<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13260
SILVERADO FOODS, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1369218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6846 SOUTH CANTON, SUITE 110, TULSA, OKLAHOMA 74136
(Address of principal executive offices)
(918) 496-2400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to field such reports), and (2) has been subject to such filing
requirements of the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 12, 1998
----- --------------------------------
Common Stock, $.01 Par Value 15,361,553
<PAGE>
PART I
FINANCIAL
INFORMATION
2
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------ ------------
ASSETS 1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ 56,359
Accounts receivable, net -- 2,689,893
Inventories, net -- 1,204,321
Prepaid expenses and other 415,665 365,069
------------ ------------
Total current assets 415,665 4,315,642
------------ ------------
NET ASSETS HELD FOR SALE (Notes 2 and 3) 10,408,965 2,835,459
NOTES RECEIVABLE (Note 5) 3,302,332 1,178,582
PROPERTY, PLANT AND EQUIPMENT, net 13,018 7,086,488
GOODWILL AND OTHER INTANGIBLES, net 179,537 5,492,027
------------ ------------
Total assets $ 14,319,517 $ 20,908,198
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 21,625,601 $ 14,257,040
Short-term notes payable 475,000 500,000
Trade accounts payable 5,068,728 4,516,522
Accrued liabilities 3,317,503 3,291,737
Other liabilities -- 274,283
------------ ------------
Total current liabilities 30,486,832 22,839,582
------------ ------------
LONG-TERM DEBT, less current maturities -- 5,360,086
OTHER -- 40,967
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Common stock, $.01 par value, 20,000,000 shares authorized 153,576 117,018
14,607,125 issued and 14,580,130 outstanding
Warrants 51,159 46,549
Additional paid-in-capital 28,873,569 28,843,461
Accumulated deficit (45,180,967) (36,274,813)
------------ ------------
(16,102,663) (7,267,785)
Less: Treasury stock (64,652) (64,652)
------------ ------------
Total shareholders' deficit (16,167,315) (7,332,437)
============ ============
Total liabilities and shareholders' deficit $ 14,319,517 $ 20,908,198
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ---------------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 4,747,175 $ 6,288,351 $ 15,608,412 $ 17,712,389
COST OF SALES 3,652,843 5,337,340 11,309,236 14,697,214
------------ ------------ ------------ ------------
Gross profit 1,094,332 951,011 4,299,176 3,015,175
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 516,906 3,682,622 1,922,527 6,750,946
Selling and marketing 812,651 1,281,379 2,636,175 3,773,393
Depreciation 20,990 38,257 89,896 107,339
Amortization of goodwill and other intangibles 116,671 335,638 473,185 737,374
Loss on adjustment to carrying value -- -- 3,029,599 --
------------ ------------ ------------ ------------
1,467,218 5,337,896 8,151,382 11,369,052
------------ ------------ ------------ ------------
OPERATING LOSS (372,886) (4,386,885) (3,852,206) (8,353,877)
OTHER INCOME (EXPENSE):
Interest (1,019,014) (681,079) (2,594,202) (1,472,049)
Accretion of debenture discount -- -- (66,666) (1,150,000)
Other, net (7,027) (8,513) (15,263) (20,751)
------------ ------------ ------------ ------------
(1,026,041) (689,592) (2,676,131) (2,642,800)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (1,398,927) (5,076,477) (6,528,337) (10,996,677)
DISCONTINUED OPERATIONS
Operating Loss -- (852,036) -- (1,738,837)
Loss on Disposal -- (70,311) (2,377,817) (1,450,289)
------------ ------------ ------------ ------------
LOSS FROM DISCONTINUED OPERATIONS -- (922,347) (2,377,817) (3,189,126)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET LOSS $ (1,398,927) $ (5,998,824) $ (8,906,154) $(14,185,803)
============ ============ ============ ============
BASIC LOSS PER SHARE FROM:
CONTINUING OPERATIONS $ (.09) $ (.57) $ (.47) $ (1.36)
DISCONTINUED OPERATIONS -- (.10) -- (0.21)
LOSS ON DISPOSAL -- (.01) (.17) (0.18)
------------ ------------ ------------ ------------
NET LOSS PER SHARE $ (0.09) $ (.68) $ (0.64) $ (1.75)
============ ============ ============ ============
DILUTED LOSS PER SHARE FROM:
CONTINUING OPERATIONS $ (0.09) $ (0.57) $ (.47) $ (1.36)
OPERATING LOSS FROM DISCONTINUED OPERATIONS -- (0.10) -- (0.21)
LOSS ON DISPOSAL -- (0.01) (.17) (.18)
------------ ------------ ------------ ------------
NET LOSS PER SHARE $ (0.09) $ (0.68) $ (0.64) $ (1.75)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
--------------------- ------------------- ADDITIONAL
NUMBER NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT WARRANTS CAPITAL DEFICIT TOTAL
--------- ------ --------- ------ -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 11,701,757 $ 117,018 (26,995) $ (64,652) $ 46,549 $ 28,843,461 $(36,274,813) $ (7,332,437)
Accretion of Debenture Discount -- -- -- -- -- 66,666 -- 66,666
Exchange of Note Receivable for -- -- -- -- -- (200,000) -- (200,000)
reduction of stock guarantee
Issuance of common stock 1,025,142 10,251 -- -- -- 189,749 -- 200,000
in connection with debenture
conversion
Issuance of warrants -- -- -- -- 4,610 -- -- 4,610
Issuance of common stock in
in connection with settlement
of employment agreement 840,000 8,400 -- -- -- (8,400) -- --
Contribution of capital 1,790,694 17,907 -- -- -- (17,907) -- --
Net loss -- -- -- -- -- -- (8,906,154) (8,906,154)
------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 15,357,593 $ 153,576 (26,995) $ (64,652) $ 51,159 $ 28,873,569 $(45,180,967) $(16,167,315)
================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,906,154) $(14,185,803)
------------ ------------
Adjustments to reconcile net loss to cash used in operating activities--
Depreciation and amortization 973,846 1,670,672
Accretion of debenture discount 66,666 1,150,000
Increase in allowance for doubtful accounts -- 1,000,000
Loss on sale of assets 2,377,817 1,378,357
Loss on adjustment to carrying value 3,029,599 --
Change in assets and liabilities, net of effect of acquisitions
Decrease in accounts receivable (473,605) 645,674
Decrease in inventory (715,599) 1,299,015
(Increase) Decrease in prepaid expenses and other (218,570) (59,306)
Increase in assets held for disposal (1,856,572) (538,140)
Increase in payables and accrued liabilities 2,701,829 2,275,984
Decrease in intangibles and other 470,492 6,469
------------ ------------
Total adjustments 6,355,903 8,828,725
------------ ------------
Cash provided by (used in) operating activities (2,550,251) (5,357,078)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 1,052,153 1,009,239
Increase in notes receivable -- (200,000)
Capital expenditures (705,380) (778,553)
------------ ------------
Cash provided by (used in) investing activities 346,773 30,686
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from long-term debt 9,208,476 10,873,473
Payments on notes payable and long-term debt (7,065,967) (5,638,679)
Issuance of stock 4,610 10,000
------------ ------------
Cash provided by (used in) financing activities 2,147,119 5,244,794
------------ ------------
NET DECREASE IN CASH (56,359) (81,598)
CASH, beginning of period 56,359 164,118
------------ ------------
CASH, end of period $ (0) $ 82,520
============ ============
Non-cash Financing Activities:
Issuance of stock for debenture conversion $ 200,000 $ 1,622,250
Addition to paid-in-capital for debenture discount accretion 66,666 1,150,000
Receipt of note receivable for sale of assets 2,458,750 1,012,383
Contribution of capital -- 2,595,601
Exchange of note receivable for reduction of stock guarantee 200,000 --
Purchase of common stock by forgiveness of indebtedness -- 2,362,564
Issuance of common stock in connection with termination of -- 840,000
employment agreements
Issuance of additional shares for buyout option of royalty -- 2,000
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for-
Interest $ 863,760 $ 820,464
Taxes $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SILVERADO FOODS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL:
The accompanying consolidated financial statements have been prepared by
Silverado Foods, Inc. (the "Company") without audit and should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto included in the Company's annual report and Form 10-K as of December 31,
1997. The foregoing financial statements include only normal recurring accruals
and all adjustments which the Company considers necessary for a fair
presentation.
2. DISCONTINUED OPERATIONS:
During the second quarter of 1998, the Company entered into a plan of disposal
for its specialty baked goods division. The sale of the specialty baked goods
division is subject to obtaining shareholder approval. Accordingly, until such
approval is obtained, the specialty baked goods division is shown as continuing
operations. In addition, the assets of the specialty baked goods division have
been classified as assets held for sale. This disposition is in addition to the
snack tray business, the catalog food division, and the direct store delivery
business, which were discontinued in late 1996 and 1997. The results of the
snack tray division and the catalog division are included in the discontinued
operations section of the income statement, and their assets have been
classified as assets held for sale. Operating expenses include selling, general
and administrative, and interest expense related to these operations. The snack
tray segment does not reflect a loss for the three months ended September 30,
1998 as their operating losses were accrued as part of the loss on disposal
recorded in prior quarters. The following tables summarize the operations and
the components of net assets for the periods indicated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1997 1998 1997
---------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Sales:
Catalog Division $ --- $ --- $ --- $ 180,359
Snack Tray 3,518,247 6,898,284 12,708,525 22,592,978
--------------------------------- --------------------------------------
3,518,247 6,898,284 12,708,525 22,773,337
--------------------------------- --------------------------------------
Cost of Sales:
Catalog Division $ --- $ --- $ --- $ 212,125
Snack Tray 1,882,741 4,015,054 6,518,491 12,809,275
--------------------------------- --------------------------------------
1,882,741 4,015,054 6,518,491 13,021,400
--------------------------------- --------------------------------------
Operating Expenses:
Catalog Division $ --- $ 70,311 $ --- $ 1,695,793
Snack Tray 1,635,506 3,735,266 8,567,851 11,245,270
--------------------------------- --------------------------------------
1,635,506 3,805,577 8,567,851 12,941,063
--------------------------------- --------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Loss from Discontinued Operations:
<S> <C> <C> <C> <C>
Catalog Division $ --- $ (70,311) $ ---- $(1,727,559)
Snack Tray --- (852,036) (2,377,817) (1,461,567)
--------------------------------- --------------------------------------
Total --- (922,347) (2,377,817) (3,189,126)
================================= ======================================
</TABLE>
Net assets held for sale at September 30, 1998 include the following:
SPECIALTY
SNACK TRAY BAKED GOODS TOTAL
----------- ----------- -----------
Accounts Receivable $ 755,855 $ 3,163,498 $ 3,919,353
Inventory 1,380,573 1,644,887 3,025,460
Other Assets 112,481 ----- 112,481
PP&E 192,370 4,163,820 4,356,190
Goodwill 2,344,678 2,273,899 4,618,577
Accounts Payable (2,016,249) (2,010,555) (4,026,804)
Accrued Liabilities (1,348,010) (88,645) (1,436,655)
Other Non-Current Liabilities (159,637) ----- (159,637)
----------- ----------- -----------
Net assets held for sale $ 1,262,061 $ 9,146,904 $10,408,965
=========== =========== ===========
3. DETAILS TO CONSOLIDATED BALANCE SHEETS:
The inventories related to the Company's discontinued operations are detailed in
Note 2 as a component of net assets held for sale. Inventories consist primarily
of finished goods and packaging supplies which are stated at the lower of cost
(first-in, first-out basis) or market as follows:
December 31,
1997
-----------
Raw Materials $ 908,105
Finished Goods 370,192
-----------
1,278,297
Less: Allowance for excess and
obsolete inventory (73,976)
-----------
$ 1,204,321
===========
4. LOSS PER SHARE:
For the three months ended September 30, 1998 and September 30, 1997, the basic
loss per share calculation includes the weighted average number of shares
outstanding for the period
8
<PAGE>
which were 15,330,598 and 8,942,884 respectively. For the nine months ended
September 30, 1998 and September 30, 1997, the basic loss per share calculation
includes the weighted average number of shares outstanding for the period which
were 13,882,112 and 8,095,436 respectively.
For the three months ended September 30, 1998 and 1997, the diluted loss per
share calculation includes the weighted average number of shares outstanding for
the period which were 15,330,598 and 8,942,884 shares respectively. For the
nine months periods ended September 30, 1998 and 1997, the diluted loss per
share calculation includes the weighted average number of share outstanding for
the period which were 13,882,112 and 8,095,436 shares respectively.
5. NOTES RECEIVABLE:
On June 12, 1998, the Company disposed of its bagel bar business, the related
manufacturing facilities and equipment, and certain inventories. The business
was sold to Gourmet Specialty Bakers, Inc. for total consideration of
$3,750,000, including a note of approximately $2,500,000, the assumption of
certain liabilities of approximately $250,000, and the potential of an
additional earn-out of approximately $1,250,000 if certain sales and
distribution targets are met. The note receivable is due and payable on November
30, 1998, and in lieu of interest on such note, a royalty of 2.5% of net
existing sales will be payable to the Company. The note receivable has been
discounted by approximately $41,000 to reflect the difference between interest
imputed at 10% and the expected royalty payments to be received.
6. FINANCIAL CONDITION AND MANAGEMENT PLANS:
The accompanying financial statements have been prepared on a going concern
basis, which assumes the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the consolidated
financial statements, the Company has a deficit in retained earnings of
approximately $45,181,000 and a deficit in stockholders' equity of approximately
$16,167,000. These conditions have combined to create a working capital deficit
of approximately $30,052,000 at September 30, 1998.
As discussed in Note 7, the Company recently announced that it had entered into
a sale agreement regarding a transaction with Swander Pace Capital Fund, L.P.,
SPC GP Fund, LLC, SPC Executive Advisors Fund, LLC and SPC Associates Fund, LLC
(Swander Pace) whereby Swander Pace will acquire 90% of the Company's Nonni's
Biscotti business. The Company also has plans to sell all remaining assets.
Also, as discussed in Note 5 the Company disposed of its bagel bar business on
June 12, 1998.
On April 10, 1998, the Company factored certain accounts receivable and used a
portion of those proceeds to reduce the amounts owed under the Company's
$7,000,000 revolving line of credit to
9
<PAGE>
$6,000,000. Simultaneously, the remaining $6,000,000 on the revolving line of
credit was assumed by the Company's Chairman and his spouse, and in connection
with such assumption, the bank released its collateral. The Company agreed to
repay the $6,000,000 assumed by the Company's Chairman and his spouse by
delivering a note payable due at the close of the transaction with Swander Pace
Capital, LLC, discussed in Note 7.
The Company has also entered into short-term financing transactions with Accord
Capital Corporation (Accord) and King Financial Corporation (King) in which the
Company pledged certain inventories as collateral. These transactions are
typically for periods of thirty days at high short-term interest rates. As of
September 30, 1998, the Company owed $1,658,000 to Accord, and $665,000 to King.
7. SUBSEQUENT EVENT:
On August 14,1998 the Company announced that it had entered into a sale
agreement regarding a transaction whereby Swander Pace will acquire 90% of the
Company's Nonni's Biscotti business in a recapitalization. This agreement, as
amended on October 28, 1998, includes all of the Nonni's assets, including the
brand, the equipment owned at the Tulsa, Oklahoma production facility, the
distribution rights, and other brands used for the biscotti products. The
estimated maximum value obtainable for the sale is $28,000,000, which includes
up to $11,000,000 from earn-out payments based on future earnings. As part of
this agreement, Tim Bruer, the Company's president and chief executive officer,
as well as most other members of the Company's management, will transfer to the
new Nonni's entity.
Management intends to use the proceeds from the sale to pay bank debt, the
borrowings from the Company's Chairman, other notes payable, and other
obligations of the Company. Once all of the current businesses are divested,
management will evaluate other alternatives, which include, but are not limited
to, acquisitions or mergers. Liquidation of the Company's remaining assets to
shareholders will only be considered by management if there are no other
alternatives which maximize shareholder value.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto. As discussed in
the accompanying Consolidated Financial Statements, the Company has discontinued
all of its operating businesses, including its specialty baked goods segment,
its snack tray segment and its direct store delivery division. The specialty
baked goods segment is reflected as continuing operations because the sale is
pending shareholder approval. The following table presents certain selected
financial data for the Company for the periods indicated:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1998 1997 1998 1997
-------- ------- -------- -------
Net sales 100% 100% 100% 100%
Gross profit 23% 15% 28% 17%
Operating Expenses 31% 85% 53% 64%
Interest & Other 22% 11% 17% 15%
Loss from continuing operations (30%) (80%) (42%) (62%)
Loss from discontinued operations 0 15% 16% 18%
Net Loss (30%) (95%) (58%) (80%)
PERIOD TO PERIOD COMPARISONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997
The continuing operations information excludes the results from operations of
the Company's snack track tray business which was discontinued in the fourth
quarter of 1997, the direct-store delivery business located in Southern
California which was disposed of in the third quarter of 1998 and the Company's
catalog division which was sold in the third quarter of 1997.
RESULTS OF CONTINUING OPERATIONS
Net Sales. Net sales for the specialty baked goods division decreased
$1,541,000 or 25% to $4,747,000 from $6,288,000 due to the sale of the Company's
bagel bar business on June 12, 1998. This decrease was offset by an increase in
Biscotti sales of $215,000 due to new customer additions and increased club
store sales volumes.
Gross Profit. In the specialty baked goods segment, gross profit increased as
a percentage of sales from 15% to 23% and increased $143,000 from $951,000 to
$1,094,000. Driving this increase in gross profit was an increase in the gross
profit of the biscotti product line, as the bagel bar product line was sold on
June 12, 1998. The increase in the biscotti product line gross profit
11
<PAGE>
was due to improved pricing, implementation of cost-cutting measures and
increased sales volumes.
General and Administrative. General and administrative expenses decreased from
$3,682,000 to $517,000, a decrease of $3,165,000 and decreased as a percentage
of net sales from 59% to 11%. The majority of this decrease was due to a charge
of $2,055,000 related to the buyout of employment agreements from the former
owners of the Company's Nonni's Biscotti brands, the terms of which call for
cash payments of $1,215,000 and the issuance of 840,000 shares of common stock,
recorded in the third quarter of 1997. In addition, in the third quarter of
1997 the Company had incurred approximately $420,000 of consulting fees in the
course of preparing its strategic operating plan for 1998 and beyond. In
addition, general and administrative decreased $125,000 due to the sale of the
bagel bar business in June 1998.
Selling and Marketing. Selling and marketing expenses decreased from
$1,282,000 to $813,000, a decrease of 37% over the comparable period of 1997 and
decreased as a percentage of net sales from 20% to 18%. This decrease was due to
reduced sales and marketing expense of $412,000 due to the sale of the bagel bar
business, and a reduction in personnel costs in the sales and marketing area.
Depreciation and Amortization of Intangibles. Depreciation and amortization of
goodwill and other intangibles decreased from $374,000 to $138,000, a decrease
of $236,000 over the same period of 1997. The decrease was due to the sale of
the bagel bar business in June, 1998. The 1998 amount includes $20,000 of
depreciation expense and $117,000 of amortization expense for the third quarter
of 1998. The 1997 amount includes $38,000 of depreciation and $336,000 of
amortization expenses. In addition to these amounts, cost of goods sold
includes depreciation expense of $93,000 and $172,000 for the three months ended
September 30, 1998 and 1997, respectively.
Interest and Other. Interest and other expenses increased from $690,000 to
$1,026,000, an increase of $336,000. The increase in interest expense is due to
the increase in borrowings.
Loss from Continuing Operations. Losses from continuing operations decreased
from $5,076,000 to $1,399,000, a decrease of $3,677,000. This decrease was due
to the increase in gross profit from the biscotti business, the decrease in
operating expenses due to the sale of the bagel bar business in June 1998, and
the expenses associated with the employment agreement buyouts in 1997 discussed
above. These items were offset by higher interest expense more fully discussed
above.
Loss from Discontinued Operations. During the fourth quarter of 1996, the
Company made the decision to sell its fresh bread direct store delivery
distribution business located in southern California and in the second quarter
of 1997, a decision was made to sell the catalog division located in Palestine,
Texas. The catalog division sale closed in the third quarter of 1997. The
fresh bread direct store delivery distribution business closed in the third
quarter of 1998. During the fourth quarter 1997, the Company made the decision
to divest of all of its snack tray markets. Therefore, the results from these
businesses for comparable quarters is shown as discontinued operations, and
decreased from $922,000 to $0 from the third quarter of 1997 to the third
quarter of 1998. There was no loss from discontinued operations in the third
quarter of 1998 because the
12
<PAGE>
snack tray operating losses were accrued as part of the loss on disposal
recorded in the fourth quarter of 1997.
Net Loss. The Company's net loss decreased from $5,998,000 to $1,399,000, a
decrease of $4,599,000 over the comparable period for 1997. The decreased
losses are due to the events which are more fully discussed above.
PERIOD TO PERIOD COMPARISONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30 1997
Net Sales. Total net sales decreased 12% from $17,712,000 to $15,608,000. The
decrease in the specialty baked goods segment was due to lower sales from the
Company's bagel bar brand due to its sale on June 12, 1998, offset by higher
biscotti brand sales over the same period of 1997. Biscotti sales increased
$3,054,000 from $9,741,000 to $12,795,000 while bagel bar sales decreased
$4,613,000 from $7,283,000 to $2,670,000. Sales from the Maxi-Crisp product
lines also decreased $688,000.
Gross Profit. Gross profit increased from $3,015,000 to $4,299,000, an
increase of 43%. Gross profit as a percentage of net sales increased from 17% to
28%. This increase was a result of an increase in gross margins from biscotti
brand sales from $2,161,000 to $3,556,000, offset by the decrease in margin from
the sale of the Company's bagel bar brand. As a percentage of sales, biscotti
gross margins increased from 22% to 28%.
General and Administrative. General and administrative expenses decreased from
$6,751,000 to $1,923,000, a decrease of 72% and decreased as a percentage of net
sales from 38% to 12%. The decrease was due to the 1997 expense of $2,055,000
for an employment agreement buyout of the three former owners of the Company's
Nonni's Biscotti brands discussed above, and a $1,000,000 charge during the
second quarter of 1997 as a reserve provision on a note receivable from the 1996
sale of the Gift and Gourmet business. In addition, the Company incurred in
1997 approximately $450,000 in consulting fees in the course of preparing its
strategic operating plan for 1998 and beyond. In addition, general and
administrative expenses decreased $144,000 due to the sale of the bagel bar
business in June of 1998.
Selling and Marketing. Selling and marketing expenses decreased from
$3,773,000 to $2,636,000, a decrease of 30% and decreased as a percentage of net
sales from 21% to 17%. This decrease in expense was due to lower demonstration
expenses associated with the bagel bar product brands, as this brand was sold in
June 1998, and lower sales and marketing personnel costs of approximately
$100,000.
Depreciation and Amortization of Intangibles. Amortization of goodwill and
other intangibles decreased 33% to $563,000 when compared to the same nine
months of 1997. The decrease is due to the sale of the bagel bar business in
June, 1998.
Interest and Other. Interest and other expenses increased from $2,643,000 to
$2,676,000, an increase of $33,000. Of the 1997 amount, $1,150,000 related to
the issuance of certain
13
<PAGE>
Regulation S debentures that occurred in the first quarter of 1997 that had a
convertible feature at a discount to the market price of the common stock of the
Company. This intrinsic value associated with the discount must be charged to
interest expense over the holding period that the debentures are held by the
debenture holder. In addition, approximately $260,000 of deferred financing fees
associated with the first quarter of 1997 Regulation S financing were expensed
in the third quarter of 1997 due to the conversion of the debentures to common
stock. These items were offset in 1998 due to increased levels of borrowings.
Loss from Continuing Operations. Losses from continuing operations decreased
from $10,997,000 to $6,528,000, a decrease of $4,469,000. The decrease in net
loss is due to the increase in gross profit from the biscotti business, the
decrease in operating expenses to the sale of the bagel bar business in June
1998, and the non-recurring expenses related to the employment agreement
termination and Regulation S Debentures recorded in 1997.
Loss from Discontinued Operations. Losses from discontinued operations
decreased from $3,189,000 to $2,378,000, a decrease of $811,000. During the
fourth quarter of 1996, the Company made the decision to sell its distribution
business located in southern California and in the second quarter of 1997, a
decision was made to sell its catalog division located in Palestine, Texas. In
the fourth quarter of 1997, the Company made the decision to divest its snack
tray division. The sale of the catalog division closed in the third quarter of
1997. The sale of the distribution business in Southern California closed in
the third quarter of 1998. Therefore, the results from these businesses for
comparable quarters are shown as discontinued operations.
Net Loss. The Company's net loss decreased from $14,186,000 to $8,906,000, a
decrease of $5,280,000 due to the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations was $2,550,000 for the nine months ended
September 30, 1998. This compares to $5,357,000 of cash used in operations for
the nine months ended September 30, 1997. Net cash provided by investing
activities was $347,000 compared to $31,000 provided by investing activities for
the comparable period. Net cash provided financing activities during the first
nine months ended September 30, 1998 totaled $2,147,000 from net borrowings on
long-term debt.
On April 10, 1998, the Company factored certain accounts receivable and used a
portion of those proceeds to reduce the amounts owed under the $7,000,000
revolving line of credit to $6,000,000. In addition, the remaining $6,000,000
on the revolving line of credit was assumed by the Company's Chairman and his
spouse, and in connection with such assumption, the bank released its
collateral. The Company simultaneously agreed to repay the $6,000,000 assumed
by the Company's Chairman and his spouse by delivering a note payable due in
August 1998; however, if excess cash is not available to repay the note, the due
date will be extended. The due date has been extended until the close of the
Swander Pace Capital, LLC transaction discussed in this section. Interest is at
local bank prime plus 1 1/2% and is classified as current in the consolidated
14
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financial statements. As of September 30, 1998, the Company owes the Chairman
and his spouse $14,340,000.
The Company has a term note with a bank. At September 30, 1998, $7,864,000 was
outstanding and interest is at prime. Interest is payable monthly and principal
payments were to begin in August 1998, with a final balloon payment due in May
1999 based on a five-year amortization. This note is collateralized by the
Company's machinery and equipment and is also guaranteed by the Company's
Chairman, his spouse and another family member of the Chairman. Interest and
principal payments have been suspended until the close of the Swander Pace
Capital, LLC transaction discussed in this section.
