liability
are listed in Schedule 5.13 (the "Benefit Plans"), and a true and complete copy
of each of which, and, where applicable, a copy of the most recent IRS Form 5500
filed with respect to each such Benefit Plan, have been furnished to Buyer. The
Companies have no obligation to create any additional Benefit Plan, to modify
any existing Benefit Plan, or to make any contribution to any Benefit Plan not
reflected or reserved against in the Financial Statements.
(b) The Companies and each of the Benefit Plans are
in compliance in all Material respects with the applicable provisions of ERISA,
and those provisions of the Code applicable to the Benefit Plans. With respect
to all Benefit Plans intended to satisfy the requirements of Section 401(k) of
the Code, all non-discrimination tests under Section 401(k) have been satisfied
for all plan years or excess contributions have been distributed prior to the
date any of the Companies would incur a penalty under the Code.
(c) Except as may be disclosed in Schedule 5.13, all
contributions to, and payments from the, Benefit Plans which may have been
required to be made in accordance with the Benefit Plans and, when applicable,
Section 302 of ERISA or Section 412 of the Code, have been timely made. All such
contributions to the Benefit Plans for any period ending before the Closing Date
that are not yet, but will be, required to be made are properly accrued and
reflected on the Closing Balance Sheet.
(d) Except as indicated on Schedule 5.13, all
reports, returns and similar documents with respect to the Benefit Plans
required to be filed with any government agency or distributed to any Benefit
Plan participant have been duly and timely filed or distributed.
(e) The Companies have complied in all material
respects with the notice and continuation coverage requirements of Section 4980B
of the Code and the regulations thereunder with respect to each Benefit Plan
that is, or was at any time, a group health plan within the meaning of Section
5000(b)(1) of the Code.
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(f) Except as disclosed in Schedule 5.13, all of the
Benefit Plans which are pension benefit plans have received determination
letters from the Internal Revenue Service ("IRS") to the effect that such plans
are qualified and exempt from federal income taxes under Sections 401(a) and
501(a), respectively, of the Code; and no determination letter with respect to
any Benefit Plan has been revoked nor, to the best knowledge of Seller, has
revocation been threatened, nor has any Benefit Plan been amended since the date
of its most recent determination letter or application therefor in any respect
which would adversely affect its qualification or increase its cost and no
Benefit Plan has been amended in a manner that would require security to be
provided in accordance with Section 401(a)(29) of the Code.
(g) Each of the Benefit Plans has been administered
at all times in all material respects in accordance with its terms except that
in any case in which any Benefit Plan is currently required to comply with a
provision of ERISA or of the Code, but is not yet required to be amended to
reflect such provision, it has been administered in accordance with such
provision.
(h) There are no pending investigations by any
governmental agency involving the Benefit Plans, no termination proceedings
involving the Benefit Plans, and no threatened or pending claims (except for
claims for benefits payable in the normal operation of the Benefit Plans), suits
or proceedings against any Benefit Plan or asserting any rights or claims to
benefits under any Benefit Plan which could give rise to any liability, nor, to
the best knowledge of Seller, are there any facts which could give rise to any
liability in the event of any such investigation, claim, suit or proceeding.
(i) Neither the Benefit Plans, any of the Companies,
nor any employee of the foregoing, nor, to the best knowledge of Seller, any
trusts created thereunder, nor any trustee, administrator or other fiduciary
thereof, has engaged in a "prohibited transaction" (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) which could subject any
thereof to the tax or penalty on prohibited transactions imposed by such Section
4975 or the sanctions imposed under Title I of ERISA. Neither the Benefit Plans
nor any such trust has been terminated nor has there been any "reportable
events" (as defined in Section 4043 of ERISA and the regulations thereunder)
with respect to either thereof.
(j) The Companies have not incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") with respect to any Benefit
Plan subject to Title IV of ERISA, other than for the payment of premiums, all
of which have been paid when due. No Benefit Plan has applied for or received a
waiver of the minimum funding standards imposed by Section 412 of the Code.
Seller shall furnish to Buyer the most recent actuarial report with respect to
each Benefit Plan that is a defined benefit pension plan, as defined by Section
3(35) of ERISA. No event has occurred since the date of any such actuarial
report that had, or is likely to have, a Material adverse effect on the ratio of
plan assets to the actuarial present value of plan obligations for accumulated
benefits shown in such report. Except to the extent disclosed on Schedule 5.13
hereto, with respect to each Benefit Plan that is a defined benefit plan, in the
event of the termination of any such Benefit Plan and payment of the benefit
liabilities thereof, there would be no "amount of unfunded benefit liabilities"
as defined in Section 4001(a)(18) of ERISA in any of the Benefit Plans subject
to Title IV of ERISA, as determined in accordance with the
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actuarial assumptions used by the PBGC to determine the level of fund required
in the event of such termination.
(k) For purposes of this Section 5.13, all
references to the Companies shall include any other employer (an "Affiliate")
that is or was at any time, together with any of the Companies, treated as a
"single employer" under Sections 414(b), 414(c) or 414(m) of the Code.
(l) Except as set forth on Schedule 5.13 hereto, at
no time have the Companies been required to contribute to, or incurred any
withdrawal liability, within the meaning of Section 4201 of ERISA to any
multiemployer plan, within the meaning of Section 3(37) of ERISA. All
multiemployer plans, within the meaning of Section 3(37) of ERISA, to which any
of the Companies is, or has been at any time within the past five (5) years,
required to contribute or with respect to which any of the Companies could have
any liability are disclosed in Schedule 5.13. The Companies will not incur any
Liability as a result of the termination of any multiemployer plans as of the
Closing Date other than as specifically shown on the Financial Statements.
(m) The Companies have not and will not incur any
liability with respect to any plan or arrangement that would be included within
the definition of "Benefit Plan" hereunder but for the fact that such plan or
arrangement was terminated before the date of this Agreement.
(n) Except as indicated on Schedule 5.13 or as
otherwise required by law, there are no obligations to provide health or welfare
benefits to retired or terminated employees.
5.14 LABOR RELATIONS. Except as described on Schedule 5.14
hereto:
(a) No employees of the Companies are covered by any
collective bargaining agreement.
(b) To the best knowledge of Seller, each of the
Companies has complied in all respects with applicable laws, rules and
regulations relating to the employment of labor, including without limitation
those relating to wages, hours, unfair labor practices, discrimination,
immigration, payment of Social Security and similar taxes where the failure to
be in compliance (individually or in the aggregate) might result in the
imposition upon any of the Companies, the Acquired Business or Buyer of any
penalty, liability, payment or obligation not reserved for on the Interim
Balance Sheet or might have a Material adverse effect upon any of the Companies,
the Acquired Business or Buyer, or the business, financial condition, results of
operations or operations thereof.
(c) Neither Seller nor any of the Companies has
received notice of and, to the best knowledge of Seller, there are no complaints
against any of the Companies pending before the National Labor Relations Board
or any similar state or local labor agency by or on behalf of any employee of
any of the Companies, and none of the Companies has engaged in any unfair labor
practice. There are no representation questions, arbitration proceedings, labor
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strikes, slow-downs or stoppages, grievances or other labor troubles pending or,
to the best knowledge of Seller, threatened with respect to the employees of any
of the Companies.
5.15 CONTRACTS, ETC.
(a) Except as described in Schedule 5.15 hereto, all
contracts, leases, agreements, instruments, licenses, commitments, orders and
quotations with respect to which any of the Companies is a party or by which any
of the Companies is bound (and all guarantees by third parties and all bonds and
letters of credit securing, supporting or relating to the obligations of the
Companies under any such contracts, leases, agreements, instruments, licenses,
commitments, orders and quotations) are valid and in full force and effect and
constitute the legal, valid and binding obligations of the Companies (and, to
the best knowledge of Seller, binding obligation of each guarantor and issuer of
such bonds and letters of credit) and, to the best knowledge of Seller, the
other parties thereto, and there are no existing defaults by any of the
Companies (or, to the best knowledge of Seller, such guarantors and issuers of
such bonds and letters of credit) or, to the best knowledge of Seller, by any
other party thereunder and no event, act or omission has occurred which (with or
without notice, lapse of time or the happening or occurrence of any other event)
would result in a default thereunder.
(b) Except as described on Schedule 5.15 hereto, no
other party to any such contract, lease, agreement, instrument, license,
commitment, order or quotation (or guarantee, bond or letter of credit) has
asserted the right, and, to the best knowledge of Seller, no basis exists for
the assertion of any right, to renegotiate the terms or conditions of any such
contract, lease, agreement, instrument, license, commitment, order or quotation
(or such guarantee, bond or letter of credit)
(c) All contracts, leases, agreements, instruments,
licenses, commitments, orders and quotations to which any of the Companies is a
party or by which any of the Companies is bound (and all guarantees by third
parties and all bonds and letters of credit securing, supporting or relating to
the obligations of the Companies under any such contracts, leases, agreements,
instruments, licenses, commitments, orders and quotations) are listed on
Schedule 5.15 hereto except the following:
(i) employment agreements terminable at
will, and contracts for miscellaneous services terminable at will, without the
payment of any penalty, bonus, severance payment or additional compensation;
(ii) purchase orders and contracts with
suppliers, all of which have provided to Buyer or to which Buyer shall have been
provided access no later than five business days prior to the Closing Date and
provided that all other conditions to the Closing set forth in Sections 10 and
11 shall have been satisfied or waived (except for payment of the Purchase
Price, delivery of the Shares and delivery of other required documents);
(iii) miscellaneous contracts, leases,
agreements, instruments, licenses, commitments, orders and quotations involving
aggregate liabilities under all such contracts, leases, agreements, instruments,
licenses, commitments, orders and quotations of not more than $15,000
individually or $150,000 in the aggregate; and
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(iv) contracts for the sale of finished goods
inventory in the ordinary course of business and not exceeding $15,000
individually or $150,000 in the aggregate and for capital expenditures listed on
the capital expenditure budget for November and December 1998 and for the 1999
fiscal year, which have been provided to Buyer.
