SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): October 16, 1998
U.S. HOME & GARDEN INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-19899 77-0262908
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
655 Montgomery Street, Suite 500, San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 415-616-8111
--------------------------------------------------------------------------------
Former name or former address, if changed since last report
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Item 2. Acquisition or Disposition of Assets.
On October 16, 1998 (the "Closing") U.S. Home & Garden Inc. (the
"Registrant"), acquired all of the stock (the "Acquisition") of Ampro
Industries, Inc. ("Ampro") pursuant to the Stock Purchase Agreement, dated as of
October 15, 1998 (the "Purchase Agreement"), by and among Registrant, and each
of Kenneth W. Hilbert, John R. Hilbert, E. Scott Hilbert, Omer Messer and
Charles J. Holton (collectively the "Ampro Stockholders").
Ampro is engaged in the business of manufacturing and distributing consumer
lawn and garden care products, including specialty combinations of mulch,
fertilizer and grass or flower seed (the "Business"). The Registrant intends to
continue to engage in the Business.
As consideration for the Acquisition, the Ampro Stockholders received an
aggregate base purchase price of approximately $21,469,000 less the amount
required to discharge certain outstanding indebtedness of Ampro, as more
particularly set forth in the Purchase Agreement, and adjusted dollar for dollar
based upon the value of the Stockholders' Equity included in the Final Closing
Date Balance Sheet (as defined in the Purchase Agreement) and to the extent the
value of collected accounts receivable exceed the amount of accounts receivable
included in Net Current Assets on the Final Closing Date Balance Sheet (as
defined in the Purchase Agreement) of Ampro. Additional payments were made by
the Registrant to acquire certain inventory of Ampro. Additional purchase price
payments for the 12 months ending September 30, 1999 and the 12 and 24 months
ending September 30, 2000 are contingent on Ampro achieving certain levels of
EBITDA (as defined in the Purchase Agreement). The consideration paid for the
Acquisition was determined by negotiations between the representatives of the
Registrant and the Ampro Stockholders.
In conjunction with the Acquisition, certain of the Ampro Stockholders
agreed not to compete in the United States with the Business for a period of
five years from the Closing and in return received aggregate payments from the
Registrant of $1.0 million.
The source of the consideration paid for the Acquisition was provided from
the proceeds of a loan to the Registrant from The Bank of America National Trust
and Saving Association (the "Bank"), pursuant to a credit agreement dated as of
October 13, 1998 between the Registrant and the Bank.
The descriptions of the Purchase Agreement described herein is qualified in
its entirety by reference to the copy of the Purchase Agreement which is filed
as an exhibit to this Report and which is incorporated herein by reference.
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Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
A. Financial Statements of the Business Acquired.
It is impractical to provide the required financial information at this
time. The required financial information for the business acquired will be filed
under cover of Form 8-K/A within 60 days of the date this Form 8-K was required
to be filed.
B. Pro Forma Financial Information.
It is impracticable to provide the required pro forma financial information
at this time. The required pro forma financial information will be filed under
cover of Form 8-K/A within 60 days of the date this Form 8-K was required to be
filed.
C. Exhibits
Exhibit 2.1 - Stock Purchase Agreement, dated as of October 15, 1998, by
and among the Registrant and the Ampro Stockholders.
Exhibit 2.2 - List of Omitted Schedules/Exhibits to Purchase Agreement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. HOME AND GARDEN INC.
By: /s/ RICHARD J. RALEIGH
---------------------------
Richard J. Raleigh,
Chief Operating Officer
Date: October 30, 1998
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STOCK PURCHASE AGREEMENT
BETWEEN
U.S. HOME & GARDEN, INC.
AND
each of KENNETH W. HILBERT, E. SCOTT HILBERT,
JOHN R. HILBERT, OMER MESSER and CHARLES J. HOLTON
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TABLE OF CONTENTS
Page
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1. Purchase and Sale of Company Stock...................................2
2. Purchase Price..................................................2
2.1. Base Price.............................................2
2.2. Cash Consideration Adjustments.........................3
2.2.1. Closing Balance Sheet...........................3
2.2.2. Trial Closing Balance Sheet.....................4
2.2.3. Adjustment......................................6
2.2.4. No Double Recovery..............................7
2.2.5. Accounts Receivable.............................7
2.3. Contingent Purchase Price..................................9
2.3.5. Protective Provisions..........................13
2.3.6. Procedures to Determine EBITDA.................14
2.3.7. Future Payments................................17
2.4. Founder's Pension.........................................18
3. Closing.............................................................18
3.1. Closing Date..............................................18
3.2. Action by Buyer...........................................19
3.3. Action by the Selling Shareholders........................19
3.4. Shareholder Debt..........................................20
4. Additional Covenants................................................21
4.1. Further Assurances........................................21
4.2. Investigation.............................................21
4.3. Consummation of Transaction...............................22
4.4. Cooperation...............................................23
4.5. Accuracy of Representations...............................23
4.6. Notice of Material Change.................................24
4.7. Conduct of Business.......................................24
4.8. Payment of Taxes Upon Transfer of Company Stock...........29
4.9. Survival of Representations and Warranties................29
4.10.Discharge of Liens........................................30
4.11.Employment Agreements.....................................30
4.12.Certain Intellectual Property. ..........................30
4.13.[This section intentionally left blank.]..................30
4.14.Permitted Transactions....................................30
4.14.1. Disposition of Landscaping Products
Distribution Business.........................31
4.14.2. Spin-Off of Sea Dragon, Inc...................31
4.14.3. E.B. Collectibles, Inc........................32
4.14.4. Garden Spreader...............................32
4.14.5. Automobiles...................................32
4.15.Tax Refunds...............................................33
4.16.Final Tax Return..........................................34
5. Representations and Warranties as to the Company....................34
5.1. Organization, Standing and Power..........................34
5.2. Capitalization............................................35
5.3. Interests in Other Entities...............................36
5.4. Financial Statements......................................36
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5.5. Absence of Undisclosed Liabilities........................37
5.6. Properties................................................38
5.7. Accounts Receivable; Inventories..........................39
5.8. Absence of Changes........................................40
5.9. Litigation................................................41
5.10.No Violation of Law.......................................41
5.11.Environmental Matters.....................................42
5.12.Intellectual Property.....................................44
5.13.Tax Matters...............................................45
5.14.Insurance.................................................46
5.15.Banks; Powers of Attorney.................................46
5.16.Employee Arrangements.....................................46
5.17.ERISA.....................................................47
5.17.1 Plans.........................................47
5.17.2. Qualification.................................48
5.17.3. Plan Documents................................48
5.17.4. No Prohibited Transactions....................48
5.17.5. No Accumulated Funding Deficiency.............49
5.17.6. Termination, etc..............................49
5.17.7. Reportable Events.............................49
5.17.8. Multiemployer Plans...........................49
5.17.9. Contributions; Benefits.......................49
5.17.10.Claims........................................50
5.18.Certain Business Matters..................................50
5.19.Certain Contracts.........................................51
5.20.Approvals.................................................52
5.21.Customers and Suppliers...................................53
5.22.Business Practices and Commitments........................53
5.23.Certain Proceedings.......................................53
5.24.Inventory on Consignment..................................54
6. Representations and Warranties as to the Selling
Shareholders...................................................54
6.1. Standing and Authority....................................54
6.2. Ownership of the Company Stock............................55
6.3. Noncontravention..........................................56
6.4. Certain Proceedings.......................................57
6.5. Acknowledgment............................................57
6.6. Information as to the Selling Shareholders................58
7. Representations and Warranties as to Buyer..........................58
7.1. Organization, Standing and Power..........................58
7.2. Authority.................................................58
7.3. Noncontravention..........................................59
7.4. Investment Intent.........................................60
7.5. Certain Proceedings.......................................60
7.6. Acknowledgment............................................61
7.7. Information as to Buyer...................................61
8. Indemnification.....................................................62
8.1. Indemnification by the Selling Shareholders...............62
8.2. Limitations...............................................63
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Page
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(a) Time Period..................................63
(b) Basket and Ceiling...........................63
8.3. Indemnification by Buyer..................................64
8.4. Third Party Claims........................................65
8.5. Central Fiber Indemnity...................................67
9. Nondisclosure; Noncompete; Termination..............................68
9.1. "Confidential Information" Defined........................68
9.2. Nondisclosure of Confidential Information.................68
9.3. Noncompete Covenants......................................68
9.4. Injunctive Relief, etc....................................71
9.5. Scope of Restriction......................................72
9.6. Termination Events........................................72
9.6.1. Breach........................................72
9.6.2. Conditions....................................72
9.6.3. Consent.......................................73
9.6.4. Upset Date....................................73
9.7. Effect of Termination.....................................73
10. Buyer's Closing Conditions.....................................74
10.1.Accuracy of Representations and Warranties................74
10.2.Performance of Agreements.................................74
10.3.Certificate...............................................75
10.4.Opinion of Counsel for the Company........................75
10.5.Litigation................................................75
10.6.Consents and Approvals....................................75
10.7.No Material Adverse Change................................76
10.8.Employment Agreements.....................................76
11. Selling Shareholders' Closing Conditions...........................76
11.1.Accuracy of Representations and Warranties................77
11.2.Performance of Agreements.................................77
11.3.Certificate...............................................77
11.4.Opinion of Counsel for Buyer..............................77
11.5.Litigation................................................78
11.6.Consents and Approvals....................................78
11.7.Employment Agreements.....................................78
12. Miscellaneous Provisions...........................................78
12.1.Expenses..................................................78
12.2.Execution in Counterparts.................................79
12.3.Notices...................................................79
12.4.Governing Law.............................................80
12.5.Amendment.................................................81
12.6.Entire Agreement..........................................81
12.7.Headings..................................................81
12.8.Assignment................................................81
12.9.Binding Effect; Benefits..................................81
12.10.Waiver, etc..............................................82
12.11.Severability.............................................82
12.12.Announcements............................................83
12.13.Schedules................................................83
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Index of Exhibits and Schedules
Page
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Exhibit A June 30 Balance Sheet...................................20
Exhibit B Escrow Agreement........................................31
Exhibit C C-1 Employment Agreement (Holton).......................31
C-1 Employment Agreement (Schwarz)......................31
C-1 Employment Agreement (Phelan).......................31
Exhibit D Opinion of Counsel for
Selling Shareholders....................................79
Exhibit E Opinion of Counsel for Buyer............................79
Schedule 2.2.3 Adjustment...............................................6
Schedule 3.4 Shareholder Debt; NBD Debt..............................21
Schedule 4.7 Conduct of Business.....................................25
Schedule 4.7.6 Sell/Lease/Mortgage of Property.........................27
Schedule 4.12 Certain Intellectual Property...........................31
Schedule 4.14.1A Rhino's Assets..........................................32
Schedule 4.14.1B Employees of Rhino......................................32
Schedule 4.14.1C Assumed Liabilities.....................................32
Schedule 4.14.3A E.B. Collectibles, Inc. Characters......................33
Schedule 4.14.3B E.B. Collectibles, Inc. Trademarks......................33
Schedule 4.14.4 Rights in Garden Spreader...............................33
Schedule 5.1 Organization, Standing and Power
of Company..............................................35
Schedule 5.2 Capitalization of the Company...........................35
Schedule 5.3 Interests in Other Entities
by the Company..........................................37
Schedule 5.4 Audited Balance Sheet (9/30/96 and 9/30/97)
and unaudited Balance Sheet (6/30/98)...................37
Schedule 5.5 Absence of Undisclosed Liabilities......................38
Schedule 5.6 Properties of the Company............................38-39
Schedule 5.7 Accounts Receivable and Inventories
of the Company..........................................40
Schedule 5.9 Litigation of the Company...............................41
Schedule 5.10 No Violation of Law by the Company......................42
Schedule 5.11 Environmental Matters of the Company....................43
Schedule 5.12 Intellectual Property of the Company....................45
Schedule 5.13 Tax Matters Relating to the Company.....................46
Schedule 5.14 Insurance Relating to the Company.......................46
Schedule 5.15 Banks; Powers of Attorney of the Company................47
Schedule 5.16 Employee Arrangements of the Company....................47
Schedule 5.17 ERISA...................................................48
Schedule 5.18 Certain Business Matters of the Company.................51
Schedule 5.19 Certain Contracts of the Company........................51
Schedule 5.20 Approvals...............................................53
Schedule 5.21 Customers and Suppliers.................................53
Schedule 5.22 Business Practices and Commitments......................54
Schedule 5.24 Inventory on Consignment................................55
Schedule 6.1 Standing and Authority of the
Selling Shareholders....................................55
Schedule 6.2 Ownership of the Company's Stock by the
Selling Shareholders....................................55
Schedule 6.3 Noncontravention (Selling Shareholders).................56
Schedule 7.3 Noncontravention (Buyer)................................60
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STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of the 15th day of October, 1998, by and among U.S.
Home & Garden, Inc., a Delaware corporation ("Buyer"), and each of Kenneth W.
Hilbert ("Ken"), John R. Hilbert ("John"), E. Scott Hilbert ("Scott"), Omer
Messer ("Messer") and Charles J. Holton ("Holton") (said individuals being
hereinafter collectively called the "Selling Shareholders" and severally, the
"Selling Shareholder").