The continuing losses from prior years and losses for 1998 combined with start-
up costs, acquisitions and consolidations, have required substantial capital and
have left the Company in a highly leveraged financial position as of September
30, 1998 with most of the Company's debt classified as current. The Company
continues to experience cash flow difficulties in both funding current working
capital requirements and in meeting its commitments for trade payables which
include $4,609,000 of past due amounts as of September 30, 1998. However,
pursuant to an Agreement of Stock Purchase dated August 14, 1998, as amended on
October 28, 1998, Swander Pace will acquire 90% of the Company's Nonni's
Biscotti business in a recapitalization (the Sale). This agreement, as amended,
includes all of the Nonni's assets, including the brand, the equipment owned at
the Tulsa, Oklahoma production facility, the distribution rights, and other
brands used for the biscotti products. The estimated maximum value obtainable by
the Company in the proposed transaction is $28,000,000, including approximately
$15,950,000 in cash at closing (subject to adjustments), $1,050,000 in a
minority investment in the common equity of the Nonni's entity that the Company
would retain, and $11,000,000 in earn-out payments based on future earnings. As
part of this agreement, Tim Bruer, the Company's president and chief executive
officer, as well as most other members of the Company's management, will
transfer to the new Nonni's entity.
Management intends to use the proceeds from the Sale to pay bank debt, the
borrowings from the Company's chairman, other notes payable, trade payables and
other obligations of the Company. To the extent proceeds from the Sale are
insufficient to cover all of the Company's obligations, payments for the
borrowings from the Company's chairman will be delayed. Following the closing of
the Sale, the Company plans to sell its remaining operating assets and
discontinue its business as a manufacturer and marketer of branded specialty
baked goods and as a retail snack tray operator, leaving the company with no
further operating business. The management and administrative staff of the
Company will be reduced to the minimum required to maintain the Company's
investments and to fulfill its reporting obligations. Subsequent to the closing
of the sale, and upon receipt of all of the proceeds relating to the Sale and
from all the other asset divestitures, and after the application of all such
proceeds to outstanding debt, payables and accrued liabilities, the Company
estimates that its cash and notes receivable will total approximately
$1,000,000.
The Company has also entered into short-term financing transactions with Accord
Capital Corporation (Accord) and King Financial Corporation (King) pledging
certain inventories as collateral. Certain of these transactions are typically
for periods of thirty days at high short-term interest rates. These transactions
are guaranteed by the Company's Chairman. As of September 30, 1998, the Company
owed $1,658,000 to Accord and $665,000 to King.
Prior to the occurrence of the Sale, it may be necessary for the Company to
utilize other short-term financings, which may or may not be available or
available only at high interest rates to fund its operations.
In the event the Sale is not consummated, the Company would be forced to find
additional sources of financing in order to satisfy its debt obligations. There
can be no assurance that such additional financing would be available on
commercially reasonable terms and the inability to obtain financing on
commercially reasonable terms would have a material adverse effect on the
Company. In such event, the company would most likely attempt to find another
buyer for the biscotti business. However, there can be no assurance that a sale
to another buyer could be consummated on terms similar to those provided for in
the Sale.
15
<PAGE>
The Sale is expected to close during the fourth quarter of 1998, but it is
subject to shareholder and regulatory approval. Accordingly, there can be no
assurance that the transaction will occur.
During the second quarter, the Company also disposed of its bagel bar business,
the related manufacturing facility and equipment, and certain inventories. The
business was sold to Gourmet Specialty Bakers, Inc. for total consideration of
$3,750,000, including a note of approximately $2,500,000, the assumption of
certain liabilities of approximately $250,000, and the potential of an
additional earn-out of approximately $1,250,000 if certain sales and
distribution targets are met. The note receivable is due and payable on November
30, 1998. The failure to collect the $2,500,000 due to the Company from GSBI
for the sale of the Company's bagel bar manufacturing business would adversely
affect the company's ability to consummate a Business Combination. Such
promissory note is due on November 30, 1998, but its due date may be extended
until March 31, 1999, by the payment to the Company of $500,000. The Company
understands that it will be necessary for GSBI to obtain financing in order to
pay the amount due under such promissory note. Consequently, there can be no
assurance that the Company will receive timely payment of such amount.
YEAR 2000
In the next two years, most companies will face a potentially serious
information systems problem because many software applications and operational
programs written in the past may not properly recognize calendar dates beginning
in the year 2000. This problem could force computers to either shut down or
provide incorrect data or information. The Company has not fully completed its
assessment of its year 2000 issues, but has made advances in the following
described areas. The Company began the process of identifying the changes
required to its computer programs and hardware in 1997. Software upgrades
designed to correct the year 2000 problem have been implemented. The Company is
currently evaluating the effect of the year 2000 problem on its hardware, and
will correct any problems during 1998 and 1999. The Company plans to complete
its assessment during 1998, and thus has not prepared contingency plans at this
point. The
16
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Company is also currently evaluating the effect of the year 2000 problem on its
manufacturing equipment located within its bakery facilities. The risk remains
that certain bakery equipment may not function or will function improperly
because of electronic circuitry which is affected by the year 2000 problem. The
Company does not anticipate the cost of these software and hardware changes to
have a material adverse impact on its business, financial condition, or results
of operation.
FORWARD LOOKING STATEMENTS
This Management's Discussion and analysis of Financial Condition and Results of
Operations include certain statements that may be "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements in this Form 10-Q, other than statements of historical facts, that
address activities, events or developments that the Company expects, believes or
anticipates will or may occur in the future are forward looking statements.
Although the Company believes the expectations expressed in such forward-looking
statements are based on reasonable assumptions within the bounds of its
knowledge of its business, such statements are not guarantees of future
performance and actual results or developments may differ materially from those
in the forward looking statements. Forward-looking statements involve risks and
uncertainties including, but not limited to, general economic trends, continued
acceptance of the Company's product in the marketplace, competitive factors,
manufacturing and raw material costs, the Company's dependence upon third-party
suppliers, and other risks detailed from time to time in the Company's periodic
reports filed with the Securities and Exchange Commission. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
17
<PAGE>
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Agreement of Stock Purchase and Sale, dated August 14,
1998, amended October 28,1998 by and among Silverado
Foods, Inc., Mom's Best Services, Inc., Swander Pace
Capital Fund, L.P., SPC GP Fund, LLC, and SPC Executive
Advisors fund, LLC.
10.2 Amendment to Agreement of Stock Purchase and Sale dated
October 28, 1998, among Silverado Foods, Inc., Mom's
Best Services, Inc., Swander Pace Capital Fund, L.P.,
SPC GP fund, LLC, and SPC Executive Advisors Fund, LLC
and SPC Associates Fund, LLC.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
Not applicable.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Silverado Foods, Inc.
---------------------
Registrant
By:
Diane T. Wood
Secretary and Treasurer
Date: November 13, 1998
19
<PAGE>
INDEX TO EXHIBITS
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
10.1 Agreement of Stock Purchase and Sale, dated August 14, 1998,
amended October 28,1998 by and among Silverado Foods, Inc., Mom's
Best Services, Inc., Swander Pace Capital Fund, L.P., SPC GP Fund,
LLC, and SPC Executive Advisors fund, LLC.
10.2 Amendment to Agreement of Stock Purchase and Sale dated October 28,
1998, among Silverado Foods, Inc., Mom's Best Services, Inc.,
Swander Pace Capital Fund, L.P., SPC GP fund, LLC, and SPC
Executive Advisors Fund, LLC and SPC Associates Fund, LLC.
27.0 Financial Data Schedule
20
<PAGE>
EXHIBIT 10.1
AGREEMENT OF STOCK PURCHASE AND SALE
BY AND AMONG
SILVERADO FOODS, INC.
MOM'S BEST SERVICES, INC.
AND
THE PARTIES LISTED ON EXHIBIT A ATTACHED HERETO
DATED AS OF AUGUST 14, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS.......................................... 1
1.1 Certain Definitions.................................... 1
1.2 Exhibits, Etc. ........................................ 8
1.3 Plurals, Etc. ......................................... 8
ARTICLE 2 PURCHASE AND SALE OF STOCK AND CONTRIBUTION OF
ASSETS............................................... 8
2.1 Repurchase, Purchase and Sale ......................... 8
2.2 Contribution of Assets to Existing Sub ................ 9
2.3 Excluded Assets........................................ 10
2.4 Assumption of Liabilities.............................. 10
2.5 Assignment of Contracts, Rights and Obligations and
Assumption of Related Liabilities...................... 12
ARTICLE 3 CONSIDERATION........................................ 13
3.1 Consideration and Purchase Price....................... 13
3.2 Repurchase Price Adjustment............................ 13
3.3 Preparation of Closing Balance Sheet................... 13
3.4 Post-Closing Repurchase Price Adjustment............... 14
3.5 Earn-Out Payments...................................... 14
ARTICLE 4 CLOSING.............................................. 17
4.1 Time and Place......................................... 17
4.2 Deliveries............................................. 17
4.3 Notices of Transfer.................................... 18
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT............. 19
5.1 Organization and Standing of Parent and Existing Sub... 19
5.2 Authorization of Agreement and Ancillary Documents..... 19
5.3 Shares of Existing Sub................................. 20
5.4 Capitalization......................................... 20
5.5 SEC Reports............................................ 21
5.6 Financial Statements................................... 21
5.7 Insurance.............................................. 22
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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.8 Absence of Certain Changes or Events................... 22
5.9 Title to Properties; Absence of Liens and Encumbrances. 23
5.10 Condition of Buildings, Structures, Equipment, Etc..... 24
5.11 Agreements, Plans, Arrangements, Etc................... 24
5.12 Legal Proceedings...................................... 26
5.13 Notice of Proceeding, Violation, Etc................... 26
5.14 Intellectual Property.................................. 27
5.15 Permits, Licenses, Etc................................. 28
5.16 Compliance with Laws................................... 28
5.17 Existing Sub and the Business.......................... 28
5.18 Employment Matters..................................... 29
5.19 Tax Matters............................................ 29
5.20 Employee Benefit Plans................................. 32
5.21 Accounts Receivable.................................... 35
5.22 Environmental Matters.................................. 36
5.23 Inventory.............................................. 37
5.24 Books and Records...................................... 37
5.25 Transactions with Affiliates........................... 37
5.26 Brokers................................................ 37
5.27 Major Customers........................................ 37
5.28 Trade Deals and Promotions............................. 38
5.29 Disclosure............................................. 38
5.30 Securities Law Matters................................. 38
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYERS............. 38
6.1 Organization and Standing.............................. 38
6.2 Authorization of Agreement and Ancillary Documents..... 38
6.3 Governmental Consents.................................. 38
6.4 No Conflict............................................ 39
6.5 Acquisition of Shares for Investment................... 39
6.6 Brokers................................................ 39
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE 7 PRE-CLOSING COVENANTS................................ 39
7.1 Reasonable Efforts; Cooperation by Parties............. 39
7.2 Conduct of Business.................................... 40
7.3 Required Notices....................................... 42
7.4 Access and Confidentiality............................. 42
7.5 No Shop................................................ 43
7.6 Funding................................................ 44
7.7 Approval............................................... 44
7.8 Free of Encumbrance.................................... 44
7.9 Employees.............................................. 45
7.10 Approvals and Consents................................. 45
7.11 Location of Contributed Assets......................... 45
ARTICLE 8 POST-CLOSING AGREEMENTS.............................. 45
8.1 Further Assurances..................................... 45
8.2 Rights of Enforcement and Settlement................... 45
8.3 Mail, Payments......................................... 46
8.4 Certain Tax Matters.................................... 46
8.5 Covenant Not to Compete................................ 47
ARTICLE 9 CONDITIONS TO BUYERS' OBLIGATIONS.................... 48
9.1 Representations and Warranties True.................... 48
9.2 Performance of Agreements.............................. 48
9.3 Consummation of Contribution........................... 48
9.4 Consummation of Repurchase............................. 48
9.5 No Injunction, Etc..................................... 48
9.6 Executive Officer's Certificates....................... 48
9.7 Approvals and Consents................................. 48
9.8 Assignment and Assumption.............................. 49
9.9 Opinion................................................ 49
9.10 Employment Agreement................................... 49
9.11 Shareholder Agreement.................................. 49
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
9.12 Guarantee.............................................. 49
9.13 Warrant................................................ 49
9.14 Financing.............................................. 49
9.15 Operation in Accordance with Budget.................... 49
9.16 No Encumbrance on Assets............................... 49
9.17 No Material Adverse Effect............................. 50
9.18 No Proceedings......................................... 50
9.19 Satisfactory Completion of Pre-Acquisition Review...... 50
9.20 Accountant's Letter.................................... 50
9.21 Recapitalization Accounting and Tax Treatment.......... 50
9.22 Location of Contributed Assets......................... 50
ARTICLE 10 CONDITIONS TO PARENT'S OBLIGATIONS................... 50
10.1 Representations and Warranties True.................... 50
10.2 Performance of Agreements.............................. 51
10.3 Deliveries............................................. 51
10.4 No Injunction, Etc..................................... 51
10.5 Parent's Shareholders Approvals and Consents........... 51
10.6 Repurchases............................................ 51
10.7 Opinion................................................ 51
ARTICLE 11 TERMINATION PRIOR TO CLOSING......................... 51
11.1 Termination by Mutual Consent.......................... 51
11.2 Termination by Either Parent or Buyers................. 51
11.3 Other Termination Rights............................... 52
11.4 Effect on Obligations.................................. 53
ARTICLE 12 INDEMNIFICATION...................................... 53
12.1 Survival of Representations, Warranties and Covenants.. 53
12.2 Indemnification by Parent.............................. 54
12.3 Indemnification by Buyers.............................. 55
12.4 Right of Set-Off....................................... 55
12.5 Procedure for Indemnification.......................... 56
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
12.6 Payment............................................... 56
12.7 Limitation on Right of Indemnification ............... 57
12.8 Other Indemnification Provisions....................... 57
ARTICLE 13 MISCELLANEOUS........................................ 57
13.1 Interpretive Provisions................................ 57
13.2 Entire Agreement....................................... 57
13.3 Successors and Assigns; Benefits....................... 57
13.4 Headings............................................... 58
13.5 Modification and Waiver................................ 58
13.6 Expenses............................................... 58
13.7 Notices................................................ 58
13.8 Specific Performance................................... 60
13.9 Governing Law.......................................... 60
13.10 Public Announcements................................... 60
13.11 Counterparts........................................... 61
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<PAGE>
List of Schedules (Intentionally Omitted)
2.2(a) Hardware
2.2(c) Personalty Leases
2.2(d) Intellectual Property Rights
2.3 Excluded Assets
5.1 Organization and Standing
5.2(c) Authorization
5.6(a)/(b) Financial Statements
5.7 Insurance Policies
5.8 Absence of Changes
5.9(a) Liens and Encumbrances
5.9(b) Real Property
5.10 Condition of Buildings, Structures, Equipment, etc.
5.11 Agreements, Plans and Arrangements, etc.
5.12 Legal Proceedings
5.13 Notice of Proceeding, Violation, etc.
5.15 Permits
5.17 The Business
5.18 Employment Matters
5.19 Tax Matters
5.20 Employee Benefit Plans and Employee Agreements
5.21 Accounts Receivable
5.22 Environmental Matters
5.25 Transactions with Affiliates
5.28 Trade Deals and Promotions
7.2 Conduct of Business
7.2(b) Conduct of Business
7.11 Location of Assets
Exhibits
Exhibit A: List of Buyers
Exhibit 5.6(b):Interim Financial Statements (Intentionally Omitted)
Exhibit 9.15: Budget of the Business (Intentionally Omitted)
<PAGE>
AGREEMENT OF STOCK PURCHASE AND SALE
THIS AGREEMENT OF STOCK PURCHASE AND SALE (this "AGREEMENT"), made and
entered into as of this 14th day of August, 1998, by and among SILVERADO
FOODS, INC., an Oklahoma corporation ("PARENT"), MOM'S BEST SERVICES, INC., a
Florida corporation and a wholly owned subsidiary of Parent ("EXISTING SUB"),
and the entities set forth on Exhibit A attached hereto, as such Exhibit A may
be amended from time to time prior to the Closing by Swander Pace Capital Fund,
L.P. ( "BUYERS"). Terms defined herein are used in the attached Schedules and
Exhibits as so defined unless otherwise defined therein.
WHEREAS, the parties hereto desire and intend to effect a recapitalization
of Existing Sub on terms and subject to conditions set forth herein.
WHEREAS, after the date hereof, immediately upon the satisfaction or waiver
of certain conditions set forth herein, and immediately prior to the
consummation of the Repurchase (as hereafter defined), Parent shall have
contributed the assets and properties Related to the Business (as hereafter
defined) to Existing Sub, such Contributed Assets (as hereafter defined)
constituting substantially all of Parent's assets, and, in exchange, Existing
Sub shall have issued shares of its capital stock to Parent and shall have
assumed certain specified liabilities, as set forth herein (the "CONTRIBUTION").
WHEREAS, immediately after the Contribution and immediately prior to the
Closing (as hereafter defined), Existing Sub shall repurchase certain shares of
Existing Sub owned by Parent as set forth herein (the "REPURCHASE") and
immediately thereafter, Buyers shall purchase from Parent 90% of the shares of
Existing Sub then outstanding.
WHEREAS, Parent, Existing Sub and Buyers desire to enter into this
Agreement pursuant to which Parent will sell to Buyers, and Buyers will purchase
from Parent, in the amounts set forth opposite the names of each Buyers on
Exhibit A, certain shares of the capital stock of Existing Sub on the terms and
conditions set forth herein, and in connection therewith, to enter into the
Ancillary Documents (as hereafter defined).
NOW, THEREFORE, in consideration of the premises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, each of the
parties hereto agrees as follows:
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINITIONS. For all purposes of this Agreement, the
following terms have the respective meanings set forth below:
1
<PAGE>
"ACQUISITION PROPOSAL": any offer, proposal or inquiry (other than an offer
or proposal by Parent) contemplating or otherwise relating to any Acquisition
Transaction.
"ACQUISITION TRANSACTION": any transaction or series of transactions
involving: (a) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange offer
or similar transaction (i) in which Parent or Existing Sub is a constituent
corporation, (ii) in which a Person directly or indirectly acquires Parent or
Existing Sub or more than 50% of Parent's business or more than 50% or control
of the Business, or directly or indirectly acquires beneficial or record
ownership of securities representing more than 50% of the outstanding securities
of Parent or Existing Sub, or (iii) in which Parent or Existing Sub issues
securities representing more than 50% of the outstanding securities of any class
of voting securities of Parent or Existing Sub; (b) any sale, lease, exchange,
transfer, license acquisition or disposition of more than 50% of the assets of
Parent or Existing Sub, or more than 50% of the Contributed Assets; or (iv) any
liquidation or dissolution of Parent or Existing Sub.
"ADDITIONAL EARN-OUT DATE": as set forth in Section 3.5(a).
"ADDITIONAL EARN-OUT PAYMENT": as set forth in Section 3.5(b).
"ADDITIONAL EARN-OUT PERIOD": as set forth in Section 3.5(a).
"AFFILIATES": with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through ownership of voting securities, by
contract, credit arrangement or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For the avoidance of
doubt, Existing Sub shall not be deemed an Affiliate of any Buyers unless and
until the transactions contemplated hereby are consummated.
"AGREEMENT": as set forth in the Recitals.
"ANCILLARY DOCUMENTS": collectively, the Assignment and Assumption
Agreement, the Interim Services Agreement, the Employment Agreement, the
Shareholder Agreement, the Voting Agreement and all other contracts, agreements,
instruments, deeds, certificates, affidavits and documents being delivered
pursuant to or in connection with this Agreement or with any such other
agreement by any party hereto at or prior to the Closing.
"ARBITRATING ACCOUNTANTS": as set forth in Section 3.3(b).
"ASSIGNED CONTRACTS": as set forth in Section 2.2(e).
"ASSIGNMENT AND ASSUMPTION AGREEMENT": as set forth in Section 4.2(c).
"ASSUMED LIABILITIES": as set forth in Section 2.4(a).
2
<PAGE>
"AUTHORITY": any national, federal, state, provincial or local
governmental, quasi-governmental, administrative, judicial or regulatory agency
or body, commission or authority, within or without the United States of
America.
"BENEFIT PLAN": as set forth in Section 5.20(a).
"BOOKS AND RECORDS": as set forth in Section 2.2(f).
"BUDGET": as set forth in Section 9.15 and attached as Exhibit 9.15.
"BUSINESS": the business of the Nonni's division of Parent.
"BUSINESS DAY": a day other than Saturday, Sunday and national holidays in
the United States.
"BUYERS": as set forth in the Recitals.
"BUYER INDEMNITEES": as set forth in Section 12.02.
"CLOSING": as set forth in Section 4.1.
"CLOSING DATE": as set forth in Section 4.1.
"CODE": the Internal Revenue Code of 1986, as amended and any regulations
promulgated or proposed thereunder.
"COMMITMENTS": as set forth in Section 5.11.
"COMMON STOCK": as set forth in Section 5.4.
"COMPANY BENEFIT PLAN": as set forth in Section 5.20.
"COMPETITIVE ACTIVITY": as set forth in Section 8.5.
"COMPETITIVE PRODUCTS": as set forth in Section 8.5.
"CONSENTS": as set forth in Section 9.7.
"CONTRIBUTION": as set forth in the Recitals.
"CONTRIBUTED ASSETS": as set forth in Section 2.2.
"DEBT FINANCING": as set forth in Section 2.1.
"DEPARTMENT": as set forth in Section 5.20.
"EBITDA": as set forth in Section 3.5(a).
3
<PAGE>
"EMPLOYEE": each current, former or retired employee, officer, consultant,
independent contractor, agent or director of the Business.
"EMPLOYEE AGREEMENT": as set forth in Section 5.20(a).
"ENCUMBRANCES": all claims, restrictions, mortgages, pledges,
hypothecations, security interests or assignments, deposit arrangements,
encumbrances, charges, liens (statutory or other), or preferences, priority or
other security agreements or preferential arrangements of any kind, nature or
character whatsoever (including, without limitation, all conditional sale or
other title retention agreements and all capital leases having substantially the
same economic effect as any of the foregoing), all rights of first refusal,
rights to call, preemptive rights or similar rights, or all options, warrant or
similar commitments, or all other similar rights or interests of others therein.
"ENVIRONMENTAL PERMITS": as set forth in Section 5.22(b).
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
and any regulations promulgated or proposed thereunder.
"ERISA AFFILIATE": as set forth in Section 5.20(a).
"EXCHANGE ACT": as set forth in Section 5.5(a).
"EXCLUDED ASSETS": as set forth in Section 2.3.
"EXPENSES": as set forth in Section 13.6.
"EXISTING SUB": as set forth in the Recitals.
"FIELD WARRANT": as set forth in Section 9.13.
"FINAL SPECIFIED NET ASSETS": as set forth in Section 3.4.
"FINANCIAL STATEMENTS": as set forth in Section 5.6.
"GAAP": as of the date of any determination. the generally accepted
accounting principles as used by the Financial Accounting Standards Board and/or
the American Institute of Certified Public Accountants.
"HOLDBACK AMOUNT": as set forth in Section 3.5(d).
"INDEMNITEE": any Person that may be entitled to seek indemnification under
this Agreement.
"INDEMNITOR": any Person that may be required to provide indemnification
under this Agreement.
"INSURANCE POLICIES": as set forth in Section 5.7.
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"INTELLECTUAL PROPERTY RIGHTS": means, with respect to the Business, any:
(a) patent, patent application, trademark (whether registered or unregistered),
trademark application, trade name, brand name, fictitious business name, service
mark (whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, label, trade dress,
formula, recipe, mixing instruction, product specification, trade secret, know-
how, computer software, computer program, invention, design, proprietary
product, technology, proprietary right or other intellectual property right or
intangible asset Related to the Business; or (b) right to use or exploit any of
the foregoing.
"INTERIM FINANCIAL STATEMENTS": as set forth in Section 5.6(b).
"INTERIM SERVICES AGREEMENT": the Interim Services Agreement, to be entered
into by and between Parent, Existing Sub, acting for itself and Buyers, in a
form mutually agreeable to the parties thereto, pursuant to which Existing Sub
shall render certain services to Parent after the Closing.
"INITIAL EARN-OUT DATE": as set forth in Section 3.5(a).
"INITIAL EARN-OUT PAYMENT": as set forth in Section 3.5(b).
"INITIAL EARN-OUT PERIOD": as set forth in Section 3.5(a).
"INVENTORY": as set forth in Section 5.23.
"IRS": the Internal Revenue Service or any successor agency thereto.
"LAWS": as set forth in Section 5.2(c).
"LEASED REAL PROPERTY": as set forth in Section 5.9(b).
"LIBOR": means the overnight London Interbank Offered Rate quoted by
Telerate, as of 11:00 a.m. British Standard Time, or as otherwise mutually
agreed.
"LICENSE AGREEMENTS": as set forth in Section 5.11(xv).
"LOSS OR LOSSES": each and all of the following items: claims, losses,
liabilities, obligations, payments, damages (actual, consequential (to the
extent of any dimunition in the value of the Business) or punitive), charges,
judgments, fines, penalties, amounts paid in settlement, costs and expenses, Tax
(without duplication of amounts otherwise indemnified for or paid by Existing
Sub hereunder), fee or expense of any nature (including, without limitation,
interest which may be imposed in connection therewith, costs and expenses of
investigation, actions, suits, proceedings, demands, assessments and fees,
expenses and disbursements of counsel, consultants and other experts).
"1998 MONTHLY PERIODS": as set forth in Section 5.6(b).
"MULTI-EMPLOYER PLAN": as set forth in Section 5.20.
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"NET WORKING CAPITAL": means, with respect to the Business, an amount equal
to the Working Capital Assets minus the Working Capital Liabilities.
"NEW EQUIPMENT": means the auto loaders and the cutters contemplated by the
Budget to be purchased at a cost of $262,000.
"NONCOMPETITIVE PERIOD": as set forth in Section 8.5.
"PARENT": as set forth in the Recitals.
"PARENT INDEMNITEES": as set forth in Section 12.3.
"PARENT PROXY STATEMENT": as set forth in Section 5.5(a).