Seller has heretofore delivered to Buyer or its counsel
true, correct and complete copies of all contracts, leases, agreements,
instruments, licenses, commitments, orders and quotations (and all guarantees,
bonds and letters of credit) listed on Schedule 5.15 hereto, other than those
excluded by subparagraphs (i), (ii) and (iii) of this subsection (c).
5.16 CUSTOMERS AND SUPPLIERS. Schedule 5.16 sets forth: (i) a
list of the five largest customers of the Companies at each Facility, the twenty
largest customers of the Companies across all facilities, and all customers
accounting for more than five percent (5%) of any of the Companies' revenues, in
terms of dollar sales for both the fiscal year ended January 3, 1998 and the
interim period from January 3, 1998 through October 3, 1998, showing the
approximate total sales by the Companies to each such customer at each such
Facility or, in the case of the twenty largest customers, in aggregate, during
such fiscal year and interim period; and (ii) a list of the five largest
suppliers of the Companies at each Facility, the twenty largest suppliers of the
Companies across all Facilities and all suppliers accounting for more than five
percent (5%) of any of the Companies' raw materials, in terms of purchases by
tonnage amounts (with corresponding dollar amounts) for both the fiscal year
ended January 3, 1998 and the interim period from January 3, 1998 through
October 3, 1998, showing the approximate total purchases by the Companies from
each such supplier at each such location or, in the case of the twenty largest
suppliers, in aggregate, during such fiscal year and interim period. Not later
than five business days before the Closing Date, Seller shall provide Buyer
access to the names of all of the Companies' respective customers and suppliers;
provided that all other conditions to the Closing set forth in Sections 10 and
11 shall have been satisfied or waived (except for payment of the Purchase
Price, delivery of the Shares and delivery of other required documents). Except
as described on Schedule 5.16 hereto, since October 3, 1998, there has not been
any termination, cancellation or Material limitation, modification or change in
the business relationship of the Companies with any such customer or supplier
and the Companies and, to the best knowledge of Seller, there is no threatened
loss of or substantial reduction in business from any such customer or supplier.
Seller shall have delivered to Buyer true and complete copies of all contracts,
commitments and other agreements between the Companies and each of the customers
and suppliers set forth on Schedule 5.16 (including summaries of any oral
agreements), other than purchases and sales orders entered into in the ordinary
course of business in arm's-length transactions and consistent in nature and
scope with past practice, true copies of which have been made available to Buyer
no later than five business days prior to the Closing Date; provided that all
other conditions to the Closing set forth in Sections 10 and 11 shall have been
satisfied or waived (except for payment of the Purchase Price, delivery of the
Shares and delivery of other required documents). Schedule 5.16 sets forth the
termination date of each such contract, commitment or other agreement with the
customers and suppliers set forth on Schedule 5.16 hereof.
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5.17 ABSENCE OF CERTAIN CHANGES, ETC.
(a) Except (i) as described on Schedule 5.17 hereto
(which will contain the capital expenditure budget for fiscal years 1998 and
1999) and (ii) any negative impact resulting from continued low corn prices or
further decline in corn prices which could adversely affect the price which the
Companies receive for their products ("Corn Price Exceptions"), since the date
of the Interim Financial Statements, there has been no adverse change in the
business, results of operations, operations or financial condition of the
Companies or the Acquired Business taken as a whole, and there are no events
with respect to any of the foregoing, that threaten to disrupt, prevent or
impair the conduct of the Acquired Business in a Material adverse manner.
(b) Since the date of the Interim Financial
Statements, except as described on Schedule 5.17 hereto, none of the Companies
has:
(i) made or agreed to make any capital
expenditure or commitment for additions to property, plant or equipment, except
for expenditures and commitments not exceeding $35,000 per individual
expenditure and $175,000 in the aggregate for all the Companies above the amount
budgeted for such item as reflected in Schedule 5.17;
(ii) experienced any damage, destruction or
loss to or of any of their assets, whether or not covered by insurance, which
might have a Material adverse effect upon the Companies or the Acquired Business
taken as a whole, or the business, financial condition, results of operations or
operations thereof taken as a whole;
(iii) made or agreed to make any increase in
the compensation payable to any employee whose existing aggregate annual
compensation equals or exceeds $60,000 or any increase of greater than four
percent (4%) in aggregate annual compensation payable to all employees, except
for increases made in the ordinary course of business pursuant to presently
existing policies or agreements described on Schedule 5.17 hereto;
(iv) conducted its operations otherwise than
in the ordinary due course;
(v) entered into any transaction or
contract, or amended or terminated any transaction or contract, except normal
transactions or contracts consistent in nature and scope with prior practices
and entered into in the ordinary course of business in arms' length
transactions, which transaction or contract, or amendment or termination
thereof, might have a Material adverse effect upon the Companies or the Acquired
Business taken as a whole, or the business, financial condition, results of
operations, operations or the prospects thereof taken as a whole;
(vi) increased or experienced any Material
adverse change in any assumption underlying any method of calculating bad debts,
contingencies or other reserves from that reflected in the Interim Financial
Statements;
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(vii) canceled or waived any claim or right of
substantial value, or sold, transferred, distributed (except to the extent
permitted by this Agreement or otherwise agreed to by Buyer in writing) or
otherwise disposed of any of their assets, except for a fair consideration in
the ordinary course of business;
(viii) except in accordance with generally
accepted accounting principles applied on a basis consistent with the 1997
Financial Statements, written down or written up the value of, or changed the
method of valuing, any inventory; changed the manner in which cost allocations
are made, written off as uncollectible any note, trade account or other
receivable except as required by the Corn Price Exceptions;
(ix) disposed of, permitted to lapse or, in
the case of any trade secret, disclosed to any third person any proprietary
right (including without limitation any licensed right) listed or described on
Schedule 5.17 hereto;
(x) paid any management fee or made any
distribution of its property or assets to Seller as its shareholder, or
declared, paid or set aside for payment any dividend (of any kind or nature) or
distribution with respect to the Shares; or
(xi) agreed to do any of the foregoing.
5.18 SUBSIDIARIES, ETC. None of the Companies owns, directly
or indirectly any equity securities of any entity or enterprise and does not
conduct the Acquired Business or any other business through any subsidiary,
entity or enterprise, other than, in the case of ITS, FBR, a directly wholly
owned subsidiary of ITS.
5.19 RIGHTS WITH RESPECT TO CAPITAL STOCK. There are no, and
on the Closing Date there will not be any, authorized, outstanding or existing:
(a) proxies, voting trusts or other agreements or
understandings with respect to the voting of any capital stock of or other
equity interests in the Companies;
(b) securities convertible into or exchangeable for
any capital stock of or other equity interest in any of the Companies;
(c) options, warrants, rights of first refusal, sale
or purchase agreements or other rights to purchase or subscribe for any capital
stock of or other equity interests in the Companies or any securities
convertible into or exchangeable for any capital stock of or other equity
interests in the Companies;
(d) agreements of any kind relating to the issuance
of any capital stock of or other equity interests in the Companies, any such
convertible or exchangeable securities or any such options, warrants or rights;
(e) agreements of any kind which may obligate any of
the Companies to issue, purchase, register for sale, redeem or otherwise acquire
any of the securities or interests; or
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(f) Liens or restrictions of any kind with respect
to the capital stock or other equity interest of the Companies.
All references to the capital stock of the Companies include, but are not
limited to, reference to the Shares.
5.20 YEAR 2000. Seller and the Companies have made or prior
to the Closing will make inquiries of their vendors and suppliers to identify
any issues that may arise on the advent of the year 2000 that could adversely
affect the Companies or the Acquired Business (the "Y2K Problem"), have made or
will make the inquiries and responses available to Buyer and, based on such
responses, believe that the Y2K Problem will not have a Material adverse effect
on the Companies and the Acquired Business taken as a whole.
5.21 "TO THE BEST KNOWLEDGE OF SELLER". For purposes of this
Agreement, any reference to "to the best knowledge of Seller" when modifying any
representation and warranty of Seller shall mean that Seller has no knowledge
that such representation and warranty is not true and correct in all respects,
and that (a) Seller has made such investigations, and has made such inquiries of
the present executive officers of the Companies, legal counsel and independent
auditors who have performed services for the Companies and the Acquired
Business, as shall be reasonably necessary to determine the accuracy of such
representation and warranty, subject to the Schedules to this Agreement as the
same may be updated prior to the Closing Date, and (b) nothing has come to
Seller's attention in the course of such investigation and review or otherwise,
which would cause it, in the exercise of due diligence (in accordance with the
standards of what a reasonable person in similar circumstances would have done
to satisfy himself as to the accuracy of the representation and warranty), to
believe that such representation and warranty is not true and correct in all
respects. Seller has owned and operated the Companies since September 1996 and,
in connection with its acquisition of the Companies, Seller made certain due
diligence investigations and obtained certain representations and warranties
under the IPC Acquisition Agreement with the persons from whom Seller acquired
the Companies.