W I T N E S S E T H :
WHEREAS, the Selling Shareholders are the owners of all of the issued and
outstanding shares of Common Stock of Ampro Industries, Inc., a Michigan
corporation (the "Company") (the "Company Stock"); and
WHEREAS, the Company is engaged in the business of manufacturing and
distributing consumer lawn and garden care products, including specialty
combinations of mulch, fertilizer, and grass or flower seed but excluding that
portion of the business described in Section 4.14 (the "Business"); and
WHEREAS, Buyer wishes to purchase all of the Company Stock from the Selling
Shareholders and thereby acquire the Business of the Company, as a going
concern, upon the terms and conditions hereinafter set forth.
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NOW, THEREFORE, in consideration of and in reliance upon the covenants,
conditions, representations and warranties herein contained, the parties hereto
hereby agree as follows:
1. Purchase and Sale of Company Stock.
Subject to the terms and conditions set forth in this Agreement and in
reliance upon the representations, warranties, covenants and conditions herein
contained, on the Closing Date (as defined in Section 3.1 hereof) each of the
Selling Shareholders, as to each of Ken, John and Scott, jointly and severally,
and as to Messer and Holton, severally in proportion to their ownership of
shares of the Company Stock, shall sell, convey, assign, transfer and deliver to
Buyer the Company Stock, free and clear of any and all liens, security
interests, pledges, assessments, covenants, restrictions, reservations,
conditional sales, prior assignments, or other encumbrances of any nature
whatsoever.
2. Purchase Price
2.1. Base Price. The base purchase price (the "Base Purchase Price") for
the purchase of the Company Stock by Buyer shall be $21,468,855.64 reduced by
long term indebtedness to First Chicago/NBD (including the current portion
thereof) paid pursuant to Section 3.4 (the "NBD Debt"), subject to adjustments
pursuant to Section 2.2 hereof (the "Cash Consideration") and in accordance with
Section 3.2. The Base Purchase Price, the additional purchase price payable
under Sections 2.2.5, 2.3.7 and 4.15, and the Contingent Purchase
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Price (as defined in Section 2.3) shall be referred to as the "Purchase Price."
2.2. Cash Consideration Adjustments.
2.2.1. Closing Balance Sheet. On or before 15 business days after the
Closing Date, the Selling Shareholders shall prepare and deliver to Buyer a
projected balance sheet of the Company as of the Closing Date (the "Trial
Closing Balance Sheet"), which balance sheet shall be based on the pro forma
balance sheet of the Company as of June 30, 1998 (the "June 30 Balance Sheet")
previously delivered to Buyer by the Company and attached hereto as Exhibit A,
prepared in accordance with U.S. generally accepted accounting principles
("GAAP") applied on a basis consistent with those applied in the preparation of
the Audited Balance Sheets (as defined in Section 5.6 hereof, except for the
elimination of the assets and liabilities being transferred pursuant to Section
4.14 and the absence of footnotes, and shall be presented in a form consistent
with the requirements of this Agreement. The Trial Closing Balance Sheet shall
be prepared at the Company's cost and expense. Following the Closing, the
Selling Shareholders shall cause the Trial Closing Balance Sheet to be audited
by BDO Seidman LLP ("BDO") at the Selling Shareholder's cost and expense, up to
a maximum of $17,500. If the cost of such preparation exceeds $17,500 such
excess shall be paid by the Buyer. Representatives of Buyer and the Selling
Shareholders shall be entitled to participate in and observe the audit of the
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Trial Closing Balance Sheet, at Buyer's expense, to whatever extent Buyer or the
Selling Shareholders may elect. The Company shall cause BDO to make available
their working papers to Buyer and the Selling Shareholders upon request. The
audited Trial Closing Balance Sheet (the "Audited Closing Balance Sheet") shall
be delivered to Buyer and the Selling Shareholders no later than November 30,
1998.
2.2.2. Trial Closing Balance Sheet. Upon delivery, the Audited Closing
Balance Sheet shall be reviewed by the Buyer and the Selling Shareholders. In
connection with such review, Buyer or the Selling Shareholders may, at their
expense, employ such tests and auditing procedures as they deem to be
appropriate under the circumstances. On the basis of such review, the Buyer or
the Selling Shareholders may, during the 15-day period following delivery of the
Audited Closing Balance Sheet, propose such adjustments (if any), as shall in
its judgment be required to cause the Audited Closing Balance Sheet to properly
reflect the financial condition of the Company as of the Closing Date in
accordance with GAAP applied on the same basis as set forth in Section 2.2.1,
provided, however, that no adjustments shall be proposed if such adjustments, in
the aggregate, do not exceed $20,000. In the event that Buyer and the Selling
Shareholders are unable to agree upon any such proposed adjustments within ten
days after they have been proposed, then, in such event, the specific
adjustment(s) in dispute shall be submitted to the Detroit or Chicago office of
one of PriceWaterhouseCoopers LLP, Arthur
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Andersen LLP, Deloitte & Touche LLP to be mutually agreed upon by the parties
(the "Arbitrator"), for its consideration to determine whether the adjustment is
in accordance with the terms of this Agreement. If the parties cannot agree on
the Arbitrator, each party shall strike one of the firms in the list set forth
above and the remaining firm shall be the Arbitrator. The fees of the Arbitrator
shall be paid one-half by Buyer and one-half by the Selling Shareholders, and
judgment of any circuit court or other court of competent jurisdiction may be
rendered thereon. The decision of the Arbitrator shall be final and binding upon
Buyer and the Selling Shareholders. The Audited Closing Balance Sheet shall
become final and binding upon the parties, (A) if neither the Buyer nor the
Selling Shareholders propose any adjustments thereto in accordance with the
terms of this Section, on the earlier of the date of written acceptance thereof
by the Buyer and the Selling Shareholders or 15 days after the delivery thereof
to the Buyer and the Selling Shareholders, or (B) if the Buyer or the Selling
Shareholders propose adjustments in accordance with the terms of this Section,
on the earlier of the date of written acceptance of the Audited Closing Balance
Sheet (as so adjusted) by Buyer and the Selling Shareholders or the date of the
receipt by Buyer and the Selling Shareholders of the decision of the Arbitrator
as to any adjustment(s) submitted to it for resolution. The Audited Closing
Balance Sheet, in the form in which it becomes final and binding upon Buyer and
the Selling Shareholders, shall be referred to as the "Final Closing Balance
Sheet."
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2.2.3. Adjustment. Schedule 2.2.3A attached hereto sets forth all
adjustments made to accounts receivable after June 30, 1998. Schedule 5.4
attached hereto includes the Unaudited Balance Sheet. Schedule 2.2.3B attached
hereto sets forth the unaudited pro forma balance sheet of the Company for the
Business as of September 30, 1998. The Purchase Price shall be increased or
decreased on a dollar-for-dollar basis to the extent that the Final Closing Date
Balance Sheet reflects changes in the Stockholders' Equity from June 30, 1998
(Purchase Price shall be increased if Stockholders' Equity is greater on the
Final Closing Balance Sheet; Purchase Price shall be decreased if Stockholders'
Equity is less on the Final Closing Balance Sheet), other than changes
attributable to:
(i) income or loss incurred since June 30, 1998 in the ordinary course of
the Company's Business;
(ii) a write off of inventory of $600,360; or
(iii) accrual of bonuses to employees of $354,000.
(iv) increase to bad debt reserve.
If there is an increase in the Purchase Price, then the amounts contained in the
Escrow Account (as defined in Section 3.2) shall be paid to the Selling
Shareholders within five (5) days following the final determination of the Final
Closing Balance Sheet. Such increase shall be paid by the Buyer to the Selling
Shareholders by wire transfer of immediately available funds to the Selling
Shareholders within five (5) days following the final determination of the Final
Closing Balance Sheet. If
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there is a decrease in the Purchase Price, the Escrow Agent (as defined in
Section 3.2) shall pay to the Buyer out of the balance of the Escrow Account the
amount by which the Purchase Price is reduced, and the balance of the Escrow
Account, if any, shall be paid to the Selling Shareholders by wire transfer of
immediately available funds within five (5) days following the final
determination of the Final Closing Balance Sheet. If the decrease in the
Purchase Price exceeds the balance of the Escrow Account (as defined in Section
3.2), then such excess amounts shall be paid by the Selling Shareholders to the
Buyer by wire transfer of immediately available funds to an account designated
by the Buyer within five (5) days following the determination of the Final
Closing Balance Sheet.
2.2.4. No Double Recovery. Notwithstanding any other provision in this
Agreement, if and to the extent included in the calculation of the adjustment
under Section 2.2.3, liabilities (which if not included in such calculation
would otherwise constitute a breach of Selling Shareholders' representations and
warranties) shall not constitute a breach of any of the Selling Shareholders'
representations and warranties and shall not give rise to any right of
indemnification or other recovery by Buyer under this Agreement.
2.2.5. Accounts Receivable. To the extent that collections of accounts
receivable of the Company outstanding or written off as of the Closing Date (the
"Closing Date Receivables") exceed the aggregate amount included
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for accounts receivable due in less than 90 days in the Final Closing Balance
Sheet, less the bad debt reserve on the books of the Company at June 30, 1998,
as such excess collections are made, Buyer shall pay the Selling Shareholders
such excess collections as additional purchase price. Within fifteen (15) days
after the end of each calendar quarter commencing with the calendar quarter
ending December 31, 1998, Buyer shall provide the Selling Shareholders with a
list of the accounts receivables as of the Closing Date showing which accounts
have been collected and if collections exceed the amount included for accounts
receivable in the Net Current Assets on the Final Closing Date Balance Sheet,
Buyer shall promptly pay the Selling Shareholders the excess, in proportion to
each Selling Shareholder's ownership of the Company Stock. Effective June 30,
1999, Buyer shall cause the Company to assign all uncollected Closing Date
Receivables to the Selling Shareholders, without recourse, provided that to the
extent that the amounts collected against the Closing Date Receivables is less
than the amount included in the Final Closing Balance Sheet, less the bad debt
reserve on the books of the Company at June 30, 1998, the Selling Shareholders
shall, prior to such transfer, pay Buyer the amount of such difference. Buyer
shall cause the Company to provide the Selling Shareholders with such
documentation and information as the Selling Shareholders may request to enable
the Selling Shareholders to collect the accounts receivable so assigned. On June
30, 1999, Buyer may elect to retain any or all of the uncollected Closing Date
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Receivables and not assign them to the Selling Shareholders, provided that in
such event Buyer shall promptly pay the Selling Shareholders the face amount of
the uncollected Closing Date Receivables they elect to retain and Buyer shall
have no further right to recover from the Selling Shareholders under the
representation and warranty in Section 5.7 or otherwise for amounts not
collected on such retained Closing Date Receivables. For purposes of this
Section 2.3.5, if a customer makes payment of a Closing Date Receivable and
offsets or deducts from such payment a credit for returns, volume discounts or
advertising allowances, to the extent the aggregate of such offsets or
deductions do not exceed the aggregate reserves for returns, volume discounts
and advertising allowances on the books of the Company at June 30, 1998, the
Selling Shareholders shall be entitled to payment based on the amount of the
Closing Date Receivable before such offset or deduction.
2.3. Contingent Purchase Price. The Buyer will pay the Selling Shareholders
additional consideration for the Company Stock (the "Contingent Purchase Price")
as follows:
2.3.1. If the Company's EBITDA (as hereinafter defined) for the twelve
months ended September 30, 1999 is equal to or greater than (A) $7,000,000,
Buyer will pay the Selling Shareholders $5,000,000; (B) $6,500,000 but less than
$7,000,000, Buyer will pay the Selling Shareholders $3,500,000 plus $3 for each
dollar that EBITDA exceeds
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$6,500,000 for such period, up to a maximum of an additional $1,500,000; and (C)
$5,500,000 but less than $6,500,000, Buyer will pay the Selling Shareholders
$2,000,000.
2.3.2. If the Company's EBITDA (as hereinafter defined) for the twelve
months ended September 30, 2000 is equal to or greater than (A) $7,000,000,
Buyer will pay the Selling Shareholders $3,000,000 or (B) $6,500,000 but less
than $7,000,000, Buyer will pay the Selling Shareholders $1,500,000 plus $3 for
each dollar that EBITDA exceeds $6,500,000 for such period, up to a maximum of
an additional $1,500,000.
2.3.3. If the Company's EBITDA for the twenty-four month period ending
September 30, 2000 (the "Earnout Period") is (A) greater than or equal to
$16,000,000, Buyer will pay the Selling Shareholders $6,000,000 (in addition to
the amounts payable pursuant to clauses 2.3.1 and 2.3.2 above) or is (B) greater
than or equal to $15,000,000 but less than $16,000,000, Buyer will pay the
Selling Shareholders $3,000,000 (in addition to the amount payable pursuant to
clause 2.3.1 and 2.3.2 above).
2.3.4. The Company's EBITDA shall be calculated based on the financial
statements prepared by the Buyer's regular accountants in accordance with GAAP,
consistently applied and this Section 2.3. As used in Section 2.3, the term
"EBITDA" shall mean the net earnings (or losses), excluding extraordinary gains
(or losses), before all interest, income (federal and state) taxes, Michigan
single business
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taxes, franchise taxes, depreciation, and amortization of the Company, computed
on the accrual basis of accounting in accordance with GAAP consistently applied,
except that the following provisions shall govern the computation of EBITDA for
purposes of this Section 2.3:
(1) All accounting assumptions, procedures, and methodologies shall be
implemented on a consistent basis. If Buyer makes a material change in
the accounting principles of the Business (other than such changes
which are required by law or financial reporting purposes in
accordance with GAAP), Buyer shall cause EBITDA to be calculated in a
manner as if such change was not made;
(2) Any payments, fees, charges, or expenses to Buyer and/or its
affiliates (other than for the Company's allocable portion of yearly
audit expenses which amount shall not exceed $25,000) paid by the
Company to Buyer for
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allocation of executive, general, managerial and administrative
expenses shall be excluded from such computation.