"PARENT SHAREHOLDERS' MEETING": as set forth in Section 7.7.
"PBGC": as set forth in Section 5.20(a).
"PENSION PLAN": as set forth in Section 5.20(a).
"PERMITS": as set forth in Section 2.2(g).
"PERMITTED ENCUMBRANCES": as set forth in Section 5.9(b).
"PERSON": an individual, Partnership (general or limited), corporation,
joint venture, business trust, cooperative, association or other form of
business organization (whether or not regarded as a legal entity under
applicable law), trust estate, agency or any other entity.
"PERSONALTY LEASES": as set forth in Section 2.2(c).
"PLANT-LEVEL EBITDA": as set forth in Section 3.5(a).
"PRO-FORMA FINANCIAL STATEMENTS": as set forth in Section 5.6(b).
"PURCHASE PRICE": as set forth in Section 2.1(b).
"REAL PROPERTY LEASES": as set forth in Section 5.9(b).
"RELATED TO THE BUSINESS": (i) entirely or primarily related to, or (ii)
used or held for use in connection with, the Business.
"REPURCHASE": as set forth in the Recitals.
"REPURCHASED SHARES": as set forth in Section 2.1(a).
"REPURCHASE PRICE": as set forth in Section 2.1(a).
"RETAINED LIABILITIES": as set forth in Section 2.4(b).
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"SEC": as set forth in Section 5.5(a).
"SEC REPORTS": as set forth in Section 5.5(b).
"SHAREHOLDER AGREEMENT": as set forth in Section 9.11.
"SPECIFIED NET ASSETS": as set forth in Section 3.2.
"SUBSIDIARY": with respect to any Person, any corporation, partnership,
joint venture, or other legal entity of which such Person (either above or
through or together with any other Subsidiary) owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
"SUPERIOR OFFER": an unsolicited, bona fide written offer made by a third
party to purchase more than 50% of the outstanding shares of the common stock of
Parent or Existing Sub or more than 50% of the Contributed Assets on terms that
Parent's Board of Directors determines, in its reasonable judgment, based upon
the written advice of its financial advisor, to be more favorable from a
financial point of view to Parent's shareholders than the terms of the
transactions contemplated by this Agreement.
"TARGET SPECIFIED NET ASSETS": as set forth in Section 3.2.
"TAX" all net income, capital gains, gross income, gross receipts, sales,
use, transfer, ad valorem, franchise, net worth, profits, license, capital,
withholding, payroll, employment, excise, goods and services, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other taxes,
fees or assessments, or other governmental charges of any kind whatsoever,
together with any interest, fines, and any penalties, additions to tax or
additional amounts incurred or accrued under applicable law or assessed, charged
or imposed by any Authority, provided that any interest, penalties, additions to
tax or additional amounts that relate to Taxes for any taxable period (including
any portion of any taxable period ending on or before the Closing Date) shall be
deemed to be Taxes for such period, regardless of when such items are incurred,
accrued, assessed or imposed.
"TAX AFFILIATE": any entity that is a member of a group of entities that
includes the Existing Sub and that files Tax Returns on a consolidated,
combined, unitary or similar basis, if the Existing Sub may be held liable for
the Taxes of such entity or such group under applicable law.
"TAX RETURN": any report, return, statement, estimate, declaration, claim
for refund, notice, form or other information to be supplied to an Authority in
connection with Taxes, including any schedule or attachment thereto and any
amendment thereof.
"TOTAL CONSIDERATION": as set forth in Section 8.4(b).
"TRANSFER TAXES": as set forth in Section 5.19(g).
"WELFARE PLAN": as set forth in Section 5.20(a).
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"WORKING CAPITAL ASSETS": prepaid expenses, accounts receivable and
Inventory Related to the Business, as set forth in Section 2.2(i).
"WORKING CAPITAL LIABILITIES": accounts payables and accrued expenses
(including accrued wages, benefits and vacations, and accrued trade payables)
Related to the Business arising in the ordinary course of business in accordance
with past practice
1.2 EXHIBITS, ETC. References made to an "Exhibit" or a "Schedule,"
unless otherwise specified, refer to one of the Exhibits or Schedules attached
to this Agreement, and references made to an "Article" or a "Section," unless
otherwise specified, refer to one of the Articles or Sections of this Agreement.
1.3 PLURALS, ETC. As used herein, the plural form of any noun shall
include the singular and the singular shall include the plural, unless the
context requires otherwise. Each of the masculine, neuter and feminine forms of
any pronoun shall include all such forms unless the context requires otherwise.
ARTICLE 2
PURCHASE AND SALE OF STOCK AND CONTRIBUTION OF ASSETS
2.1 REPURCHASE, PURCHASE AND SALE.
(a) Immediately following the contribution of assets set forth in
Section 2.2 below, Parent shall (1) in cooperation with Buyers, cause Existing
Sub to borrow an amount of money to be determined prior to Closing, under terms
reasonably satisfactory to Buyers, which amount shall be adequate to pay the
Repurchase Price and Buyers' Expenses (together, the "DEBT FINANCING") and (2)
cause Existing Sub to use the proceeds of the Debt Financing (net of any of
Buyers' Expenses, including any Expenses related to the Financing) to repurchase
from Parent 450,000 shares of Common Stock of Existing Sub, par value $1.00 per
share (the "REPURCHASED SHARES") at an aggregate price (the "REPURCHASE PRICE")
equal to one-third (1/3) of the difference of (i) $24 million, and (ii) ten
percent (10%) of the result of (A) subtracting the amount of the Debt Financing
and the purchase price of the Field Warrant from, and (B) adding the amount of
Buyers' Expenses, including any Expenses related to the Financing to, $24
million. In other words, the Repurchase Price shall be equal to:
1/3 x [$24 million - (10%)($24 million - Debt Financing - Field Warrant +
Buyers' Expenses)].
(b) Upon the terms and subject to the conditions set forth herein, at
the Closing and immediately after consummation of the Repurchase, Parent shall
transfer, assign and deliver to Buyers, and Buyers shall purchase from Parent,
in the amounts set forth opposite each Buyer's name on Exhibit A, an aggregate
of 900,000 shares of Common Stock of Existing Sub, par value $1.00 per share
(the "SHARES"), representing 90% of all issued and outstanding shares of the
Common Stock of Existing Sub, on a fully diluted basis, for an aggregate price
equal to two-thirds (2/3) of the difference of (i) $24 million, and (ii) ten
percent (10%) of the result of (A) subtracting the amount of the Debt Financing
and the purchase price of the Field Warrant from, and (B) adding the amount
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of Buyers' Expenses, including any Expenses related to the Financing to, $24
million (the "PURCHASE PRICE"). In other words, the Purchase Price shall be
equal to:
2/3 x [$24 million - (10%)($24 million - Debt Financing - Field Warrant +
Buyers' Expenses)].
Each Buyers shall pay the percentage of the Purchase Price set forth opposite
such Buyer's name on Exhibit A.
2.2 CONTRIBUTION OF ASSETS TO EXISTING SUB. Upon the terms and immediately
following the satisfaction or waiver of the conditions set forth in this
Agreement (except for the conditions set forth in Sections 9.3 and 9.4) and
immediately prior to the Repurchase, Parent shall transfer, assign, deliver and
convey to Existing Sub, and Existing Sub shall acquire, accept and receive from
Parent, all direct or indirect right, title and interest of Parent in and to all
of the assets, properties, privileges and rights Related to the Business,
including, without limitation, all assets, properties, privileges and rights
described in clauses (a) through (j) below, whether now owned or hereafter
acquired prior to the Closing (the "CONTRIBUTED ASSETS"), but excluding the
Excluded Assets (as defined in Section 2.3 below). In exchange for the
contribution of the Contributed Assets, Existing Sub shall issue 1,449,900
shares of its Common Stock to Parent and such shares shall be delivered to
Parent on the date of the Contribution and, to the extent required, Existing Sub
shall amend its Certificate of Incorporation to allow for such issuance.
Without limiting the generality of the foregoing, the Contributed Assets shall
include all of Parent's rights, title and interest to and in:
(a) MACHINERY, EQUIPMENT, ETC. Any and all machinery, equipment,
furniture, tools, spare parts, maintenance equipment and supplies, other
supplies, materials, computer hardware and peripherals, construction-in-process,
communications equipment, transportation assets and other personal property
(other than personal property leased pursuant to the Personalty Leases)
(collectively, "EQUIPMENT") that are Related to the Business, and any fixtures,
leasehold or other improvements, including security deposits on any of the
foregoing. The Equipment shall include all personal property on the Leased Real
Property, including, without limitation, property listed in Schedule 2.2(a).
(b) REAL PROPERTY LEASES. Any and all Real Property Leases Related to
the Business, including, without limitation, the leases listed in Schedule
5.9(b).
(c) PERSONALTY LEASES. Any and all leases or other rights to use or
possess personalty Related to the Business, including the leases and rights that
are listed in Schedule 2.2(c), including, without limitation, leases of
machinery, equipment, furniture, tools, spare parts, supplies, materials,
software media, computer hardware, communications equipment and other personal
property (collectively, the "PERSONALTY LEASES").
(d) INTELLECTUAL PROPERTY RIGHTS. Any and all Intellectual Property
Rights, including, without limitation, the rights listed in Schedule 2.2(d).
(e) ASSIGNED CONTRACTS. All (i) the Commitments that are listed in
Schedule 5.11 and the contracts, agreements, plans, policies and arrangements
which would have been required to be listed in Schedule 5.11 except that they
provide for payments in an amount less than, the
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applicable amount set forth in Section 5.11 or they are otherwise excludable
from Schedule 5.11 in accordance with Section 5.11, and (ii) rights under
express or implied warranties or other claims against third parties Related to
the Business, and, in each case, any claim or right or any benefit thereunder or
resulting therefrom (the agreements described in (i) and (ii) above are referred
to herein as the "ASSIGNED CONTRACTS").
(f) BOOKS AND RECORDS. Originals or certified copies of all books and
records (excluding any Tax books and records) that are entirely or in
substantial part Related to the Business or related to Existing Sub, wherever
located, including, without limitation, stockholder, board and committee
minutes, technical and procedural manuals, customer and supplier lists,
financial records, maintenance records, personnel records, consulting and
marketing studies, market information, marketing and sales plans, accounting
records, inventory records, sales and sales promotional data, advertising
materials, cost and pricing information, product development information, title
reports and policies, environmental and engineering studies, technical data,
specifications, work standards and manufacturing, assembling and process
information, designs, processes, operating manuals, operating data and plans,
engineering drawings, working drawings, schematics, blueprints, flowsheets and
models, waste disposal, records, correspondence and files (collectively, the
"BOOKS AND RECORDS").
(g) PERMITS. All rights and incidents of interest in and to all
licenses, franchises, grants, easements, exceptions, certificates, consents,
permits, approvals, orders and other authorizations of any Authority
(collectively, the "PERMITS") that are Related to the Business, including,
without limitation, those are listed in Schedule 5.15.
(h) RIGHTS, CLAIMS, CREDITS, ETC. All known and unknown, liquidated
or unliquidated, contingent or fixed, rights, claims, credits, rights of setoff
against third parties, choses in action, causes of action or rights to commence
any causes of action which Existing Sub has at the Closing or may acquire after
the Closing relating to or arising out of the Contributed Assets or Related to
the Business.
(i) WORKING CAPITAL ASSETS. All Working Capital Assets, including (i)
any prepaid items that are Related to the Business; (ii) all accounts, notes and
other receivables Related to the Business; and (iii) all Inventory (as defined
in Section 5.24) Related to the Business.
(j) GOODWILL. All goodwill associated with the Business.
2.3 EXCLUDED ASSETS. Notwithstanding the foregoing, the Contributed
Assets shall not include (i) any deferred income taxes, intercompany receivables
between the Business and Parent or cash or cash equivalents, (ii) any
consideration received by, and the rights of, Parent under orpursuant to this
Agreement and the Ancillary Documents or (iii) such assets located in Parent's
Tulsa corporate offices specifically listed in Schedule 2.3 (the "EXCLUDED
ASSETS").
2.4 ASSUMPTION OF LIABILITIES.
(a) Subject to the provisions of Section 2.5 hereof, as of the
Closing, Existing Sub shall assume and thereafter pay, perform or discharge the
following obligations and liabilities of Parent, as they relate to the Business,
but only those and no others (the "ASSUMED LIABILITIES"):
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(i) the Working Capital Liabilities;
(ii) Parent's obligations arising or to be performed after the
Closing under (x) the Assigned Contracts (other than monetary obligations
relating to time periods prior to the Closing, except to the extent they are
Working Capital Liabilities, and other than indemnification obligations of
Parent arising prior to the Closing) to the extent (and from and after the date
as of which) they are assigned to Existing Sub; and (y) the then outstanding
purchase order contracts and sale order contracts entered into in the ordinary
course of business to the extent (and from and after the date as of which) they
are assigned to Existing Sub and not listed in Schedule 5.11;
(iii) Parent's obligations arising or to be performed after
the Closing under the Personalty Leases listed in Schedule 2.2(c) (other than
monetary obligations relating to time periods prior to the Closing except to the
extent they are Working Capital Liabilities, and other than indemnification
obligations of Parent arising prior to the Closing);
(iv) Parent's obligations arising or to be performed after the
Closing under the Real Property Leases listed in Schedule 5.9(b) (other than
monetary obligations relating to time periods prior to the Closing, except to
the extent they are Working Capital Liabilities, and other than indemnification
obligations of Parent arising prior to the Closing);
(v) Parent's obligations arising or to be performed after the
Closing under the Permits listed in Schedule 5.15 to the extent such Permits are
assigned to Existing Sub; and
(vi) Parent's obligations arising or to be performed after the
Closing under the Intellectual Property Rights listed in Schedule 2.2(d), to the
extent (and from and after the date as of which) such rights are assigned to
Existing Sub.
(b) Except as expressly provided in Section 2.4(a), as of the Closing
Date, Existing Sub does not assume, agree to pay, perform, discharge or
indemnify Parent or any of Parent's Affiliates against, or otherwise have any
responsibility for, any or all liabilities or obligations of Parent or the
Business of any kind, character or nature whatsoever, whether known or unknown,
accrued, absolute, contingent, determined, determinable or otherwise, and
whether arising or to be performed prior to, on or after the Closing, whether or
not scheduled pursuant to this Agreement including, without limitation, any
indebtedness for borrowed money, capital lease obligations, intercompany
payables between the Business and Parent, any workers compensation claims,
product liability claims, Tax liabilities (including current or deferred income
tax liabilities), environmental liabilities, liabilities arising out of any
royalty or employment termination agreement (including, without limitation (x)
the Royalty Termination Agreement, dated November 8, 1996, by and among Parent,
Nonni's Inc., Steve Sirianni ("SIRIANNI"), Tim Soldati ("SOLDATI") and Rich
Martin ("MARTIN"), (y) the Employment Termination Agreements, dated April 1,
1998, by and between Parent and each of Sirianni and Soldati, and (z) the
Employment Termination Agreement, dated March 29, 1998 by and between Parent and
Martin), liabilities arising out of any employee benefit plan or agreement,
except to the extent otherwise expressly assumed under this Agreement, any other
claim against the Business arising from facts or events occurring prior to
Closing (such liabilities and obligations being collectively referred to herein
as the "RETAINED LIABILITIES"). Retained Liabilities shall also mean and include
all obligations of Parent or Existing Sub to pay, and
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all claims related to, severance or similar payments (notwithstanding anything
contained in this Agreement to the contrary), and all claims, actions,
litigations and proceedings relating to any of the Retained Liabilities and all
costs and expenses in connection therewith.
(c) The assumption by Existing Sub of the Assumed Liabilities as of
the Closing shall not enlarge any rights of any Person under any contracts or
arrangements with Parent.
(d) Nothing contained herein shall prevent Existing Sub from
contesting any of the Assumed Liabilities with any third party obligee or
beneficiary.
2.5 ASSIGNMENT OF CONTRACTS, RIGHTS AND OBLIGATIONS AND ASSUMPTION OF
RELATED LIABILITIES. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall not constitute an agreement to assign any of the
Personalty Leases, Assigned Contracts or Permits as and to the extent that an
attempted assignment thereof, without the consent of a third party thereto,
would constitute a breach or default thereof, would cause or permit the
acceleration or termination thereof or would in any way adversely affect the
rights of Parent or Existing Sub thereunder, but rather shall constitute an
equitable assignment by Parent to Existing Sub of such of Parent's right, title
and interest in and to the Personalty Lease, Assigned Contract or Permit as may
be legally assigned. If such third party consent has not been obtained prior to
the Closing, Parent shall, until such consent is obtained, at its expense, agree
with Buyers to any reasonable arrangement designed to provide Existing Sub the
benefits under any such Personalty Lease, Assigned Contract or Permit,
including, without limitation (a) compliance by Parent on Existing Sub's behalf
with any such Personalty Lease, Assigned Contract or Permit and (b) enforcement
for the benefit of Existing Sub of any and all retained rights of Existing Sub
against a third party thereto arising out of the breach or cancellation by such
third party or otherwise. Upon receipt of any such third party consent, the
assignment to Existing Sub of such Personalty Lease, Assigned Contract or Permit
as provided in Section 2.2 hereof, and the assumption by xisting Sub of certain
related liabilities as provided in Section 2.4 hereof shall, without any further
action on the part of Parent or Existing Sub, become effective.
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ARTICLE 3
CONSIDERATION
3.1 CONSIDERATION AND PURCHASE PRICE. The aggregate purchase price for
the Shares to be purchased by Buyers from Parent pursuant to the terms hereof
shall be the Purchase Price, as defined in Section 2.1(b). The Purchase Price
shall be paid to Parent at the Closing by wire transfer or delivery of other
immediately available funds to an account or accounts designated by Parent not
less than three (3) business days prior to the Closing Date.
3.2 REPURCHASE PRICE ADJUSTMENT. In accordance with Section 3.4, the
Repurchase Price shall be adjusted based on the calculation of Specified Net
Assets (as defined below) (x) upward by ninety percent (90%) of the amount in
dollars by which the sum of (1) the book value of Net Working Capital at
Closing, and (2) the book value of the New Equipment at Closing (the "SPECIFIED
NET ASSETS") is more than the sum of (a) $2,196,475, plus (b) the greater of the
final amount actually expended on the New Equipment and $262,000 (the "TARGET
SPECIFIED NET ASSETS") and (y) downward by ninety percent (90%) of the amount in
dollars by which the Target Specified Net Assets is more than the Specified Net
Assets. The Specified Net Assets at Closing shall be preliminarily estimated in
good faith by Parent, which determination shall be reasonably satisfactory to
Buyers, not less than five (5) days prior to the Closing Date. Existing Sub
shall pay to Parent the Repurchase Price, as adjusted pursuant to this Section
3.2, immediately after consummation of the Contribution and immediately prior to
the Closing, upon delivery of the Repurchased Shares by Parent to Existing Sub.
3.3 PREPARATION OF CLOSING BALANCE SHEET.
(a) Within 30 days after the Closing Date, Existing Sub shall deliver
to Parent a calculation of Specified Net Assets as of the close of business on
the Closing Date prepared by Existing Sub in accordance with GAAP, on a basis
consistent with the accounting principles utilized in the preparation of year-
end financial statements. Existing Sub shall provide Parent with reasonable
access to its workpapers in connection with such calculation and shall make
itself available at reasonable times upon request of Parent to discuss with
Parent such calculation.
(b) If Parent objects to Existing Sub's calculation of Specified Net
Assets, Parent shall deliver to Existing Sub and Buyers, within 30 days after
receipt of Existing Sub's calculation (the "OBJECTION PERIOD"), a written
statement describing its objections thereto. In the event that Parent fails to
deliver such written statement prior to the expiration of the Objection Period,
Existing Sub's calculation shall be final, conclusive and binding upon the
parties hereto. In the event that Parent delivers such written statement prior
to the expiration of the Objection Period, Parent and Existing Sub will use all
reasonable efforts to resolve any dispute. If Parent's calculation of Specified
Net Assets differs by no more than $5,000 from Existing Sub's calculation, then
no adjustment shall be made and Parent's calculation shall be the final
resolution of the Specified Net Assets. If a final resolution is not obtained
within 30 days after Parent has delivered such written notice, either Existing
Sub or Parent may submit any remaining disputes for resolution to an accounting
firm mutually agreeable to Existing Sub and Parent (such accounting firm shall
be referred to herein as the "ARBITRATING ACCOUNTANTS") which firm shall resolve
such dispute within 30 days following its selection based solely upon
presentations by the parties, which presentations
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shall include each party's estimate of the Specified Net Assets and shall not
include any independent review. In resolving any dispute, the Arbitrating
Accountants shall examine only those issues in dispute and shall not assign a
value greater than the highest value claimed by a party or lower than the lowest
value claimed by a party. The Arbitrating Accountants' determination shall be
final, conclusive and binding upon the parties hereto. The calculation of
Specified Net Assets as finally revised based on the mutual agreement of
Existing Sub and Parent or by the Arbitrating Accountants shall be final,
conclusive and binding upon the parties hereto.
(c) Existing Sub and Parent shall cooperate with the Arbitrating
Accountants in all respects, including providing the Arbitrating Accountants
with all work papers and back-up materials used in preparation and review of
their calculations of Specified Net Assets.
(d) The fees, expenses and costs of the Arbitrating Accountants shall
be borne by the party (Existing Sub or Parent) whose estimation of the Specified
Net Assets, taking into account any changes made prior to submission to the
Arbitrating Accountants, is farthest from the sum of the Specified Net Assets as
finally determined by the Arbitrating Accountants.
3.4 POST-CLOSING REPURCHASE PRICE ADJUSTMENT. In the event that the
Specified Net Assets as finally determined ("FINAL SPECIFIED NET ASSETS") is
less than the Specified Net Assets originally calculated by Parent ("PRELIMINARY
SPECIFIED NET ASSETS"), then the Repurchase Price will be adjusted downward by
an amount equal to ninety percent (90%) of the amount of such difference, to
reflect the decrease in Final Specified Net Assets from Preliminary Specified
Net Assets, and Parent shall pay Existing Sub such amount as set forth in the
last sentence of this Section 3.4. Conversely, in the event that the Final
Specified Net Assets is more than the Preliminary Specified Net Assets, then the
Repurchase Price will be adjusted upward, by an amount equal to ninety percent
(90%) of such difference, to reflect the increase, if any, in Final Specified
Net Assets from Preliminary Specified Net Assets, and Existing Sub shall pay to
Parent such amount as set forth in the last sentence of this Section 3.4. The
post-closing adjustment to the Repurchase Price, if any, plus interest payment
thereon, calculated at a rate of one-month LIBOR (in effect as of the Closing
Date) plus three percent (3%), shall be paid by Parent to Existing Sub or by
Existing Sub to Parent, as the case may be, in immediately available funds
within ten (10) days of the earlier of (a) delivery of the final, conclusive and
binding calculation of Specified Net Assets by the Arbitrating Accountants, (b)
the mutual resolution of any dispute between Existing Sub and Parent, or (c) the
expiration of the Objection Period in the event no objection has been made.
3.5 EARN-OUT PAYMENTS.
(a) For purposes of this Agreement, the following terms shall have the
meaning set forth below:
"ADDITIONAL EARN-OUT PERIOD": the twelve month period ending on the
Additional Earn-Out Date.
"ADDITIONAL EARN-OUT DATE": September 30, 1999.
"INITIAL EARN-OUT PERIOD": the twelve month period ending on the
Initial Earn-Out Date.
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"INITIAL EARN-OUT DATE": March 31, 1999.
"EBITDA": Plant-Level EBITDA plus "indirect sales and marketing
expense" and "indirect general and administrative expense."
"PLANT-LEVEL EBITDA": As calculated by Existing Sub, earnings from the
operation of the Business, before interest, income taxes, depreciation,
amortization, "indirect sales and marketing expense," "indirect general and
administrative expense," payments made by Parent to Existing Sub pursuant to the
Interim Services Agreement and any nonrecurring gains, losses, or expenses.
The calculations of Plant-Level EBITDA and EBITDA shall be consistent
with Parent's accounting for "indirect sales and marketing expense" and
"indirect general and administrative expense," and consistent with GAAP, except
as otherwise provided herein. To the extent that the Business uses outside
co-packers during the Initial Earn-Out Period or Additional Earn-Out Period,
such resulting expenditures shall be included in the calculation of Plant-Level
EBITDA and EBITDA. To the extent any acquisitions are made during the Initial
Earn-Out Period or Additional Earn-Out Period, Existing Sub shall make a good
faith computation of Plant-Level EBITDA and EBITDA on a segregated basis. In
addition to the foregoing, the calculation of Plant-Level EBITDA and EBITDA
shall be subject to the following:
(i) The "earnings from the operation of the Business" shall
include without limitation:
(1) all revenues and expenses from the sale of biscotti,
products similar to biscotti, products related to biscotti, and other specialty
cookie products;
(2) all revenues from the existing brands of the Business
and all successor and related brands;
(3) all revenues of the Existing Sub until such time as
Existing Sub acquires another business entity; and
(4) all revenues from all products produced by Existing Sub,
including all revenues from new products developed by Existing Sub following the
Closing, but excluding revenues from products relating to product lines acquired
from third parties.
(ii) The only acquisitions by Existing Sub which will require
computation on a segregated basis are those involving the acquisition of another
business entity. Acquisitions of additional plant and equipment by Existing Sub
shall not require computation on a segregated basis.
(iii) For purposes of this Section 3.5, the Business shall
include the operation by Existing Sub of the Business following the Closing, and
shall include any business or businesses conducted by Existing Sub, or any
subsidiary or other affiliates of Existing Sub, which represent a succession to
and a continuation of the Business, as the same may be expanded from time to
time.
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(b) Subject to paragraph (c) of this Section, Existing Sub shall pay
to Parent an amount in cash ("INITIAL EARN-OUT PAYMENT") equal to $3.0 million
if EBITDA for the Initial Earn-Out Period exceeds $3.6 million. Subject to
paragraph (c) of this Section, Existing Sub shall pay to Parent an amount in
cash ("ADDITIONAL EARN-OUT PAYMENT") equal to the product of (i) a fraction, the
numerator of which is equal to (A) Plant-Level EBITDA for the Additional Earn-
Out Period, minus (B) $8,600,000 (which numerator, if such difference equals a
negative number, shall equal zero, and if such difference is greater than
$1,000,000, shall equal $1,000,000), and the denominator of which is equal to
$1,000,000 and (ii) $5,000,000.