5.22 DISCLOSURE. Each representation and warranty made by
Seller in connection with this Agreement, including those in this Agreement, the
schedules and exhibits, and all other information provided to Buyer by Seller,
is true, accurate and complete as of the date stated in such information,
subject to the updating of such representation or warranty prior to the Closing
Date. No representation or warranty made by Seller contains any untrue statement
of a Material fact or fails to state a Material fact necessary in order to make
statements contained therein not misleading. There is no fact relating to the
operations of any of the Companies or the Acquired Business that is known to
Seller or any of the Companies or any of their respective directors or officers
and that Seller has not disclosed to Buyer and which could reasonably be
expected to have a Material adverse effect on the Companies' operations, assets,
properties, condition (financial or otherwise), results or prospects.
6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows, and acknowledges that Seller is relying upon such
representations and warranties in connection with the execution, delivery and
performance of this Agreement.
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6.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California.
6.2 CONSENTS, AUTHORIZATIONS AND BINDING EFFECT. Buyer may
execute, deliver and perform this Agreement without the necessity of Buyer
obtaining any consent, approval, authorization or waiver or giving any notice or
otherwise, except for notifications required under the HSR Act. This Agreement
has been duly authorized, executed and delivered by Buyer and constitutes the
legal, valid and binding obligation of Buyer, enforceable in accordance with its
terms. The execution, delivery and performance of this Agreement will not:
(a) constitute a violation of the Articles of
Incorporation or the Bylaws, as amended, of Buyer;
(b) conflict with, result in the breach of,
constitute a default or result in the acceleration of any liability or
obligation under any contract, lease, agreement instrument, license, commitment
or order to which Buyer is a party; or
(c) constitute a violation of any statute, judgment,
order, decree or regulation or rule of any court, governmental authority or
arbitrator applicable or relating to Buyer.
6.3 BUYER'S ABILITY TO PAY THE PURCHASE PRICE. Buyer
hereby represents to Seller that it intends to pay the Purchase Price from cash
or its equivalent which it has on hand.
7. CONDUCT OF BUSINESS. Seller hereby covenants and agrees with
Buyer that from the date hereof until the Closing Date:
7.1 ORDINARY COURSE. Seller shall cause the Companies to
conduct the Acquired Business in its ordinary and usual course, and Seller shall
cause the Companies to maintain in full force and effect all licenses, permits,
and insurance policies currently in effect and/or required with respect to the
operations, assets and properties of the Companies. Seller shall cause the
Companies to make all payments to vendors in a manner consistent with past
practices.
7.2 PRESERVATION OF GOODWILL. Seller shall and shall cause
the Companies to use their respective best efforts to preserve intact the
goodwill, business organizations and relationships with third parties
(including, but not limited to, lenders, suppliers, customers, vendors, lessors,
lessees, licensors and licensees), as well as the books and records of the
Companies (including, but not limited to, the articles or certificate of
incorporation, bylaws, and minute books of the Companies, any Tax returns filed
by the Companies, all journals, accounts, ledgers or other financial records of
the Companies) and to keep available the services of their present officers,
employees and agents. Without limiting the generality of the foregoing, from
October 3, 1998 until the Closing Date, the Companies have not, except as
disclosed on Schedule 7.2 or in the ordinary course of business consistent with
past practice, and shall not, except with the consent of Buyer:
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(a) Sell, lease, license, transfer or otherwise
dispose of, or agree or commit to sell, lease, license, transfer or otherwise
dispose of, any of its fixed assets;
(b) Change, amend or otherwise modify its articles
or certificate of incorporation or bylaws (including, but not limited to, any
change in its capital stock by reclassification, subdivision, reorganization or
otherwise);
(c) Merge or consolidate with or into, or acquire
all or substantially all of the assets of, any Person, or agree or commit to do
any of the foregoing;
(d) Issue, grant, sell or otherwise dispose of or
agree or commit to issue, sell or otherwise dispose of any shares of its capital
stock or any options, warrants, or securities convertible into or representing
rights to purchase or subscribe to any shares of capital stock;
(e) Declare, pay or make any dividends or
distributions to any Person;
(f) Create, incur, assume, or guarantee, or agree,
commit or obligate itself to create, incur, assume, or guarantee, any
Liabilities other than as reflected in the balance sheets of the Companies
contained in the Financial Statements.
(g) Create or assume any lien, encumbrance, security
interest, claim or obligation on its capital stock or any of its Real Property
or personal property, except for the Permitted Exceptions;
(h) Increase, or agree to increase, the compensation
payable or to become payable to any of its directors, officers, employees,
agents or consultants or pay bonuses or make other payments or distributions of
any kind to any such Person (other than increases in the compensation of
employees who are not officers of the Companies or increases in fees of
third-party consultants if such increases are made in the ordinary course of its
business and consistent with past practices); provided that the Companies may
pay accrued salaries and bonuses arising in the ordinary course of business for
periods prior to the Closing Date;
(i) Create, make, change or adopt any bonus, profit
sharing, pension or other Employee Benefit Plan or similar payment, plan or
arrangement to or for the benefit of its directors, officers, employees, agents
or consultants; or
(j) Enter into, make, change or commit itself to
enter into or change any agreement or arrangement with any Person, including,
but not limited to, any employment agreement or arrangement, with any of its
directors, officers, employees, agents or consultants, other than agreements
with suppliers, manufacturers, vendors, or customers in the ordinary course and
scope of the Companies' business.
7.3 COMPLIANCE. Seller shall cause the Companies to comply
in all material respects with all laws applicable in connection with their
respective operations, and Seller shall comply and shall cause the Companies to
comply with all laws that may be applicable for the valid and effective
consummation of the transaction contemplated hereby.
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8. ADDITIONAL COVENANTS. Seller and Buyer hereby covenant and agree to the
following actions:
8.1 TAX MATTERS. Seller shall cause the Companies to prepare and timely
file all federal, state, local and foreign Tax returns, declarations of
estimated Tax and Tax reports for each Tax period ending prior to the Closing
Date with respect to the Companies and their respective income, assets,
properties and operations and to prepare and file appropriate Tax returns for
the year ended January 2, 1999. All Taxes shown on all such returns,
declarations or reports shall be properly and accurately determined, shall be
accrued on the Companies' books to the extent that such Taxes are not yet due
and shall be paid by Seller or the Companies to the extent that such Taxes are
due. Prior to the Closing, Seller shall furnish copies of all the Companies' Tax
returns, declarations, reports and financial statements for periods beginning
after September 1, 1996 (and, with respect to periods prior to September 1,
1996, any such returns, declarations, reports or financial statements that are
in the possession of Seller or the Companies)to Buyer and its accountant for
review. After the Closing, the parties shall cooperate with one another and
provide access to all information, data and records as may be reasonably
required in connection with these matters.
8.2 CLOSING FINANCIAL STATEMENTS.
(a) FINANCIAL STATEMENTS. Seller shall promptly provide to Buyer
monthly, unaudited financial statements of the Companies as and when available,
but no later than twenty-five days after the close of each fiscal month. Not
later than ten business days before the Closing Date, Seller shall provide to
Buyer audited financial statements ("Audited Financial Statements") for the
Companies on a consolidated basis as at and for the years ending January 3, 1998
and January 2, 1999. The Audited Financial Statements shall be prepared in
accordance with generally accepted accounting principles applied consistently
with past practice and shall fairly present the financial condition and results
of operations of the Companies in all material respects and shall reflect any
federal and state Tax obligations of the Companies.
(b) PHYSICAL INVENTORY. On the day immediately following the
Closing Date, Buyer and Seller shall send representatives to each of the
Facilities to take a physical inventory, as of the Closing Date, of raw
materials, finished feed, other finished products, and miscellaneous other
materials consistent with past practices valued in inventory. Such
representatives shall physically inspect and agree on the quantities in the
Companies' inventories of raw materials, finished feed, other finished products
and miscellaneous other inventories. The values of the raw materials shall be
equal to the quantity of raw materials times the actual purchase price plus the
actual transportation costs therefor, but shall not exceed the market value of
the finished feed, and the values of the other inventories shall be calculated
as the quantities times the lower of cost or market price at each Facility
(collectively, the "Actual Inventories"). The market price shall be the average
of the prices for contracts made or finished products sold at each Facility
within the week prior to the Closing Date. In the event that the representatives
at any Facility are unable to agree on the Actual Inventories, the information
shall be provided to John Muse and Meyer Luskin, who shall make the final
decision on behalf of Seller and Buyer, respectively. Any disputes that are
unresolved will be resolved in accordance with the resolution provisions in
subsection (d).
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(c) AUDIT OF CLOSING FINANCIAL STATEMENTS. Within sixty (60)
days following the Closing, Buyer shall prepare and deliver to Seller a balance
sheet and income statement as at and for the period ending as of the close of
business on the Closing Date (the "Closing Financial Statements"). Any bad debt
reserve on the Closing Financial Statements shall be consistent with bad debt
reserves for prior periods. If Buyer so elects, Buyer, at its expense, shall
cause the Companies to engage an independent certified public accountant to
audit the Closing Financial Statements. Seller, at its expense, may engage an
independent certified public accountant to review the Closing Financial
Statements. The Closing Financial Statements shall be prepared in accordance
with generally accepted accounting principles applied consistently with the
Audited Financial Statements and the notes thereto and shall fairly present the
financial condition and results of operations of the Companies in all material
respects. To the extent that the Closing Financial Statements disclose a
Shortfall, the Purchase Price shall be reduced by the Shortfall and the amount
of the Shortfall shall be deducted from the Escrow or, if greater than the
Escrow, reimbursed by Seller to Buyer within thirty (30) days after completion
of the Closing Financial Statements. All amounts due to the Companies from
Seller or to Seller from the Companies shall be canceled as of the Closing Date
and the Closing Financial Statements shall accurately reflect such canceled
debt. All premiums with respect to periods prior to the Closing Date which shall
become due and payable after the Closing on retrospective policies shall be
reflected on the Closing Financial Statements. Notwithstanding the foregoing, to
the extent that provisions for Taxes are reflected in the Closing Financial
Statements for periods prior to the Closing Date, such liabilities (or assets)
shall not be included in the calculation of any Shortfall to the extent that
Seller assumes prior to the Closing Date or has assumed in writing the payment
obligation with respect to any such liabilities or has received the benefit of
any such assets; provided that if Seller fails to make any payment as and when
due Seller shall indemnify Buyer for any liability therefor in accordance with
Section 16.1.