(3) If during the Earnout Period, Buyer elects to consolidate or combine
operations other than those historically conducted by the Company, and
the management of the Company takes on additional responsibilities or
other Company resources are used for the benefit of operations that
are not included in the computation of the Company's EBITDA, costs
will be allocated in such fashion as to fairly account for expenses
incurred for the benefit of
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operations that are not included in the computation of the Company's
EBITDA. If during the Earnout Period Buyer acquires one or more
businesses that are not included in the computation of the Company's
EBITDA, or if Buyer elects to sell any material assets of the Business
or to have the Company operated other than in the ordinary course of
business consistent with operations prior to the Closing, appropriate
adjustments will be made in the computation of the Company's EBITDA to
compute the Company's EBITDA as if such acquisition or acquisitions,
sale of assets or deviation from
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operation in the ordinary course of business consistent with
operations prior to the Closing did not occur.
(d) EBITDA shall be computed after taking into account any indemnification,
payment or undertaking by the Selling Shareholders to the extent the Company is
protected from or reimbursed for any item of expense, deduction or loss.
2.3.5. Protective Provisions. The parties intend that the Contingent
Purchase Price be calculated, applied, and implemented in a manner that is fair
and reasonable to the Selling Shareholders and the Buyer and consistent with
this Agreement. Buyer shall act in good faith and a reasonable manner in its
control of the Business and determination of the earnout. The Selling
Shareholders agree that transactions approved by Holton in writing shall be
deemed to be fair and reasonable. During the Earnout Period, Buyer shall:
(a) cause all transactions between Buyer and affiliates of Buyer, on the
one hand, and the Company, on the other hand, to be conducted on an arm's length
basis on terms and conditions at least as favorable to the Company as the
Company could obtain from persons who were not Buyer or affiliates of Buyer;
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(b) permit the Selling Shareholders and their agents, attorneys, and
accountants to have reasonable access upon reasonable notice, during regular
business hours to all books and records of the Company during (i) each 30 day
period following the delivery by USH&G of the statements pursuant to Section
2.3.6(a)(iii) and (b)(iii) and (ii) during the period required to resolve any
objections to the calculation of the EBITDA or Contingent Purchase Price;
(c) cause the Company to maintain accounting books and records that are the
basis for the calculation of EBITDA.
2.3.6. Procedures to Determine EBITDA.
(a) As soon as reasonably practicable after September 30, 1999, and in any
event on or prior to December 1, 1999, Buyer shall deliver to the Selling
Shareholders: (i) financial statements for the Company for the nine month period
ending June 30, 1999 which will be based on the audited statements for Buyer for
the same period audited by the firm of certified public accountants then serving
Buyer (the "Auditors"), with the costs of such audit to be borne by Buyer; (ii)
financial statements for the Company for the period from July 1, 1999 through
September 30, 1999; (iii) a statement setting forth Buyer's calculation of the
amount of the Contingent Purchase Price for the twelve months ended September
30, 1999; and (iv) wire transfer of immediately available funds
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in the amount of the Contingent Purchase Price, if any, as so determined to the
Selling Shareholders.
(b) As soon as reasonably practicable after September 30, 2000, and in any
event on or prior to December 1, 2000, Buyer shall deliver to the Selling
Shareholders: (i) financial statements for the Company for the nine month period
ending June 30, 2000 which will be based on the audited statements for Buyer for
the same period; (ii) unaudited financial statements for the Company for the
period from July 1, 2000 through September 30, 2000; and (iii) a statement
setting forth Buyer's calculation of the amount of the Contingent Purchase Price
for the twelve and twenty-four month periods ended September 30, 1999 and 2000;
and (iv) wire transfer of immediately available funds in the amount of the
Contingent Purchase Price as so determined to the Selling Shareholders.
(c) Buyer and the Selling Shareholders shall, throughout the entire period
from the date of this Agreement to the date of the deliveries required by this
Section 2.3.6, at the request of any of the Selling Shareholders, meet and
discuss financial and business matters with prior reasonable notice and at
reasonable times relating to the calculations of the EBITDA for the Earnout
Period and the calculation of the amounts of the Contingent Purchase Price.
(d) If the Selling Shareholders object to any calculation of EBITDA or the
Contingent Purchase Price for any fiscal year, the Selling
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Shareholders shall, within 30 calendar days after receipt of the relevant
delivery under Section 2.3.6(a) or (b): (i) notify Buyer in writing of such
objection; and (ii) deliver to Buyer the calculation of the Selling Shareholders
of the EBITDA and the Contingent Purchase Price. If Buyer does not agree with
the objection of the Selling Shareholders, Buyer shall, within 15 calendar days
after receipt of such objection, notify the Selling Shareholders in writing of
such fact.
(e) The disagreement between Buyer and Selling Shareholders may then be
submitted by either Buyer or the Selling Shareholders for resolution to the
Arbitrator. Each of the parties shall, at its own expense, furnish the
Arbitrator and the other parties with such documents and other written
information as the Arbitrator may request. Each party may also furnish to the
Arbitrator such other written information and documents as it deems relevant,
with appropriate copies or notification being given to the other parties. The
Arbitrator may, at its discretion, conduct a conference concerning the
disagreement with Buyer and the Selling Shareholders, at which conference each
party shall have the right to present such additional documents, materials, and
other information and to have present such advisors, counsel and accountants as
each party shall choose in its sole discretion. The Arbitrator shall determine
the proportion of its fees and expenses to be paid by each of Buyer and the
Selling Shareholders, the greater the degree to which the Arbitrator has
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accepted the position of a party, the smaller the proportion of fees and
expenses assessed.
(f) The Arbitrator shall promptly render its decision on the question in
writing and such decision shall be final and binding on the parties and judgment
may be entered on the award by the circuit court or other court of competent
jurisdiction. Payment of any additional Contingent Purchase Price shall be made
by Buyer within five (5) business days of the decision of the Arbitrator.
2.3.7. Future Payments.
(d) Future Payments Based on Contingent Purchase Price. The Selling
Shareholders may agree to make cash payments to certain employees of the Company
out of the proceeds of the Contingent Purchase Price. In such event, the Selling
Shareholders intend to deduct such payments as expenses for the production of
income under Section 212 of the Code. If, however, the Internal Revenue Service
takes the position that the payments are treated as compensation from the
Company for federal income tax purposes, upon receipt of written notice from the
Selling Shareholders, Buyer agrees to amend Buyer's consolidated federal income
tax returns for the years in which such payments are made to take a deduction
for the amount of such payments and to pay the Selling Shareholders, as
additional purchase price, an amount equal to the reduction in federal income
taxes of Buyer attributable to the payment by the Selling Shareholders of such
amounts. The reduction in federal income taxes of Buyer shall be the decrease in
federal income taxes
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determined by computing the consolidated federal income tax liability of Buyer
and its subsidiaries without such deduction and the consolidated federal income
tax liability of Buyer and its subsidiaries with such deduction. Payment to the
Selling Shareholders of the additional purchase price shall be made promptly
after receipt by Buyer of the refund of taxes attributable to the amendment of
each of its consolidated federal income tax returns for the fiscal years in
which such payments are made, and shall be accompanied by a statement signed by
the chief financial officer of Buyer certifying that the amounts paid to the
Selling Shareholder represent the amount of the reduction in federal income
taxes of Buyer arising from the deduction of the payments made by the Selling
Shareholders.
(e) If deductions taken by Buyer pursuant to this Section 2.3.7 are
disallowed upon audit by the Internal Revenue Service, Buyer shall afford the
Selling Shareholders the right to appeal any such disallowance, at the expense
of the Selling Shareholders. If after such appeals have been exhausted, the
deductions are disallowed, the Selling Shareholders shall repay Buyer, any
amounts received from Buyer with respect to such disallowed deductions, within
five days of the date of assessment of such taxes and receipt by the Selling
Shareholders of a written request therefor.
2.4. Founder's Pension. At or prior to Closing, the pension obligations to
the former chairman of the Company and his wife shall be terminated.
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3. Closing.
3.1. Closing Date. The closing of the purchase and sale provided for herein
(the "Closing") shall take place at 10 A.M., New York time, at the offices of
Warner Norcross & Judd LLP, 900 Old Kent Building, Grand Rapids, Michigan, or at
such other place, time and date as may hereafter be mutually agreed upon by the
parties (such time and date of Closing being hereinafter called the "Closing
Date") but in no event later than October 15, 1998.
3.2. Action by Buyer. Subject to the terms and conditions herein contained,
on the Closing Date, Buyer shall deliver to the Selling Shareholders (in
addition to the documents and instruments to be delivered by it pursuant to
Sections 4 and 10 hereof), on account of the Purchase Price for the Company
Shares plus or minus any adjustments thereto as provided in Section 2.2, (i)
$20,848,192.82 adjusted pursuant to Sections 2.1, 2.2.5, 2.3.7, 3.4 and 4.15),
by wire transfer of immediately available funds to the accounts designated by
the Selling Shareholders, which consideration shall be paid pro rata in
accordance with their share ownership of the Company; and (ii) $1,000,000
deposited into an interest bearing escrow account (the "Escrow Account") with
Tenzer Greenblatt LLP (the "Escrow Agent") pursuant to the terms of the escrow
agreement, substantially in the form attached hereto as Exhibit B (the "Escrow
Agreement"), which consideration shall be held pending
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the determination of any adjustments to the Purchase Price as may be required
pursuant to Section 2.2.3.
3.3. Action by the Selling Shareholders. Subject to the terms and
conditions herein contained, on the Closing Date, the Selling Shareholders shall
deliver to Buyer (in addition to the documents and instruments to be delivered
by it or them pursuant to Sections 4 and 11 hereof): (i) stock certificates,
representing all the Company Stock issued and outstanding, which certificates
shall be endorsed in blank or accompanied by stock powers duly endorsed in blank
and accompanied by the requisite stock transfer stamps; and (ii) all third party
consents and governmental and administrative approvals, as shall be, in the
reasonable opinion of Buyer, necessary or appropriate in order to convey,
transfer and assign to and vest in Buyer good and marketable right, title and
interest in and to the Company Stock, free and clear of all Liens (as defined in
Section 6.3 hereof).
3.4. Shareholder Debt; NBD Debt.
(a) Except for the promissory note from John which is to be distributed to
the Selling Shareholders in exchange for stock of the Company, at Closing, the
Company shall pay the Selling Shareholders any amounts reflected on the books of
the Company as owed to the Selling Shareholders and the Selling Shareholders
shall pay the Company any amounts reflected
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on the books of the Company as owed by the Selling Shareholders as each are set
forth on Schedule 3.4.
(b) Buyer agrees that it will provide the Company with sufficient funds at
Closing to enable the Company to pay all indebtedness to First Chicago/NBD at
Closing.
4. Additional Covenants.
4.1. Further Assurances. Buyer and each of the Selling Shareholders hereby
agree that it or he shall from time to time after the Closing Date, take any and
all actions, and execute, acknowledge, deliver, file and/or record any and all
documents and instruments, as any other party may reasonably request in order to
more fully perfect the rights which are intended to be granted to such party
hereunder. To the extent any action required to be taken hereunder are the
result of the Spinoff Transactions (as defined in Section 4.14) or are costs
which if such action were taken prior to the Closing Date would be expenses of
the Selling Shareholders, such actions shall be the sole cost and expense of the
Selling Shareholders. All other costs associated with the provisions hereof
shall be the sole cost and expense of the Buyer.
4.2. Investigation. Between the date hereof and the Closing Date, or the
date that this Agreement is terminated in accordance with its terms (the
"Termination Date") (the period from the date of execution of this Agreement to
the Closing Date or the Termination Date is hereinafter referred to
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as the "Term of this Agreement"), Buyer may, directly and through its
representatives and at Buyer's sole cost and expense, make such investigation of
the Company and the Business as Buyer deems necessary or advisable, including
without limitation the completion of a Phase I environmental assessment of the
Company (the "Phase I Study"). In furtherance of the foregoing, Buyer and
Buyer's representatives shall have, during the Term of this Agreement, full
access to the premises and to the books and records of the Company, and the
officers of the Company shall cooperate fully with Buyer and its representatives
as well as furnish to Buyer and its representatives such financial and operating
data and other information with respect to the Company and the Business as Buyer
may from time to time reasonably request. Buyer shall not disclose or use any
Confidential Information (as defined in Section 9.1), which it obtains in
connection with the foregoing, except to the extent which it deems to be
necessary in order to evaluate the Business. In the event that the purchase and
sale transaction provided for herein is not consummated for any reason
whatsoever, Buyer shall promptly return to the Company all documents, workpapers
and other written materials (whether final or draft) which were prepared or
obtained by or on behalf of Buyer during the course of such investigation. Buyer
shall promptly notify the Selling Shareholders of any intention to proceed
beyond the Phase I survey.
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4.3. Consummation of Transaction. Each of the parties hereto hereby agrees
to use his or its best efforts to cause all conditions precedent to his or its
obligations and to the obligations of the other parties hereto to consummate the
transactions contemplated hereby to be satisfied, including, but not limited to,
using his or its best efforts to obtain all required consents, waivers,
amendments, modifications, approvals, authorizations, novations and licenses;
provided, however, that nothing herein contained shall be deemed to modify any
of the obligations imposed upon any of the parties hereto under this Agreement
or any agreement executed and delivered pursuant hereto.