(c) Subject to paragraph (d) below, any Initial Earn-Out Payment or
Additional Earn-Out Payment pursuant to this Section shall be delivered from
Existing Sub to Parent as soon as reasonably practicable following the
availability of unaudited financial statements relating to the relevant Initial
Earn-Out Period or Additional Earn-Out Period, but in no event later than 60
days after the relevant Initial Earn-Out Date or Additional Earn-Out Date (or,
to the extent that the Initial Earn-Out or Additional Earn-Out has not been
finally determined as set forth in Section 3.5(g), within 5 days after such
determination).
(d) Notwithstanding the foregoing, if an Initial Earn-Out Payment or
Additional Earn-Out Payment is payable under this Section and there exists any
outstanding claim for indemnification asserted by any Buyer Indemnitee pursuant
to Article XII hereof, the portion of the Initial Earn-Out Payment or Additional
Earn-Out Payment equal to the amount of such outstanding claim for
indemnification asserted by any Buyer Indemnitee (the "HOLDBACK AMOUNT"), to be
paid by Buyers to Parent shall be delayed until the final resolution of such
claim. The excess, if any, of the Initial Earn-Out Payment or Additional Earn-
Out Payment payable to Parent over the Holdback Amount shall be paid in
accordance with paragraph (c) above. If any Buyer Indemnitee is subsequently
entitled to be indemnified pursuant to Article XII hereof, then a portion of the
Holdback Amount equal to the amounts owed to Buyer Indemnitee shall be paid to
Buyer Indemnitee.
(e) During the Initial Earn-Out Period and the Additional Earn-Out
Period and until all Initial Earn-Out Payments and Additional Earn-Out Payments
have been duly paid, (i) Parent shall have reasonable access to the financial
books and records of Existing Sub, and (ii) Existing Sub shall provide to Parent
monthly statements of the results of operations of Existing Sub and monthly
calculations of Plant-Level EBITDA and EBITDA, which information shall be
provided in the ordinary course no later than the 30th day of the following
month.
(f) Buyers shall not, and shall cause Existing Sub to not, take any
action reasonably calculated to diminish the levels of Plant-Level EBITDA and
EBITDA, provided that in no event shall this provision restrict Buyers' ability
to conduct the Business after the Closing in the ordinary course.
(g) Within 45 days after each of the Initial Earn-Out Date and the
Additional Earn-Out Date, Existing Sub shall deliver to Parent a calculation of
the Initial Earn-Out Payment and Additional Earn-Out Payment, respectively.
Existing Sub shall provide Parent with reasonable access to its workpapers in
connection with such calculation and shall make itself available at reasonable
times upon request of Parent to discuss with Parent such calculation. If Parent
objects to Existing
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Sub's calculation of the Initial Earn-Out Payment or Additional Earn-Out
Payment, Parent shall deliver to Existing Sub and Buyers, within 10 days after
receipt of Existing Sub's calculation, a written statement describing its
objections thereto. In the event that Parent fails to deliver such written
statement within the period set forth above, Existing Sub's calculation shall be
final, conclusive and binding upon the parties. In the event that Parent
delivers such written statement within the period set forth above, Parent and
Existing Sub will use reasonable efforts to resolve any dispute. If a final
resolution is not obtained within 30 days after Parent has delivered such
written notice, either Existing Sub or Parent may submit any remaining disputes
for resolution to the Arbitrating Accountants, which firm shall resolve such
dispute within 30 days based solely upon presentations by the parties, which
presentations shall include each party's calculation of the Initial Earn-Out
Payment or Additional Earn-Out Payment and shall not include any independent
review. In resolving any dispute, the Arbitrating Accountants shall examine only
those issues in dispute and shall not assign a value greater than the highest
value claimed by a party or lower than the lowest value claimed by a party. The
calculation of the Initial Earn-Out Payment or Additional Earn-Out Payment as
finally revised based on the mutual agreement of Existing Sub and Parent or by
the Arbitrating Accountants shall be final, conclusive and binding upon the
parties hereto. Existing Sub and Parent shall cooperate with the Arbitrating
Accountants in all reasonable respects, including providing the Arbitrating
Accountants with all work papers and backup materials used in preparation and
review of their calculations of the Initial Earn-Out Payment or Additional Earn-
Out Payment. The fees, expenses and costs of the Arbitrating Accountants shall
be borne by the party (Existing Sub or Parent) whose estimation of the Initial
Earn-Out or Additional Earn-Out, taking into account any changes made prior to
submission to the Arbitrating Accountants, is farthest from the sum of the
Initial Earn-Out or Additional Earn-Out as finally determined by the Arbitrating
Accountants.
ARTICLE 4
CLOSING
4.1 TIME AND PLACE. The closing of the transactions contemplated hereunder
(the "CLOSING") shall take place at the offices of Cooley Godward LLP, Five Palo
Alto Square, 3000 El Camino Real, Palo Alto, California, at 10 A.M., California
time, within five (5) Business Days after satisfaction or waiver of all of the
conditions to each party's obligations under Articles IX and X, or at such other
place, time and date as the parties hereto may agree or such date as Buyers
shall determine to be reasonable in order for Buyers to obtain the financing for
completion of the transactions contemplated herein (the "CLOSING DATE").
4.2 DELIVERIES. At the Closing:
(a) Parent will deliver to each Buyers a stock certificate,
representing all of the Shares set forth opposite such Buyer's name on Exhibit
A, endorsed in blank or accompanied by duty executed assignment documents;
(b) Parent shall deliver to Existing Sub all Books and Records, and
Consents required by Section 9.7 and shall deliver to Buyers the certificates
and documents required in Article IX and such other documents, instruments and
writings as may be reasonably requested by Buyers prior to the Closing; and
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(c) Parent shall deliver, or cause to be delivered, to Buyers such
deeds, bills of sale, endorsements, assignments, licenses and other instruments,
certificate and documents executed and reasonably satisfactory in form and
substance to Buyers and its counsel as shall be reasonably necessary to vest in
Existing Sub as of the Closing Date good and valid title to the Contributed
Assets free and clear of any Encumbrances (including, without limitation, an
Assignment and Assumption Agreement in a form to be agreed between the parties.
(d) Parent and Buyers shall cause Existing Sub to pay, and Existing
Sub shall pay, the Repurchase Price in accordance with Section 2.1(a).
(e) Buyers shall pay the Purchase Price in accordance with Section 3.1
and deliver to Parent (i) the certificates and documents required in Article X,
and (ii) such other documents, instruments and writings as may be reasonably
requested by Parent prior to the Closing.
(f) Parent will deliver to Existing Sub stock certificates
representing all of the Repurchased Shares, endorsed in blank or accompanied by
duly executed assignment documents.
4.3 NOTICES OF TRANSFER. As requested by Existing Sub from time to time
after the Closing, Parent shall prepare and mail notices to the other party
under each of the Personalty Leases, Real Property Leases and the Assigned
Contracts transferred, assigned, delivered and conveyed to Existing Sub pursuant
to this Agreement advising such other party that such Personalty Leases, and
Assigned Contracts have been contributed to Existing Sub and directing such
other party to send to Existing Sub all future payments, notices and
correspondences relating to the foregoing. As requested by Existing Sub from
time to time after the Closing, Parent shall prepare and mail notices to
relevant Authorities relating to the contribution to Existing Sub of all rights
and incidents of interest in and to all Permits that are Related to the
Business, advising such Authorities that such rights and interests in and to the
Permits have been contributed to Existing Sub and directing such Authorities to
send to Existing Sub all future payments, notices and correspondences relating
to the Permits.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Buyers as follows (such representations
and warranties, unless otherwise specified, are deemed to be made as of the date
hereof and as of the Closing Date):
5.1 ORGANIZATION AND STANDING OF PARENT AND EXISTING SUB. Each of Parent
and Existing Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. Except as set forth on Schedule 5.1,
Parent and Existing Sub are each duly qualified to do business as a foreign
corporation and are each in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of their respective properties
owned or used by it, or the nature of their respective activities conducted by
it or proposed to be conducted by it, requires such qualification. Existing Sub
has no subsidiaries, and Existing Sub has never owned, beneficially or
otherwise, any shares or other securities of, or any direct or indirect interest
of any nature in, any entity.
5.2 AUTHORIZATION OF AGREEMENT AND ANCILLARY DOCUMENTS.
(a) Each of Parent and Existing Sub has all requisite corporate power
and authority to execute, deliver and perform this Agreement and each Ancillary
Document to which it is a party and to consummate the transactions contemplated
hereby and thereby.
(b) Except for the lack of approval, as of the date of this Agreement,
by Parent's shareholders, each of Parent and Existing Sub has taken all action
required by Law and necessary corporate action (including, without limitation,
obtaining the approval of its Board of Directors and any consent of its
stockholders required by Law or by its certificate of incorporation or by-laws)
to authorize the execution, delivery and performance of this Agreement and each
Ancillary Document to which it is a party and the consummation of the
transactions contemplated hereby and thereby. This Agreement and the Ancillary
Documents to which Parent or Existing Sub is a party have been duly and validly
authorized, executed and delivered by Parent or Existing Sub, as applicable, and
this Agreement and the Ancillary Documents constitute the legal, valid and
binding obligations of Parent or Existing Sub, as applicable.
(c) Except as set forth on Schedule 5.2(c) and subject to the
satisfaction of the conditions to this Agreement the execution and delivery of
this Agreement by each of Parent and Existing Sub and the Ancillary Documents to
which either of them is a party and the consummation of the transactions
contemplated hereby and thereby will not (with or without the giving of notice
or the lapse of time or both) (i) conflict with any provision of the certificate
of incorporation or by-laws of Parent or Existing Sub, (ii) have any effect on
any of the Permits or the ability of Existing Sub to use such Permits, (iii)
conflict with, or result in any violation of, or default or loss of a benefit
under, or cause or permit the termination of, or cause or permit the
acceleration under, the terms of any Personalty Lease, Assigned Contract or
domestic (federal, state or local) or foreign law, judgment, order, decree,
statute, code, law, ordinance, rule or regulation (collectively, "LAWS")
applicable to any of the Contributed Assets or Existing Sub or any of Existing
Sub's respective assets and properties, (iv) result in the creation or
imposition of any Encumbrance upon any of the
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Contributed Assets or any portion thereof or (v) result in the creation of any
Lien upon the Shares. Except as set forth in Schedule 5.2(c), no consent,
approval, order or authorization of, or registration, declaration or filing
with, any Authority and no consent, approval or authorization of any Person is
required to be made or obtained by Parent or Existing Sub in connection with the
execution and delivery of this Agreement or any Ancillary Document or the
consummation of the transactions contemplated hereby or thereby, including,
without limitation the Contribution and the sale of Shares to Buyers.
5.3 SHARES OF EXISTING SUB. Parent holds of record and owns beneficially,
as of the date hereof, 100 shares of Common Stock, and after the Contribution,
it will own 1,450,000 shares of Common Stock of Existing Sub, free and clear of
any Liens, options, warrants, purchase rights contracts, commitments, equities,
claims and demands. Parent is not a party to, nor has it taken any steps to
become a party to, any option, warrant, purchase right or other contract (other
than this Agreement) or commitment that could require it to sell, transfer or
otherwise dispose of any of the shares of capital stock of Existing Sub or any
interest therein or right thereto. There are no voting trusts, stockholder
agreements, proxies or other agreements or understandings in effect with respect
to the voting or transfer of any of the Shares.
5.4 CAPITALIZATION. As of the date hereof, the authorized capital stock
of Existing Sub consists solely of 1,000 shares of Common Stock, par value $
1.00 per share (the "COMMON STOCK"), of which 100 shares are issued and
outstanding and all of such outstanding shares are owned beneficially and of
record by Parent. Immediately following the Contribution, the authorized capital
stock of Existing Sub will consist solely of 1,450,000 shares of Common Stock,
all of which will be issued and outstanding and all of such outstanding shares
will be owned beneficially and of record by Parent. Immediately following the
purchase of the Shares, the authorized capital stock of Existing Sub shall
consist solely of 1,450,000 shares of Common Stock, 1,000,000 of which shall be
issued and outstanding, 100,000 of which will be owned beneficially and of
record by Parent and 900,000 of which will be owned beneficially and of record
by Buyers. All of the issued and outstanding shares of Common Stock have been
duly authorized, are validly issued, fully paid and nonassessable. The shares of
Common Stock of Existing Sub to be issued in connection with the Contribution
will, when issued, be duly authorized, validly issued, fully paid and
nonassessable. At the Closing, Parent shall have and Buyers shall acquire, good
and valid title to the Shares free and clear of any Encumbrances. Other than
pursuant to transactions contemplated hereunder, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other contracts or commitments that could require
Existing Sub to issue, sell or otherwise cause to become outstanding any of its
capital stock or any securities exercisable for, exchangeable for or convertible
into such capital stock. There are no outstanding or authorized share
appreciation, phantom share, profit participation or similar rights with respect
to the capital stock of Existing Sub.
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5.5 SEC REPORTS.
(a) The proxy statement of Parent to be filed with the Securities and
Exchange Commission (the "SEC") in connection with the transactions contemplated
under this Agreement (the "PARENT PROXY STATEMENT") and any amendments or
supplements thereto will, when filed, comply as to form in all material respects
with the applicable requirements of the Securities Exchange Act of 1934 (the
"EXCHANGE ACT"). At the time the Parent Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of Parent and at the time
such stockholders vote on the approval and adoption of this Agreement, the
Parent Proxy Statement, as supplemented or amended, if applicable, will not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading. The foregoing
representations and warranties will not apply to statements or omissions
included in the Parent Proxy Statement or any amendment or supplement thereto
based upon information furnished to the Parent by Buyers for use therein.
(b) Parent has filed all proxy statements, reports and other documents
required to be filed by it under the Exchange Act since December 31, 1997; and
Parent has furnished the Purchaser copies of its Annual Report on Form 10-K for
the fiscal years ended December 31, 1997, and all proxy statements and reports
under the Exchange Act filed by Parent after such date, each as filed with the
SEC (collectively, the "SEC REPORTS"). Each SEC Report was in compliance with
the requirements of its respective report form and did not on the date of filing
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
5.6 FINANCIAL STATEMENTS.
(a) The financial statements (including any related schedules and/or
notes) included in the SEC Reports have been prepared in accordance with GAAP
consistently applied (except as indicated in the notes thereto) throughout the
periods involved and fairly present the consolidated financial condition,
results of operations, changes in stockholders' equity and cash flows of Parent
and its Subsidiaries as of the dates thereof and for the periods ended on such
dates (except for lack of footnotes and in each case subject, as to interim
statements, to changes resulting from year-end adjustments, which in the
aggregate will not be material in amount or effect).
(b) Attached hereto as Schedule 5.6(a) are the following financial
statements of the Business (the "PRO-FORMA FINANCIAL STATEMENTS"): (i) the
audited balance sheet of the Business as of December 31, 1997 and the unaudited
balance sheets of the Business as of each month end from January 31, 1998 to May
31, 1998 (the "1998 MONTHLY PERIODS") and (ii) audited statements of income and
cash flows for the fiscal year ended December 31, 1997 (the "1997 INCOME
STATEMENT") and unaudited statements of income and cash flows for each of the
1998 Monthly Periods. From the date of this Agreement to the Closing Date,
Parent shall provide to Buyers monthly unaudited balance sheets and statements
of income and cash flows for each of Parent and the Business in the form of
Exhibit 5.6(b) attached hereto (the "INTERIM FINANCIAL STATEMENTS") as promptly
as practicable (and in any event within 20 days) after the end of each month
and, in the case
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of the Interim Financial Statements for the month ending prior to the Closing,
prior to the Closing Date only if the Closing occurs on or following the 20th
day of the month. The Pro-Forma Financial Statements (including the notes
thereto) and the Interim Financial Statements present (or will present) fairly
the financial condition of Parent and the Business as of such dates and the
results of operations of Parent and the Business for such periods, are correct
and complete, and are consistent with the books and records of Parent and the
Business and have been prepared in accordance with GAAP, applied on a consistent
basis (except for the absence of footnotes and in each case subject, as to
interim statements, to changes resulting from year-end adjustments, which in the
aggregate will not be material in amount or effect).
5.7 INSURANCE. Schedule 5.7 sets forth a list, as of the date hereof, of
all material casualty, general liability and other insurance maintained by
Parent and, as of the Closing, Existing Sub, for the benefit of the Business
(the "INSURANCE POLICIES") and a list and brief description of all claims made
by Parent since January 1, 1994 against any of its insurance policies. Each of
the insurance Policies is in full force and effect and no written notice has
been received by Parent nor, as of the Closing, Existing Sub from any insurance
carrier purporting to cancel coverage under any of the Insurance Policies which
are currently in effect. Except as set forth in Schedule 5.7, to Parent's
knowledge, there are no pending material claims against the Insurance Policies
by Parent with respect to the Business as to which the insurers have denied
liability. Parent has made timely premium payments with respect to all of the
Insurance Policies.
5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Schedule
5.8, since December 31, 1997, neither Parent nor Existing Sub has directly or
indirectly:
(a) made any change in its accounting methods or practices (including
estimation methodologies) or any revaluation of any asset or property;
(b) operated the Business in a manner other than in the ordinary
course of business, consistent with past practice and business policies;
(c) sustained any damage, destruction, or casualty loss whether or not
covered by insurance, to any of the assets of the Business in excess of $20,000
individually, and no more than $50,000 in the aggregate;
(d) incurred any material obligation or liability (fixed or
contingent) in respect of or affecting the Business (in the case of Parent) or
any of the Contributed Assets except (i) trade obligations incurred in the
operation of the Business in the ordinary course, consistent with past practice,
(ii) obligations and liabilities under any Commitment set forth in Schedule 5.11
or under any contracts, agreements, plans, policies or arrangements which would
have been required to have been listed in Schedule 5.11 except that they provide
for payments in an amount less than the applicable amount set forth in Section
5.11 or they are otherwise excludable from Schedule 5.11 in accordance with
Section 5.11, and (iii) obligations and liabilities under this Agreement, and
(vi) obligations and liabilities which, in accordance with GAAP consistently
applied, would not be required to be recorded on a consolidated balance sheet of
Parent or a balance sheet of Existing Sub.;
(e) made any amendment to its or Existing Sub's certificate of
incorporation or by-laws;
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(f) sold, assigned, transferred or granted any license or sublicense
of any rights, title or interest under or with respect to any Intellectual
Property Rights, in the case of Parent, Related to the Business;
(g) sold, leased, transferred, or assigned any assets, tangible or
intangible, in the case of Parent, Related to the Business other than for fair
consideration. in the ordinary course of business, but in no event any non-
inventory assets, tangible or intangible, in the case of Parent, Related to the
Business for any amount in excess of $10,000;
(h) effected any increase, direct or indirect, in the compensation
paid or payable to any salaried employee, agent or independent contractor (of
the Business in the case of Parent), other than in the ordinary course of
business and, in any event, not to exceed 5%; or engaged any new employee
involving annual compensation in excess of $50,000 or made any general "across-
the board" increase in wage rates for any category of hourly employees;
(i) made any material increase in or commitment to materially increase
any employee benefits or adopted or made any commitments to adopt any additional
employee benefit plan;
(j) made or entered into any contracts or commitments to make any
capital expenditures in excess of $25,000 in the aggregate;
(k) mortgaged, pledged or subjected to any Encumbrance any of the
assets;
(l) amended or terminated any of its Assigned Contracts, Real Property
Leases, or Personalty Leases;
(m) waived or released any other right of material value; or
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 5.8.
Except as set forth in Schedule 5.8, since December 31, 1997, (a) Parent
has not significantly changed any of its business policies with respect to the
Business and (b) without limiting any of the foregoing, there has not been any
material adverse effect or change on the business, assets, liabilities,
operations, results of operations or financial condition of the Business.
5.9 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) Parent has, prior to the date of consummation of the Contribution,
and as of the date of consummation of the Contribution, Existing Sub, shall have
good and valid title to all of the Contributed Assets (tangible and intangible,
other than real properties), free and clear of all imperfections of title and
all Encumbrances, except (i) as set forth in Schedule 5.9(a) and (ii) for such
imperfections of title and Encumbrances, if any, as do not individually
interfere with or affect the present or contemplated use or value of the asset
or property to which it attaches. The Contributed Assets constitute all of the
assets, tangible and intangible, of any nature whatsoever, used in operating the
Business in the manner presently operated by Parent or Existing Sub.
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(b) Neither Parent nor, as of the Closing, Existing Sub owns any real
property. Schedule 5.9(b) lists all real property Related to the Business leased
by Parent or, as of the Closing, Existing Sub (the "LEASED REAL PROPERTY" and
the leases to such real property, the "REAL PROPERTY LEASES"). Parent has and,
as of the Closing, Existing Sub, will have good, valid and binding leasehold
title to its leased real properties Related to the Business, free and clear of
all imperfections of leasehold title and all Encumbrances, other than as set
forth in Schedule 5.9(b) and such imperfections of leasehold title and
Encumbrances, if any, as do not individually materially interfere with or affect
the current use or the value of the property to which it attaches or otherwise
have a material adverse effect on the conduct of the Business (imperfections of
title and Encumbrances specifically described in this sentence and in clauses
(i) and (ii) of subparagraph (a) above shall be included in the term "PERMITTED
ENCUMBRANCE"). There are no existing defaults, and no events or circumstances
have occurred which, with or without notice or lapse of time or both, would
constitute defaults, under any of the Real Property Leases. None of the real
property Related to the Business leased by Parent or, as of the Closing,
Existing Sub, is subject to any leases or rights of occupancy by any third
party. Except as set forth on Schedule 5.9(b), there are no options, rights of
first refusal, rights of first offer or other similar rights in favor of any
Person other than Parent, prior to the date of consummation of the Contribution,
with respect to the real property used in connection with the Business.
5.10 CONDITION OF BUILDINGS, STRUCTURES, EQUIPMENT, ETC. Except as set
forth on Schedule 5.10, the Equipment, buildings, facilities, utilities,
leasehold and other improvements, fixtures, structures, any related capitalized
items and other tangible property included in the Contributed Assets, (i) are in
good operating condition and repair (normal wear and tear excepted), free (in
the case of buildings or structures located on the Real Properties) of any
structural or engineering defects, (ii) are subject to continued repair and
replacement in accordance with past practice and all applicable laws and
regulations; and (iii) are suitable and sufficient for the conduct of the
Business as conducted on the date hereof..
5.11 AGREEMENTS, PLANS, ARRANGEMENTS, ETC. Except as set forth in Schedule
5.11, neither Parent nor Existing Sub (either currently or as of the Closing
Date) is a party to any contract, agreement, plan, policy or arrangement, in the
case of Parent, Related to the Business that is of a type described below:
(i) any lease agreement (whether as lessor or lessee) relating to
personal property, including the Personalty Leases other than those lease
agreements (1) listed in Schedule 2.2(c) or (2) which are cancelable on not more
than thirty days' notice and do not in any case provide for a rental of more
than $500 per month;
(ii) any agreements with officers, directors, stockholders,
consultants, or contractors, or any other agreement with employees, except for
agreements with employees who are not officers or directors where the aggregate
amount of such agreements is not in excess of $10,000;
(iii) any sales order or other agreement for the sale of goods,
materials, supplies, machinery, capital assets or services in excess of $50,000
in any one case, other than sales of inventory in the ordinary course of
business not in excess of $10,000 in any one case;
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(iv) any purchase order or; other agreement for the purchase of
goods, materials and supplies having a value in excess of $10,000, other than in
the ordinary course of business, consistent with past practice;
(v) any agreement not terminable at will by Parent or, as of the
Closing, Existing Sub and granting to any Person a right at such Person's option
to purchase or acquire any asset or property Related to the Business (or any
interest therein) except for agreement relating to payments, in the aggregate,
not in excess of $10,000;
(vi) any agreement granting any Person an Encumbrance on any
Contributed Asset or any asset of Existing Sub;
(vii) any agreement for the construction or modification of any
building or structure or for the incurrence of any other capital expenditure
with an outstanding balance in excess of $10,000;
(viii) any agreement which restricts any party thereto from (A)
entering into or competing in any line of business, (B) acquiring any product or
other asset or any services from any other Person, selling any product or other
asset to or performing any services for any other Person or transacting business
or dealing in any other manner with any other Person, or (C) developing or
distributing any technology, or which contains restrictions on its ability to
conduct business activities or contains restrictions on the soliciting or hiring
of employees;
(ix) any confidentiality agreement pertaining to the Business with
any other Person, other than Buyers or their respective affiliates; and
(x) collective bargaining or other agreements with any labor union;
(xi) any agreement pursuant to which a joint venture or partnership
has been formed or will be formed or is governed;
(xii) any agreement relating to the acquisition or disposition by
Existing Sub of any business or the capital stock of any other Person;
(xiii) any agreement under which Parent agrees to indemnify any Person
or to share Tax liability of any Person;
(xiv) any other contract of a type not described above materially
affecting the Business or any of the Contributed Assets or the Assumed
Liabilities or involving an obligation on the part of Parent in excess of
$25,000; and
(xv) any license agreement, assignment, contract or other
arrangement or understanding (whether as licensor or licensee, assignor or
assignee) relating to the acquisition, transfer, use, development, sharing or
license of any of the Intellectual Property Rights or which is used, or
necessary for use of any of the Contributed Assets or performance by Existing
Sub of any the services specified or otherwise required or necessary for the
operation of the Business or the performance by Parent or Existing Sub under the
Interim Services Agreement (collectively, the
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"LICENSE AGREEMENTS"), or any agreement understanding, right or arrangement
under which any Person has, would or could acquire any ownership, marketing, use
or other rights or interest in, or could restrict the use of, the Intellectual
Property Rights or any Intellectual Property Rights created, developed or used
by Parent or Existing Sub in connection with its performance under the Interim
Services Agreement.