(d) REVIEW OF CLOSING FINANCIAL STATEMENTS. Seller and Buyer
shall review the Closing Financial Statements no later than ten business days
after the audit or preparation, whichever is applicable, is completed, provided
that the parties shall use their best efforts to have the audit completed within
sixty (60) days after the Closing Date,. If there is any dispute over the
computations or amounts shown on the Closing Financial Statements, the disputing
party shall so notify the other party within such ten business days. If Seller
and Buyer are unable to agree on the computation of the Shortfall or any other
item on the Closing Financial Statements within twenty (20) days thereafter,
then the calculation of the Shortfall or any other unresolved item on the
Closing Financial Statements shall be submitted for resolution to a firm of
independent certified public accountants acceptable to both Buyer and Seller
(the "Selected Firm"), or, if Buyer and Seller are unable to agree upon a firm,
the Selected Firm shall be selected by the certified public accountants for
Buyer and Seller. If Buyer and Seller are unable to agree on the Selected Firm
within thirty-five (35) days after the Closing Financial Statements are
completed, then, within two business days thereafter Buyer's accountants shall
select two of the "Big Five" accounting firms and notify Seller and Seller's
accountants shall have three business days to select one of the two firms named
and notify Buyer and Buyer's accountants of their selection. If Seller's
accountants fail to notify Buyer and Buyer's accountants of their selection as
required by the foregoing sentence, the first of the two firms named by Buyer's
accountants shall be the Selected Firm. The Shortfall as computed by the
Selected Firm shall be
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conclusive for the purposes of this Section. Buyer and Seller shall each pay
one-half of the fees and expenses of the Selected Firm.
(e) COOPERATION. Buyer and Seller shall cooperate with one
another and shall assist in the audit to the extent reasonably necessary.
(f) ESCROW. The Escrow shall be deposited in escrow with
the Escrow Agent as of the Closing. In the event that the Liabilities of the
Companies exceed the current assets of the Companies as reflected on the Closing
Financial Statements, the Purchase Price shall be reduced by the amount of such
Shortfall, Seller shall execute joint instructions with Buyer and the Escrow
Agent shall immediately disburse to Buyer that portion of the Escrow equal to
the Shortfall, on a dollar-for-dollar basis. If, at the end of one hundred
eighty-five (185) days from the Closing Date, the Companies have not collected
all of the accounts receivable shown on the Closing Financial Statements,
subject to any bad debt reserve shown on the Closing Financial Statements, Buyer
shall cause the Companies to assign the unpaid accounts receivable to Seller and
the Escrow Agent shall pay to Buyer, on a dollar-for-dollar basis, the amount of
such accounts receivable from the Escrow, as an adjustment to the Purchase
Price. If, during that period of one hundred eighty (180) days following the
Closing Date, any Liens or Liabilities of the Companies arise with respect to
periods prior to the Closing Date that are not reflected in the Closing
Financial Statements, the amount of such Liens and Liabilities shall be paid to
Buyer from the Escrow as an adjustment to the Purchase Price. Any remaining
portion of the Escrow shall be paid to Seller no later than that date which is
one hundred ninety (190) days following the Closing, except for any portion that
is subject to dispute which may be retained in the escrow until resolution of
the dispute in accordance with the procedures set forth in the Escrow Agreement.
The release of the remaining Escrow shall not preclude Buyer from asserting any
other claims as provided in this Agreement.
8.3 SELLER'S COVENANTS. Seller covenants and agrees that:
(a) No later than ten business days after the date of this
Agreement, Seller shall provide to Buyer certified copies of Seller's
certificate of incorporation, and, from the date of this Agreement to the
Closing Date, Seller shall not sell, pledge, hypothecate, encumber or dispose of
any of the Shares, or permit the sale, pledge, hypothecation, encumbrance or
disposition of any of the Companies' assets other than in the ordinary course of
business, or agree to do so; provided that Seller may continue to pledge the
Shares and the assets of the Companies as set forth on Schedule 5.2, which
pledges shall be released on or before the Closing.
(b) As required by Section 8.2(a), Seller shall cause the
Companies to deliver to Buyer the unaudited combined balance sheet of the
Companies as of the end of each month which ends at least forty-five (45) days
prior to the Closing Date and the related unaudited combined consolidated
statements of income for each such month and on a cumulative basis for the
entire period beginning as of the date of the most recent audited financial
statements then delivered. Such unaudited financial statements shall be
prepared:
(i) in a manner consistent with the manner in which the
1997 Financial Statements and the Interim Financial Statements shall have been
prepared; and
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(ii) in conformity with generally accepted accounting
principles consistently applied, be correct and complete in all material
respects and present fairly the combined consolidated financial position of the
Companies as of the dates of such statements and the results of operations of
the Companies for the period covered by such statements, subject to normal
year-end recurring adjustments which individually or in the aggregate are not
Material and the absence of notes and schedules thereto.
8.4 NOTICE OF CERTAIN EVENTS. Seller promptly shall notify Buyer in
writing ("Seller's Notice") of any adverse change in the business, operations,
condition (financial or other), Real Property or assets of the Companies (other
than the Corn Price Exceptions); the receipt of any notice or other
communication from any Person relating to the transactions contemplated by this
Agreement or affecting the operations, Real Property or assets of the Companies;
and any action, suit, claim, or legal, administrative or arbitration proceedings
or investigation commenced or threatened against, relating to or involving the
Companies or the Acquired Business. In the event of any Material adverse change
(other than the Corn Price Exceptions), Buyer may terminate this Agreement
within thirty (30) days following receipt of Seller's Notice by giving written
notice of such termination (the "Termination Notice") to Seller; provided that
if Buyer fails to deliver a Termination Notice with respect to any Seller Notice
within such thirty (30) day period, Buyer shall waive its right to terminate by
reason of that Seller's Notice and the changes specifically set forth therein.
Seller acknowledges and agrees that, if Seller fails to obtain acceptable title
to the real property located in Kansas City, Kansas as set forth on Schedule
5.6, such failure shall be deemed to be a Material adverse change, and Buyer
shall be entitled to terminate this Agreement under this provision, but shall
not be entitled to liquidated damages under Section 8.8.
8.5 NO SHOP AND CONFIDENTIALITY.
(a) Seller and its Affiliates shall not, and shall use their
best efforts to ensure that their respective officers, directors, employees,
investment bankers, attorneys, accountants and other agents do not, directly or
indirectly, initiate, solicit, encourage, participate in, or engage in
discussions or negotiations with or provide any information to or otherwise take
any action to facilitate the making of, any offer or proposal which constitutes
or is reasonably likely to lead to any Alternative Transaction with respect to
the Companies or cooperate with any other Person seeking to acquire or
expressing an interest in acquiring any of the Shares or any of the assets
(other than inventory in the ordinary course of the Acquired Business consistent
with past practices) or the Acquired Business or for the purpose of otherwise
effecting a transaction inconsistent with the transactions contemplated by this
Agreement. Seller shall notify Buyer in writing of any such inquiries,
unsolicited offers or proposals (including, but not limited to, the terms and
conditions thereof and the identity of the Person making such offer or proposal)
within twenty-four (24) hours of the receipt thereof.
(b) From the date hereof and continuing after the Closing Date
or earlier termination of this Agreement, Seller and Buyer and their
representatives, agents and employees will continue to hold in strict confidence
any documents, data or information obtained from the other party. If the
transactions provided for herein are not consummated for any reason, the party
receiving such documents, data or information shall return the same upon request
to the
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Person providing it, shall continue to hold in strict confidence all such
documents, data and information and shall not use any such documents, data or
information. This obligation and covenant shall survive the termination of this
Agreement.
8.6 HSR FILING. Seller and Buyer shall cause their ultimate parents (as
defined in the HSR Act) to file a Notification and Report Form within ten
business days after the date hereof. Buyer and Seller shall each pay one-half of
the filing fee therefor. Buyer and Seller shall promptly respond to any requests
for additional information or documentation and shall cooperate and use their
best efforts to obtain early termination or to ensure expiration of the waiting
period on or before March 15, 1999.
8.7 PUBLIC ANNOUNCEMENT. No party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement or
public disclosure of this Agreement or the transactions contemplated hereby
without the prior written approval of Buyer and Seller; provided, however, that
any party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing party will use its
reasonable efforts to inform the other party prior to making the disclosure).