4.4. Cooperation. Each of the parties hereto hereby agrees to fully
cooperate with the other parties hereto in preparing and filing any notices,
applications, reports and other instruments and documents which are required by,
or which are desirable in the reasonable opinion of any of the parties hereto in
respect of, any statute, rule, regulation or order of any governmental or
administrative body in connection with the transactions contemplated hereby.
4.5. Accuracy of Representations. Each party hereto agrees that during the
Term of this Agreement he or it will not intentionally enter into any
transaction or take any action, and will use his or its best efforts to prevent
the occurrence of any event, which would result in any of his or its
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representations, warranties or covenants contained in this Agreement or in any
agreement, document or instrument delivered pursuant hereto not to be true and
correct in all material respects, or not to be performed in all material
respects as contemplated, at and as of the time immediately after the occurrence
of such transaction or event.
4.6. Notice of Material Change. During the Term of this Agreement, each of
the Selling Shareholders agrees to cause the Company to give Buyer prompt notice
of (i) any materially adverse change in any of the information contained in the
representations and warranties contained in Section 5 or in the schedules or
exhibits thereto, which occurs prior to the Closing and (ii) any governmental
complaints, investigations or hearings relating to the Business (or
communications indicating that the same may be contemplated), or the receipt of
any written notice with respect to any requirement or obligation arising out of
any applicable laws relating to the Business, or the institution of any
litigation, action, claim, or proceeding relating to the Business.
4.7. Conduct of Business. Each of the Selling Shareholders covenants and
agrees to cause the Company, to conduct its business operations from September
30, 1998 until the Closing Date only in the ordinary course of business and in a
manner consistent with past practice and in compliance with applicable laws,
except pursuant to the terms hereof or unless
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Buyer shall otherwise agree in writing; and the Selling Shareholders shall use
their best efforts to cause the Company to preserve intact its business
organizations, to keep available the services of the respective current officers
(other than Ken, John, Scott and Messer), employees and consultants of the
Company and to preserve the present goodwill of the Company and its
relationships with customers, suppliers and other persons with whom it has
business relations. By way of illustration and not limitation, neither the
Company nor any Selling Shareholder shall, between the September 30, 1998 and
the Closing Date, directly or indirectly do, or propose or commit to do, any of
the following without the prior written consent of Buyer, except as set forth on
Schedule 4.7:
4.7.1. (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the common stock of the Company, (ii) split,
combine or reclassify any of its common stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for, shares
of its common stock, or (iii) purchase, redeem or otherwise acquire any shares
of common stock of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities;
4.7.2. authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber any shares of common stock of the
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Company, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities
convertible securities or any other securities or equity equivalents;
4.7.3. except to the extent required under existing written agreements as
in effect on the date of this Agreement, (i) increase the compensation or fringe
benefits of any of its directors, officers or employees, except for increases in
salary or wages of employees of the Company who are not officers of the Company
in the ordinary course of business, in accordance with past practice, (ii) enter
into employment arrangements, other than in the ordinary course of business
consistent with past practice, with any other employee of the Company involving
compensation in excess of $50,000, or (iii) establish, adopt, enter into, amend
or terminate any written agreement or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any directors, officers or employees.
4.7.4. amend its Articles of Incorporation or Bylaws or alter through
merger, liquidation, reorganization, restructuring or in any other fashion the
corporate structure or ownership of the Company;
4.7.5. acquire or agree to acquire (i) by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or corporation, partnership, joint venture, association or
other business organization or division thereof, or (ii) any
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assets that are material, individually or in the aggregate, to the Company
except purchases in the ordinary course of business consistent with past
practice;
4.7.6. except as set forth on Schedule 4.7.6 sell, lease, license, mortgage
or otherwise encumber or subject to any Lien or otherwise dispose of any of the
Company's properties or assets, except sales or dispositions in the ordinary
course of business consistent with past practice;
4.7.7. incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, or enter into any arrangement having the economic
effect of any of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice;
4.7.8. enter into any agreement, contract, commitment involving a
commitment on the part of the Company to purchase, sell, lease or otherwise
dispose of assets or require payment by the Company in excess of $25,000 other
than in the ordinary course of business;
4.7.9. expend funds for capital expenditures in excess of $25,000, other
than in the ordinary course of business;
4.7.10. adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing
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such a liquidation or dissolution, merger, consolidation, restructuring,
recapitalization or reorganization;
4.7.11. recognize any labor union (unless legally required to do so) or
enter into or amend any collective bargaining agreement;
4.7.12. change any accounting principles used by the Company, unless
required by the Financial Accounting Standards Board;
4.7.13. make any tax election or settle or compromise any income tax
liability or file any federal income tax return prior to the last day (including
extensions) prescribed by law, in the case of any of the foregoing, material to
the business, financial condition or results of operations of the Company, taken
as a whole;
4.7.14. settle or compromise any litigation in which the Company is a
defendant (whether or not commenced prior to the date of this Agreement) or
settle, pay or compromise any claims not required to be paid, which payments are
individually in an amount in excess of $25,000 and in the aggregate in an amount
in excess of $100,000;
4.7.15. authorize any of, or commit or agree to take any of the foregoing
actions; and
4.7.16. authorize or permit any of the Company's officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative, to solicit, initiate or encourage (including by way of
furnishing information) or take any other action to
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facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to an agreement or a mutual understanding as
to terms or the execution of a letter of intent or definitive agreement or
publicly announced agreement in principle with regard to a transaction or series
of transactions with a party other than Buyer, which transactions relate to the
sale or other disposition of the capital stock, assets or business of the
Company or any other financing, stock repurchase, restructuring (including any
merger or consolidation involving the Company), stock issuance or similar
transaction (other than in the ordinary course of business).
4.8. Payment of Taxes Upon Transfer of Company Stock. The Selling
Shareholders shall be responsible for, and shall pay, any and all sales, use,
purchase, transfer and similar taxes, and any and all filing, recording,
registration and similar fees, arising out of the sale of the Company Stock to
Buyer as contemplated by this Agreement.
4.9. Survival of Representations and Warranties. Each of the parties hereto
hereby agrees that all representations and warranties made by or on behalf of
him or it in this Agreement or in any document or instrument delivered pursuant
hereto shall, unless expressly provided otherwise herein, survive the Closing
Date and the consummation of the transactions contemplated hereby for the period
ending October
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31, 2000; provided that the representations and warranties of the Selling
Shareholders (a) in Section 5.10 (with respect to environmental matters and
Section 5.11 (Environmental Matters) shall survive for a period of fifteen (15)
years from the date hereof with respect to any claims which may be made by a
third party with respect to any matters set forth therein; (b) Section 5.13
(Taxes) shall survive for the applicable statute of limitations with respect to
any claims which may be made by a third party with respect to any matters set
forth therein; and (c) in Sections 6.1 through 6.4 shall survive indefinitely.
4.10. Discharge of Liens. The Shareholders shall cause all Liens upon any
of the Company Stock to be terminated or otherwise discharged at or prior to the
Closing.
4.11. Employment Agreements. On or prior to the Closing Date, the Company
shall execute and deliver Employment Agreements with each of Holton, Thomas
Schwarz ("Schwarz"), and Marty Phelan ("Phelan") in substantially the forms of
Exhibits C-1, C-2, and C-3 respectively attached hereto (the "Employment
Agreements") .
4.12. Certain Intellectual Property. As of the Closing, the Company
disavows (with the consent of Buyer) any right, title or interest, if any, in
and to the products, trade names, trademarks and businesses set forth on
Schedule 4.12.
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4.13. [This section intentionally left blank.]
4.14. Permitted Transactions. Buyer acknowledges that the Company and the
Selling Shareholders have engaged in the transactions described in this Section
4.14 (the "Spinoff Transactions") in preparation for and conjunction with the
Closing and consent thereto:
4.14.1. Disposition of Landscaping Products Distribution Business.
Immediately prior to and in connection with the Closing, the Company assigned to
Rhino Seed & Supply, L.L.C., a Michigan limited liability company owned by Ken
and Scott ("Rhino"), the Company's assets described on Schedule 4.14.1A that are
associated with the Company's landscaping and nursery products distribution
business (including the seed lab) located in facilities in Bradley and Brighton,
Michigan. In addition, Rhino has employed those persons formerly employed by the
Company and named on Schedule 4.14.1B. In consideration of the assignment of the
assets described on Schedule 4.14.1A, Rhino has assumed the liabilities
described on Schedule 4.14.1C.
4.14.2. Spin-Off of Sea Dragon, Inc. Immediately prior to and in connection
with the Closing, the Company assigned to John all 100 shares of the common
stock of Sea Dragon, Inc., a Michigan corporation, owned by the Company. In
consideration of the assignment of such shares, John delivered to the Company
his promissory note in the amount of
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$150,000 (the "Sea Dragon Promissory Note"). Immediately prior to and in
connection with the Closing, Company redeemed from the Selling Shareholders on a
pro rata basis shares of the common stock of the Company in exchange for
distribution to them of the Sea Dragon Promissory Note.
4.14.3. E.B. Collectibles, Inc. Immediately prior to the Closing, the
Company assigned to E.B. Collectibles, Inc., a Michigan corporation owned by
John and Holton ("E.B."), any and all of the Company's rights in the characters
described on Schedule 4.14.3A and the Company's trademarks and trademark
registrations described on Schedule 4.14.3B, which characters, trademarks and
trademark registrations are associated with the stuffed plush toys commonly
known as the Garden BabiesTM or Earth BabiesTM collection. In addition, the
Company and E.B. entered into a Distribution Agreement, a copy of which has been
delivered by the Company to USH&G and the Buyer, pursuant to which E.B. granted
to the Company a nonexclusive one year license to market, distribute and sell
stuffed plush toys commonly known as the Garden BabiesTM or Earth BabiesTM
collection and based on the characters described on Schedule 4.14.3A in exchange
for a royalty equal to 15% of the gross sales of such toys.
4.14.4. Garden Spreader. Immediately prior to and in connection with the
Closing, the Company assigned to Holton any and all of the Company's rights in a
garden spreader invented by Holton and depicted on Schedule 4.14.4 and the
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Company's United States trademark application number 75/508,691 for Bomber
GateTM.
4.14.5. Automobiles. The automobiles leased by the Company and used by Ken,
John, Scott and Messer will be assigned to, and all liabilities of the Company
with respect thereto shall be assumed by, Ken, John, Scott and Messer,
respectively, at the Closing. Ken, John, Scott and Messer agree to obtain a
novation or release of the Company from any obligations under the leases of such
automobiles, within thirty (30) days of the Closing Date.
4.14.6 Hilbert Investments. Immediately prior to and in connection with the
Closing, the Company terminated its equipment lease with Hilbert Investments,
L.L.C., a Michigan limited liability company owned by Ken, John and Scott
("Hilbert Investments"), pursuant to which equipment lease the Company leased
from Hilbert Investments a 25 horsepower aircooled rotary screw air compressor.
In addition, Hilbert Investments assigned to the Company all of its right, title
and interest in and to such air compressor in exchange for $6,407.90, and
Hilbert Investments paid the Company $2,580.00 in satisfaction of Hilbert
Investments' note payable to the Company.
4.15. Tax Refunds. Buyer shall cause the Company to pay to the Selling
Shareholders as additional purchase price the amount of all foreign, federal,
state and local tax refunds received by the Company for any period ending
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on or before the Closing Date other than refunds resulting from losses incurred
for periods after the Closing Date. Within fifteen (15) days of receipt of any
such refund, Buyer shall cause the Company to pay the Selling Shareholders the
amount of such refunds, in proportion to their ownership of Company Stock. All
tax returns for the Company for periods ending on or before the Closing Date
shall be prepared under the direction of the Selling Shareholders or their
representatives by Selling Shareholders at the expense of the Selling
Shareholders. The Selling Shareholders shall as promptly as possible prepare and
file all necessary tax returns due with respect to the periods ending prior to
the Closing Date.
4.16. Final Tax Return. The Selling Shareholders shall, at their expense,
prepare and file, and pay any taxes due thereunder, and otherwise be responsible
for all of the Company's tax returns due for the fiscal year ending September
30, 1998, and the period ending on the Closing Date and all periods prior
thereto.
5. Representations and Warranties as to the Company. The Selling
Shareholders hereby as to Ken, John and Scott, jointly and severally, and as to
Messer and Holton, severally in proportion to their ownership of the Company
Stock, represent and warrant to Buyer as follows:
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5.1. Organization, Standing and Power. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan, with full corporate power and authority to own, lease and operate its
properties and to carry on its business as presently conducted by it. Except as
set forth on Schedule 5.1, there are no states or jurisdictions in which the
character and location of any of the properties owned or leased by the Company,
or the conduct of its business, makes it necessary for it to qualify to do
business as a foreign corporation, except where such failure to be so qualified
would not have a material adverse effect on the Company. Copies of the Articles
of Incorporation of the Company and all amendments thereof, and of the Bylaws of
the Company, as amended to date, have been furnished to Buyer and are complete
and correct. The Company's minute books heretofore exhibited to Buyer contain,
in all material respects, complete and accurate records of all meetings and
other corporate actions of the Company's shareholders and Board of Directors
(including committees of its Board of Directors) for the last five years.
5.2. Capitalization. The authorized capital stock of the Company consists
of 60,000 shares of common stock, par value $1.00 per share, of which 4,691.68
shares are issued and outstanding. All issued shares of the Company Stock have
been duly and validly issued and are fully paid and nonassessable. Except as set
forth on Schedule 5.2, there are no outstanding options, warrants, rights, puts,
calls,
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commitments, conversion rights, plans or other agreements of any character to
which the Company is or the Selling Shareholders are a party or otherwise bound
which provide for the acquisition, disposition or issuance of any issued but not
outstanding, outstanding, or authorized and unissued shares of Company Stock.