Correct and complete copies of all agreements, plans, policies and
arrangements (or, where they are oral, true and complete written summaries
thereof) required to be listed on Schedule 5.11, including, without limitation,
any amendment, modification, waiver, supplement, purchase order, letter or
agreement or understanding related to any agreement, plan, policy or arrangement
required to be specified above which changes the rights or obligations of Parent
or, as of the Closing, Existing Sub, or any other party thereto (collectively,
together with the Real Property Leases, referred to herein as the
"COMMITMENTS"), have been provided to Buyers or their respective representatives
before the date hereof Except as otherwise set forth in Schedule 5.11, (i) each
Commitment is valid, in full force and effect and enforceable in accordance with
its terms, (ii) there has not occurred any default or breach by Parent or, as of
the Closing, Existing Sub, or any event which, with the lapse of time, the
giving of notice or the election of any Person, or any combination thereof, will
become a default (including, without limitation, any violation of the usage
terms, royalty provisions or other terms of any Licensing Agreement), nor, to
Parent's knowledge after due inquiry, has there occurred any default by others
or any event which, with the lapse of time, the giving of notice or the election
of Parent or, as of the Closing, Existing Sub, will become a default under any
of the Commitments, and (iii) each Commitment to be assigned to Existing Sub
hereunder is assignable to Existing Sub without the consent of any party thereto
or any necessary consents have been obtained.
5.12 LEGAL PROCEEDINGS. Except as set forth on Schedule 5.12, there is no
claim, prosecution, suit, action, inquiry, arbitration or proceeding pending or,
to the best of Parent's knowledge, after due inquiry, threatened against or
affecting any of the Contributed Assets, Existing Sub or Related to the
Business, involving amounts in the aggregate not greater than $50,000, or which
questions or challenges the validity of this Agreement or any Ancillary Document
or any action to be taken by Parent, Existing Sub or Buyers pursuant to this
Agreement or in connection with the transactions contemplated hereby; nor is
there any judgment, decree, injunction, rule or order of any Authority or
arbitrator outstanding against or affecting the Business or any property or
asset held or maintained by Parent or, as of the Closing Date, Existing Sub and
otherwise Related to the Business.
5.13 NOTICE OF PROCEEDING, VIOLATION, ETC. Except as set forth in Schedule
5.13, no written notice or oral or written communication from any Authority of
any violation of any Law applicable to any Property or asset held or maintained
by Parent and Related to the Business or by Existing Sub has been filed or
communicated to Parent or Existing Sub. Parent has delivered to Buyers correct
and complete copies of all such notices or communications filed or received
prior to the date of this Agreement, and Parent will, prior to Closing, deliver
correct and complete copies of any such notices or communications filed or
received subsequent to the date of this Agreement.
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5.14 INTELLECTUAL PROPERTY.
(a) Schedule 2.2(d) sets forth, with respect to each trademark
included in the Intellectual Property Rights, (i) an identification of such
Intellectual Property Right, and (ii) the names of the jurisdictions covered by
the applicable registration or application. Schedule 5.11 identifies each
Intellectual Property Right licensed to or by Parent by or to any Person, and
identifies the License Agreement under which such Intellectual Property Right is
being licensed to or by Parent. Parent has and, as of the Closing Date,
Existing Sub will have, (1) good and valid title to all of the Intellectual
Property Rights identified in Schedule 2.2(d), free and clear of all
Encumbrances, (2) the right to use, transfer, license or encumber such
Intellectual Property Rights and (3) a valid right to use all Intellectual
Property Rights identified in Schedule 5.11. Neither Parent nor, as of the
Closing, Existing Sub, is obligated to make any payment to any Person for the
use of any Intellectual Property Right, nor is Parent or, as of the Closing,
Existing Sub subject to any restriction related thereto, except pursuant to the
License Agreements specified in Schedule 5.11.
(b) Parent has used reasonable efforts to employ measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
all Intellectual Property Rights (except Intellectual Property Rights whose
value would be unimpaired by public disclosure). Parent has not (other than to
employees of Parent, or consultants or independent contractors pursuant to
confidentiality agreements, or pursuant to License Agreements identified in
Schedule 5.11) disclosed or delivered to any Person, or permitted the disclosure
or delivery to any Person of, (i) the source code, or any portion or aspect of
the source code, of any Intellectual Property Right, or (ii) the object code, or
any portion or aspect of the object code, of any Intellectual Property Right.
(c) All trademarks and other rights included in Intellectual Property
Rights and held by Parent or, as of the Closing, Existing Sub are valid and
subsisting. There are no patents, registered copyrights, service marks or
copyrights which are held by Parent or Existing Sub and which are Related to the
Business. None of the Intellectual Property Rights currently infringes or
conflicts with any Intellectual Property Right owned or used by any other
Person. Neither Parent nor Existing Sub is infringing, misappropriating or
making any unlawful use of, and neither Parent nor Existing Sub has at any time
infringed, misappropriated or made any unlawful use of, any Intellectual
Property Right owned or used by any other Person, nor is Parent aware of any
grounds for any bona fide claim thereof. Neither Parent nor Existing Sub has
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of any Intellectual Property Right owned or used by any other
Person. To the best knowledge of Parent, no other Person is infringing,
misappropriating or making any unlawful use of, and no Intellectual Property
Right owned or used by any other Person infringes or conflicts with, any
Intellectual Property Right. Neither Parent nor Existing Sub has entered into
any agreement to indemnify any other Person against any charge of infringement
of any Intellectual Property Right, other than indemnification provisions
contained in License Agreements as designated in Schedule 5.11.
(d) The Intellectual Property Rights contributed by Parent to Existing
Sub pursuant to Section 2.2(d) and identified in Schedule 2.2(d) constitute all
the Intellectual Property Rights used by Parent and Existing Sub to conduct the
Business in the manner in which the Business is being conducted. Parent has not
and, as of the Closing Date, Existing Sub, will have not licensed
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any of the Intellectual Property Rights to any Person on an exclusive basis or
pursuant to any agreement or arrangement which restricts the ability of Existing
Sub or any other Person to use or license any Intellectual Property Right.
5.15 PERMITS, LICENSES, ETC. Parent and, as of the Closing Date, Existing
Sub, possesses all Permits required by any Law or Authority for the conduct of
the Business as conducted as of the date hereof, all of such Permits are in full
force and effect; and Parent has, and as of the Closing Date, Existing Sub, will
have materially complied with at all times and is in compliance in all material
respects with all Permits. Schedule 5.15 sets forth a complete and accurate
list of all such Permits. Except as otherwise indicated on Schedule 5.15, all
of the Permits to be assigned to Existing Sub hereunder shall be assigned as of
the Closing Date to Existing Sub and neither such assignment nor any of the
transactions contemplated under this Agreement requires the consent of any
Authority or any other Person. No suspension, termination, modification or
cancellation of any Permit is pending, or to the best of Parent's knowledge,
after due inquiry, threatened, and Parent has no reason to believe, after due
inquiry, that any Authority or any other Person intends to cancel, suspend,
modify or terminate any of such Permits or that valid grounds for any
cancellation, suspension, modification or termination currently exist and no
proceeding is pending, or to the best of Parent's knowledge, after due inquiry,
threatened with respect to any alleged failure to hold all Permits required to
conduct the Business. No event has occurred or circumstance exists that may
(with or without notice or lapse of time) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Permit listed or required to be listed in Part 5.15 of the Disclosure
Schedule, or result directly or indirectly in the revocation, withdrawal,
suspension, cancellation or termination of, or any modification to, any such
Permit. Neither Parent nor Existing Sub has received, at any time since January
1, 1997, any notice or other communication (whether oral or written) from any
Authority or any other person or entity regarding any actual, alleged, possible,
or potential violation of or failure to comply with any term or requirement of
any Permit.
5.16 COMPLIANCE WITH LAWS. The Business has been at all times and is being
conducted in compliance with all Laws in all material respects. No
investigation is pending or, to the best of Parent's knowledge, after due
inquiry, threatened by any Authority with respect to any violation of any Law by
Parent or Existing Sub in connection with the Business. No "bulk sales" law is
applicable to the transactions contemplated hereby.
5.17 EXISTING SUB AND THE BUSINESS.
(a) Prior to the Contribution, Existing Sub owned no assets, had no
Subsidiaries and had no liabilities of any kind, character or nature whatsoever,
whether known or unknown, accrued, absolute, contingent determined, determinable
or otherwise and did not engage in any conduct of any business since July 1,
1993. As of the Closing Date, Existing Sub will own only the Contributed Assets
and other than the Assumed Liabilities and the liability pursuant to the Debt
Financing (including liability for Buyer's Expenses), Existing Sub will have no
other liabilities of any kind, character or nature whatsoever, whether known or
unknown, accrued, absolute, contingent, determined, determinable or otherwise.
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(b) Except as disclosed on Schedule 5.17, (i) the Contributed Assets
include all assets and properties which are Related to the Business, and (ii)
the Contributed Assets will, as of the Closing Date, include all of the assets
and properties required to conduct the Business as it is presently being
conducted.
5.18 EMPLOYMENT MATTERS.
(a) Parent and each of its Subsidiaries, including, without
limitation, Existing Sub, (i) are in compliance in all material respects with
all applicable federal, state and local laws, rules and regulations (domestic
and foreign) respecting employment, employment practices, labor, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) have withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) are not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) are not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
for Employees.
(b) No work stoppage or labor strike against Parent or any of its
Subsidiaries, including, without limitation, Existing Sub, by Employees is
pending or threatened or, except as set forth in Schedule 5.18, has been
threatened since January 1, 1990. Except as set forth in Schedule 5.18, neither
Parent nor any of its Subsidiaries, including, without limitation, Existing Sub,
(i) is involved in or threatened with any labor dispute, grievance, or
litigation relating to labor matters involving any Employees, including, without
limitation, violation of any federal, state or local labor, safety or employment
laws (domestic or foreign), charges of unfair labor practices or discrimination
complaints; (ii) has engaged in any unfair labor practices within the meaning of
the National Labor Relations Act or the Railway Labor Act; or (iii) is
presently, nor has been in the past a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no such
agreement or contract is currently being negotiated by Existing Sub, Parent or
any of their Affiliates. No Employees are currently represented by any labor
union for purposes of collective bargaining and no activities the purpose of
which is to achieve such representation of all or some of such Employees are
threatened or ongoing.
5.19 TAX MATTERS.
(a) Except as set forth on Schedule 5.19:
(i) each of Existing Sub, each of its Subsidiaries and any Tax
Affiliate, has timely filed, in accordance with all applicable laws, all Tax
Returns required to be filed by it and paid all Taxes due by it, whether or not
such Taxes are or are required to be shown on any Tax Return;
(ii) there is no action, suit, proceeding, investigation, audit,
claim or assessment pending or, to the knowledge of Existing Sub, any of its
Subsidiaries or Parent, proposed or threatened with respect to Taxes of Existing
Sub, any of its Subsidiaries or any Tax Affiliate;
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(iii) all amounts required to be collected or withheld by
Existing Sub or any of its Subsidiaries with respect to Taxes have been duly
collected or withheld and all such amounts that are required to be remitted to
any Authority have been duly remitted;
(iv) no extension of time within which to file any Tax Return
that relates to Existing Sub, any of its Subsidiaries or any Tax Affiliate has
been requested, which Tax Return has not since been filed;
(v) there are no waivers or extensions of any applicable
statute of limitations for the assessment or collection of Taxes with respect to
any Tax Return of Existing Sub, any of its Subsidiaries or any Tax Affiliate,
which waiver or extension remains in effect;
(vi) there are no tax rulings, requests for rulings, or closing
or other similar agreements known to Parent to which Existing Sub, any of its
Subsidiaries or any Tax Affiliate is a party or is subject which could affect
Existing Sub's liability for Taxes for any period after the Closing Date;
(vii) there are no outstanding subpoenas or requests for
information by any Authority with respect to any Taxes of Existing Sub, any of
its Subsidiaries or any Tax Affiliate;
(viii) to Parent's knowledge after due inquiry, there are no
material proposed reassessments by any Taxing authority of any property owned or
leased by Existing Sub;
(ix) Existing Sub does not nor could it reasonably be expected
to have, any liability in respect of Taxes, under an indemnification agreement
or on a transferee liability theory, of any person or entity (other than
Parent), which indemnification agreement or application of a transferee
liability theory relates to an acquisition, disposition or similar transaction
occurring on or prior to the Closing Date;
(x) no taxing authority in a jurisdiction where Existing Sub,
any of its Subsidiaries or any Tax Affiliate does not file Tax Returns has made
a claim or assertion that Existing Sub, any of its Subsidiaries or any Tax
Affiliate is subject to Tax in such jurisdiction;
(xi) all Tax Returns of Existing Sub and each Tax Affiliate with
respect to taxable periods through the year ended December 31, 1993 have been
examined and closed or are Tax Returns with respect to which the applicable
statue of limitations has expired (taking into account any waivers or extensions
thereof);
(xii) neither Existing Sub nor any Tax Affiliate has filed a
consent under Section 341(f) of the Code or any comparable provision of state,
local or foreign law;
(xiii) Existing Sub has not agreed nor is it required to include
in income any adjustment pursuant to Section 481(a) of the Code (or similar
provisions of state, local or foreign law) by reason of a change in accounting
method or otherwise, and, to the knowledge of Parent or Existing Sub, the IRS
(or other Authority) has not proposed, and is not considering, any such change
in accounting method;
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(xiv) Existing Sub has not disposed of property in a transaction
being accounted for under the installment method pursuant to Section 453 of the
Code;
(xv) no excess loss account (as described in Treasury
Regulation Section 1.1502-19) exists with respect to any of the Subsidiaries;
(xvi) Neither Existing Sub nor any of its Subsidiaries has any
deferred gain arising from an intercompany transaction (as described in Treasury
Regulation Section 1.1502-13);
(xvii) Existing Sub is not a party to any agreement that could
result in the payment of a non-deductible "excess parachute payment" within the
meaning of Section 280G of the Code;
(xviii) complete copies of (A) federal income Tax Returns,
including amended Tax Returns, for Existing Sub, each of its Subsidiaries and
each Tax Affiliate and (B) state and local income Tax and other Tax Returns,
including amended Tax Returns, of Existing Sub, each of its Subsidiaries and
each Tax Affiliate, that have been filed with respect to taxable periods
beginning on or after January 1, 1993 through the date hereof, have been
delivered or made available to the Buyers; and
(xix) None of the Contributed Assets is tax-exempt use property
under Section 168(h) of the Code. None of the Contributed Assets is property
that Existing Sub is required to treat as being owned by any other person
pursuant to the safe harbor lease provisions of former Section 168(f)(8) of the
Code.
(b) All Tax Returns filed by Existing Sub, each of its Subsidiaries
and each Tax Affiliate are true and correct in all material respects.
(c) Each of Existing Sub and each Tax Affiliate has provided to the
Buyers copies of all revenue agent's reports and other written assertions by
Authorities of deficiencies or other liabilities for Taxes of Existing Sub or
such Tax Affiliate with respect to past periods for which the limitations period
has not run and each of such items has been set forth on Schedule 5.19.
(d) Any adjustment of Taxes of Existing Sub, any' of its Subsidiaries
or any Tax Affiliate made by the IRS in any examination which is required to be
reported to the appropriate state, local or foreign taxing authorities has been
so reported, and any additional Taxes due with respect thereto have been paid
except for amounts that Existing Sub, any of its Subsidiaries or any Tax
Affiliate is contesting in good faith, as set forth on Schedule 5.19.
(e) There are no Liens on any of the Contributed Assets that arose in
connection with any failure (or alleged failure) to pay any Tax (except for
Liens for Taxes not yet assessed, due or payable).
(f) No withholding is required in connection with any of the
transactions contemplated hereunder pursuant to Section 1445 of the Code either
because (i) Parent is a U.S. Person as defined in Section 7701(a)(30) of the
Code or (ii) Existing Sub is not a United States Real Property Holding
Corporation as defined in Section 897 of the Code.
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(g) There are no documentary, sales, use, stamp, excise, transfer or
other taxes (collectively, "TRANSFER TAXES") payable in connection with the
transfer of the Contributed Assets, the assumption of the Assumed Liabilities,
the Repurchase and the sale of the Shares, which Transfer Taxes become payable
in connection with the transactions consummated pursuant to this Agreement and
the Ancillary Documents.
5.20 EMPLOYEE BENEFIT PLANS.
(a) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"BENEFIT PLAN" means each plan, program, policy, payroll practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, performance awards, stock or stock-related awards, fringe
benefits or other employee benefits of any kind, whether formal or informal,
funded or unfunded, written or oral and whether or not legally binding,
including, without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA and each "multi-employer plan" within the meaning of
Sections 3(37) or 4001(a)(3) of ERISA.
"COMPANY BENEFIT PLAN" means each Benefit Plan (other than an Employee
Agreement) which is now or previously has been sponsored, maintained,
contributed to, or required to be contributed to, or with respect to which any
withdrawal liability (within the meaning of Section 4201 of ERISA) has been
incurred, by Existing Sub, Parent, any Subsidiary or any ERISA Affiliate for the
benefit of any Employee, or pursuant to which Existing Sub, Parent, any
Subsidiary or any ERISA Affiliate has or may have any liability, contingent or
otherwise.
"DEPARTMENT" means the U.S. Department of Labor.
"EMPLOYEE AGREEMENT" means each management, employment, severance,
consulting, non-compete, confidentiality, or similar agreement or contract
between Existing Sub, Parent or any Subsidiary and any Employee pursuant to
which Existing Sub, Parent or any Subsidiary has or may have any liability
contingent or otherwise.
"ERISA AFFILIATE" means each business or entity which is a member of a
"controlled group of corporations," under "common control" or an "affiliated
service group" with Existing Sub or Parent, as the case may be, within the me of
Sections 414(b), (c) or (m) of the Code, or required to be aggregated with
Existing Sub or Parent, as the case may be, under Section 414(o) of the Code, or
is under "common control" with Existing Sub or Parent, as the case may be,
within the meaning of Section 4001(a)(14) of ERISA.
"MULTI-EMPLOYER PLAN" means each Company Benefit Plan which is a
"multi-employer plan" within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" means each Company Benefit Plan (other than a Multi-
Employer Plan) which is an "employee pension benefit plan" within the meaning of
Section 3(1) of ERISA.
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"WELFARE PLAN" means each Company Benefit Plan which is an "employee
welfare benefit plan" within the meaning of Section 3(1) of ERISA.
(b) Schedule 5.20 contains a true and complete list of each Company
Benefit Plan and each Employee Agreement. Neither Parent, any of its
Subsidiaries, including, without limitation, Existing Sub, nor any ERISA
Affiliate has any plan or commitment, whether legally binding or not, to
establish any new Company Benefit Plan, to enter into any Employee Agreement or
to modify or to terminate any Company Benefit Plan or Employee Agreement (except
to the extent required by law or to conform any such Company Benefit Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Buyers, or as required by this Agreement), nor has any
intention to do any of the foregoing been communicated to Employees.
(c) Existing Sub or Parent has provided, or has caused to be provided,
to Buyers (i) current, accurate and complete copies of all documents embodying
or relating to each Company Benefit Plan and each Employee Agreement, including
all amendments thereto, written interpretations thereof and trust or funding
agreements with respect thereto, (ii) the two (2) most recent annual actuarial
valuations, if any, prepared for each Company Benefit Plan; (iii) the two (2)
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA in connection with each Company Benefit Plan or related
trust; (iv) a statement of alternative form of compliance pursuant to Department
of Labor Regulation (S)2520.104-23, if any, filed for each Company Benefit Plan
which is an "employee pension benefit plan" as defined in Section 3(2) of ERISA
for a select group of management or highly compensated employees; (v) the most
recent determination letter received from the IRS, if any, for each Company
Benefit Plan and related trust which is intended to satisfy the requirements of
Section 401(a) of the Code; (vi) if the Company Benefit Plan is funded, the most
recent annual and periodic accounting of Company Benefit Plan assets; and (vii)
the most recent summary plan description together with the most recent summary
of material modifications, if any, required under ERISA with respect to each
Company Benefit Plan.
(d) With respect to each Company Benefit Plan (i) Existing Sub,
Parent, each Subsidiary and each ERISA Affiliate have performed all material
obligations required to be performed by them under each Company Benefit Plan and
Employee Agreement and neither Existing Sub, Parent, any Subsidiary nor any
ERISA Affiliate is in default under or in violation of, any Company Benefit
Plan, (ii) each Company Benefit Plan has been established and maintained in
accordance with its terms and in substantial compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA and the Code, including without limiting the foregoing, the timely filing
of all required reports, documents and notices, where applicable, with the IRS
and the Department; (iii) each Company Benefit Plan intended to qualify under
Section 401 of the Code is, and since its inception has been, so qualified and a
determination letter has been issued by the IRS to the effect that each such
Company Benefit Plan is so qualified and that each trust forming a part of any
such Company Benefit Plan is exempt from tax pursuant to Section 501(a) of the
Code and no circumstances exist which could adversely affect this qualification
or exemption; (iv) no "prohibited transaction," within the meaning of Section
4975 of the Code or Section 406 of ERISA, has occurred with respect to any
Company Benefit Plan; (v) no action or failure to act and no transaction or
holding of any asset by, or with respect to, any Company Benefit Plan has or may
subject Existing Sub, Parent, any Subsidiary or any ERISA Affiliate or any
fiduciary to any tax,
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penalty or other liability, whether by way of indemnity or otherwise, (vi) there
are no actions, proceedings, arbitrations, suits or claims pending, or to the
knowledge of Existing Sub, Parent, any Subsidiary or any ERISA Affiliate,
threatened or anticipated (other than routine claims for benefits) against
Existing Sub, Parent, any Subsidiary or any ERISA Affiliate or any
administrator, trustee or other fiduciary of any Company Benefit Plan with
respect to any Company Benefit Plan or Employee Agreement, or against any
Company Benefit Plan or against the assets of any Company Benefit Plan; (vii) no
event or transaction has occurred with respect to any Company Benefit Plan that
would result in the imposition of any tax under Chapter 43 of Subtitle D of the
Code; (viii) each Company Benefit Plan can be amended, terminated or otherwise
discontinued without liability to Existing Sub, Parent, any Subsidiary or any
ERISA Affiliate; (ix) Existing Sub, Parent, each Subsidiary and each ERISA
Affiliate have made all payments to or in respect of all Company Benefit Plans
required to have been made prior to the date hereof, and will make a pro-rata
payment for the period ending as of the Closing Date, in each case which are
required by each Company Benefit Plan, each related trust, each collective
bargaining agreement or by law to be made to, or with respect to each Company
Benefit Plan (including all insurance premiums or intercompany charges with
respect to each Company Benefit Plan); (x) no Company Benefit Plan is under
audit or investigation by the IRS, the Department or the PBGC, and to the
knowledge of Existing Sub, Parent, any Subsidiary or any ERISA Affiliate no such
audit or investigation is pending or threatened; and (xi) no liability under any
Company Benefit Plan has been funded nor has any such obligation been satisfied
with the purchase of a contract from an insurance company as to which Existing
Sub, Parent or any Subsidiary has received notice that such insurance company is
insolvent or is in rehabilitation or any similar proceeding.
(e) Neither Existing Sub, Parent, any Subsidiary, nor any ERISA
Affiliate presently sponsors, maintains, contributes to, nor is Existing Sub,
Parent, any Subsidiary or any ERISA Affiliate required to contribute to, nor has
Existing Sub, Parent, any Subsidiary or any ERISA Affiliate ever sponsored,
maintained, contributed to, or been required to contribute to, a Pension Plan
which is subject to Title IV of ERISA.
(f) At no time since September 25, 1980 has Existing Sub, Parent, any
Subsidiary or any ERISA Affiliate contributed to or been required to contribute
to, or incurred any withdrawal liability (within the meaning of Section 4201 of
ERISA) to any Multi-Employer Plan.
(g) Neither Existing Sub, Parent, any Subsidiary nor any ERISA
Affiliate (i) maintains or contributes to any Company Benefit Plan which
provides, or has any liability to provide, life insurance, medical, severance or
other employee welfare benefits to any Employee upon his retirement or
termination of employment, except as may be required by Section 4980B of the
Code; or (ii) has ever represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical, severance
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by Section 4980B of the Code.
(h) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Company
Benefit Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
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indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee, or (ii) result in the triggering or
imposition of any restrictions or limitations on the right of Existing Sub,
Parent or Buyers to amend or terminate any Company Benefit Plan. No payment or
benefit which will or may be made by Existing Sub, Parent, any Subsidiary,
Buyers or any of their respective affiliates with respect to any Employee will
be characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
(i) No Company Benefit Plan or Employee Agreement is funded by a trust
described in Section 501(c)(9) of the Code.
(j) With respect to each Welfare Plan, all claims incurred (including
claims incurred but not reported) by Employees thereunder for which Existing Sub
or Parent is, or will become, liable are (i) insured pursuant to a contract of
insurance whereby the insurance company bears any risk of loss with respect to
such claims; (ii) covered under a contract with a health maintenance
organization (an "HMO") pursuant to which the HMO bears the liability for such
claims, or (iii) reflected as a liability or accrued for on the Closing Balance
Sheet and each such claim will be separately identified under Working Capital
Liabilities category.
(k) Neither Existing Sub nor Parent has any liability, contingent or
otherwise, to, or with respect to any Benefit Plan (other than the Company
Benefit Plans and Employee Agreements which are listed on Schedule 5.20), which
is now or previously has been sponsored, maintained, contributed to, or required
to be contributed to, by Existing Sub, Parent, any Subsidiary or any ERISA
Affiliate.
5.21 ACCOUNTS RECEIVABLE. The accounts and notes receivable reflected on
the Pro-Forma Year-End Balance Sheet as of December 31, 1997 and those accounts
and notes receivable of the Business acquired or created after the date of the
Pro-Forma Year-End Balance Sheet as of December 31, 1997 through and including
the Closing Date, (a) were, are and shall be bona fide accounts and notes
receivable created in the ordinary and usual course of business in connection
with bona fide transactions and consistent with past practice, including past
practice with respect to the provision of extended payment terms, (b) have been
collected in full or are reasonably expected to be collected when due at their
face amounts, except to the extent of the allowance for doubtful accounts
reflected in the financial statements which is reasonable and consistent with
past practice. Schedule 5.21 sets forth aging information on all accounts
receivable.
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5.22 ENVIRONMENTAL MATTERS.