8.8 LIQUIDATED DAMAGES. IN THE EVENT THAT THE CLOSING AND THE
CONSUMMATION OF THE TRANSACTION CONTEMPLATED HEREIN DOES NOT OCCUR AS PROVIDED
IN THIS AGREEMENT BY REASON OF ANY DEFAULT OF EITHER SELLER OR BUYER, BUYER AND
SELLER AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ASCERTAIN
OR ESTIMATE THE DAMAGES SUFFERED BY THE NON-DEFAULTING PARTY AS A RESULT OF THE
DEFAULTING PARTY'S FAILURE TO COMPLETE THE PURCHASE AND SALE OF THE SHARES
PURSUANT TO THIS AGREEMENT AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE
DATE OF THIS AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION
REPRESENT A REASONABLE ESTIMATE OF THE DAMAGES WHICH BUYER OR SELLER WILL INCUR
AS A RESULT OF SUCH DEFAULT BY SELLER OR BUYER, RESPECTIVELY. THEREFORE, BUYER
AND SELLER DO HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT
THAT EITHER PARTY WOULD SUFFER IN THE EVENT OF THE OTHER PARTY'S DEFAULT AND
FAILURE TO COMPLETE THE PURCHASE AND SALE OF THE SHARES IS THREE MILLION DOLLARS
($3,000,000). SUCH AMOUNT SHALL BE THE FULL, AGREED AND LIQUIDATED DAMAGES FOR
EITHER PARTY'S DEFAULT AND FAILURE TO CONSUMMATE THE TRANSACTION; PROVIDED THAT
THE PARTY CLAIMING THE RIGHT TO LIQUIDATED DAMAGES HAS SATISFIED ALL CONDITIONS
PRECEDENT TO CLOSING REQUIRED TO BE SATISFIED AS OF THE DATE OF THE DEFAULT AND
IS NOT OTHERWISE IN DEFAULT UNDER THIS AGREEMENT. THE PAYMENT OF SUCH AMOUNT AS
LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT IS INTENDED
TO CONSTITUTE LIQUIDATED DAMAGES TO THE NON-DEFAULTING PARTY. UPON DEFAULT BY
EITHER PARTY AND PAYMENT OF THE LIQUIDATED DAMAGES TO THE NON-DEFAULTING PARTY,
THIS AGREEMENT
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WILL TERMINATE AND NEITHER PARTY WILL HAVE ANY FURTHER RIGHTS OR OBLIGATIONS
HEREUNDER.
Buyer's Initials __________________ Seller's Initials _________________
9. ACCESS TO FACILITIES AND RECORDS.
9.1 INSPECTION. Seller has provided Buyer with all Material
documents, facts and information and has responded to Buyer's inquiries to the
extent that such information or documents was reasonably available. Buyer has
reviewed the Companies' books, records and assets provided or made available by
Seller, except with respect to that information that is to be provided by Seller
prior to the Closing. Buyer may continue to review, investigate and inspect the
Companies' business, operations, condition (financial and other), books and
records, Real Property, assets and the documents to be provided hereunder. In
the event that the Companies' business, operations, condition (financial or
other), Real Property or assets are not as represented by Seller, Buyer may
terminate this Agreement by written notice to Seller. Seller shall cooperate and
cause the Companies to cooperate with Buyer during such period and facilitate
the process as set forth herein. Buyer may, at its expense, obtain a Phase I
and/or Phase II environmental audit of the Real Property (provided that any such
Phase I report is obtained by March 15, 1999), provided that Buyer shall give
Seller ten days' written notice before commissioning any Phase II audit, during
which period Seller may object in writing to such Phase II audit or audits
(which objection shall not be deemed to be a breach of any representations,
warranty or covenant hereunder) and, if Seller does object in writing, Buyer may
terminate this Agreement without any liability or either party.
9.2 ACCESS. Seller and the Companies shall give Buyer and
Buyer's employees, counsel, accountants, and other representatives or agents
reasonable access during normal business hours from the date hereof until the
Closing Date to the Facilities and to such of the Companies' Real Property,
assets, properties, personnel, books, contracts, commitments and records as
relate to the Companies' business, including, but not limited to, certified
copies of the Companies' charter documents, bylaws, and minute book and all
amendments thereto, any Tax returns filed by the Company, all books, records,
financial statements, accounts, budgets, contracts, reports, journals, ledgers
or other financial records of the Company, any sales, customer, inventory,
credit, personnel and other operational records, any contracts, agreements or
commitments with suppliers, manufacturers or any other Person, and any real or
personal property leases, licenses or options and other information or data of
the Company. Buyer or its representatives shall be entitled to copy any such
information or documents; provided that in the event of a termination of this
Agreement for whatever reason, Buyer shall promptly return or destroy all such
copies, as instructed by Seller, other that one copy to be retained by Buyer's
counsel in the event of litigation.
9.3 ADDITIONAL INFORMATION. Seller shall furnish to Buyer and
its representatives all such additional documents and financial and other
information concerning the Companies and their respective businesses,
operations, condition (financial or other), Real Property and assets as Buyer or
its representatives may from time to time reasonably require and
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shall permit Buyer and such representatives to examine all records and working
papers relating to the preparation of the financial statements or Tax returns of
the Companies.
10. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. All of the obligations
of Buyer under this Agreement are subject to the satisfaction of each of the
following conditions on or before the Closing:
10.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller contained in this Agreement or in any
schedule or exhibit hereto shall be true and accurate in all Material respects
on and as of the Closing Date, with the same force and effect as if made on the
Closing Date, except as affected by transactions contemplated or permitted
hereby, and a duly authorized officer of Seller shall so certify at the Closing.
10.2 PERFORMANCE OF COVENANTS. Seller shall have performed and
complied in all Material respects with all covenants, obligations and agreements
to be performed or complied with by Seller or the Companies on or before the
Closing Date pursuant to this Agreement or any schedule or exhibit hereto, and
Seller and a duly authorized officer of the Companies shall so certify at the
Closing.
10.3 APPROVAL OF AGENCIES. All governmental approvals necessary
for the consummation of the transactions contemplated herein shall have been
obtained, and the waiting period under the HSR Act shall have been terminated or
shall have expired.
10.4 CONSENTS. Buyer shall have received all required consents
or approvals for the sale, assignment and transfer of the Shares in a form
satisfactory to Buyer and its counsel. Prior to the execution of this Agreement,
Seller's Board of Directors approved this Agreement and the transactions
contemplated hereby. No provision of any applicable law, statute, rule,
regulation or ordinance and no judgment, injunction, order or decree shall
prohibit the consummation of the transactions contemplated by this Agreement in
accordance with its terms.
10.5 NO MATERIAL ADVERSE CHANGE. There shall have been no
Material adverse change in the business, operations, financial condition or
assets of the Companies taken as a whole prior to the Closing Date; provided
that the Corn Price Exceptions shall not constitute a Material adverse change
(but nonetheless the impact of the Corn Price Exceptions shall be considered in
determining the Shortfall), and Buyer shall not have terminated this Agreement
as permitted by Section 8.4.
10.6 DELIVERY OF DOCUMENTS. Seller shall provide, on or before
the Closing, all documents required to consummate the transactions contemplated
by this Agreement, including but not limited to:
(a) The certificates representing the Shares duly
endorsed for transfer or accompanied by duly executed stock powers;
(b) Termination statements or other evidences of
satisfaction, cure or remedy, in form to Buyer's reasonable satisfaction, duly
endorsed by all appropriate Persons,
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confirming that Liens against the Shares and the Companies' assets have been
terminated, cured or removed;
(c) Certified copies of resolutions of the Board of
Directors of Seller, in form to Buyer's reasonable satisfaction, authorizing the
execution and delivery of this Agreement and the consummation of the purchase
and sale contemplated hereby;
(d) Certificates of good standing or status issued by
the Secretary of State and, if available, appropriate taxing agency in Delaware
with respect to Seller and Delaware, Georgia, Illinois, Indiana, Kansas, New
Jersey, North Carolina, Ohio, Texas and any other state in which any of the
Companies is qualified to transact business confirming that Seller and the
Companies are duly incorporated or qualified to do business, as appropriate,
validly existing and in good standing in the states in which they are
incorporated or transacting business;
(e) Certificates required by Sections 10.1 and 10.2, as
well as an incumbency certificate confirming the officers of Seller and the
Companies and their authorized signatures, all in form to Buyer's reasonable
satisfaction;
(f) An opinion of counsel for Seller and the Companies
substantially in the form attached hereto as Exhibit C, with such
changes as may be mutually agreed upon by the parties; and
(g) The resignation of the officers and directors of the
Companies.
11. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. All of the obligations
of Seller under this Agreement are subject to the satisfaction of each of the
following conditions on or before the Closing:
11.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer contained in this Agreement or in any
schedule or exhibit hereto shall be true and accurate in all Material respects
on and as of the Closing Date, with the same force and effect as if made on the
Closing Date, except as affected by transactions contemplated or permitted
hereby, and an officer of Buyer shall so certify at the Closing.
11.2 PERFORMANCE OF COVENANTS. Buyer shall have performed and
complied in all Material respects with all covenants, obligations and agreements
to be performed or complied with by Buyer on or before the Closing Date pursuant
to this Agreement or any schedule or exhibit hereto, including, but not limited
to, the payment of the Purchase Price to Seller in the manner set forth herein,
and an officer of Buyer shall so certify at the Closing.
11.3 APPROVAL OF AGENCIES. All governmental approvals necessary
for the consummation of the transactions contemplated herein shall have been
obtained and early termination has been granted or the waiting period has
expired under the HSR Act.
11.4 CONSENTS. Seller shall have received all required consents
or approvals for the sale, assignment and transfer of the Shares, in a form
satisfactory to Seller and its counsel. Prior to the execution of this
Agreement, Seller's Board of Directors and Buyer's Board of
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Directors shall have approved this Agreement and the transactions contemplated
hereby. No provision of any applicable law, statute, rule, regulation or
ordinance and no judgment, injunction, order or decree shall prohibit the
consummation of the transactions contemplated by this Agreement in accordance
with its terms.