There is no personal liability, and there are no preemptive or similar rights,
attached to the Company Stock. Set forth on Schedule 5.2, is a complete and
correct list of the names, addresses and record and beneficial stock ownership
of all of the shareholders of the Company. No holders of any of the Company's
securities has any rights, "demand," "piggy-back" or otherwise, to have such
securities registered under the Securities Act of 1933, as amended (the "Act").
5.3. Interests in Other Entities. Except as set forth on Schedule 5.3, the
Company does not (A) own, directly or indirectly, of record or beneficially, any
shares of voting stock or other equity securities of any other corporation, (B)
have any ownership interest, direct or indirect, of record or beneficially, in
any unincorporated entity, or (C) have any obligation, direct or indirect,
present or contingent, (1) to purchase or subscribe for any interest in, advance
or loan monies to, or in any way make investments in, any person or entity, or
(2) to share any profits or capital investments or both.
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5.4. Financial Statements. As set forth on Schedule 5.4, the Selling
Shareholders have heretofore delivered to Buyer copies of the Company's audited
balance sheets for the years ended, September 30, 1996 and September 30, 1997
(the "Audited Balance Sheets"), together with the related statements of income,
changes in financial position and changes in stockholders' equity for the years
ended on such dates, certified without qualification by Ernst & Young LLP,
independent certified public accountants, and a copy of the Company's unaudited
balance sheet as of June 30, 1998 (the "Unaudited Balance Sheet"), and the
related statements of income, changes in financial position and changes in
stockholders' equity for the nine (9) month period then ended. Said financial
statements were prepared in accordance with GAAP consistently applied, and
fairly present the financial position of the Company as at the dates thereof and
its results of operations for the periods indicated, except for the absence of
footnotes to the financial statements and normal recurring adjustments which
might be required as a result of year-end audit. The books and records of the
Company are in all material respects complete and correct, have been maintained
in accordance with good business practices, and accurately reflect the basis for
the financial condition of the Company as set forth in the aforementioned
financial statements.
5.5. Absence of Undisclosed Liabilities. Except as set forth in Schedule
5.5, the Company has no liabilities or
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obligations of any nature whatsoever, whether accrued, absolute, contingent or
otherwise, which have not been (i) in the case of liabilities and obligations of
a type customarily reflected on a corporate balance sheet prepared in accordance
with generally accepted accounting principles, set forth on the Unaudited
Balance Sheet or (ii) in the case of other types of liabilities and obligations,
described in any of the schedules delivered pursuant hereto or omitted from said
schedules in accordance with the terms of this Agreement, or (iii) incurred,
consistent with past practice, in the ordinary course of business since June 30,
1998 (in the case of liabilities and obligations of the type referred to in
clause (i) above).
5.6. Properties. Except as set forth on Schedule 5.6, the Company has good,
valid and marketable title to all of the real property and fixtures used in the
Business and good, valid and marketable title to all of the other properties and
assets used in the Business reflected on the Audited and Unaudited Balance
Sheets or thereafter acquired (except properties or assets sold or otherwise
disposed of in the ordinary course of business) free and clear of any and all
Liens All plants, structures and equipment which are utilized in the Business,
or are material to operations or condition (financial or otherwise) of the
Company are owned or leased by the Company and are in good operating condition
and repair (ordinary wear and tear excepted), and are adequate and suitable for
purposes for which they are used. Schedule 5.6 sets forth
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all (A) real property which is owned, leased (whether as lessor or lessee) or
subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by the Company or which is subject to a title retention or
conditional sales agreement or other security device, and (B) personal property
which is owned, leased (whether as lessor or lessee) or subject to contract or
commitment of purchase or sale or lease (whether as lessor or lessee) by the
Company. Each of the real properties identified on Schedule 14.14.1A is a
"Parent Parcel" as such term is defined in the Land Division Act, MCLA 560.101,
et seq. Except for the assignment of division rights to Rhino with such property
in connection with the Spinoff Transactions, the Company has not assigned or
conveyed any division or redivision rights under the Land Division Act and which
are associated with its real property.
5.7. Accounts Receivable; Inventories. The accounts and notes receivable
which are reflected on the Final Closing Balance Sheet are good and collectible
in the ordinary course of business at the aggregate recorded amounts thereof,
less the amount of the allowance for doubtful accounts reflected thereon, and
are not subject to offsets. The accounts and notes receivable of the Company
which were thereafter added and which will be reflected on the Final Closing
Balance Sheet are good and collectible in the ordinary course of business at the
aggregate amounts recorded in its books of account, less the amount of the
allowance for doubtful accounts reflected thereon
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(which allowance was established on a basis consistent with prior practice), and
are not subject to offsets. The inventories reflected on the Audited and
Unaudited Balance Sheets, and thereafter added, as reflected on the Closing Date
Balance Sheet, consist of items of a quality and quantity usable or saleable
within one year (except as set forth on Schedule 5.7) in the ordinary course of
business, except for obsolete materials, slow-moving items, materials of below
standard quality and not readily marketable items, all of which have been
written down to net realizable value or adequately reserved against on the books
and records of the Company. To the extent there is inventory not listed on
Schedule 5.7 of a quality and quantity not usable or saleable in the ordinary
course of business within one year, in lieu of a claim for indemnification,
Buyer shall sell and the Selling Shareholders shall purchase such items of
inventory at the value carried on the Final Closing Balance Sheet. All
inventories not written off are stated at the lower of cost or market.
5.8. Absence of Changes. Since June 30, 1998, there has not been (i) any
material adverse change in the condition (financial or otherwise), assets,
liabilities, business, prospects, or results of operations of the Company
(including, without limitation, any such material adverse change resulting from
damage, destruction or other casualty loss, whether or not covered by
insurance), (ii) any waiver by the Company of any right, or cancellation of any
debt or claim, of
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substantial value, (iii) any declaration, setting aside or payment of any
dividend or other distribution or payment in respect of the capital stock of the
Company, (iv) any change in any of the arrangements which are referred to in
Section 5.15 hereof, or (v) or any change in the accounting principles or
methods which are utilized by the Company.
5.9. Litigation. Other than as set forth in Schedule 5.9 there are no
claims, suits, actions, arbitration, or to the Selling Shareholders' knowledge,
investigations, inquiry or other proceeding before any governmental agency,
court or tribunal, domestic or foreign, or before any private arbitration
tribunal, pending or, to the knowledge of the Selling Shareholders, threatened,
against or relating to the Company, related to the Business or any of the
Company assets; nor, to their knowledge is there any basis for any such claim,
suit, action, arbitration, investigation, inquiry or other proceeding. There are
no judgments, orders, stipulations, injunctions, decrees or awards in effect
which relate to the Company, the Business or any of the Company assets, the
effect of which is (A) to materially limit, restrict, regulate, enjoin or
prohibit any business practice in any area, or the acquisition of any
properties, assets or businesses, or (B) otherwise materially adverse to the
Business or any of the Company assets.
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5.10. No Violation of Law. Except as set forth on Schedule 5.10, the
Company has not engaged and is not engaging in any activity or omitting to take
any action as a result of which (A) it is or has been in violation of any state
or federal law, rule, regulation, zoning or other ordinance, statute, order,
injunction or decree, or any other requirement of any court or governmental or
administrative body or agency, applicable to the Company, the Business or any of
the Company assets, including, but not limited to, those relating to:
occupational safety and health; business practices and operations; labor
practices; employee benefits; and zoning and other land use, and (B) the
Company, the Business and/or any of the Company assets have been or may be
adversely affected thereby.
5.11. Environmental Matters. Except as set forth on Schedule 5.11, (i) the
properties and facilities of the Company are not being and have never been used
to make, store, handle, treat, dispose, generate, or transport hazardous
substances in violation of any Environmental Laws; (ii) hazardous substances are
not and have never been made, stored, handled, treated, disposed of, generated,
or transported on or from the properties and facilities of the Company, except
in accordance with applicable Environmental Laws then in effect; (iii) the
properties, facilities and operations of the Company have not previously failed
to and as of the date hereof do comply in all material respects with all
applicable
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Environmental Laws (as defined herein); (iv) none of the properties, facilities
or operations of the Company have been or are subject to any currently pending
judicial or administrative proceedings alleging the violation of any
Environmental Laws; (v) to the best of the Selling Shareholders' knowledge, none
of the properties, facilities or operations of the Company have been or are the
subject of federal, state or local investigation evaluating whether any remedial
action is needed to respond to a release of any hazardous or toxic waste,
substance or constituent, any petroleum or petroleum product, or any other
hazardous, illegal or unlawful substance into the environment; (vi) the Company
has not filed nor is presently required to file any notice under any federal,
state, or local law indicating past or present treatment or disposal of a
hazardous waste, hazardous substance or any petroleum or petroleum product, or
reporting a spill or release of a hazardous or toxic waste, substance or
constituent, any petroleum or petroleum product, or any other substance into the
environment; and (vii) the Company has never received notice nor is it aware of
any contingent liability in connection with any release of any hazardous or
toxic waste, substance or constituent, any petroleum or petroleum product, or
any other substance into the environment.
For purposes hereof, "Environmental Laws" means all Federal, state and
local laws, rules, regulations, permits, orders, judgments, injunctions and
decrees, including common law, relating to hazardous substances and
environmental matters applicable to the Business and the facilities of the
Company
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(whether or not owned by it). Such laws and regulations include, without
limitation, the Resource Conservation and Recovery Act of 1976 ("RCRA"); the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"); the Toxic Substance Control Act; the Clean Water Act; and the Clean
Air Act, all as amended from time to time; state and Federal superlien and
environmental cleanup programs; and U.S. Department of Transportation hazardous
materials transportation regulations. The terms "hazardous substance" and
"release" shall have the meanings specified in CERCLA and the terms "solid
waste" and "disposed," the meaning specified in RCRA as of the Closing Date;
provided, further, however, that to the extent a parcel of real property is
situated in a state or other jurisdiction in which as of the Closing Date, the
applicable Environmental Laws may establish a meaning for "hazardous substance,"
"release," "solid waste," or "disposal" which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply.
5.12. Intellectual Property. Subject to Section 4.12, Schedule 5.12 is a
complete and correct list of all (A) United States and foreign patents,
trademark and trade name registrations, trademarks and trade names, brandmarks
and brand name registrations, servicemarks and servicemark registrations,
assumed names and copyright registrations, owned in whole or in part or used by
the Company, and all applications therefor, (B) inventions, discoveries,
improvements, processes, formulae,
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proprietary rights and trade secrets relating to the Business, and (C) licenses
and other agreements to which the Company is a party or otherwise bound which
relate to any of the foregoing. Except as expressly set forth in said Schedule
5.12, (A) the Company owns or has the right to use all of the foregoing; (B) no
proceedings have been instituted, are pending or, to the knowledge of the
Selling Shareholders are threatened, which challenge the rights of the Company
in respect thereto or the validity thereof and, to the knowledge of the Selling
Shareholders, there is no basis for any such proceedings; (C) to the knowledge
of the Selling Shareholders, none of the aforesaid violates any laws, statutes,
ordinances or regulations, or has at any time infringed upon or violated any
rights of others, or is being infringed by others; and (D) none of the aforesaid
is subject to any outstanding order, decree, judgment, stipulation or charge.
All of the Company's formulations, labeling and packaging for its products
comply with all applicable federal, state and local laws. As of the Closing, the
Company will be in possession of true and correct copies of all formulations for
the Company's products.
5.13. Tax Matters. The Company has filed with the appropriate governmental
agencies all tax returns and reports required to be filed by it, and has paid in
full or made adequate provision for the payment of, all taxes, interest,
penalties, assessments and deficiencies shown to be due or claimed to be due on
such tax returns and reports. Except as
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set forth on Schedule 5.13, the Company has not executed or filed with any
taxing authority any agreement extending the period for the assessment or
collection of any income or other taxes, and is not a party to any pending or,
to the knowledge of the Selling Shareholders, threatened, action or proceeding
by any governmental authority for the assessment or collection of income or
other taxes.
5.14. Insurance. Attached hereto as Schedule 5.14 is a complete and correct
list and summary description of all policies of insurance relating to any of the
Company's assets or the Business in which the Company is an insured party,
beneficiary or loss payable payee. Such policies are in full force and effect,
all premiums due and payable with respect thereto have been paid, and no notice
of cancellation or termination has been received by the Company with respect to
any such policy. Since June 30, 1998, the Company has not sustained any material
loss or interference with its business from fire, storm, explosion, flood or
other casualty, whether or not covered by insurance, or from any labor dispute
or court of governmental action, order or decree.
5.15. Banks; Powers of Attorney. Schedule 5.15 is a complete and correct
list showing (i) the names of each bank in which the Company has an account or
safe deposit box and the names of all persons authorized to draw thereon or who
have
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access thereto, and (ii) the names of all persons, if any, holding powers of
attorney from the Company.
5.16. Employee Arrangements. Schedule 5.16 is a complete and correct list
and summary description of all (i) union, collective bargaining, employment,
management, termination and consulting agreements to which the Company is a
party or otherwise bound, and (ii) compensation plans and arrangements; bonus
and incentive plans and arrangements; deferred compensation plans and
arrangements; pension and retirement plans and arrangements; profit-sharing and
thrift plans and arrangements; stock purchase and stock option plans and
arrangements; hospitalization and other life, health or disability insurance or
reimbursement programs; holiday, sick leave, severance, vacation, tuition
reimbursement, personal loan and product purchase discount policies and
arrangements; and other plans or arrangements providing for benefits for
employees of the Company. Said Schedule also lists the names and compensation of
all employees of the Company whose earnings during the last fiscal year was
$50,000 or more (including bonuses and other incentive compensation), and all
employees who are expected to receive at least said amount in respect of the
present year.