(a) For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"ENVIRONMENTAL LAWS" means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act,, 42 U.S.C. (S)(S) 9601,
et seq. the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. (S)(S) 11001, et seq.; the Resource Conservation and Recovery Act, 42
U.S.C., (S)(S) 6901, et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)(S)
2601, et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
(S)(S) 136, et seq.; the Clean Air Act 42 U.S.C. (S)(S) 7401, et seq.; the Clean
Water Act (Federal Water Pollution Control Act), 33 U.S.C. (S)(S) 1251, et seq.;
the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f, et seq.; the Occupational
Safety and Health Act, 29 U.S.C. (S)(S) 651, et seq.; the Federal Food, Drug,
and Cosmetic Act, 21 U.S.C. (S)(S) 301, et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. (S)(S) 5101, et seq., as in effect as of the
Closing Date, all rules and regulations promulgated pursuant to any of the above
statutes, and any other applicable foreign, federal, state or local law,
statute, ordinance, rule or regulation governing Environmental Matters, as in
effect as of the Closing Date, including any common law cause of action, all
written indemnity agreements and other written contractual obligations, and all
applicable judicial and administrative decisions, orders, and decrees relating
to Environmental Matters, each as in effect as of the Closing Date.
"ENVIRONMENTAL MATTER" means any matter relating to pollution,
contamination, protection of the environment, human health or safety, and health
or safety of employees, and any matter relating to emissions, discharges,
releases or threatened releases, of Hazardous Substances into the air (indoor
and outdoor), surface water, groundwater, soil, land surface or subsurface,
buildings, facilities, real or personal property or fixtures or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
"HAZARDOUS SUBSTANCES" means any pollutants, contaminants, toxic or
hazardous substances, materials, wastes, constituents, compounds or chemicals
(including, without limitation, petroleum or any by-products or fractions
thereof, any form of natural gas, lead, asbestos and asbestos-containing
materials, polychlorinated biphenyls ("PCBs") and PCB-containing equipment,
radon and other radioactive elements, and urea formaldehyde foam insulation)
that are regulated by any Environmental Laws.
(b) Except as set forth in Schedule 5.22: (i) Parent and Existing Sub
are, and in the last five years have been, in compliance in all material
respects with all applicable Environmental Laws, including, without limitation,
all permits, licenses, authorizations, registrations and other governmental
consents required by applicable Environmental Laws in connection with the
operation of the Business ("ENVIRONMENTAL PERMITS"); (ii) neither Parent nor,
after the Closing, Existing Sub, has received any written notice of any claims,
civil, criminal or administrative actions, suits, hearings, investigations or
proceedings which are pending or, to the knowledge of Parent, threatened against
the Parent or, after the Closing, Existing Sub, in each case that relate to any
Environmental Matters) (iii) there are no present or, to the knowledge of
Parent, former underground or aboveground storage tanks or incinerators at, on,
under or within any of the real property currently
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owned, operated, or controlled by Parent or Existing Sub; (iv) neither Parent
nor Existing Sub has received any written notice or other written communication
that it is or may be a potentially responsible party or otherwise liable under
Environmental Law in connection with any location used for the disposal of any
Hazardous Substances, and (v) during the period of Parent's and Existing Sub's
ownership, lease or operation, or, to the knowledge of Parent, at any other
time, there has been no release, discharge or disposal of any Hazardous
Substances at, on, under, migrating from or, to the knowledge of Parent,
migrating to any real property currently, or to the knowledge of Parent,
formerly owned, leased or operated by Parent or Existing Sub (other than in
accordance with Environmental Laws); (vi) Parent or, as of the Closing, Existing
Sub holds all Environmental Permits necessary for the conduct of the Business;
(vii) all Environmental Permits held by Parent and Existing Sub (currently and
after the Closing) are in full force and effect; and (viii) Parent has provided
Buyers with copies of all environmental studies, reports, monitoring data,
assessments, audits and information in Parents custody or under its control.
5.23 INVENTORY. All inventories Related to the Business, including,
without limitation, raw materials, packaging, finished goods, work in process,
samples and trade promotional materials wherever located (collectively, the
"INVENTORY") are marketable or useable in the ordinary course of the Business
and are not misbranded, contaminated or defective except to the extent of any
provision for obsolescence in the Pro-Forma Financial Statements or Interim
Financial Statements. The Inventory has been produced according to
manufacturing and quality control standards and specifications as of the date
hereof.
5.24 BOOKS AND RECORDS. All the Books and Records and accounts of Parent
and its Subsidiaries are in all material respects true and complete, are
maintained in accordance with good business practice and all laws applicable to
its business, and accurately present and reflect in all material respects all of
the transactions therein described. Parent has previously delivered to Buyers
true and complete texts of all of the minutes of Existing Sub and all other
minutes Relating to the Business relating to meetings of the stockholders, board
of directors and committees of the board of directors of Parent and each
Subsidiary for the past five years.
5.25 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule 5.25,
none of Parent's shareholders, directors, officers, Employees, Affiliates nor
any of their respective relatives or Affiliates is involved in any business
arrangement or relationship with Parent (whether written or oral), and none of
Parent's shareholders, directors, officers, Employee, Affiliates nor any of
their respective relatives or Affiliates owns any property or right, tangible or
intangible, which is used in connection with the Business.
5.26 BROKERS. Neither Parent nor any of its Subsidiaries has engaged any
finder, broker or investment adviser, and has no obligation to pay any fees, in
connection with the transactions contemplated hereby, other than Growth Capital
Partners and Penn Hudson Financial Group, Inc., whose fees and expenses shall be
borne by Parent.
5.27 MAJOR CUSTOMERS. Since December 31, 1997, Parent has not received
oral or written notice from any customer of the Business which accounted for
more than five percent (5%) of the aggregate gross sales for the year ended
December 31, 1997, that such customer has terminated or
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reduced, expects to terminate or reduce or is considering terminating or
reducing any of such business.
5.28 TRADE DEALS AND PROMOTIONS. Other than as accrued for in the Working
Capital liabilities or as set forth in Schedule 5.28, Parent has not, with
respect to the Business, offered or become bound by and/or is not a party to any
trade deals, trade promotions or programs, trade refunds or cooperative programs
or any consumer promotions and programs (including, without limitation, coupon,
premiums and rebate programs), with respect to the period after December 31,
1997, whether oral or written. Since December 31, 1997, Parent has incurred
such promotions liabilities only in the ordinary course of business.
5.29 DISCLOSURE. Neither this Agreement nor any Ancillary Document nor any
certificate, instrument or written statement furnished or made to Buyers by or
on behalf of Parent pursuant to such documents contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.
5.30 SECURITIES LAW MATTERS. Parent is acquiring shares of common stock in
Existing Sub in connection with the Contribution for its own account and not
with a view to its distribution within the meaning of Section 2(11) of the
Securities Act of 1933, as amended.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYERS
Buyers hereby represents and warrants to Parent as follows:
6.1 ORGANIZATION AND STANDING. Buyers are duly organized, validly
existing and in good standing under the laws of their respective jurisdictions
of incorporation or establishment.
6.2 AUTHORIZATION OF AGREEMENT AND ANCILLARY DOCUMENTS.
(a) Each Buyer has all requisite corporate or equivalent power and
authority to execute, deliver and perform this Agreement and all other Ancillary
Documents being delivered at or prior to the Closing to which such Buyer is a
party and to consummate the transactions contemplated hereby and thereby.
(b) Each Buyer has taken all action required by Law and necessary
action to authorize the execution, delivery and performance of this Agreement
and the Ancillary Documents to which such Buyer is a party and the consummation
of the transactions contemplated hereby and thereby. This Agreement and the
Ancillary Documents to which a Buyer is a party have been duly and validly
authorized, executed and delivered by such Buyer and constitute the valid and
binding obligation of such Buyer enforceable against the Buyer in accordance
with their respective terms.
6.3 GOVERNMENTAL CONSENTS. Except as may be required by the HSR Act, no
consent, approval, order or authorization or approval of, exemption or waiver by
or registration, declaration or filing with any Authority is required to be made
or obtained by any Buyer in connection with the
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execution and delivery of this Agreement or any Ancillary Document or the
consummation of the transactions contemplated hereby or thereby.
6.4 NO CONFLICT. The execution and delivery of this Agreement and the
Ancillary Documents to which each Buyer is a party by such Buyers and the
consummation of the transactions contemplated hereby and thereby will not (with
or without the giving of notice or the lapse of time or both) violate any
provision of Laws applicable to such Buyer or any provision of its limited
liability company agreement.
6.5 ACQUISITION OF SHARES FOR INVESTMENT. The Shares purchased by Buyers
pursuant to this Agreement are being acquired for investment only and not with a
view to any public distribution thereof.
6.6 BROKERS. Parent has not incurred and will not incur, as a result of
any action taken by any Buyer, any liability for brokers, finders or other
similar fee in connection with the transactions contemplated by this Agreement.
ARTICLE 7
PRE-CLOSING COVENANTS
7.1 REASONABLE EFFORTS; COOPERATION BY PARTIES.
(a) In addition to all other obligations prescribed in this Agreement
and subject to the terms and conditions hereof, promptly after the execution
hereof, each of the parties hereto shall cooperate with each other and use all
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to ensure that the
conditions set forth in Articles IX and X are satisfied and to consummate and
make effective the transactions contemplated by this Agreement, including
obtaining all consents, approvals, transfers, permissions, waivers, orders,
licenses, registrations or authorizations of all courts, Authorities and other
third parties which are necessary or advisable to consummate and make effective
the transactions contemplated by this Agreement and the Ancillary Documents, to
transfer the Business and the Contributed Assets to Existing Sub and to enable
Existing Sub to enjoy after the Closing all rights and benefits under the
Contributed Assets. Each of Parent, Existing Sub, and Buyers shall provide
information requested by such other party pertaining to it and its Subsidiaries
and Affiliates which is reasonably necessary to enable such other party to take
such actions and file in a timely manner all reports and documents required to
be so filed by or under applicable Law.
(b) If any court, domestic or foreign, issues or otherwise promulgates
any injunction, decree or similar order prior to the Closing which prohibits the
consummation of the transactions contemplated hereby, the parties hereto will
use all reasonable efforts to have such injunction dissolved or otherwise
eliminated as promptly as possible and, prior to or after the Closing, to pursue
any underlying litigation diligently and in good faith.
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7.2 CONDUCT OF BUSINESS. Except as set forth in Schedule 7.2,
(a) During the period from the date of this Agreement until the
Closing Date, except as Buyers may otherwise consent to in writing or as
otherwise specifically contemplated by this Agreement or any Ancillary Document,
Parent will:
(i) operate the Business only in the usual regular and ordinary
course, in accordance with past practice;
(ii) use all reasonable efforts to keep available the services of
its current employees, agents and consultants involved in the Business;
(iii) maintain all the Contributed Assets to enable them to be
operated after the Closing in the manner in which they are currently operated
(ordinary wear and tear excepted);
(iv) maintain insurance in full force and effect with respect to the
Business with responsible companies, comparable in amount, scope and coverage to
that in effect on the date of this Agreement;
(v) use all reasonable efforts to preserve its favorable business
relationships with the suppliers, licensors, licensees, customers, brokers and
distributors and others having business dealings involving the Business, and to
preserve the ongoing operations of the Business;
(vi) preserve and protect its ownership, license or other rights or
interest in all Intellectual Property, including all rights to Intellectual
Property set forth on Schedule 2.2(d) and rights under all agreements set forth
on Schedule 5.11;
(vii) maintain its Books and Records in the usual, regular and
ordinary manner, on a basis consistent with prior years;
(viii) perform and comply with its obligations under the Assigned
Contracts, Real Property Leases, Personalty Leases and the Permits listed on the
Schedules.
(b) During the period from the date of this Agreement until the
Closing Date, except as set forth on Schedule 7.2(b) or as Buyers may otherwise
consent to in writing (provided that such writing need not be requested or
delivered in accordance with the notice procedures set forth in Section 13.7) or
as otherwise specifically contemplated by this Agreement, Parent will not,
Existing Sub will not, and Parent will cause Existing Sub to not, with respect
to the Business:
(i) other than in the ordinary course of the Business or as
otherwise contemplated by the Budget acquire, by purchase or otherwise, any
assets, except where already required by contract or for an aggregate
consideration not exceeding $25,000;
(ii) vary or amend the terms of any Assumed Liability;
(iii) subject any of the Contributed Assets to any
Encumbrance, other than a Permitted Encumbrance;
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(iv) sell, lease, transfer, assign or otherwise dispose of
any of the Contributed Assets, provided that Parent may collect accounts
receivable in the ordinary course of business;
(v) enter into, modify, terminate, amend or grant any waiver
in respect of any Assigned Contract, Real Property Lease, Personalty Lease or
Permit listed on the Schedules;
(vi) grant to any salaried Employee any increase in
compensation in excess of 5% in any form or grant any general "across-the-board"
increase in wages for hourly Employees or enter into, vary the terms of, or
terminate any employment agreement, independent contractor and/or consulting
agreement involving annual compensation in excess of $50,000, or hire or engage
any employee, independent contractor or consultant whose annual compensation
exceeds $50,000 or establish, amend or terminate any "employee benefit plans"
(as defined in Section 3(3) of ERISA), other employment practices, policies,
agreement or understandings with respect to any Employee;
(vii) transfer, grant, amend, knowingly terminate or fail to
prosecute or protect any of its rights under any of the Intellectual Property
Rights;
(viii) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of Existing
Sub's capital stock, except as contemplated hereby;
(ix) enter any transaction, take any action, or by inaction
permit any event to occur, that would result in any of die representations and
warranties of Parent contained herein or in any Ancillary Document not being
true and correct , immediately after the occurrence of such transaction, action
or event or on the Closing Date;
(x) enter into any compromise or settlement of any
litigation, proceeding or governmental investigation Related to the Business, or
related to or affecting, indirectly or directly, the Contributed Assets or the
Assumed Liabilities;
(xi) notice, convene or hold any meeting of their respective
shareholders;
(xii) authorize the sale, issuance, grant or encumbrance of
shares of voting stock, or any option, call, warrant or right to acquire voting
stock to any person or persons except, in the case of Parent, in connection with
the due exercise of options granted in the ordinary course of business
consistent with past practice, and in no event to any person or persons (other
than Lawrence Field) who would hold securities as a result of such issuance in
excess of 19.9% of the outstanding shares of Parent's voting capital stock, or
who would have the right to purchase as a result of such issuance securities
such that such Person's total holdings upon purchase or exercise would be in
excess of 19.9% of the outstanding shares of Parent's voting capital stock;
(xiii) amend or permit the adoption of any amendment to its
certificate of incorporation or bylaws or other charter or organizational
documents, or effect or become a party to any merger, consolidation, share
exchange, business combination, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
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(xiv) form any Subsidiary of Existing Sub or permit Existing
Sub to acquire any equity interest or other interest in any other entity;
(xv) make any material tax election;
(xvi) agree or otherwise commit to take any of the actions
set forth in the foregoing subparagraphs (i) through (xv).
7.3 REQUIRED NOTICES. At all times prior to the Closing Date, Parent
shall promptly give written notice to Buyers of, to the extent Parent has actual
knowledge of such events, (i) any fact or circumstances or the occurrence of any
event or the failure of any event to occur, which will or may result in, (x) an
adverse effect on Parent's or Existing Sub's ability to consummate the
transactions contemplated hereby or by the Ancillary Documents or to satisfy its
obligations hereunder, or (y) a breach of any representation or warranty made by
Parent in this Agreement or in any Ancillary Document, (ii) any failure by
Parent or Existing Sub to comply with any covenant, condition or agreement
contained in this Agreement, (iii) any complaints, investigations or hearings
(or communications indicating that the same may be contemplated) of any
Authority with respect to this Agreement, the Business, the Contributed Assets
or the transactions contemplated hereby or by the Ancillary Documents, (iv) the
institution or the threat of institution of any litigation or similar action
with respect to this Agreement the Business, the Contributed Assets or the
consummation of the transactions contemplated hereby and (v) the occurrence of
any event which will or may result in the failure to satisfy any condition set
forth in Article IX or X. Should any such fact or condition require any change
to the Schedules attached hereto, Parent shall promptly deliver to Buyers a
supplement to such Schedules specifying such change. During the period from the
date of this Agreement to the Closing Date, Parent will cause one or more of its
representatives to confer on a regular basis with representatives of Buyers to
report on the general status of the ongoing operations of the Business. No
notification given to Buyers pursuant to this Section 7.3 shall limit or
otherwise affect any of the representations, warranties, covenants or
obligations of Parent or Existing Sub contained in this Agreement.
7.4 ACCESS AND CONFIDENTIALITY.
(a) Subject to paragraph (b) below, during the period commencing on
the date hereof and ending on the Closing Date, (i) Parent shall provide, or
cause to be provided to, Buyers and their respective representatives and Buyers'
or Existing Sub's sources of financing and their respective representatives (A)
such financial and operating data and other information as Buyers, the funding
sources, or their respective representatives may from time to time reasonably
request with respect to the Business, the Contributed Assets and the
transactions contemplated by this Agreement and (B) full access during normal
business hours to the assets, properties, offices, and other facilities,
Contributed Assets and Books and Records of Existing Sub and Parent, as Buyers
or the funding sources may from time to time reasonably request; and (ii)
Buyers, the funding sources, and their respective representatives shall be
entitled to consult with the representatives, officers, Employees and
accountants of Parent and Existing Sub with respect to the Business. Parent
agrees that no investigation by Buyers, the funding sources or their respective
representatives shall affect or limit the scope of the representations and
warranties of Parent or Existing Sub contained herein or in any
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Ancillary Document delivered pursuant hereto or limit liability for breach of
any such representation or warranty.
(b) Unless otherwise required by law as advised by counsel to a
party hereto, parties hereto shall use all reasonable efforts to keep
confidential the fact that Buyers and Parent are having discussions with respect
to the transactions contemplated hereby and any terms of such discussion. The
parties hereto may disclose such information to their respective representatives
and, in the case of Buyers, their sources of financing, and the parties hereto
shall use all reasonable efforts to keep such information confidential. If any
party determines that any such disclosure is required by law, the parties hereto
shall make good faith efforts to reach an agreement on the content and timing of
any such disclosure. Failing such agreement, the party required by law to
disclose may make such disclosures only to the extent as is so required .
7.5 NO SHOP.
(a) During the period from the date of this Agreement until the
earliest of (i) the termination of this Agreement and (ii) the Closing Date,
neither Parent nor Existing Sub shall, directly or indirectly, or authorize or
permit any of their respective Affiliates or representatives to, (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
Acquisition Proposal or take any action that could reasonably be expected to
lead to an Acquisition Proposal, (ii) furnish any information regarding the
Business, Existing Sub, the Contributed Asset or the Assumed Liabilities to any
Person in connection with or in response to an Acquisition Proposal, (iii)
engage in discussions or negotiations with any Person with respect to any
Acquisition Proposal, (iv) approve or endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract or agreement contemplating or otherwise relating to any Acquisition
Transaction, provided, however, that (A) nothing contained in this Agreement
shall prevent Parent's Board of Directors from disclosing to Parent's
shareholders a position with respect to a tender offer pursuant to Rules 14d-9
and 14e-2 promulgated under the Securities Exchange Act of 1934, as amended, and
(B) prior to the adoption and approval of this Agreement, the Ancillary
Documents and the transactions contemplated herein and therein by Parent's
shareholders, Parent shall not be prohibited by this Section 7.5 from (x)
providing nonpublic information regarding the Business, Existing Sub, the
Contributed Assets and the Assumed Liabilities to any Person in response to an
Acquisition Proposal that is submitted by such Person (and not withdrawn), or
(y) entering into discussions with any Person in response to a Superior Offer
that is submitted by such Person (and not withdrawn) if, in either such case:
(1) neither Parent, Existing Sub nor any of their Affiliates or representatives
shall have violated any of the restrictions set forth in Section 7.5(a), (2)
Parent's Board of Directors believes in good faith, based upon the advice of its
outside legal counsel, that such action is required in order for Parent's Board
of Directors to comply with its fiduciary obligations under applicable law, and
(3) prior to furnishing any such nonpublic information to, or entering into
discussions with, such Person, Parent gives Buyers written notice of the
identity of such Person and of Parent's intention to furnish nonpublic
information to, or enter into discussions with, such Person, and Parent receives
from such Person an executed confidentiality agreement reasonably satisfactory
to Buyers. Without limiting the generality of the foregoing, Parent acknowledges
and agrees that any violation of any of the restrictions set forth in the
preceding sentence by Existing Sub, any Affiliate or representative of Parent or
Existing Sub, whether or not such Affiliate or
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representative purports to act on behalf of Parent or Existing Sub, shall be
deemed to constitute a breach of this Section 7.5 by Parent.
(b) Parent shall promptly advise Buyers orally and in writing of
any Acquisition Proposal (including the identity of the Person making such
Acquisition Proposal and the terms thereof) that is made or submitted by any
Person after the date of this Agreement and prior to the Closing or termination
of this Agreement, whichever is earlier. Parent shall keep Buyers fully informed
with respect to the status of any such Acquisition Proposal and any modification
thereto.
(c) Parent and Existing Sub shall immediately cease and cause to be
terminated any existing discussions with any Person that relate to any
Acquisition Proposal.
7.6 FUNDING. Buyers and Parent shall use all reasonable efforts to cause
Existing Sub to, and Existing Sub shall, take or cause to be taken, all actions,
and to do, or cause to be done all things necessary or advisable, including the
execution of any necessary documents, to obtain the Debt Financing.
7.7 SHAREHOLDER APPROVAL. Parent agrees to take in accordance with
applicable law and its respective articles or certificate of incorporation and
by-laws all action necessary to convene a meeting of its shareholders to
consider and vote upon the transactions as contemplated by, this Agreement
including, without limitation, the Contribution and sale of the Shares and any
other matter required to be approved by Parent's shareholders for consummation
of the transactions contemplated hereunder (including any adjournment or
postponement, the "PARENT SHAREHOLDERS' MEETING"), as promptly as practicable.
Nothing in this Section 7.7 shall prevent Parent's Board of Directors from
withdrawing, amending or modifying its recommendation in favor of this
Agreement, the Ancillary Documents and the transactions contemplated herein and
therein at any time prior to approval of such documents and transactions at the
Parent's Shareholders' Meeting if (i) a Superior Offer is made to Parent and is
not withdrawn, (ii) neither Parent, Existing Sub nor any of their respective
Affiliates and representatives shall have violated any of the restrictions set
forth in Section 7.5, and (iii) Parent's Board of Directors concludes in good
faith, based upon the advice of its outside counsel, that, in light of such
Superior Offer, the withdrawal, amendment or modification or such recommendation
is required in order for Parent's Board of Directors to comply with its
fiduciary obligations under applicable law. Nothing contained in this Section
7.7 shall limited Parent's obligation to call, give notice of, convene and hold
the Parent Shareholders' Meeting (regardless of whether the unanimous
recommendation of Parent's Board of Directors shall have been withdrawn, amended
or modified).
7.8 ASSETS FREE OF ENCUMBRANCE. Immediately prior to, or simultaneously
with, the Closing, Parent shall pay off all debts pursuant to any loan
agreements that grant an Encumbrance on any of the Contributed Assets to any
Person, including, without limitation, (a) the Loan Agreement, as amended, dated
April 11, 1995, 1998, by and between Parent, Silverado Marketing Services, Inc.,
Texas B&B, Inc., Lawrence D. Field and Cynthia Field, and Liberty Bank and Trust
Company of Tulsa, National Association and (b) the Promissory Note dated April
29, 1997, payable by Parent to Bank of Oklahoma, N.A.
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7.9 EMPLOYEES. Buyers shall cause Existing Sub to make offers of
employment to substantially all of the employees of the Business as of the
Closing Date; provided that nothing herein shall require Existing Sub to
continue to employ any employee at any time after the Closing Date.
7.10 REQUIRED APPROVALS AND CONSENTS. As promptly as practicable after the
date of this Agreement, the parties hereto shall make all filings required by
Law to be made by them in order to consummate the transactions provided for
herein and in the Ancillary Documents. The parties hereto shall fully cooperate
with each other with respect to all such filings (including taking all actions
requested by Buyers to cause early termination of any applicable waiting period
under the HSR Act). Parent and Existing Sub shall use their respective best
efforts in obtaining all consents identified in Schedule 5.11. Parent and Buyers
agree to cooperate and use their best efforts to make all filings which are or
may become required under the HSR Act. Parent and Buyers will furnish each other
such necessary information and reasonable assistance as the other may reasonably
request in connection with its preparation of necessary filings or submissions
to any United States or foreign governmental agency or body of competent
jurisdiction.
7.11 LOCATION OF CONTRIBUTED ASSETS. Except as set forth on Schedule 7.11,
Parent shall ensure that all Contributed Assets are, to the extent not located
to Parent's Tulsa facilities, moved to such facilities prior to the Closing
Date.
ARTICLE 8
POST-CLOSING AGREEMENTS
Parent hereby covenants and agrees with Buyers and Existing Sub as
follows:
8.1 FURTHER ASSURANCES. At any time and from time to time after the
Closing, the parties hereto agree to cooperate with each other, to execute and
deliver such other documents, Consents, instruments of transfer or assignment or
assumption, files, books and records and do all such further acts and things as
may be necessary or desirable (a) to sell, transfer, assign, deliver and convey
to Existing Sub the Contributed Assets free and clear of all Encumbrances other
than Permitted Encumbrances, (b) for Existing Sub to assume the Assumed
Liabilities, or (c) to otherwise carry out the intent of the parties hereunder
and pursuant to the Ancillary Documents. If, at any time or from time to time
after the Closing, Buyers shall identify an asset, property or right Related to
the Business (other than an Excluded Asset) owned by Parent or, any Affiliate of
Parent, as of the date hereof or hereafter acquired prior to the Closing, but
not transferred, assigned, delivered or contributed to Existing Sub pursuant to
Section 2.2 or Section 2.5, the parties agree to cooperate with each other to
cause such asset, property or right to be promptly transferred, assigned,
delivered or contributed to Existing Sub (and such associated liabilities, if
any, as are mutually agreed to be assumed by Existing Sub).