11.5 DELIVERY AT CLOSING. Buyer shall provide, on or before the
Closing, all funds and documents required to consummate the transactions
contemplated by this Agreement, including but not limited to:
(a) The Payments at Closing shall be paid and the Escrow
shall be deposited by Buyer as hereinabove provided, except that Buyer may pay
all or a portion of the Payments at Closing directly to Seller's lender for the
release of the Liens on the Shares;
(b) A certified copy of the resolutions of the Board of
Directors of Buyer, in form to Seller's reasonable satisfaction, that the
execution of this Agreement and the consummation of the purchase and sale
contemplated hereby have been duly authorized;
(c) Certificates required by Sections 11.1 and 11.2, as
well as an incumbency certificate confirming certain officers of Buyer and their
authorized signatures, all in form to Seller's reasonable satisfaction;
(d) An opinion of counsel for Buyer substantially in the
form of Exhibit D with such changes as may be mutually agreed upon by the
parties;
(e) Such additional funds as may be required from Buyer
for the payment of the charges to be borne by it; and
(f) A certificate from Buyer confirming that Seller has
provided Buyer and its representatives and agents the opportunity to ask
questions of the officers and management of the Companies and to acquire such
additional information about the business and financial condition of the
Companies as Buyer has requested and that all such information has been
received.
12. COVENANT NOT TO COMPETE.
12.1 COVENANT OF SELLER. As a Material inducement to Buyer's
entering into this Agreement and in consideration of $500,000 paid at the
Closing, for a period of three (3) years from and after the Closing Date, Seller
hereby covenants and agrees that it shall not engage or participate, directly or
indirectly, in any business in competition with the Acquired Business within the
United States.
12.2 PUBLIC POLICY AND LAW. The parties to this Agreement
expressly agree that it is not their intention to violate any public policy or
statutory or common law. The parties intend that the covenants set forth above
shall be construed as a series of separate covenants, one for each Person and in
each county or state within the specified geographic area, each of which
covenant shall be deemed to be identical. If, in any judicial proceedings, a
court shall refuse to enforce any of the separate covenants deemed included in
this Section 12, then such
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unenforceable covenant shall be deemed to be eliminated therefrom or modified to
the extent necessary to permit it and the remaining separate covenants to be
enforceable. Without limiting the generality of the foregoing, if any court of
competent jurisdiction determines that either of the foregoing covenants not to
compete is invalid because of its length of time or geographic scope, then the
parties hereto agree that such covenant shall be reduced either or both in
length of time or geographic scope to the extent necessary to make such covenant
enforceable against Seller.
12.3 REMEDY. The parties acknowledge and agree that the remedy
at law for any breach of the foregoing covenants not to compete will be
inadequate and that Buyer and the Companies shall be entitled, in addition to
any remedy at law, to injunctive relief. In addition to the amount paid to
Seller, the consideration for the foregoing covenants not to compete, which are
hereby agreed to be a Material element of this Agreement, is Buyer's agreement
to purchase the Shares and pay the Purchase Price provided herein, and Seller
acknowledges the adequacy of such consideration.
13. EXPENSES. Buyer and Seller shall each pay their own expenses
incurred in connection with this Agreement and the transactions contemplated
herein, whether or not the transactions contemplated herein are consummated.
14. BROKER. Except as set forth on Schedule 14, the fees for which shall
be the sole responsibility and obligation of Seller, no broker, finder or
similar agent has been employed by or on behalf of Seller, the Companies or
Buyer in connection with this Agreement or the transactions contemplated by this
Agreement, and no broker, finder or similar agent is entitled to any broker's or
finder's commission, fee, compensation or similar payment in connection with
this Agreement or the transactions contemplated by this Agreement based on any
agreement, arrangement or understanding with Seller, the Companies or Buyer or
any Affiliate thereof or any action taken by any such Person. Seller shall
indemnify and hold harmless Buyer from and against any claim of third parties
for any such commission, fee, compensation or payment in connection with the
transactions contemplated herein insofar as such claims are alleged to be due or
based on arrangements or agreements made by Seller or any of the Companies or as
a result of the actions of Seller or any of the Companies. Buyer shall indemnify
and hold harmless Seller from and against any claim of third parties for any
such commission, fee, compensation or payment in connection with the
transactions contemplated herein insofar as such claims are alleged to be due or
based on arrangements or agreements made by Buyer or as a result of the actions
of Buyer.
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND RELATED AGREEMENTS.
Except as otherwise specifically provided, all of the terms, covenants,
representations and warranties and agreements contained in or made pursuant to
this Agreement shall survive the Closing Date and the investigation by or on
behalf of Buyer. All statements contained herein or in any certificate,
schedule, list or exhibit attached hereto or required to be delivered pursuant
hereto shall be deemed representations and warranties within the meaning of this
Section 15; provided that Seller may update the disclosures in the Schedules to
this Agreement as of the Closing Date and that, if in Buyer's opinion any such
updated Schedule constitutes a Material adverse change, Seller shall have no
liability with respect to such updated disclosure to the extent that the change
resulted from a cause beyond Seller's control and Buyer's sole remedy shall be
to
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terminate this Agreement. The representations, warranties, covenants and
agreements set forth in Sections 5.2, 5.11, and 5.13 shall survive the Closing
until the expiration of all applicable federal, state, local and foreign
statutory periods of limitations (after giving effect to any waiver, mitigation
or extension of any such statutory periods of limitations or any agreements made
in connection with the imposition, assessment, evaluation, audit or review of
any federal, state, local or foreign Taxes or Tax returns with respect to the
Companies or any of its income, properties, franchises or operations). All other
representations, warranties, covenants and agreements of Seller shall survive
the Closing for a period of two years. All representations, warranties,
covenants and agreements of Buyer shall survive the Closing for a period of two
years. Seller's liability under Section 16.1 shall terminate on that date which
is two years after the Closing Date for Losses resulting from misrepresentations
under this Agreement or the exhibits hereto or schedules attached (other than
5.2, 5.11, and 5.13), but, notwithstanding any disclosure set forth in the
disclosure schedules, Seller's liability under Section 16.1 with respect to
misrepresentations under Sections 5.2, 5.11 or 5.13 shall not terminate until
the expiration of all applicable federal, state, local and foreign statutory
periods of limitations (after giving effect to any waiver, mitigation or
extension of any such statutory periods of limitations or any agreements made in
connection with the imposition, assessment, evaluation, audit or review of any
federal, state, local or foreign Taxes or Tax returns with respect to the
Companies or any of its income, properties, franchises or operations) and
Seller's liability for Losses under Section 16.1(a)(d) shall not terminate until
the expiration of four years from the Closing Date. Buyer's liability under
Section 16.2 shall terminate on that date which is two years after the Closing
Date. Notwithstanding the preceding provisions, any representation, warranty,
covenant or agreement with respect to which Buyer may exercise its right to seek
recourse against the Escrow under this Agreement shall survive the time at which
such representation, warranty, covenant or agreement would otherwise terminate
pursuant to this Section, if notice of any proceeding or the event, circumstance
or state of facts giving rise to such right to seek recourse shall have been
given to Seller in accordance with this Agreement.
16. INDEMNIFICATION.
16.1 SELLER'S INDEMNITY.
(a) GENERAL. Seller shall indemnify, defend and hold
harmless Buyer and the Companies, and their respective officers, directors,
employees and agents, from and against any and all Losses, including reasonable
attorneys' fees and court costs, that shall arise with respect to: (a) the
breach of or failure of Seller to perform any covenant or agreement contained in
this Agreement or required hereunder (whether occurring before or after the
Closing Date); (b) the breach or failure of the Companies to perform any
covenant or agreement contained in this Agreement to be performed by any of the
Companies on or before the Closing Date; (c) any breach of any representation or
warranty made by or on behalf of Seller; and (d) any Loss arising from third
party claims related to events occurring prior to the Closing (other than
relating to an Environmental Condition) to the extent that such Loss,
individually or in the aggregate with all other such Losses, is Material,
subject to the terms and conditions set forth in this Agreement, including but
not limited to the adjustment of the Purchase Price as set forth in Section 8.2.
Seller's obligations under this Section 16.1 shall not be limited in any way by
the
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amount of the Escrow or by the Escrow Period, except to the extent that Buyer
has been reimbursed for such Losses from the Escrow.
(b) ENVIRONMENTAL. Notwithstanding the above and
regardless of the representations made by Seller, Seller shall, for a period of
three years following the Closing, indemnify, defend and hold harmless Buyer and
the Companies, and their respective officers, directors, employees and agents,
from and against any and all Losses, including reasonable attorneys' fees,
clean-up or remediation costs and court costs, that arise or relate to any
Environmental Condition or the presence of any Hazardous Substances on either of
the Georgia Facilities.
16.2 BUYER'S INDEMNITY. Buyer shall indemnify, defend and hold Seller,
and its officers, directors, employees and agents, harmless from and against any
and all Losses, including reasonable attorneys' fees and court costs, that shall
arise with respect to: (a) the breach of or failure by Buyer to perform any
covenant or agreement contained in this Agreement (whether occurring before or
after the Closing Date); and (b) any breach of any representation or warranty
made by Buyer under this Agreement or any schedule or exhibit hereto.
16.3 PROCEDURES.
(a) NOTICE. The Indemnified Party shall promptly notify the
Indemnifying Party of the existence of any Loss to which the Indemnifying
Party's obligations under this section would apply. The Indemnifying Party shall
have the right, but not the obligation to defend the claim at the Indemnifying
Party's own expense and with counsel of its own selection; provided that the
Indemnified Party shall at all times have the right to obtain separate counsel
and participate in the defense at its own expense. If the Indemnifying Party
shall, within a reasonable time after this notice, fail to assume the defense,
the Indemnified Party shall have the right, but not the obligation, to undertake
the defense of, and to compromise or settle (exercising reasonable business
judgment), the Loss on behalf, for the account, and at the risk of the
Indemnifying Party. If the Loss is one that cannot by its nature be defended
solely by the Indemnifying Party (including, without limitation, any federal or
state proceeding), then the Indemnified Party shall make available all
information and assistance that the Indemnifying Party may reasonably request.