5.17. ERISA.
5.17.1 Plans. Schedule 5.17 sets forth each "employee pension benefit plan"
(collectively called "the
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Company Pension Plans" and severally called "the Company Pension Plan"), as such
term is defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and each "employee welfare benefit plan"
(collectively called "the Company Welfare Plans" and severally called "the
Company Welfare Plan") as such term is defined in Section 3(1) of ERISA, which
is maintained by the Company or to which it contributes or is obligated or
required to contribute. The Company Pension Plans and the Company Welfare Plans
are hereinafter sometimes collectively referred to as the "Plans" and severally
referred to as a "Plan".
5.17.2. Qualification. Each Company Pension Plan and the trust (if any)
forming a part thereof has been determined by the IRS to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and is exempt from taxation under Section 501(a) of the Code, and nothing has
occurred since the date of such determination which would adversely affect such
qualification.
5.17.3. Plan Documents. The Selling Shareholders have heretofore delivered
to Buyer, true, complete and correct copies of (i) the Plans, and all related
trust agreements, (ii) all written interpretations and summary plan descriptions
relating thereto, (iii) the two most recent annual reports (Form 5500 Series)
and accompanying schedules which were prepared in connection with each Plan,
(iii) all IRS determination letters relating to the Plans, and (iv) the two
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most recent actuarial evaluation reports which were prepared in connection with
any of the Plans.
5.17.4. No Prohibited Transactions. Neither the Company, nor any of the
Plans, nor any trust created thereunder, nor any trustee or administrator
thereof, has engaged in a transaction which would subject the Company or any of
the Plans to the tax on prohibited transactions imposed by Section 4975 of the
Code or to a civil penalty assessed pursuant to Section 502(i) of ERISA.
5.17.5. No Accumulated Funding Deficiency. None of the Company Pension
Plans has incurred any "accumulated funding deficiency", as such term is defined
in Section 302 of ERISA and Section 412 of the Code, whether or not waived.
5.17.6. Termination, etc. The Company has not incurred, and is not expected
to incur, directly or indirectly, any liability to the Pension Benefit Guaranty
Corporation (the "PBGC") with respect to any the Company Pension Plan. The PBGC
has not instituted proceedings to terminate any the Company Pension Plan, nor
has it notified the Company, either formally or informally, of its intention to
institute any such proceedings.
5.17.7. Reportable Events. There have not been, with respect to any of the
Plans, any "reportable events", as such term is defined in Section 4043(b) of
ERISA.
5.17.8. Multiemployer Plans. The Company has never maintained or
contributed to, or been obligated or
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required to contribute to, a "multiemployer plan", as such term is defined in
Section 3(37) of ERISA.
5.17.9. Contributions; Benefits. The Company has paid in full all amounts
which were required to have been paid by it on or prior to the date hereof as
contributions to any of the Company Pension Plans. The current value of all
accrued benefits under each of the Company Pension Plans did not, as of the
latest valuation date thereof, exceed the then current value of the assets of
such the Company Pension Plan allocable to such accrued benefits, based upon the
actuarial assumptions then being utilized with respect thereto.
5.17.10. Claims. There are no pending, and to the best of the knowledge of
the Selling Shareholders there are no threatened, any claims against any of the
Plans or any fiduciary thereof (other than claims for benefits made in the
ordinary course).
5.18. Certain Business Matters. Except as is set forth in Schedule 5.18,
(A) the Company is not a party to or bound by any distributorship, dealership,
sales agency, franchise or similar agreement which relates to the sale or
distribution of any of the products and services of the Business, (B) there are
no pending, or to the knowledge of the Company threatened, labor negotiations,
work stoppages or work slowdowns involving or affecting the Business, and, to
the knowledge of the Selling Shareholders, no union representation questions
exist, and there are no organizing activities, in
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respect of any of the employees of the Company, (C) the product and service
warranties given by the Company or by which it is bound (complete and correct
copies or descriptions of which are set forth on Schedule 5.18), entail no
greater obligations than are customary in the business of the Company, (D) the
Company and/or the Selling Shareholders are not a party to or bound by any
agreement which limits its freedom to compete in any line of business or with
any person, or which is otherwise materially burdensome to it, and (E) the
Company is not a party to or bound by any agreement in which any officer,
director or stockholder of the Company (or any affiliate of any such person)
has, or had when made, a direct or indirect material interest.
5.19. Certain Contracts. Schedule 5.19 is a complete and correct list of
all contracts, commitments, indentures, mortgages, obligations, agreements and
understandings which are not set forth in any other Schedule delivered hereunder
and to which the Company is a party or otherwise bound, except for each of those
which (A) was made in the ordinary course of business, and (B) either (1) is
terminable by the Company (and will be terminable by Buyer) without liability,
expense or other obligation on 30 days' notice or less, or (2) may be
anticipated to involve aggregate payments to or by the Company of $25,000 (or
the equivalent) or less calculated over the full term thereof, and (C) is not
otherwise material to the Business or any of the Company's Assets. Complete and
correct copies of all contracts,
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commitments, indentures, mortgages, obligations, agreements and undertakings set
forth on any of the Schedules delivered pursuant to this Agreement have been
furnished by the Selling Stockholders to Buyer, and except as expressly stated
on the Schedule on which they are set forth, to the knowledge of the Selling
Shareholders, (A) each of them is in full force and effect, no person or entity
which is a party thereto or otherwise bound thereby is in default thereunder,
and, to the best of the knowledge of the Selling Shareholders, no event,
occurrence, condition or act exists which does (or which with the giving of
notice or the lapse of time or both would) give rise to a default or right of
cancellation, acceleration or loss of contractual benefits thereunder; (B) there
has been no threatened cancellations thereof, and there are no outstanding
disputes thereunder; and (C) none of them is materially burdensome to the
Company. None of the material provisions of such contracts, instruments or
agreements violates any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court having jurisdiction over the
Company, the Business or the Company's Assets.
5.20. Approvals. Schedule 5.20 is a complete and correct list of all
governmental and administrative consents, permits, appointments, approvals,
licenses, certificates, franchises and other authorizations which are necessary
for the operation of the Business or to own or operate the Company's Assets, all
of which have been obtained by the
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Company and are in full force and effect and will remain in full force and
effect after the consummation of the transactions contemplated hereby. There are
no proceedings pending or, to the knowledge of the Selling Shareholders,
threatened, or, to the knowledge of the Selling Shareholders, any basis
therefor, seeking to cancel, terminate or limit such consents, permits,
appointments, approvals, licenses, certificates, franchises or other
authorizations.
5.21. Customers and Suppliers. Set forth on Schedule 5.21 is a complete and
correct list setting forth, with respect to the fiscal year ended September 30,
1997, and the nine (9) month period ended June 30, 1998: (A) the twenty (20)
largest customers of the Business and the amount for which each such customer
was invoiced, and (B) the eleven (11) largest suppliers of the Business and the
amount of goods and services purchased from each such supplier. To the knowledge
of the Selling Shareholders, except as set forth on Schedule 5.21, there has
been no material adverse change in the business relationship between the
Business and any such customer or supplier.
5.22. Business Practices and Commitments. Schedule 5.22 is a summary
description of and a list of all of the Company's outstanding obligations with
respect to (i) all of the Company's rebate and volume discount practices and
obligations, (ii) the Company's allowance and customer return
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practices and obligations, (iii) the Company's warranty practices and
obligations, and (iv) the Company's cooperative advertising commitments.
5.23. Certain Proceedings. There is no pending proceeding that has been
commenced against the Company that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated by this Agreement. To the Selling Shareholders'
knowledge, no such proceeding has been threatened.
5.24. Inventory on Consignment. The Company does not have any inventory on
consignment. Since June 30, 1998 no notice has been given to the Company from
any customer that such customer intends to return or seek a credit or rebate for
any inventory other than returns, credits or rebates already reflected in such
customer's receivable or as set forth on Schedule 5.24.
6. Representations and Warranties as to the Selling Shareholders. The
Selling Shareholders hereby, as to Ken, John and Scott jointly and severally,
and as to Messer and Holton, severally in proportion to their ownership of
shares of the Company Stock, represent and warrant to Buyer as follows:
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6.1. Standing and Authority. Each Selling Shareholder has the right, power,
legal capacity and authority to enter into this Agreement and to carry out their
respective obligations hereunder, including without limitation the execution and
delivery of the Employment Agreements (as defined in Section 4.11 hereof). This
Agreement constitutes, and each agreement to be executed and delivered by any
Selling Shareholder pursuant hereto will be, the valid and binding obligation of
the Selling Shareholders enforceable against each of them, in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting
creditors' rights, and by the exercise of judicial discretion in accordance with
general principles applicable to equitable and similar remedies.
6.2. Ownership of the Company Stock. Each Selling Shareholder is the record
and beneficial owner of that number of shares of Company Stock set forth
opposite such Selling Shareholders' name and address in the chart annexed hereto
as Schedule 6.2. Each Selling Shareholder has good and marketable title to such
Company Stock, free and clear of any Liens. All shares of Company Stock have
been duly authorized, validly issued, and are fully paid and nonassessable and
each Selling Shareholder has complete and unrestricted power and the unqualified
right to sell, assign, transfer and deliver his Company Stock to Buyer, and upon
delivery to Buyer of the
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certificates representing such Company Stock, either endorsed in blank for
transfer or together with appropriately executed stock powers with respect
thereto, Buyer shall acquire good and marketable title to such Company Stock,
free and clear of any Liens (as defined in Section 6.3). There are no
outstanding options, warrants, rights, puts, calls, commitments, conversion
rights, plans or other agreements of any character to which any of the Selling
Shareholders is a party or otherwise bound which provide for the acquisition,
disposition or issuance of any issued but not outstanding, outstanding, or
authorized and unissued shares of Company Stock.
6.3. Noncontravention. Except as set forth on Schedule 6.3, neither the
execution and delivery by the Selling Shareholders of this Agreement or of any
agreement to be executed and delivered pursuant hereto by such Selling
Shareholders, nor the consummation of any of the transactions contemplated
hereby or thereby by such Selling Shareholders, nor the performance by the
Selling Shareholders of any of their respective obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would) (A) conflict with or result in a breach of any provision of the Articles
of Incorporation or Bylaws of the Company, or (B) give rise to a default, or any
right of termination, cancellation or acceleration, or otherwise be in conflict
with or result in a loss of contractual benefits to the Company under the terms,
conditions or provisions of any note, bond, mortgage, indenture,
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license, agreement or other instrument or obligation to which the Company is a
party or by which it may be bound, or require any consent, approval or notice
under the terms of any such document or instrument, or (C) violate any order,
writ, injunction, decree, law, statute, rule or regulation of any court or
governmental authority which is applicable to the Company or any of them, or (D)
result in the creation or imposition of any lien, security interest, pledge,
mortgage, easement, leasehold, assessment, covenant, restriction, reservation,
conditional sales, prior assignment, or other encumbrance of any nature
whatsoever ("Liens") upon any of the Company Stock or the Company assets, or (E)
interfere with or adversely affect the operation of the Business after the
Closing Date.
6.4. Certain Proceedings. There is no pending proceeding that has been
commenced against the Selling Shareholders that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the transactions contemplated by this Agreement. To the Selling
Shareholders' knowledge, no such proceeding has been threatened.
6.5. Acknowledgment. The Selling Shareholders acknowledge and agree that
Buyer has not made, and shall not be deemed to have made, any representation or
warranty other than as expressly made by such party in Section 7. Without
limiting
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the generality of the foregoing, and notwithstanding any otherwise express
representation or warranty made by Buyer in Section 7, the Selling Shareholders
acknowledge and agree that Buyer has not made any representation or warranty to
the Selling Shareholders or the Company with respect to: (i) any projections,
estimates, or budgets heretofore delivered to or made available to the Selling
Shareholders of future revenues, expenses, or expenditures or future results of
operations; or (ii) except as expressly covered by a representation and warranty
contained in Section 7, any other information or documents (financial or
otherwise) made available to the Selling Shareholders or the Company or its
counsel, accountants, or advisers with respect to Buyer.
6.6. Information as to the Selling Shareholders. To the knowledge of the
Selling Shareholders, none of the representations or warranties made by any
Selling Shareholder in this Agreement or in any agreement executed and delivered
by or on behalf of any of them pursuant hereto are false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
7. Representations and Warranties as to Buyer. Buyer hereby represents and
warrants to the Selling Shareholders as follows:
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7.1. Organization, Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own, lease and operate
their respective properties and to carry on their respective businesses as
presently conducted by them.
7.2. Authority. The execution and delivery by Buyer of this Agreement and
of each agreement to be executed and delivered by it pursuant hereto, the
compliance by Buyer with the provisions hereof and thereof, and the consummation
of the transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of Buyer and Buyer has
all necessary corporate power with respect thereto. This Agreement is, and when
executed and delivered by Buyer and (to the extent that it is a party thereto)
each other agreement to be delivered by it pursuant hereto will be, the valid
and binding obligation of Buyer in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting creditors' rights, and by the
exercise of judicial discretion in accordance with general principles applicable
to equitable and similar remedies.