8.2 RIGHTS OF ENFORCEMENT AND SETTLEMENT. Subject to Article XII, from and
after the Closing, Existing Sub shall have complete control over the payment,
settlement or other disposition of any dispute involving the Assumed Liabilities
and the right to commence, conduct and control all negotiations and proceedings
with respect thereto. Parent shall notify Existing Sub promptly of
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any claim made with respect to any Assumed Liabilities or Contributed Assets and
shall not, without Existing Sub's prior written consent, voluntarily pay, settle
or offer to settle, or consent to any compromise or admit liability with respect
to, any Assumed Liabilities or Contributed Assets. Parent shall cooperate with
Existing Sub and Buyers in any reasonable manner requested by Existing Sub
and/or Buyers in connection with any negotiations or proceedings involving any
Assumed Liabilities or Contributed Assets and shall promptly provide to Buyers
any information, records or other information reasonably requested in connection
therewith.
8.3 MAIL, PAYMENTS.
(a) Parent hereby authorizes Existing Sub from and after the
Closing to receive and open all mail and other communications relating to the
Business, and to act with respect to such communications in such manner as
Existing Sub may elect to the extent that such communications relate to the
rights and obligations of Existing Sub with respect to the Contributed Assets or
the Assumed Liabilities. If any communication does not relate exclusively to the
rights and obligations of Existing Sub with respect to the Contributed Assets or
the Assumed Liabilities, Existing Sub shall forward the original or a copy of
such communication promptly to Parent. After the Closing, Existing Sub shall
have the right and authority to endorse, without recourse, the name of Parent on
any check or any other instrument of payment received by Existing Sub on account
of any of the Contributed Assets transferred by Parent pursuant to this
Agreement, and Parent shall deliver to Existing Sub at the Closing letters of
instruction sufficient to permit Existing Sub to deposit such checks or other
instruments of payment in bank accounts in the name of Existing Sub.
(b) Parent shall promptly deliver to Existing Sub the original or a
copy of any mail or other communication received by it after the Closing
pertaining to the Business and shall deliver to Existing Sub any moneys, checks
or other instruments of payment (net of returned checks and similar items) to
which Existing Sub is entitled.
8.4 CERTAIN TAX MATTERS.
(a) Buyers, Parent, and Existing Sub agree that each shall take the
position in all Tax Returns and in any other relevant documents that the
Contribution will be treated as a taxable sale and not as a transaction
qualifying under Section 351 of the Code for federal, state and local income Tax
purposes.
(b) The sum of (i) the Repurchase Price, (ii) the Purchase Price
divided by 0.9, (iii) Assumed Liabilities, and (iv) any other relevant items
(together, the "TOTAL CONSIDERATION") shall be allocated among the Contributed
Assets, in accordance with Section 1060 of the Code. A schedule setting forth
such allocation shall be prepared by Buyers and delivered to Parent as soon as
practicable following the date hereof and Parent and Buyers covenant and agree
to apply all reasonable efforts to agree on such allocation. Buyers agree that
Parent shall have the right to consult with Buyers in the preparation of the
allocation, and Buyers shall take into account any comments of Parent in good
faith. Each of Buyers, Parent and Existing Sub agree to make any Tax Return or
other document or filing consistent with the allocations as agreed following the
Closing.
(c) Any Tax sharing contracts or agreements between Existing Sub
and Parent (or any Affiliate of Parent) shall be terminated on the Closing Date,
and no Person shall have any
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rights or obligations under such Tax sharing contracts or agreements after such
termination. Any power of attorney granted by Existing Sub to any other Person
with respect to Taxes shall be terminated as of the Closing Date.
(d) For purposes of Section 12.2(g)(i), with respect to any Taxes
payable for a taxable period which begins before and ends after the Closing
Date, the portion of such Taxes which is payable for the portion of such taxable
period ending on the Closing Date shall be (i) in the case of any Tax other than
a Transfer Tax or a Tax based upon or measured by income or receipts, the amount
of such Tax for the entire taxable period (or, in the case of such Taxes
determined on an arrears basis, the amount of such Tax for the immediately
preceding period) multiplied by a fraction, the numerator of which is the number
of days in the portion of such taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire taxable period and (ii)
in the case of a Transfer Tax or a Tax based upon or measured by income or
receipts, the amount which would be payable if the relevant taxable period ended
at the end of the Closing Date. In the event that Existing Sub, whether before
or after the Contribution, owns an interest in any partnership or other pass-
through entity, the taxable period of such partnership or pass-through entity in
which Existing Sub is a partner or other beneficial interest holder shall be
deemed to terminate on the Closing Date.
(e) For federal, state and local Tax purposes, Buyers, Parent, and
Existing Sub agree to treat all indemnification payments made under Section 12.2
or any other provision of this Agreement as adjustments to the Total
Consideration.
8.5 COVENANT NOT TO COMPETE. In order that Buyers may have and enjoy the
full benefit of the Business, Parent agrees that Parent and its Subsidiaries
will not, without the written approval of Buyers, (i) engage, directly or
indirectly, in any activity involving the manufacture, production, marketing,
advertising, distribution or sale of the products of the Business being produced
or sold by the Company on the date hereof or on the Closing Date, or any
products in the baked goods industry (the "COMPETITIVE PRODUCTS") anywhere in
the world (the "COMPETITIVE ACTIVITY"), or (ii) directly or indirectly invest in
any equity of or manage, operate or control or become a consultant with respect
to any Competitive Activity for any Person that engage in any Competitive
Activity for the period beginning on the Closing Date and ending on the fifth
anniversary of the Closing Date (the "NONCOMPETITIVE PERIOD"). Notwithstanding
the foregoing, nothing contained herein shall limit the right of Parent to hold
and make passive investments in securities of any Person that is registered on a
national securities exchange or admitted to trading privileges thereon or
actively traded in a generally recognized over-the-counter market; provided,
that Parent's and any of Parent's Subsidiaries' aggregate beneficial equity
interest therein shall not exceed 5% of the outstanding shares or interests in
such Person. Except as the parties hereto shall otherwise agree, for a period of
two years after the Closing Date, Parent and its Subsidiaries shall not,
directly or indirectly, hire or solicit to hire any Employee of Existing Sub or
Buyers to leave (or cause or seek to cause to leave) the employee of Existing
Sub or Buyers, provided, that the foregoing provision will not prevent Parent
from hiring any person (a) whose employment was terminated by Existing Sub or
Buyers or (b) who responds to a general solicitation of employment not
specifically directed towards employees of Existing Sub or Buyers.
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ARTICLE 9
CONDITIONS TO BUYERS' OBLIGATIONS
The obligations of Buyers to effect the transactions contemplated hereby
shall be subject to the satisfaction or written waiver. on or before the Closing
Date, of each of the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by Parent herein and in each Ancillary Document, schedule,
exhibit, and certificate delivered pursuant to this Agreement shall be true,
complete and accurate in all material respects on the date of this Agreement and
on and as of the Closing Date, with the same force and effect as though made on
and as of the Closing Date, except for changes expressly contemplated by this
Agreement or such Ancillary Document, schedule, exhibit or certificate, as the
case may be, and except that any representation and warranty made as of a
specified date shall have been true, complete and accurate in all material
respects on and as of such date (it being understood that, for purposes of
determining the completeness and accuracy of such representations and
warranties, all "material adverse effect" and other materiality qualifications
contained in such representations and warranties shall be disregarded, and any
update of or modification to the Schedules hereto made or purported to have been
made after the date of this Agreement shall be disregarded).
9.2 PERFORMANCE OF AGREEMENTS. Each of Parent and Existing Sub shall have
performed and complied in all material respects with all of its agreements and
covenants contained herein or in any Ancillary Document to be performed or
complied with by it on or prior to the Closing Date.
9.3 CONSUMMATION OF CONTRIBUTION. The Contribution shall have been
effected such that Existing Sub shall have received from Parent the Contributed
Assets and shall have only the Assumed Liabilities, except for the Debt
Financing.
9.4 CONSUMMATION OF REPURCHASE. The Repurchase shall have been effected
such that Parent shall have transferred, conveyed and delivered the Repurchased
Shares to Existing Sub.
9.5 NO INJUNCTION, ETC. Neither any preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or by any Authority
nor any Law promulgated or enacted by any United States federal or state
governmental authority which, in either case, restrains, enjoins, makes illegal
or otherwise prohibits the transactions contemplated hereby shall be in effect.
9.6 EXECUTIVE OFFICER'S CERTIFICATES. Buyers shall have received
certificates from executive officers of each of Parent and Existing Sub, dated
as of the Closing Date, reasonably satisfactory in form and substance to Buyers
and its counsel, certifying as to the satisfaction of the conditions specified
in Sections 9.1 and 9.2 hereof.
9.7 APPROVALS AND CONSENTS. All material consents, approvals, orders, or
authorizations of, registrations or filings with, declarations of, or exemptions
or waivers by, any Authority or any other Person including, without limitation,
approvals or consents from Parent's shareholders (collectively, "CONSENTS"),
reasonably satisfactory in form and substance to Buyers and its counsel, which
are reasonably required for the consummation of the transactions contemplated
hereby (including, without limitation, pursuant to the Ancillary Documents) or
for preventing the
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termination of any material right, privilege, Permit or Commitment Related to
the Business or any material loss or disadvantage to Buyers or Existing Sub upon
the consummation of tile transactions contemplated hereby, shall have been
obtained, made or filed, as the case may be.
9.8 ASSIGNMENT AND ASSUMPTION. In connection with the Contribution,
Parent shall have executed and delivered to Existing Sub an Assignment and
Assumption Agreement (the "ASSIGNMENT AND ASSUMPTION AGREEMENT") in a form
acceptable to Buyers and Existing Sub.
9.9 OPINION. Counsel to Parent and Existing Sub shall have delivered to
Buyers an opinion in a form acceptable to Buyers and their counsel.
9.10 EMPLOYMENT AGREEMENT. Timothy G. Bruer ("Bruer") shall have duly
executed and delivered to Buyers an employment agreement in a form acceptable to
Buyers and Bruer.
9.11 SHAREHOLDER AGREEMENT. Parent shall have duly executed and delivered
to Buyers a shareholder agreement concerning shares of common stock of Existing
Sub, in a form acceptable to Buyers.
9.12 GUARANTEE. Buyers shall have received from Lawrence D. Field a
guarantee in the amount of $750,000 securing Parent's indemnification
obligations under this Agreement in a form acceptable to Buyers.
9.13 WARRANT. Existing Sub shall have issued, and Lawrence D. Field shall
have purchased in exchange for $2 million in cash, a warrant (the "FIELD
WARRANT") to purchase shares of Existing Sub's common stock in a form
satisfactory to Buyers, exercisable upon the attainment by Existing Sub of
certain financial criteria to be agreed between the parties hereto.
9.14 FINANCING. Existing Sub shall have obtained and received the Debt
Financing necessary for Existing Sub to repurchase the Repurchased Shares and to
pay the Expenses (as hereinafter defined) and any other funds necessary to
otherwise consummate the transactions contemplated under this Agreement on terms
satisfactory to Buyers; and Buyers shall have received the funds necessary to
pay the Purchase Price, on terms satisfactory to Buyers.
9.15 OPERATION IN ACCORDANCE WITH BUDGET. During the period from July 1,
1998, until the end of the month preceding the Closing Date, the Business shall
have achieved cumulative EBITDA equal to or greater than the projected
cumulative EBITDA reflected on the budget attached hereto as Exhibit 9.15 (the
"BUDGET") and Parent shall have operated the Business in a manner substantially
consistent with the Budget.
9.16 NO ENCUMBRANCE ON ASSETS. As of the Closing Date, none of the
Contributed Assets shall be subject to any Encumbrance.
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9.17 NO MATERIAL ADVERSE EFFECT. Since the date hereof until the Closing
Date, there shall not have been any events which, individually or in the
aggregate, have, or reasonably could be expected to have, a material adverse
effect or change on the business, assets, liabilities, operations, results of
operations, financial condition or prospects of the Business.
9.18 NO PROCEEDINGS. Since the date of this Agreement, there must not have
been commenced or, to the knowledge of the parties hereto, threatened, against
Parent, Buyers or Existing Sub, any proceeding (a) involving any challenge to,
or seeking damages or other relief in connection with, any of the transactions
contemplated by this Agreement or any of the Ancillary Documents, or (b) that
may have the effect of preventing, delaying, making illegal, imposing
limitations or conditions on, or otherwise interfering with any of the
transactions contemplated by this Agreement or any of the Ancillary Documents.
9.19 SATISFACTORY COMPLETION OF PRE-ACQUISITION REVIEW. Buyers shall have
satisfactorily completed its pre-acquisition legal, financial and business
investigation and review and shall be satisfied with the results of that
investigation and review.
9.20 ACCOUNTANT'S LETTER. Buyers shall have received from Pricewaterhouse
Coopers, LLP, Buyer's independent auditors, a letter dated as of the Closing
Date, in form and substance reasonably satisfactory to Buyers, to the effect
that the transactions contemplated herein shall be accounted for as a
recapitalization.
9.21 RECAPITALIZATION ACCOUNTING AND TAX TREATMENT. No facts or
circumstances shall exist that would prevent the transactions contemplated
herein from (a) being accounting for as a recapitalization; and (b) treated as a
taxable transaction.
9.22 LOCATION OF CONTRIBUTED ASSETS. Except as set forth on Schedule 7.11,
all Contributed Assets shall be located at Parent's Tulsa facilities.
ARTICLE 10
CONDITIONS TO PARENT'S OBLIGATIONS
The obligations of Parent to effect the transactions contemplated hereby
shall be subject to the satisfaction or written waiver on or before the Closing
Date, of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Buyers contained herein and in each Ancillary Document, schedule,
exhibit and certificate delivered pursuant to this Agreement shall be true,
complete and accurate in all material respects on the date of this Agreement and
on and as of the Closing Date, with the same force and effect as though made on
and as of the Closing Date, except for changes expressly contemplated by this
Agreement or such Ancillary Document, schedule, exhibit or certificate, as the
case may be, and except that any representation and warranty made as of a
specified date shall have been true, complete and accurate in all material
respects on and as of such date (it being understood that, for purposes of
determining the completeness and accuracy of such representations and
warranties, all materiality qualifications shall be disregarded).
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10.2 PERFORMANCE OF AGREEMENTS. Buyers shall have performed and complied
in all material respects with all of their respective agreements and covenants
contained herein or in any Ancillary Document to which any Buyer is a party to
be performed or complied with by any Buyer on or prior to the Closing Date.
10.3 DELIVERIES. Parent shall have received from Buyers (i) the Purchase
Price in accordance with Section 3.1, subject to certain adjustments as provided
for herein and (ii) the certificates and the other documents contemplated by
Section 4.2.
10.4 NO INJUNCTION, ETC. Neither any preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or by any Authority
nor any Law promulgated or enacted by any United States federal or state
governmental authority which, in either case, restrains, enjoins, makes illegal
or otherwise prohibits the transactions contemplated hereby shall be in effect.
10.5 PARENT'S SHAREHOLDERS APPROVALS AND CONSENTS. All consents and
approvals from Parent's shareholders) which are required for the consummation of
the transactions contemplated hereby (including, without limitation, pursuant to
the Ancillary Documents) shall have been obtained.
10.6 REPURCHASES. Payment of the Repurchase Price shall have been
delivered to Parent in accordance with Section 4.2(d).
10.7 OPINION. Counsel to Buyers shall have delivered to Parent an opinion
in a form acceptable to Parent and its counsel.
ARTICLE 11
TERMINATION PRIOR TO CLOSING
11.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing, before or after approval by the stockholders of
the Parent, by the mutual consent of Parent and Buyers.
11.2 TERMINATION BY EITHER PARENT OR BUYERS. This Agreement may be
terminated by written notice of either Parent or Buyers if (a) the transactions
contemplated hereunder shall not have been consummated by December 31, 1998
(unless the failure to consummate the transactions contemplated hereunder is
attributable to a failure on the part of the party seeking to terminate this
Agreement to perform any material obligation required to be performed by such
party at or prior to the Closing), or (b) the approval of Parent's shareholders
in accordance with applicable law and its certificate of incorporation and by-
laws shall not have been obtained at a meeting duly convened therefor or at any
adjournment or postponement thereof, or (c) a United States federal or state
court of competent jurisdiction or United States federal or state governmental,
regulatory or administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and non-
appealable; provided that the party seeking to terminate this Agreement pursuant
to clause (c) above shall have used all commercially reasonable efforts to
remove such injunction, order or decree.
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11.3 OTHER TERMINATION RIGHTS.
(a) This Agreement may be terminated at any time prior to the
Closing by written notice given
(i) by Buyers, following a breach of any covenant or
agreement of Parent or Existing Sub contained in this Agreement, or if any
representation or warranty of Parent contained in this Agreement shall be or
shall have become inaccurate, in either case such that any of the conditions set
forth in Sections 9.1 and 9.2 would not be satisfied as of the time of such
breach or as of the time such representation or warranty was or shall have
become inaccurate; provided, however, that: (A) if such breach or inaccuracy is
curable by Parent or Existing Sub, then Buyers may not terminate this Agreement
under this Section 11.3(a) with respect to the particular breach or inaccuracy
prior to or during the 30-day period commencing upon delivery by Buyers of
written notice to Parent or Existing Sub of such breach or inaccuracy, provided
Parent continues to exercise all reasonable efforts to cure such breach or
inaccuracy; and (B) the right to terminate this Agreement under this Section
11.3(a) shall not be available to Buyers if the breach is the result of any
willful act on the part of Buyers, designed to impede the consummation of any
transaction contemplated hereby.
(ii) by Parent or Existing Sub, following a breach of any
covenant or agreement of Buyers contained in this Agreement, or if any
representation or warranty of Buyers contained in this Agreement shall be or
shall have become inaccurate, in either case such that any of the conditions set
forth in Sections 10.1 or 10.2 would not be satisfied as of the time of such
breach or as of the time such representation or warranty was or shall have
become inaccurate; provided, however, that: (A) if such breach or inaccuracy is
curable by Buyers, then neither Parent nor Existing Sub may terminate this
Agreement under this Section 11.3(b) with respect to the particular breach or
inaccuracy prior to or during the 30-day period commencing upon delivery by
Parent or Existing Sub or written notice to Buyers of such breach or inaccuracy,
provided Buyers continues to exercise all reasonable efforts to cure such breach
or inaccuracy, and (B) the right to terminate this Agreement under this Section
11.3 (b) shall not be available to Parent or Existing Sub if the breach is the
result of any willful act on the part of Parent or Existing Sub, designed to
impede the consummation of any transaction contemplated hereby.
(b) This Agreement may be terminated immediately by Buyers by
written notice given by Buyers to Parent if (i) Parent's Board of Directors
shall have withdrawn or modified or amended, in a manner adverse to Buyers,
either its approval or recommendation (pursuant to Section 7.8 hereof) that the
Parent's shareholders approve the transactions as contemplated by this Agreement
including, without limitation, the Contribution and sale of the Shares and any
other matter required to be approved by the Parent's stockholders in connection
thereto, (ii) Parent shall have failed to include in its proxy statement
distributed in connection with the Parent Shareholders' Meeting the
recommendation in favor of the adoption and approval of this Agreement and the
Ancillary Documents and approval of the transactions contemplated herein and
therein, or (iii) at any time Buyers shall have determined that it is not
satisfied with the results of its pre-acquisition legal, financial and business
investigation and review.
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(c) This Agreement may be terminated immediately by Buyers by
written notice given by Buyers to Parent if Lawrence Field has not entered into
a Voting Agreement, on terms reasonably satisfactory to Buyers, by the earlier
of (i) ten business days after the date of this Agreement; and (ii) the date
upon which a proxy statement or similar document is sent to Parent's
shareholders in connection with the transactions contemplated herein.
11.4 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to this
Article XI shall terminate all obligations of the parties hereunder, except for
the obligations under Sections 7.4, 11.4, 13.6, 13.7 and 13.10; provided,
however that termination pursuant to Sections 11.2 or 11.3 shall not relieve any
defaulting or breaching party or parties from any liability to the other parties
hereto.
ARTICLE 12
INDEMNIFICATION
12.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Each
representation and warranty made in this Agreement, other schedules, exhibits
and certificates delivered or to be delivered pursuant to this Agreement shall
survive the Closing and any investigation at any time made by or on behalf of
the parties hereto and each such representation and warranty shall expire on the
second anniversary of the Closing Date, except for the representations and
warranties set forth in Section 5.10 (only with respect to Equipment and
inventory) which shall expire six (6) months from the Closing Date and in
Section 5.23 which shall expire on the later of four and a half (4 1/2) months
from the Closing Date and February 15, 1999 and except for the representations
and warranties set forth in Sections 5.09, 5.19, 5.20 and 5.22, which shall
survive the Closing until sixty (60) days after the expiration of the applicable
statute of limitations (including all waivers or extensions thereof). After the
expiration of such periods, any claim by a party hereto based upon any such
representation or warranty, shall be of no further force and effect, except to
the extent a party has asserted a claim for breach of any such representation or
warranty (including matters not then quantifiable) prior to the expiration of
such period, in which event any representation or warranty to which such claim
relates shall survive with respect to such claim until such claim is resolved as
provided in this Article XII. The covenants and agreements contained herein to
be performed or complied with after the Closing (including, without limitation,
the covenants set forth in Sections 4.2 and 4.3) shall survive the Closing for
so long as such covenants and agreements shall remain executory in nature. The
right to indemnification, reimbursement, or other remedy based on such
representations, warranties, covenants and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) about, the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant or obligations. The waiver of
any condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, reimbursement, or other remedy based on such
representations, warranties, covenants and obligations.
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12.2 INDEMNIFICATION BY PARENT. From and after the Closing, Parent shall
indemnify and hold harmless Existing Sub, Buyers, their respective Affiliates,
members, Affiliates' members (as applicable), officers, directors, employees,
agents, representatives, successors and assigns (the "BUYER INDEMNITEES"), from
and against any and all Losses incurred by any of them arising out of, relating
to or resulting from any of the following:
(a) the failure by Parent to pay, perform or discharge when due any
of the Retained Liabilities;
(b) any breach by Parent of any of the representations or
warranties made by Parent in this Agreement (without giving effect to any update
to the Disclosure Schedule), the Disclosure Schedule, any update to the
Disclosure Schedule, the Executive Officers' Certificates described in Section
9.6 herein, any conveyance instrument or any other certificate or document
delivered by Parent or Existing Sub pursuant to this Agreement;
(c) any failure by Parent or, prior to the Closing, Existing Sub to
perform any of its covenants or agreements contained in this Agreement or in any
other document, writing or instrument delivered by Parent or Existing Sub
pursuant to this Agreement;
(d) the items set forth on Schedule 5.12;
(e) any and all Losses which may be incurred by Existing Sub or its
Affiliates as a result of noncompliance with any such "bulk sales" provisions or
laws or other transfer laws including, but not limited to, Losses attributable
to liability for Taxes for which Existing Sub is liable pursuant to Section 6901
of the Code, or any analogous provision of local, state, federal or foreign law,
or otherwise;
(f) any action taken or not taken in connection with the sale
contemplated hereby and by the Ancillary Documents related to (i) the
termination of employment of any Employee by Parent or, prior to Closing,
Existing Sub, or the termination by Parent or, prior to Closing, Existing Sub,
of any independent contractor or consulting agreement; or (ii) the employment or
retirement status with Parent or Existing Sub of any Employee or former
Employee;
(g) without duplication, any Taxes (including reasonable attorneys'
and accountants' fees and other reasonable out-of-pocket expenses incurred in
connection therewith), including, without limitation, any Taxes imposed by
reason of the transactions contemplated by this Agreement, (i) imposed on or
payable by Existing Sub with respect to any taxable period or portion thereof
that ends on or before the Closing Date or (ii) imposed on or payable by
Existing Sub under Treasury Regulation 1.1502-6 (or any similar provision of
state, local or foreign law) by reason of Existing Sub being included in any
consolidated, affiliated, combined or unitary group at any time on or before the
Closing Date; and
(h) any Loss, arising out of or relating to, the funding,
operation, administration, amendment termination of, or withdrawal or partial
withdrawal from, any Benefit Plan established, maintained or contributed to by
Existing Sub, Parent, any Subsidiary or ERISA Affiliate as of, or prior to, the
Closing Date, whether such liabilities, obligations or Loss arise out of or
relate to, any event or state of facts occurring or existing before, on or after
the Closing Date, and including, but
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not limited to liabilities, obligations or Loss arising under Title IV of ERISA,
Section 302 of ERISA or Section 412 or 4971 of the Code.
except that that any materiality (or correlative meaning) qualifications
included in the representations and warranties set forth in Article V shall have
no effect on any provisions in this Section 12.2 concerning the indemnities of
Parent and Existing Sub with respect to such representations and warranties,
each of which is given as though there were no materiality qualification for
purposes of such indemnities.
12.3 INDEMNIFICATION BY BUYERS. From and after the Closing, Buyers shall
indemnify and hold harmless Parent and their respective Affiliates and
respective officers, directors, employees, agents, consultants, representatives,
successors and assigns of any of the foregoing (the "PARENT INDEMNITEES"), from
and against any and all Losses incurred by any of them arising out of, relating
to or resulting from any of the following:
(a) any breach by Buyers of any of the representations or
warranties made by Buyers in this Agreement;
(b) any failure by Buyers to perform any of its covenants or
agreements contained in this Agreement;
(c) the failure by Existing Sub, after the Closing to pay, perform
or discharge when due any of the Assumed Liabilities,
(d) any Taxes (including reasonable attorneys' and accountants'
fees and other reasonable out-of-pocket expenses incurred in connection
therewith), imposed on or payable by Existing Sub with respect to any taxable
period or portion thereof beginning after the Closing Date; and
(e) subject to Section 2.4(b) and 12.2(h) hereof, any Loss, arising
out of or relating to, the funding, operation, administration, amendment,
termination of, or withdrawal or partial withdrawal from, any Benefit Plan
established, maintained or contributed to by Existing Sub or Buyers after the
Closing Date, to the extent such liabilities, obligations or Loss arise out of
or relate to, any event or state of facts occurring after the Closing Date, and
including, but not limited to liabilities, obligations or Loss arising under
Title IV of ERISA, Section 302 of ERISA or Section 412 or 4971 of the Code.
except that any materiality (or correlative meaning) qualifications included in
the representations and warranties set forth in Article VI shall have no effect
on any provisions in this Section 12.03 concerning the indemnity of Buyers with
respect to such representations and warranties, each of which Is given as though
there were no materiality qualification for purposes of such indemnities.