(b) INSURANCE AND OTHER THIRD PARTY CLAIMS. Seller and Buyer
shall take or cause the Companies to take all reasonable actions to make claims
under any and all applicable insurance policies for any Losses and to make
claims against manufacturers and any and all other third parties from whom a
Loss could reasonably be reimbursed or recovered. Seller and Buyer shall and
shall cause the Companies diligently to pursue such claims; provided that, if
any Escrow Period is about to expire, Buyer shall be reimbursed the amount of
the Loss or an estimate of such amount from the Escrow by the Escrow Agent
pending resolution of the third party claim in accordance with the Escrow
Agreement and provided further that the costs of making and pursuing such
reimbursement shall be included in the calculation of the Loss. If either party
to this Agreement receives any payment with respect to a Loss from any insurer
or any third party, the amount received shall be remitted to the Indemnifying
Party to the extent it is in excess of the actual Loss suffered or to reimburse
the Indemnifying Party for any amount
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<PAGE> 33
previously deducted from the Escrow or previously paid by the Indemnifying Party
to the Indemnified Party; provided that Buyer shall not be required to remit
such amount to Seller until after the applicable Escrow Period has expired.
Neither Seller nor Buyer shall make any claims under this Agreement for the
amounts which any insurance carriers have reimbursed the Companies or the
Indemnified Party or with respect to which the Indemnified Party has otherwise
been reimbursed, such as by manufacturers for defective products.
16.4 THRESHOLD; LIMITATIONS. For the initial one hundred eighty (180)
days immediately following the Closing and in connection with any Shortfall,
Seller's indemnification obligations shall not be limited by this provision.
Thereafter, however, neither Buyer nor Seller shall be entitled to assert any
claim for indemnification against the other party for any Loss resulting from an
Indemnifiable Matter until such time as all claims of such party against the
Indemnifying Party shall exceed $110,000 (the "Threshold"), at which time all
claims for indemnification against the Indemnifying Party may be asserted. The
Indemnifying Party's obligation under this Section 16 shall be after giving
effect to any federal and state tax benefits to the Indemnified Party
attributable to the Loss and any federal and state tax liability to the
Indemnified Party attributable to the indemnification proceeds of such Loss. The
parties agree that the applicable combined federal and state tax rate for such
purpose shall be 37%. Seller shall not be liable under Section 16.1(a)(d) after
that date which is four years from the Closing Date unless Buyer has notified
Seller of any such Loss prior to that date or such Loss is indemnifiable under
another provision of this Agreement which survives such four-year period.
16.5 ENVIRONMENTAL REMEDIAL ACTION PROCEDURES. In the event that (i)
Seller breaches a representation or warranty with regard to an environmental
matter on any of the Real Property, (ii) Buyer asserts a claim under Section
16.1(b) as a result of the existence of an Environmental Condition or the
presence of Hazardous Substances on any of the Real Property or (iii) remedial
action is required by a governmental agency with jurisdiction, by a third party
or under mandatory provisions of applicable Environmental Law, Buyer and Seller
shall cooperate in implementing the remedial action as follows:
(a) Seller shall diligently and expeditiously perform or cause
to be performed the appropriate remedial actions and exercise its
responsibilities in such a manner as to avoid and minimize any damage to real or
personal property or harm to any Persons and to minimize any interference with
or disruption of Buyer's and any of the Companies' operations and business and
shall indemnify and hold Buyer harmless from any negligence or willful
misconduct in performing the remedial actions. Buyer and Seller shall each
designate an individual responsible for communication with the other party and
the environmental consultants (which shall be selected by Seller and reasonably
acceptable to Buyer) with respect to any remedial action and shall notify the
other party of the identity of such individual. All documents, test results,
analyses, reports, and proposals shall be provided to both Buyer and Seller.
(b) The remedial action shall meet the Appropriate Remediation
Standard and shall be deemed completed upon receipt by Buyer (or by Seller if
Seller provides a copy thereof to Buyer) from the appropriate governmental
authority with jurisdiction of a "no further action," "clean closure" or other
similar letter or written statement providing that such governmental authority
will not require further remedial action or, in the event such authority
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<PAGE> 34
ceases to or does not issue such letters, a certificate from the environmental
consultant that implemented the remedial action that such remedial action has
been implemented and the Appropriate Remediation Standard has been achieved.
(c) Upon completion of the remedial action, Seller shall
restore any adversely affected portions of the property to its pre-disturbed
condition to permit Buyer and the Companies to continue their respective
operations.
17. BINDING. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective representatives, successors
and assigns. This Agreement may be assigned by Buyer without the written consent
of Seller to an Affiliate of Buyer, but may not be assigned by Seller without
the prior written consent of Buyer.
18. ENTIRE AGREEMENT. This Agreement and its exhibits, schedules and
attachments contain the full and complete understanding and the entire agreement
of the parties hereto with respect to the acquisition of the Shares and all
other transactions contemplated herein and, except as specifically set forth
herein, supersedes all prior agreements or understandings among the parties
hereto relating to the subject matter hereof.
19. AMENDMENT. This Agreement may be amended, modified or supplemented
only by written instruments signed by all parties hereto.
20. SEVERABLE. In the event any one or more of the provisions contained
in this Agreement or any application thereof shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement and any other application thereof shall
not in any way be affected or impaired thereby.
21. NOTICES. All notices, requests, demands and other communications
under this Agreement to the parties shall be in writing and shall be personally
delivered or sent by commercial courier, facsimile (with the original by mail)
or certified or registered mail, postage prepaid and return receipt requested,
to the following addresses:
Seller: Darling International Inc.
251 O'Connor Ridge Boulevard
Suite 300
Irving, Texas 75038
Attn: Chairman of the Board
Facsimile: (972) 717-3062
With a copy to: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Attn: Fredric J. Klink, Esq.
Facsimile: (212) 698-3599
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<PAGE> 35
Buyer: Scope Products, Inc.
233 Wilshire Boulevard
Suite 310
Santa Monica, California 90401
Attn: Meyer Luskin
Facsimile: (310) 451-5371
With a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn: Kay Rustand, Esq.
Facsimile: (213) 617-9255
Any party may change its address for purposes of this Section 21
by giving the other parties notice of the new address in the manner set forth
herein. Any notice given as set forth herein shall be deemed to be received on
the earlier of actual receipt or four (4) business days after being sent.
22. ATTORNEYS' FEES. In any action or arbitration proceeding involving
the interpretation or enforcement of, or defense against, any provision of this
Agreement, the prevailing party in such action or proceeding shall be entitled
to reasonable attorneys' fees and all costs and expenses incurred in connection
with such action or proceeding. In addition, the non-prevailing party shall pay
all costs and expenses incurred in enforcing any arbitration award or judgment
or in connection with any appeal, and this obligation shall be severable from
the other provisions of this paragraph and shall survive any judgment, order or
award and shall not be deemed to be merged therewith.
23. TIME OF ESSENCE. Time is of the essence with respect to this
Agreement and the transactions contemplated hereby.
24. NO WAIVER. No failure or delay by any party in exercising any right,
power or privilege or enforcing any obligation under this Agreement shall
operate as a waiver of such right, power, privilege or obligation. No single or
partial exercise of any right, power or privilege under this Agreement shall
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege.
25. FURTHER ASSURANCES. Each party to this Agreement shall execute and
deliver such other documents, certificates, agreements or instruments and take
such other actions as may be necessary or desirable in order to consummate or
implement the transactions contemplated by this Agreement and to vest in Buyer
record and beneficial ownership of the Shares, free and clear of all Liens, or
other claims or interests other than those arising from Buyer's acts.
26. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
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<PAGE> 36
27. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, and any federal or state
court having jurisdiction in the State of Delaware shall be the venue for any
action related hereto. Seller and Buyer hereby consent to the jurisdiction of
any federal or state court in such venue. Seller and Buyer hereby further agree
that service of process with respect to an action in any such court may be made
in accordance with the notice provisions under Section 21 hereof.
28. WAIVER OF JURY TRIAL. BY EXECUTING THIS AGREEMENT, THE PARTIES AGREE
THAT THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL. EACH PARTY HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL REPRESENTING THAT PARTY AND
CONSENTS TO SUCH WAIVER WITH FULL UNDERSTANDING OF THE CONSEQUENCES THEREOF.
Each party shall be responsible for its own expenses and costs of any witnesses
selected by such party
29. CAPTIONS. The captions of the various sections of this Agreement are
intended solely for convenience and are not to be used to interpret any of the
provisions hereof.
30. EXHIBITS. All exhibits and schedules attached to this Agreement are
incorporated herein by reference.
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"SELLER"
DARLING INTERNATIONAL INC.,
a Delaware corporation
By
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
By
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
"BUYER"
SCOPE PRODUCTS, INC.,
a California corporation
By:
--------------------------------
Name: Meyer Luskin
Title: Chief Executive Officer
By:
--------------------------------
Name: John J. Crowley
Title: Chief Financial Officer
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<PAGE> 38
EXHIBIT A
GLOSSARY
"Acquired Business" means the business of processing solids collected
from bakeries, pasta manufacturers, snack food producers and others to produce
animal feed.
"Actual Inventories" means the agreed value of the inventories of raw
materials, finished feed, other finished products and miscellaneous items that,
consistent with past practice, are valued as inventory determined by
representatives of Buyer and Seller in accordance with Section 8.2(b).