7.3. Noncontravention. Except as set forth on Schedule 7.3, neither the
execution and delivery by the Buyer of this Agreement or of any agreement to be
executed and delivered
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by it pursuant hereto, nor the consummation of any of the transactions
contemplated hereby or thereby, nor the performance by the Buyer of any of its
obligations hereunder or thereunder, will (nor with the giving of notice or the
lapse of time or both would) (A) conflict with or result in a breach of any
provision of the Certificate of Incorporation or Bylaws of the Buyer or (B) give
rise to a default, or any right of termination, cancellation or acceleration, or
otherwise be in conflict with or result in a loss of contractual benefits to the
Buyer, under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which they are a party or by which the Buyer or any of its assets may be bound,
or require any consent, approval or notice under the terms of any such document
or instrument, or (C) violate any order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental or administrative authority
which is applicable to the Buyer or any of its assets, or (D) result in the
creation or imposition of any Lien or other encumbrance of any nature whatsoever
upon any of the assets of the Buyer, or (E) interfere with or otherwise
adversely affect the ability of the Buyer to carry on its business after the
Closing Date.
7.4. Investment Intent. Buyer is acquiring the Company Stock for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act of 1933, as amended.
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7.5. Certain Proceedings. There is no pending proceeding that has been
commenced against Buyer that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
contemplated by this Agreement. To Buyer's knowledge, no such proceeding has
been threatened.
7.6. Acknowledgment. Buyer acknowledges and agrees that no Selling
Shareholder has made, and shall not be deemed to have made, any representation
or warranty other than as expressly made by such parties in Sections 5 and 6.
Without limiting the generality of the foregoing, and notwithstanding any
otherwise express representation or warranty made by a Selling Shareholder in
Sections 5 and 6, Buyer acknowledges and agrees that no Selling Shareholder has
made any representation or warranty to Buyer with respect to: (i) any
projections, estimates, or budgets heretofore delivered to or made available to
Buyer of future revenues, expenses, or expenditures or future results of
operations; or (ii) except as expressly covered by a representation and warranty
contained in Sections 5 or 6, any other information or documents (financial or
otherwise) made available to Buyer or its counsel, accountants, or advisers with
respect to the Company, the Business, or the Selling Shareholders.
7.7. Information as to Buyer. To the knowledge of Buyer, none of the
representations or warranties made by the
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Buyer in this Agreement or in any agreement executed and delivered by it or on
its behalf pursuant hereto are false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein contained not misleading.
8. Indemnification.
8.1. Indemnification by the Selling Shareholders. Subject to Section 8.2,
the Selling Shareholders hereby as to Ken, John and Scott, jointly and
severally, and as to Messer and Holton, severally in proportion to their
ownership of the Company Stock, agree to indemnify and hold Buyer and its
respective officers, directors, or stockholders harmless from and against any
and all losses, obligations, deficiencies, liabilities, claims, damages, costs
and expenses (including, without limitation, the amount of any settlement
entered into pursuant hereto, and all reasonable legal and other expenses
incurred in connection with the investigation, prosecution or defense of any
matter indemnified pursuant hereto) ("Damages") which Buyer may sustain, suffer
or incur and which arise out of, are caused by, relate to, or result or occur
from or in connection with the breach by any of the Selling Shareholders of any
representation, warranty or covenant made by him in this Agreement or in any
agreement or instrument executed and delivered pursuant hereto, including
without limitation any tax or other liability resulting from any of the Spin Off
Transactions, with respect to any property transferred in the
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Spin Off Transactions or from the Founder's Pension or any obligation of the
Company thereunder, and notwithstanding the disclosure set forth in the
Disclosure Schedule or Annex 5.11A, any Damages arising from any environmental
matters other than the state of facts under the second paragraph (above ground
tank) of the Executive Summary identified in the Phase I report included in
Annex 5.11A. This indemnification obligation shall also apply to claims directly
by Buyer against any Selling Shareholder as well as to third party claims.
8.2. Limitations.
(a) Time Period. If the Closing occurs, the Selling Shareholders shall have
no liability (for indemnification or otherwise) with respect to any
representation or warranty other than those representations and warranties which
survive beyond October 31, 2000 pursuant to Section 4.9 and other than for any
liabilities (for taxes or otherwise) resulting from the Spin Off Transactions or
any claim with respect to any property transferred in the Spin Off Transactions,
unless on or before October 31, 2000, Buyer notifies the Selling Shareholders of
a claim specifying the basis of that claim. A claim with respect to a
representation or warranty which survives beyond October 31, 2000 or with
respect to any liabilities (for taxes or otherwise) resulting from the Spin Off
Transactions, or a claim for indemnification or reimbursement not based upon or
related to any representation
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or warranty complied with prior to the Closing Date, may be made at any time.
(b) Basket and Ceiling. No Selling Shareholder will have any liability (for
indemnification or otherwise) with respect to the matters described in Section
8.1 until the total of all damages (to the Selling Shareholders in the
aggregate) with respect to such matters exceeds $75,000 (the "Basket Amount")
(which amount shall be calculated without taking into effect the threshold for
adjustment under Section 2.2.2). In the event that the total of all damages
exceeds the Basket Amount, the Selling Shareholders shall pay that amount of
damages which is in excess of the Basket Amount; provided, however, that the
total amount payable by the Selling Shareholders shall not exceed the Purchase
Price.
8.3. Indemnification by Buyer. (a) Buyer hereby agrees to indemnify and
hold the Selling Shareholders harmless from and against any and all losses,
obligations, deficiencies, liabilities, claims, damages, costs and expenses
(including, without limitation, the amount of any settlement entered into
pursuant hereto, and all reasonable legal and other expenses incurred in
connection with the investigation, prosecutor defense of any matter indemnified
pursuant hereto), which any of them may sustain, suffer or incur and which arise
out of, are caused by, relate to, or result or occur from or in connection with
the breach by Buyer of any representation, warranty or covenant made by it in
this Agreement or in any agreement or
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instrument executed and delivered pursuant hereto. This indemnification
obligation shall also apply to claims directly by the Selling Shareholders
against Buyer as well as to third party claims.
(b) Buyer will not have any liability (for indemnification or otherwise)
with respect to the matters described in Section 8.3(a) until the total of all
damages (to the Buyer and USH&G in the aggregate) with respect to such matters
exceeds $75,000.
(c) Tax Benefit. Any claim in excess of $100,000 made by any indemnified
party hereunder shall be reduced (but not below zero) by an amount equal to the
"Tax Benefits" (as defined below), if any, attributable to the loss giving rise
to such claim. For purposes of such claims relating to taxes, the indemnity
payment shall be reduced (but not below zero) by the Tax Benefit, if any,
attributable to or arising out of the adjustment giving rise to the indemnity
payment. All amounts paid by a Selling Shareholder or Buyer, as the case may be,
under the terms hereof, to the extent permissible, shall be treated as
adjustments to the Purchase Price for all tax purposes. For purposes hereof,
"Tax Benefit" shall mean the present value of any refund, credit or reduction in
otherwise required federal income tax payments including any interest payable
thereon, which present value shall be computed as of the first date on which the
right to the refund, credit, or other tax reduction arises or otherwise becomes
available to be utilized using a tax rate of 35%, and using the interest rate on
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such date imposed on corporate deficiencies paid within 30 days of a notice of
proposed deficiency under the Internal Revenue Code of 1986, as amended.
8.4. Third Party Claims. Subject to Section 8.2, if a claim by a third
party is made against any party or parties hereto and the party or parties
against whom said claim is made intends to seek indemnification with respect
thereto under this Section 8, the party or parties seeking such indemnification
shall promptly notify the indemnifying party or parties, in writing, of such
claim; provided, however, that the failure to give such notice shall not affect
the rights of the indemnified party or parties hereunder unless such failure
materially and adversely affects the indemnifying party or parties. The
indemnifying party or parties shall have ten (10) days after said notice is
given to elect, by written notice given to the indemnified party or parties, to
undertake, conduct and control, through counsel of their own choosing (which
choice of counsel shall be subject to the consent of the indemnified party or
parties, such consent not to be unreasonably withheld) and at their sole risk
and expense, the good faith settlement or defense of such claim, and the
indemnified party or parties shall cooperate with the indemnifying parties in
connection therewith; provided: (i) in the case of any of the Selling
Shareholders as the indemnifying party or parties, he or they shall not thereby
permit to exist any lien, encumbrance or other adverse change upon any of the
Company's assets, Buyer or the
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Business, and (ii) the indemnified party or parties shall be entitled to
participate in such settlement or defense through counsel chosen by the
indemnified party or parties, provided that the fees and expenses of such
counsel shall be borne by the indemnified party or parties. So long as the
indemnifying party or parties are contesting any such claim in good faith, the
indemnified party or parties shall not pay or settle any such claim; provided,
however, that notwithstanding the foregoing, the indemnified party or parties
shall have the right to pay or settle any such claim at any time, provided that
in such event they shall waive any right of indemnification therefor by the
indemnifying party or parties. If the indemnifying parties do not make a timely
election to undertake the good faith defense or settlement of the claim as
aforesaid, or if the indemnifying parties fail to proceed with the good faith
defense or settlement of the matter after making such election, then, in either
such event, the indemnified party or parties shall have the right to contest,
settle or compromise the claim at their exclusive discretion, at the risk and
expense of the indemnifying parties to the full extent set forth in Sections 8.1
or 8.3 hereof, as the case may be.
8.5. Central Fiber Indemnity. In addition to the provisions of Section 8.1,
the Selling Shareholders hereby as to Ken, John and Scott, jointly and
severally, and as to Messer and Holton, severally in proportion to their
ownership of the Company Stock, agree to indemnify and hold Buyer and its
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officers, directors, or stockholders harmless against any and all Damages that
the Company or Buyer may sustain, suffer or incur and that arises out of or is
related to Central Fiber Corporation v. Ampro Industries, Inc., in the District
Court of Franklin County, Kansas (Fourth Judicial District), Case No. 98-
CV-122. Buyer acknowledges and agrees that the Selling Shareholders shall
conduct and control this litigation with counsel of their own choosing;
provided, however, that Buyer shall have the right, at its own expense, to
participate in this litigation, through counsel of their own choosing.
9. Nondisclosure; Noncompete; Termination.
9.1. "Confidential Information" Defined. As used in this Agreement, the
term "Confidential Information" shall mean any and all information (oral and
written) relating to the Business or the Company assets, other than such
information which is in the public domain (such information not being deemed to
be in the public domain merely because it is embraced by more general
information which is in the public domain) other than as the result of a breach
of the provisions of Section 9.2 below, including, but not limited to,
information relating to: identity and description of goods and services used;
purchasing; costs; pricing; machinery and equipment; market research; customers
and prospects; marketing; and selling and servicing.
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9.2. Nondisclosure of Confidential Information. The Selling Shareholders
hereby agree not to, at any time, directly or indirectly, use, communicate,
disclose or disseminate any Confidential Information in any manner whatsoever,
except as required by law.
9.3. Noncompete Covenants.
(a) The Selling Shareholders each agree not to, during the five (5) year
period commencing on the Closing Date, anywhere in the United States, directly
or indirectly (i) engage or become interested in any entity (whether as owner,
manager, operator, licensor, licensee, lender, partner, shareholder, joint
venturer, employee, supplier, consultant or otherwise) in any entity which
sells, manufactures, markets, converts, or distributes products in competition
with the products currently manufactured and distributed by the Company, or (ii)
take any other action which constitutes an interference with or a disruption of
Buyer's operation of the Business or Company's use, ownership and enjoyment of
its assets in connection with the Business.
(b) For purposes of clarification, but not of limitation, the Selling
Shareholders hereby acknowledge and agree that the provisions of this Section
9.3 shall serve as a prohibition against them, during the period described
therein, directly or indirectly, hiring, offering to hire, enticing away or in
any other manner persuading or attempting to persuade any current officer,
employee (other than Ken, John and Scott and
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employees of the Company that are to be employees of Rhino as of the Closing),
agent, lessor, lessee, licensor, licensee, customer or supplier of the Business
to discontinue or alter his or its relationship with the Business.
(c) Notwithstanding the foregoing,
(1) each of the Selling Shareholders shall be permitted to own not more
than 1% of any class of securities which is registered under the
Securities Exchange Act of 1934, as amended; provided, however, that
said 1% limitation shall apply to the aggregate holding of all other
persons and entities with whom such Selling Shareholder has agreed to
act for the purpose of acquiring, holding, voting or disposing of such
securities.
(2) Rhino shall be entitled to continue to operate its business in
substantially the same manner as the business was operated by the
Company prior to Closing, including the purchase of products from the
Company and the resale of such products in the ordinary course of its
business. Rhino shall purchase all such products from the
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Company. Only if the Company is unable to supply Rhino with its needs
of such products, Rhino may purchase competing products from other
suppliers without violating the terms of this Agreement. In connection
with such purchases, Buyer agrees that Rhino shall be entitled to
purchase products from the Company at prices no less favorable than
the best prices offered to other customers of the Company purchasing
similar amounts of products.
(3) Buyer acknowledges that the distribution of flower seeds by Wild West
Seed, Inc., the manufacture, distribution and sale of toys by EB
Collectibles, Inc. and the manufacture, distribution and sale of a
lawn spreader by Holton are each activities which, when conducted by
such entities or person, are not subject to this Section 9.3.
(d) At no time during the term of this noncompete covenant shall the
Selling Shareholders, directly or indirectly, disparage the commercial, business
or financial reputation of Buyer.