12.4 RIGHT OF SET-OFF. Upon notice to Parent specifying in reasonable
detail the basis for such set-off, a Buyer Indemnitee may set-off any amount to
which it may be entitled under this Article 12 against amounts otherwise payable
to Parent pursuant to Section 3.4 or Section 3.5 herein. The exercise of such
right of set-off by a Buyer Indemnitee in good faith, whether or not ultimately
determined to be justified, will not constitute an event of default under
Section 3.4 or Section 3.5
55
<PAGE>
herein. Neither the exercise of nor the failure to exercise such right of
set-off will constitute an election of remedies or limit any Buyer Indemnitee in
any manner in the enforcement of any other remedies that may be available to it.
12.5 PROCEDURE FOR INDEMNIFICATION.
(a) Any Indemnitee shall give the Indemnitor, prompt written notice
of any claim, assertion, event or proceeding by or in respect of a third party
of which such Indemnitee has knowledge concerning any Loss as to which such
Indemnitee may request indemnification hereunder; provided that failure of the
Indemnitee to give the Indemnitor prompt notice as provided herein shall not
relieve the Indemnitor of any of its obligations hereunder except to the extent
that the Indemnitor. is prejudiced thereby. The Indemnitor shall have the right
to direct, through counsel of its own choosing, which counsel shall be
reasonably satisfactory to the Indemnitee, the defense or settlement of any
claim or proceeding the subject of indemnification hereunder at its own
expenses. If the Indemnitor elects to assume the defense of any such claim or
proceeding, the Indemnitee may participate in such defense, but in such case the
expenses of the Indemnitee shall be paid by the Indemnitee. The Indemnitee
shall. upon reasonable notice, provide the Indemnitor with reasonable access to
its records and personnel relating to any such claim, assertion, event or
proceeding during normal business hours and shall otherwise cooperate with the
Indemnitor in the defense or settlement thereof, and the Indemnitor shall
promptly reimburse the Indemnitee for all its reasonable out-of-pocket expenses
in connection therewith. If the Indemnitor elects to direct the defense of any
such claim or proceeding, the Indemnitee shall not pay, or permit to be paid,
any part of any claim or demand arising from such asserted liability unless the
Indemnitor consents in writing (which consent shall not be unreasonably
withheld) to such payment or unless the Indemnitor withdraws from or fails to
maintain the defense of such asserted liability or unless a final judgment from
which no appeal may be taken by or on behalf of the Indemnitor is entered
against the Indemnitee for such liability. No settlement in respect of any third
party claim may be effected by the Indemnitor without the Indemnitee's prior
written consent unless the settlement involves only a monetary payment and no
other obligations on Indemnitee's part and a full and unconditional release of
the Indemnitee. If the Indemnitor shall fail to undertake tile defense or
settlement thereof, Indemnitee shall have the right to take exclusive control of
the defense, negotiation and/or settlement of such third party claim, at the
Indemnitor's expense. If the Indemnitee assumes the defense of any such claim or
proceeding pursuant to this Section, it may conduct such defense as it
reasonably deems appropriate (without regard to the availability of
indemnification hereunder), and the Indemnitor shall be responsible for and pay
all reasonable costs and expenses of such defense, including its compromise or
settlement.
(b) Notwithstanding the foregoing, with respect to any claim or demand
that the Indemnitor is defending, the Indemnitee shall have the right to retain
separate counsel to represent it and the Indemnitor shall pay the fees and
expenses of such separate counsel if there are conflicts that make it reasonably
necessary for separate counsel to represent the Indemnitee and the Indemnitor.
12.6 PAYMENT. With respect to Claims by third parties for which
indemnification is payable hereunder, such indemnification shall be paid by the
Indemnitor promptly upon (i) the entry of a judgment against the Indemnitee and
the expiration of any applicable appeal period; (ii) the entry
56
<PAGE>
of a non-appealable judgment or final appellate decision against the Indemnitee;
or (iii) the closing under any settlement agreement. Notwithstanding the
foregoing, expenses of the Indemnitee for which the Indemnitor is responsible
shall be reimbursed on a current basis by the Indemnitor.
12.7 LIMITATION ON RIGHT OF INDEMNIFICATION. Notwithstanding any other
provision of this Agreement, an Indemnitee shall be entitled to assert a claim
for indemnification under 12.2 (a) through (f) or 12.2(h), only to the extent
the aggregate amount of all such claims exceed $220,000, in which event the
Indemnitee shall be entitled to seek indemnification for the full amount of such
claims in excess of $220,000.
12.8 OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy Indemnitee may have for breach of any
representation, warranty, covenant or agreement; provided that, in the absence
of fraud, the limitations on right of indemnification set forth above shall
apply to such remedies.
ARTICLE 13
MISCELLANEOUS
13.1 INTERPRETIVE PROVISIONS. It is understood and agreed that the
specification of any dollar amount in the representations and warranties
contained in this Agreement or the inclusion of any specific item in the
schedules hereto is not intended to imply that such amounts or any higher or
lower amounts, or the items so included or other items, are or are not material,
and neither party shall use the fact of the setting of such amounts or the fact
of the inclusion of any such item in the schedules hereto as to whether any
obligation, item or matter not described herein or included in a schedule is or
is not material for purposes of this Agreement.
13.2 ENTIRE AGREEMENT. This Agreement (including the exhibits, any other
schedules and other documents referred to herein), and the Ancillary Documents
constitute the entire agreement between the parties hereto and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto, with respect to the subject matter hereof.
13.3 SUCCESSORS AND ASSIGNS; BENEFITS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto; except that this Agreement may not
be assigned by Parent or Existing Sub without the prior written consent of
Buyers or by Buyers without the prior written consent of Parent; provided,
however, that this Agreement may be assigned by Buyers in whole or part to an
Affiliate of Buyers or to third parties (for the purpose of allowing such third
parties to purchase a portion of the Shares) without the prior written consent
of Parent. Any such assignee shall execute a counterpart of this Agreement
agreeing to be bound by the provisions hereof. Nothing in this Agreement,
express or implied, is intended to, or shall confer on, any Person other than
any of the parties hereto any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
57
<PAGE>
13.4 HEADINGS. The headings of the articles, sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
13.5 MODIFICATION AND WAIVER. This Agreement may be amended or modified,
and any provision of this Agreement may be discharged or waived, only by a
document signed by the party against which the amendment modification,
discharge, or waiver is sought to be enforced, provided, however, that Exhibit A
may be amended by Swander Pace Capital Fund, L.P. at any time prior to the
Closing without the consent of any other party, so long as any parties added to
Exhibit A shall sign a counterpart signature page to this Agreement and shall at
that time be deemed a party hereto, and provided further, that Swander Pace
Capital Fund, L.P. shall at all time be a party to this Agreement. No waiver of
any of the provisions of this Agreement shall be deemed to or shall constitute a
waiver of any other provision hereof (whether or not similar). No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
13.6 EXPENSES. Except as otherwise expressly contemplated by this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, each of the parties hereto shall pay all costs and expenses
incurred by it or on its behalf in connection with the negotiation, preparation,
execution and performance of this Agreement, the Ancillary Documents and the
transactions contemplated hereby and thereby, including, without limitation,
fees, expenses and disbursements of its own financial consultants, accountants
and counsel ("EXPENSES"), provided, however, that in the event this Agreement is
terminated in accordance with Article XI, then Parent shall, within 60 days of
such termination, pay all out-of-pocket third party Expenses of Buyers
(including, without limitation, the reasonable fees and expenses of Buyers'
counsel and fees payable to the Debt Financing entities and their respective
counsel or other advisors and to other financing sources utilized by Buyers for
purposes of the transactions contemplated herein and in the Ancillary Documents,
and all reasonable consulting fees payable to Swander Pace & Co.), unless
failure to consummate the transactions contemplated herein is the result of a
breach of Buyers' representations and warranties or Buyers' failure to perform
its covenants and agreements contained herein, and provided further, that in no
event shall Parent pay to Buyers in excess of $200,000 for Buyers' Expenses,
excluding the fees of legal counsel and any fees payable to banks. Upon
consummation of the transactions contemplated by this Agreement, Existing Sub
shall, within 30 days after the Closing Date, in immediately available funds
reimburse Buyers by wire transfer for all of its Expenses and shall also pay to
Buyers in cash the sum of $500,000.
13.7 NOTICES. Any notice, request, response, demand, claim or other
communication required or permitted hereunder (or in any Ancillary Document not
containing an alternative notice provision) by any party hereto to any other
party shall be in writing and transmitted, delivered or sent by (a) personal
delivery, (b) courier or messenger service, whether overnight or same day (c)
certified United States mail postage prepaid, return receipt requested, or (d)
prepaid telecopy or facsimile (except, that no request for indemnification may
be provided by telecopy or facsimile),
58
<PAGE>
If to Parent, to:
Silverado Foods, Inc.
6846 South Canton
Suite 110
Tulsa, Oklahoma 74136
Telephone: (918) 496-2400
Telecopier: (918) 491-6290
Attention: Lawrence D. Field
With a copy to:
Conner & Winters
3700 First Place
15 East Fifth Street
Tulsa, Oklahoma 74103
Telephone: (918) 586-8540
Telecopier: (918) 586-8548
Attention: R. Kevin Redwine, Esq.
If to Buyers, to:
Swander Pace Capital Fund, L.P.
345 California Street, Suite 2500
San Francisco, California 94104
Telephone: (415) 477-8500
Telecopier: (415) 477-8510
Attention: Andrew H. Richards
With a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111-3580
Telephone: (415) 693-2000
Telecopier: (415) 951-3699
Attention: Samuel M. Livermore, Esq.
59
<PAGE>
If to Existing Sub, to:
Mom's Best Services, Inc.
c/o Silverado Foods, Inc.
6846 South Canton
Suite 110
Tulsa, Oklahoma 74136
Telephone: (918) 496-2400
Telecopier: (918) 491-6290
Attention: Timothy G. Bruer
or at such other address for a party as shall be specified by like notice. Each
communication transmitted, delivered, or sent (a) in person, by courier or
messenger service, or by certified United States mail (postage prepaid and
return receipt requested) shall be deemed given, received, and effective on the
date delivered to or refused by the intended recipient (with the return receipt
or the equivalent record of the courier or messenger being deemed conclusive
evidence of delivery or refusal); or (b) by telecopy or facsimile transmission
or by electronic mail shall be deemed given, received, and effective on the date
of actual receipt (with the confirmation of transmission or the electronic
receipt being deemed conclusive evidence of such receipt, except where the
intended recipient has promptly notified the other Party that the transmission
is illegible).
Nevertheless, if the date of delivery or transmission is not a Business
Day, or if the delivery or transmission is after 5:00 p.m., local time in Tulsa,
Oklahoma on a Business Day, the communication shall be deemed given, received,
and effective on the next Business Day.
13.8 SPECIFIC PERFORMANCE. The parties hereto hereby acknowledge that
each party hereto would suffer irreparable injury and would not have an adequate
remedy at law for money damages if the provisions of this Agreement were not
performed in accordance with their terms. Each party hereto agrees that the
other parties hereto shall be entitled to specific enforcement of the term's of
this Agreement in addition to any other remedy to which they are entitled, at
law or in equity. Furthermore, if any action or proceeding shall be instituted
to enforce the provisions hereof, any party against whom such action or
proceeding is brought hereby waives the claim or defense therein that there is
an adequate remedy at law, and agrees not to urge in any such action or
proceeding the claim or defense that such remedy at law exists.
13.9 GOVERNING LAW. The validity, performance and enforcement of this
Agreement and all Ancillary Documents, unless expressly provided to the
contrary, shall be governed by the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof, except that with respect
to matters regarding the transfer of right, title to and interest in any
Assigned Contract or Permit, the laws governing such Assigned Contract or Permit
shall govern, without giving effect to the principles of conflicts of law
thereof.
13.10 PUBLIC ANNOUNCEMENTS. Neither Parent nor Existing Sub, on the
one hand, nor Buyers on the other hand, shall make any public announcements,
including, without limitation, any press releases, pertaining in any way to this
Agreement and the transactions contemplated hereby without, the prior consent of
the other party, which consent shall not be unreasonably withheld,
60
<PAGE>
except as may be required by law; provide however, that without such prior
consent, any party hereto shall be free to make comments to its stockholders,
members and employees and to financial analysts and the press which are
substantially consistent with disclosures in such public announcements.
13.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which together shall constitute one and the same instrument.
61
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement of
Stock Purchase and Sale to be executed on its behalf as of the date first above
written.
SILVERADO FOODS, INC.
By: /s/ Lawrence D. Field
----------------------------------------
Name: Lawrence D. Field
Title: Chairman of the Board of Directors
MOM'S BEST SERVICES, INC.
By: /s/ Dorvin D. Lively
----------------------------------------
Name: Dorvin D. Lively
--------------------------------------
Title: Vice President and Chief
--------------------------------------
Financial Officer
--------------------------------------
SWANDER PACE CAPITAL FUND, L.P.
By Swander Pace Capital LLC,
its General Partner
By: /s/ Andrew Richards
--------------------------------------
Name: Andrew Richards
--------------------------------------
Title: Managing Director
--------------------------------------
SPC GP FUND, LLC
By: /s/ Andrew Richards
--------------------------------------
Name: Andrew Richards
--------------------------------------
Title: Managing Director
--------------------------------------
SPC EXECUTIVE ADVISORS FUND, LLC
By: /s/ Andrew Richards
--------------------------------------
Name: Andrew Richards
--------------------------------------
Title: Managing Director
--------------------------------------
62
<PAGE>
EXHIBIT A
BUYERS
NAME OF BUYER NUMBER OF SHARES PERCENTAGE OF PURCHASE
PURCHASED PRICE PAID
- ----------------------------------------------------------------------------
Swander Pace Capital Fund, 871,111 96.79
L.P.
- ----------------------------------------------------------------------------
SPC GP Fund, LLC 14,489 1.61
- ----------------------------------------------------------------------------
SPC Executive Advisors 14,400 1.6
Fund, LLC
- ----------------------------------------------------------------------------
63
<PAGE>
The following schedules and exhibits to the Agreement of Stock Purchase and
Sale have been omitted from this filing. Copies of such schedules and exhibits
will be furnished supplementally to the Securities and Exchange Commission upon
request.
Schedule 2.2(a) Hardware
Schedule 2.2(c) Personalty Leases
Schedule 2.2(d) Intellectual Property Rights
Schedule 2.3 Excluded Assets
Schedule 5.1 Organization and Standing
Schedule 5.2(c) Authorization
Schedule 5.6(a)/(b) Financial Statements
Schedule 5.7 Insurance Policies
Schedule 5.8 Absence of Changes
Schedule 5.9(a) Liens and Encumbrances
Schedule 5.9(b) Real Property
Schedule 5.10 Condition of Buildings, Structures, Equipment, etc.
Schedule 5.11 Agreements, Plans and Arrangements, etc.
Schedule 5.12 Legal Proceedings
Schedule 5.13 Notice of Proceeding, Violation, etc.
Schedule 5.15 Permits
Schedule 5.17 The Business
Schedule 5.18 Employment Matters
Schedule 5.19 Tax Matters
Schedule 5.20 Employee Benefit Plans and Employee Agreements
Schedule 5.21 Accounts Receivable
Schedule 5.22 Environmental Matters
Schedule 5.25 Transactions with Affiliates
Schedule 5.28 Trade Deals and Promotions
Schedule 7.2 Conduct of Business
Schedule 7.2(b) Conduct of Business
Schedule 7.11 Location of Assets
Exhibit 5.6(b): Interim Financial Statements
Exhibit 9.15: Budget of the Business
<PAGE>
EXHIBIT 10.2
AMENDMENT TO
AGREEMENT OF STOCK PURCHASE AND SALE
THIS AMENDMENT TO AGREEMENT OF STOCK PURCHASE AND SALE (this "AMENDMENT"),
made and entered into this 28th day of October, 1998, by and among SILVERADO
FOODS, INC., an Oklahoma corporation ("PARENT"), MOM'S BEST SERVICES, INC., a
Florida corporation and a wholly owned subsidiary of Parent ("EXISTING SUB"),
and the other entities set forth on Exhibit A attached hereto ("BUYERS").
WHEREAS, Parent, Existing Sub, Swander Pace Capital Fund, L.P., SPC
Executive Advisers Fund, LLC and SPC GP Fund, LLC entered into an Agreement of
Stock Purchase and Sale dated as of August 14, 1998 (the "AGREEMENT"), pursuant
to which the parties thereto set forth the term and conditions under which they
would effect a recapitalization of Existing Sub;
WHEREAS, the parties hereto and the parties to the Agreement desire to
amend the Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, each of the
parties hereto agrees as follows. Certain terms used and not otherwise defined
herein have the meanings ascribed to such terms in the Agreement.
A. ADDITION OF PARTY TO AGREEMENT
1. Section 13.5 of the Agreement provides that Exhibit A to the Agreement
may be amended by Swander Pace Capital Fund, L.P. at any time prior to the
Closing without the consent of any other party, so long as, among other things,
any parties added as parties to the Agreement pursuant to Section 13.5 shall
sign a counterpart signature page to the Agreement.
2. The parties hereto hereby agree that Exhibit A to the Agreement shall
be amended by adding SPC Associates Fund, LLC to Exhibit A to the Agreement and
in every other way replacing Exhibit A to the Agreement with Exhibit A to this
Amendment. The parties further agree that execution of this Amendment shall be
accepted as a counterpart signature page to both the Agreement and to this
Amendment. All parties hereto shall be deemed to be a party to the Agreement, as
amended by this Amendment.
B. DEFINITIONS
1. The reference to the "Field Warrant" in Article I of the Agreement
shall be removed. Section 9.13 of the Agreement shall be deleted. The numeration
of the other sections of Article 9 shall not be affected.
1.
<PAGE>
2. The following definition shall be added to Article I of the Agreement:
"FURTHER DEBT FINANCING": as set forth in Section 2.1(d).
C. PURCHASE AND REPURCHASE
1. The parties hereto hereby agree that in Section 2.1(a):
(a) each appearance of the amount of $24 million in Section 2.1(a) of
the Agreement shall be replaced with the amount of $17.0 million;
(b) the words "and the purchase price of the Field Warrant" shall be
deleted from Section 2.1(a)(ii)(A); and
(c) the clause "- Field Warrant" shall be deleted from the
mathematical formula.
2. The parties hereto hereby agree that in Section 2.1(b):
(a) each appearance of the amount of $24 million in Section 2.1(b) of
the Agreement shall be replaced with the amount of $17.0 million;
(b) the words "and the purchase price of the Field Warrant" shall be
deleted from Section 2.1(b)(ii)(A); and
(c) the clause "- Field Warrant" shall be deleted from the
mathematical formula.
3. The following Sections 2.1(c) and 2.1(d) shall be added immediately
after Section 2.1(b):
(c) The following term shall have the following meaning: "YEAR-END PAYMENT
PERIOD" shall mean the twelve month period ending on December 31, 1998.
(d) Existing Sub shall pay to Parent an amount in cash ("YEAR-END
PAYMENT") equal to the product of (A) a fraction, the numerator of which is
equal to (x) EBITDA (as defined in Section 3.5(a)) for the Year-End Payment
Period, minus (y) $2 million (which numerator, if such difference equals a
negative number, shall equal zero, and if such difference is greater than $0.3
million, shall equal $0.3 million), and the denominator of which is equal to
$0.3 million, and (B) $3 million.
(i) Subject to Section 2.1(d)(ii) below, any Year-End Payment paid
pursuant to this Section shall be delivered from Existing Sub to Parent as soon
as reasonably practicable following the availability of audited financial
statements for the Business relating to the relevant Year-End Payment Period.
2.
<PAGE>
(ii) Notwithstanding the foregoing, if a Year-End Payment is payable
under this Section and there exists any outstanding claim for indemnification
asserted by any Buyer Indemnitee pursuant to Article XII hereof, the portion of
the Year-End Payment equal to the amount of such outstanding claim for
indemnification asserted by any Buyer Indemnitee (the "YEAR-END HOLDBACK
AMOUNT"), to be paid by Buyers to Parent shall be delayed until the final
resolution of such claim. The excess, if any, of the Year-End Payment payable to
Parent over the Year-End Holdback Amount shall be paid in accordance with
paragraph (i) above. If any Buyer Indemnitee is subsequently entitled to be
indemnified pursuant to Article XII hereof, then a portion of the Year-End
Holdback Amount equal to the amounts owed to Buyer Indemnitee shall be paid to
Buyer Indemnitee.
(iii) Parent shall, in cooperation with Buyers, cause Existing Sub
to have available to it a credit facility specifically for the purpose of making
the Year-End Payment, with terms reasonably satisfactory to Buyers, the amount
available under which shall be adequate for the Year-End Payment (the "FURTHER
DEBT FINANCING").
D. REPURCHASE PRICE ADJUSTMENT. The dollar amount $2,196,475 found in Section
3.2 shall be replaced with the dollar amount $2,696,475.
E. EARN-OUT PAYMENTS
1. The definition of "Additional Earn-Out Date" set forth in Section
3.5(a) shall be October 31, 1999, instead of September 30, 1999.
2. Section 3.5(b) of the Agreement shall be replaced in its entirety with
the following text:
"(b) Subject to paragraph (c) of this Section,
(i) Existing Sub shall pay to Parent an amount in cash ("INITIAL
EARN-OUT PAYMENT") equal to the product of (A) a fraction, the numerator of
which is equal to (x) EBITDA for the Initial Earn-Out Period, minus (y) $3
million (which numerator, if such difference equals a negative number,
shall equal zero, and if such difference is greater than $1 million, shall
equal $1 million), and the denominator of which is equal to $1 million, and
(B) $3 million;
(ii) Existing Sub shall pay to Parent an amount in cash ("ADDITIONAL
EARN-OUT PAYMENT") equal to the product of (A) a fraction, the numerator of
which is equal to (x) Plant-Level EBITDA for the Additional Earn-Out
Period, minus (y) $8.6 million (which numerator, if such difference equals
a negative number, shall equal zero, and if such difference is greater than
$1 million, shall equal $1 million), and the denominator of which is equal
to $1 million and (B) $ 5 million."
3.
<PAGE>
F. CONDITIONS TO BUYERS' OBLIGATIONS.
1. The following Section 9.23 shall be added immediately after Section
9.22:
"9.23 HSR ACT. The waiting period applicable to the consummation of the
transactions contemplated herein under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, shall have expired or been terminated."
2. Buyers acknowledge that the due and valid entering into of a sub-
lease from Parent to Existing Sub of the property located at 3920 East Pine
Street, Tulsa, Oklahoma (the "PROPERTY") and the receipt or entering into of any
other agreements, documents, approvals or consents related thereto, each on
terms reasonably satisfactory to Buyers, shall fulfill the condition set forth
in Section 9.3 with respect to such Property, as well as any other provisions of
the Agreement requiring an assignment of the lease covering the Property.
3. The following sentence shall be added to Section 9.14:
"The Further Debt Financing shall have been made available to Existing Sub
to make the Year-End Payment on terms satisfactory to Buyers."
G. MISCELLANEOUS
1. This Amendment may be executed in several counterparts, each of which
shall constitute an original and all of which, when taken together, shall
constitute one agreement.
2. This Amendment shall be construed in accordance with, and governed in
all respects by, the internal laws of the State of Delaware (without giving
effect to principles of conflicts of laws).
3. Except as amended hereby, the Agreement shall remain in full force and
effect.
4.
<PAGE>
The parties hereto have caused this Amendment to Agreement of Stock
Purchase and Sale to be executed and delivered as of the date first written
above.
SILVERADO FOODS, INC.
By: /s/ Lawrence D. Field
--------------------------------------------
Name: Lawrence D. Field
Title: Chairman of the Board of Directors
MOMS' BEST SERVICES, INC.
By: /s/ Tim Bruer
--------------------------------------------
Name: Tim Bruer
Title: President
SWANDER PACE CAPITAL FUND, L.P.,
a Delaware limited partnership
By: SWANDER PACE CAPITAL, L.L.C.,
a Delaware limited liability company, its general partner
By: /s/ Andrew Richards
--------------------------------------------
Andrew H. Richards
SPC EXECUTIVE ADVISERS FUND, LLC,
a Delaware limited liability company
By: SWANDER PACE CAPITAL L.L.C.,
a Delaware limited liability company, its manager
By: /s/ Andrew Richards
--------------------------------------------
Andrew H. Richards
5.
<PAGE>
SPC GP FUND, LLC,
a Delaware limited liability company
By: SWANDER PACE CAPITAL L.L.C.,
a Delaware limited liability company, its manager
By: /s/ Andrew Richards
--------------------------------------------
Andrew H. Richards
SPC ASSOCIATES FUND, LLC,
a Delaware limited liability company
By: SWANDER PACE CAPITAL L.L.C.,
a Delaware limited liability company, its manager
By: /s/ Andrew Richards
--------------------------------------------
Andrew H. Richards
6.
<PAGE>
EXHIBIT A
NAME OF BUYER NUMBER OF SHARES PERCENTAGE OF PURCHASE
PURCHASED PRICE PAID
Swander Pace Capital Fund,
L.P.
SPC GP Fund, LLC
SPC Executive Advisers Fund,
LLC
SPC Associates Fund, LLC
7.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 0 56,359
<SECURITIES> 0 0
<RECEIVABLES> 0 2,689,893
<ALLOWANCES> 0 0
<INVENTORY> 0 1,204,321
<CURRENT-ASSETS> 415,665 4,315,642
<PP&E> 13,018 7,086,488
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 14,319,517 20,908,198
<CURRENT-LIABILITIES> 30,486,832 22,839,582
<BONDS> 0 0
0 0
0 0
<COMMON> 153,576 117,018
<OTHER-SE> (16,320,891) (7,449,455)
<TOTAL-LIABILITY-AND-EQUITY> 14,319,517 20,908,198
<SALES> 4,747,175 15,608,412
<TOTAL-REVENUES> 4,747,175 15,608,412
<CGS> 3,652,843 11,309,236
<TOTAL-COSTS> 5,120,061 19,460,618
<OTHER-EXPENSES> (7,027) (15,263)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,019,014 2,594,202
<INCOME-PRETAX> (1,398,927) (6,528,337)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,398,927) (6,528,337)
<DISCONTINUED> 0 (2,377,817)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
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