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person.
"Agreement" means this Stock Purchase Agreement by and between Seller
and Buyer.
"Alternative Transaction" means any offer to purchase all or any portion
of the Shares or any proposal or offer to purchase substantially all of the
assets of any of the Companies or any merger, consolidation or other business
combination of any Person with any of the Companies or any proposal or offer
with respect to any other transaction similar to any of the foregoing with
respect to any Person and the Companies.
"Appropriate Remediation Standard" means publicly available or routinely
applied remediation standards, guidelines or policies, regulations, ordinances,
or other requirements of Environmental Laws imposed by any applicable
governmental agency with jurisdiction. In the even that no such standard is
imposed, then an applicable remediation standard which has been published or
promulgated by the governmental authority with jurisdiction as of the date of
the remedial actions shall be presumed to apply. In no event shall the
Appropriate Remediation Standard be at a level that would require imposition or
implementation of institutional or structural controls or access restrictions,
unless the only reasonable Appropriate Remediation Standard applicable to the
remedial action to be performed specifically requires such controls or
restrictions.
"Closing" means the consummation of the purchase and sale of the Shares.
"Closing Date" means midnight (California time) on the last Saturday of
the Companies' fiscal month end following satisfaction of the conditions set
forth in Sections 10 and 11, unless otherwise agreed by Seller and Buyer.
"Closing Financial Statements" means the financial statements of the
Companies prepared as of the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Companies" means IPC, ITS and FBR.
<PAGE> 39
"Corn Price Exceptions" means any negative impact resulting from
continued low corn prices or further decline in corn prices, or any negative
impact on corn prices which could result from domestic or international economic
conditions, which could adversely affect the price which the Companies receive
for their products.
"Employee Benefit Plan" means any pension, profit-sharing, retirement,
deferred compensation, bonus, stock purchase, stock option, severance,
hospitalization, medical insurance, life insurance, payroll practice, fringe
benefit, vacation policy, permissible leave policy or other employee benefit
plan, agreement, arrangement or understanding (including, but not limited to,
any employee benefit plan as defined in Section 3(3) of ERISA) maintained as of
the date of this Agreement or as of the Closing Date, or with respect to which
the Companies as of the date of this Agreement or at any time in the future may
have some liability or obligation to contribute or make payments and that
relates to Persons employed by the Companies or any predecessor of the Companies
prior to the Closing Date.
"Environmental Condition" means (a) the presence, release or threat of
release of Hazardous Substances (i) at, on, in under or from any Real Property
or (ii) in connection with the Acquired Business or any business now or
heretofore conducted by any of the Companies (whether or not any such release is
into the air, soil, or ground or surface waters on or off-site) or (iii) arising
from the off-site transportation, storage, treatment, recycling or disposal of
Hazardous Substances; or (b) the violation of any Environmental Law by any of
the Companies or in connection with the acquired Business or any other business
now or heretofore conducted by any of the Companies on any Real Property.
"Environmental Law" means any federal, state or local statute, code,
rule, regulation, ordinance, order, judgment, decree, injunction or common law
pertaining in any way to the protection of human health or the environment,
including, but not limited to, the Resource Conservation and Recover Act (42
U.S.C. Section 6901 et seq.), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601-9675), the Toxic
Substance Control Act (15 U.S.C. Sections 2601-2671), the Hazardous Material
Transportation Act (49 U.S.C. Sections 1801-1813), the Federal Water Pollution
Control Act (33 U.S.C. Sections 1251-1387), the Clean Air Act (42 U.S.C.
Sections 7401-7642), the Safe Drinking Water Act (42 U.S.C. Sections
300(f)-300(j)-26) the Solid Waste Disposal Act (42 U.S.C. Sections
6901-6992(k)), the Constitutional Zone Management Act (16 U.S.C. Sections
1451-1464), and the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.) and any similar or comparable federal, state or local law, all as
supplemented or amended or as implemented through statutes or regulations as of
the date of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" means the $2,000,000 deposited with the Escrow Agent in
accordance with the Escrow Agreement for the Escrow Period and subject to the
terms and conditions set forth in this Agreement.
"Escrow Agent" means an independent escrow agent to be mutually agreed
upon by Seller and Buyer.
<PAGE> 40
"Escrow Period" means one hundred eighty-five (185) days from the
Closing Date, unless extended as provided in the Escrow Agreement.
"Facilities" or "Facilities" means each location at which any of the
Companies operates the Acquired Business, including, but not limited to, the
Companies' facilities located in Georgia, Illinois, Indiana, Kansas, New Jersey,
North Carolina, Ohio and Texas.
"FBR" means Food by-Product Recycling, Inc., an Illinois corporation.
"Financial Statements" means and includes (i) the Audited Financial
Statements of the Companies as of January 3, 1998, and January 2, 1999, and for
each of the periods of 12 months then ended, setting forth in comparative form
the financial information for the Companies' preceding fiscal year, and (ii) the
Interim Financial Statements of the Companies.
"Georgia Facilities" means those facilities of IPC located in Georgia.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hazardous Substance" means any hazardous, toxic, radioactive or
infectious substance, material, waste, pollutant or contaminant as defined,
listed or regulated under any Environmental Law, and specifically shall include,
but not be limited to, asbestos and petroleum.
"Indemnifiable Matter means, with respect to claims against Seller,
those items listed in Section 16.1 (a) and (b) and, with respect to claims
against Buyer, those items listed in Section 16.2(a) and (b).
"Indemnifying Party" means the party against which a claim of
indemnification is made under Section 16.
"Interim Financial Statements" means those financial statements provided
under Sections 5.5(a)(3) and 8.2(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"IPC" means International Processing Corporation, a Georgia corporation.
"IPC Acquisition Agreement" means that Stock Purchase Agreement dated as
of August 30, 1996 by and among Seller, IPC, ITS and the stockholders party
thereto.
"ITS" means International Transportation Service, Inc., a Delaware
corporation.
"Liability" or "Liabilities" means any liability or liabilities (whether
known or unknown, asserted or unasserted, absolute or contingent, liquidated or
unliquidated).
"Lien" or "Liens" mean any lien, encumbrance, mortgage, security
interest, third-party interest of any kind, pledge, lease, easement, covenant,
license, claim, defect of title, restriction,
<PAGE> 41
agreement or other right of any nature whatsoever or of any Person other than
the Person identified.
"Loss" means any and all losses, claims, demands, proceedings, damages
(including, but not limited to, punitive and consequential damages), injuries,
Liens, Liabilities, Taxes, fines, penalties, payments, obligations costs or
expenses incurred or suffered by Buyer or the Companies, including, but not
limited to, reasonable costs and expenses of attorneys, investigation or in
connection with a proceeding.
"Material" means, with respect to any fact, circumstance or event for
which a representation, warranty or covenant is given, any such item which would
reasonably be expected to result in a Loss equal to or greater than $100,000.
"Payments at Closing" means that portion of the Purchase Price Buyer is
to pay to Seller at the Closing.
"Person" means an individual, a partnership, a corporation (including a
business trust), a limited liability company, a joint stock company, a trust, an
unincorporated association, a joint venture or any other entity, or a government
or any political subdivision or agency thereof.
"Proceeding" means any claim, demand, action, suit, arbitration,
proceeding (whether civil, criminal, administrative, investigative or
otherwise), prosecution, hearing, inquiry, audit, examination, investigation or
dispute.
"Purchase Price" means the $21.5 million Buyer is to pay for the Shares,
subject to adjustment as provided in the Agreement, and the $500,000 that Buyer
is to pay for the covenant not to compete.
"Real Property" means all real property that is owned in fee by any of
the Companies and all real property in which any of the Companies has any
interest as lessor or lessee under any lease, sublease or other agreement, all
of which is listed or identified in Schedules 5.6.
"Shares" means all of the issued and outstanding shares of capital stock
of IPC and ITS.
"Shortfall" means the amount, if any, by which the Liabilities as
reflected on the Closing Financial Statements as finally determined in
accordance with Section 8.2 exceed the Companies' current assets as shown on the
Closing Financial Statements, plus all known claims not disclosed or reserved
against determined in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the compiled financial
statements of the Companies as at January 2, 1999, as adjusted for any accounts
receivable of any of the Companies not collected within one hundred eighty (180)
days following the Closing.
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, capital, paid-up
capital, profits, green mail, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, government fee or like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition
<PAGE> 42
to tax or additional amount imposed by any federal, state, local or foreign
governmental authority responsible for the imposition of any such tax.
"Total Actual Inventories" means the aggregate of all Actual Inventories
at all Facilities of all the Companies.
<PAGE> 1
NEWS RELEASE
February 10, 1999
Scope Industries (AMEX: SCP) has agreed to purchase, through its wholly-owned
subsidiary Scope Products, Inc., the bakery waste recycling business of Darling
International Inc. (AMEX: DAR). The business, known as International Processing
Corporation, consists of manufacturing facilities located in Georgia, Illinois,
Indiana, Kansas, New Jersey, North Carolina, Ohio and Texas which process waste
bakery materials into animal feed. The purchase of the bakery waste recycling
business is to be an all cash purchase for $22,000,000. The transaction is
expected to be completed and be effective in early April, 1999, subject to
completing certain conditions including receiving appropriate regulatory
approvals.
<PAGE> 2
NEWS RELEASE
For April 6, 1999
ACQUISITION COMPLETED
Scope Industries (AMEX: SCP) announced the completion, effective on April 4,
1999, of its purchase of all the outstanding stock of International Processing
Corporation and related subsidiaries from Darling International Inc. (AMEX:
DAR).