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9.4. Injunctive Relief, etc. The parties hereto hereby acknowledge and
agree that (a) Buyer would be irreparably injured in the event of a breach by
any of the Selling Shareholders of any of his obligations under this Section 9
with respect to unauthorized disclosure of Confidential Information or engaging
in activities in violation of Section 9.3, (b) monetary damages would not be an
adequate remedy for any such breach, and (c) Buyer shall be entitled to
injunctive relief, in addition to any other remedy which it may have, in the
event of any such breach. It is hereby also agreed that the existence of any
claims which the Selling Shareholders may have against Buyer, whether under this
Agreement or otherwise, shall not be a defense to the enforcement by Buyer of
any of its rights under this Section 9.
9.5. Scope of Restriction. It is the intent of the parties hereto that the
covenants contained in this Section 9 shall be enforced to the fullest extent
permissible under the laws of and public policies of each jurisdiction in which
enforcement is sought (the Selling Shareholders hereby acknowledge that said
restrictions are reasonably necessary for the protection of Buyer). Accordingly,
it is hereby agreed that if any one or more of the provisions of this Section 9
shall be adjudicated to be invalid or unenforceable for any reason whatsoever,
said provision shall be (only with respect to the operation thereof in the
particular jurisdiction in which such
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adjudication is made) construed by limiting and reducing it so as to be
enforceable to the extent permissible.
9.6. Termination Events. This Agreement may, by notice given prior to or at
the Closing, be terminated:
9.6.1. Breach. By either Buyer or the Selling Shareholders if a material
breach of this Agreement has been committed by the other and such breach has not
been waived which breach has not been cured within ten (10) days of notice
thereof;
9.6.2. Conditions. (i) By Buyer if any of the conditions in Section 10 has
not been satisfied as of the Closing or if satisfaction of such a condition is
or becomes impossible (other than through Buyer's fault) and Buyer has not
waived such condition on or before the Closing; or (ii) by the Selling
Shareholders, if any of the conditions in Section 11 has not been satisfied as
of the Closing or if satisfaction of such a condition is or becomes impossible
(other than through the Company's or a Selling Shareholder's fault) and the
Selling Shareholders have not waived such condition on or before the Closing;
9.6.3. Consent. By mutual consent of Buyer and the Selling Shareholders; or
9.6.4. Upset Date. By either Buyer or the Selling Shareholders if the
Closing has not occurred (other than through the fault of the party seeking to
terminate this
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Agreement) on or before October 15, 1998, or such later date as the parties may
agree upon.
9.7. Effect of Termination. The exercise of a party's right of termination
under Section 9.6 will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.6, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 9.7 and
12.1 will survive; provided, however, that if this Agreement is terminated by a
party because of the breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive unimpaired.
10. Buyer's Closing Conditions.
Buyer's obligation to purchase the Company Stock and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
10.1. Accuracy of Representations and Warranties. The representations and
warranties of the Selling Shareholders contained in this Agreement or in any
document,
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agreement or instrument delivered by any or all of them pursuant hereto shall
have been true, in all material respects, when made, and in addition, shall be
true, in all material respects, on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date.
10.2. Performance of Agreements. The Selling Shareholders shall have
performed, in all material respects, obligations and agreements, and complied
with all covenants and conditions, contained in this Agreement or in any
document, agreement or instrument delivered by any or all of them pursuant
hereto and required to be performed or complied with by any or all of them at or
prior to the Closing Date.
10.3. Certificate. The Selling Shareholders shall have each furnished Buyer
with a certificate or certificates, dated the Closing Date, to the effect that
he has fulfilled the conditions specified in Sections 10.1 and 10.2 above.
10.4. Opinion of Counsel for the Company. Buyer shall have received an
opinion of Warner Norcross & Judd LLP, counsel for the Selling Shareholders,
dated the Closing Date, in substantially the form of Exhibit D attached hereto
and made a part hereof.
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10.5. Litigation. No order of any court or administrative agency shall be
in effect which restrains or prohibits the transactions contemplated hereby, and
no suit, action, inquiry, investigation or proceeding in which it will be, or it
is, sought to restrain, prohibit or change the terms of or obtain damages or
other relief in connection with this Agreement or any of the transactions
contemplated hereby, and which in the reasonable judgment of Buyer makes it
inadvisable to proceed with the consummation of such transactions, shall have
been instituted or threatened by any person or entity.
10.6. Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments or modifications to existing agreements with
third parties) required as a precondition to the performance by the Selling
Shareholders of their respective obligations hereunder and under any agreement
delivered pursuant hereto, or which in Buyer's reasonable judgment are necessary
to continue unimpaired any rights in and to the Company's assets which could be
impaired by the purchase and sale hereunder, shall have been duly obtained and
shall be in full force and effect.
10.7. No Material Adverse Change. There shall not have occurred after the
date hereof, in the reasonable judgment of Buyer, a material adverse change in
the condition
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(financial or otherwise), assets, liabilities, business, prospects, or results
of operations of the Company.
10.8. Employment Agreements. Each of Holton, Schwarz, and Phelan,
respectively, shall have entered into Employment Agreements with the Company
pursuant to Section 4.11 hereof.
11. Selling Shareholders' Closing Conditions. The Selling Shareholders'
obligation to sell the Company Stock and to take the other actions required to
be taken by them at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
them, in whole or in part):
11.1. Accuracy of Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement or in any document, agreement or
instrument delivered by it pursuant hereto shall have been true, in all material
respects, when made, and in addition, shall be true, in all material respects,
on and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
11.2. Performance of Agreements. Buyer shall have performed, in all
material respects, obligations and agreements, and complied with all covenants
and conditions,
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contained in this Agreement or in any document, agreement or instrument
delivered by it pursuant hereto and required to be performed or complied with by
it at or prior to the Closing Date.
11.3. Certificate. Buyer shall have furnished the Selling Shareholders with
a certificate, executed by a responsible executive officer of Buyer, dated the
Closing Date, to the effect that they have fulfilled the conditions specified in
Sections 11.1 and 11.2 hereof.
11.4. Opinion of Counsel for Buyer. The Selling Shareholders shall have
received an opinion of Tenzer Greenblatt LLP, counsel for Buyer, dated the
Closing Date, in substantially the form of Exhibit E attached hereto and made a
part hereof.
11.5. Litigation. No order of any court or administrative agency shall be
in effect which restrains or prohibits the transactions contemplated hereby, and
no suit, action, inquiry, investigation or proceeding in which it will be, or it
is, sought to restrain, prohibit or change the terms of or obtain damages or
other relief in connection with this Agreement or any of the transactions
contemplated hereby, and which in the reasonable judgment of Company makes it
inadvisable to proceed with the consummation of such transactions, shall have
been instituted or threatened by any person or entity.
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11.6. Consents and Approvals. All consents, waivers, approvals, licenses
and authorizations by third parties and governmental and administrative
authorities (and all amendments and modifications to existing agreements with
third parties) required as a precondition to the performance by Buyer or USH&G
of their obligations hereunder shall have been duly obtained and shall be in
full force and effect.
11.7. Employment Agreements. Each of Holton, Schwarz, and Phelan shall have
entered into Employment Agreements with the Company pursuant to Section 4.11
hereof.
12. Miscellaneous Provisions.
12.1. Expenses/Brokers. Except as otherwise provided in this Agreement,
each of the parties hereto shall pay his or its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, any finder's fees, commissions, brokerage fees or
like payments with respect to any broker or finder engaged or dealt with by such
party. None of the parties hereto, or their respective officers and agents have
incurred any obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement. Each party will indemnify and hold the other parties harmless from
any such
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payment alleged to be due as a result of actions by such party or its officers
or agents.
12.2. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.
12.3. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as of the earlier of the date delivered or mailed if delivered personally
by overnight courier or mailed by express, registered or certified mail,
(postage prepaid, return receipt requested), or by facsimile transmittal,
confirmed by express, certified or registered mail, as follows:
If to Buyer, to: U.S. Home & Garden, Inc.
655 Montgomery Street
San Francisco, CA
Attn: Robert Kassel
Fax: (415) 616-8110
Copy to: Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Barry S. Rutcofsky, Esq.
Fax: (212) 885-5001
If to any or all
of the Selling
Shareholders, to: The names and addresses
set forth on Schedule 5.2
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referred to in Section 5.2 hereof
Copy to: Warner Norcross & Judd LLP
900 Old Kent Building
111 Lyon Street, N.W.
Grand Rapids, MI 49503
Attn: Mark K. Harder and
Stephen R. Kretschman
Fax: (616) 396-3656
or to such other address as any party shall have designated by like notice to
the other parties hereto (except that a notice of change of address shall only
be effective upon receipt).
12.4. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York without regard to
its choice of law principles.
12.5. Amendment. This Agreement may only be amended by a written instrument
executed by each of the parties hereto.
12.6. Entire Agreement. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement)
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.
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12.7. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
12.8. Assignment. Prior to the Closing Date, except as otherwise provided
herein, neither this Agreement nor any rights, interests or obligations
hereunder may be assigned (by operation of law or otherwise) by any party hereto
without the prior written consent of all of the parties hereto, except that this
Agreement may be assigned by Buyer to a wholly-owned subsidiary of Buyer without
the need for such prior consent.
12.9. Binding Effect; Benefits. This Agreement shall inure to the benefit
of, and shall be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns. Nothing herein
contained, express or implied, is intended to confer upon any person other than
the parties hereto and their respective heirs, legal representatives, successors
and permitted assigns, any rights or remedies under or by reason of this
Agreement.
12.10. Waiver, etc. The failure of any of the parties hereto to at any time
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Agreement or any provision hereof or the right of any of
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the parties hereto to thereafter enforce each and every provision of this
Agreement. No waiver of any breach of any of the provisions of this Agreement
shall be effective unless set forth in a written instrument executed by the
party or parties against whom or which enforcement of such waiver is sought; and
no waiver of any such breach shall be construed or deemed to be a waiver of any
other or subsequent breach.
12.11. Severability. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
12.12. Announcements. No party hereto shall issue any press release or
otherwise divulge the existence of this Agreement or the transactions
contemplated hereby without the prior approval of the other parties hereto,
except to the extent as may be required by applicable law or the applicable
rules or regulations of any stock exchange.
12.13. Schedules. The Schedules delivered pursuant to this Agreement are an
integral part hereof. Each such Schedule shall be in writing, shall indicate the
section pursuant to which it is being delivered.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
U.S HOME & GARDEN, INC.
By: /s/ Richard Raleigh
-----------------------------
Richard Raleigh, Chief
Operating Officer
/s/ Kenneth W. Hilbert
----------------------------------
Kenneth W. Hilbert
/s/ John R. Hilbert
----------------------------------
John R. Hilbert
/s/ E. Scott Hilbert
----------------------------------
E. Scott Hilbert
/s/ Omer Messer
----------------------------------
Omer Messer
/s/ Charles J. Holton
----------------------------------
Charles J. Holton
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Exhibit 2.2 List of Omitted Exhibits and Schedules
Exhibit A June 30 Balance Sheet
Exhibit B Escrow Agreement
Exhibit C C-1 Employment Agreement (Holton)
C-1 Employment Agreement (Schwarz)
C-1 Employment Agreement (Phelan)
Exhibit D Opinion of Counsel for
Selling Shareholders
Exhibit E Opinion of Counsel for Buyer
Schedule 2.2.3 Adjustment
Schedule 3.4 Shareholder Debt; NBD Debt
Schedule 4.7 Conduct of Business
Schedule 4.7.6 Sell/Lease/Mortgage of Property
Schedule 4.12 Certain Intellectual Property
Schedule 4.14.1A Rhino's Assets
Schedule 4.14.1B Employees of Rhino
Schedule 4.14.1C Assumed Liabilities
Schedule 4.14.3A E.B. Collectibles, Inc. Characters
Schedule 4.14.3B E.B. Collectibles, Inc. Trademarks
Schedule 4.14.4 Rights in Garden Spreader
Schedule 5.1 Organization, Standing and Power
of Company
Schedule 5.2 Capitalization of the Company
Schedule 5.3 Interests in Other Entities
by the Company
Schedule 5.4 Audited Balance Sheet (9/30/96 and 9/30/97)
and unaudited Balance Sheet (6/30/98)
Schedule 5.5 Absence of Undisclosed Liabilities
Schedule 5.6 Properties of the Company
Schedule 5.7 Accounts Receivable and Inventories
of the Company
Schedule 5.9 Litigation of the Company
Schedule 5.10 No Violation of Law by the Company
Schedule 5.11 Environmental Matters of the Company
Schedule 5.12 Intellectual Property of the Company
Schedule 5.13 Tax Matters Relating to the Company
Schedule 5.14 Insurance Relating to the Company
Schedule 5.15 Banks; Powers of Attorney of the Company
Schedule 5.16 Employee Arrangements of the Company
Schedule 5.17 ERISA
Schedule 5.18 Certain Business Matters of the Company
Schedule 5.19 Certain Contracts of the Company
Schedule 5.20 Approvals
Schedule 5.21 Customers and Suppliers
Schedule 5.22 Business Practices and Commitments
Schedule 5.24 Inventory on Consignment
Schedule 6.1 Standing and Authority of the
Selling Shareholders
Schedule 6.2 Ownership of the Company's Stock by the
Selling Shareholders
Schedule 6.3 Noncontravention (Selling Shareholders)
Schedule 7.3 Noncontravention (Buyer)
<PAGE>
The Registrant agrees to furnish supplementally to the Securities and
Exchange Commission, upon request, copies of the foregoing Exhibits and
Schedules to the Purchase Agreement which Purchase Agreement is filed as Exhibit
2.1 to the Registrant's Form 8-K.
