UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 14, 1998 (July 31, 1998)
PACKAGED ICE, INC.
(Exact Name of Registrant as Specified in Its Charter)
TEXAS 333-29357 76-0316492
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8572 KATY FREEWAY, SUITE 101
HOUSTON, TEXAS 77024
(Address of principal executive offices)
(713) 464-9384
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
ACQUISITION OF CASSCO ICE & COLD STORAGE, INC.
On July 31, 1998, the Packaged Ice, Inc. (the "Company") acquired all of
the outstanding capital stock of Cassco Ice & Cold Storage, Inc., a subsidiary
of WLR Foods, Inc., ("Cassco") for a purchase price of approximately $59 million
in cash (the "Cassco Acquisition"). The Cassco Acquisition was financed with
funds available under the Company's credit facility with Antares Leveraged
Capital Corp. and cash on hand.
The Company has not completed the assessment of the fair values of the net
assets acquired for purposes of allocating the purchase price of the Cassco
Acquisition. The excess of the purchase price over the currently estimated fair
values of the net assets has been allocated to goodwill, which will be amortized
over 40 years. The Cassco Acquisition was recorded using the purchase method of
accounting, and therefore, the results of its operations will be included in the
Company's consolidated financial statements from the date of purchase.
Cassco is a leading producer and distributor of packaged ice products and
owner/operator of cold storage warehouse facilities in the Mid-Atlantic region.
Cassco's assets include nine separate ice manufacturing facilities, four
distribution facilities and related equipment and rolling stock, all of which
are used to manufacture and distribute ice products. In addition, Cassco owns
10.3 million cubic feet of cold storage buildings at five separate locations,
all of which are used as public warehouses. Principally, the Company intends to
continue such use.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Cassco Ice & Cold Storage, Inc.
(i) Independent Auditors' Report - KPMG Peat Marwick LLP F-1
(ii) Balance Sheets as of June 27, 1998 and June 28, 1997 F-2
(iii) Statement of Earnings for the Years Ended June 27,
1998 and June 28, 1997 F-3
(iv) Statements of Shareholder's Equity for the Years Ended
June 27, 1998 and June 28, 1997 F-4
(v) Statements of Cash Flows Equity for the Years Ended
June 27, 1998 and June 28, 1997 F-5
(vi) Notes to Financial Statements F-6
(B) PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements are
filed with this report:
(i) Unaudited Pro Forma Combined Condensed Balance Sheet
as of June 30, 1998 F-13
(ii) Unaudited Pro Forma Combined Statements of Operations
for Year Ended December 31, 1997 F-14
(iii) Unaudited Pro Forma Combined Statements of Operations
for the Six Months Ended June 30, 1998 F-15
(iv) Notes to Unaudited Pro Forma Combined Condensed
Financial Statements F-16
2
<PAGE>
(C) EXHIBITS
The following is a list of exhibits filed as part of this Form 8-K. Where
so indicated by footnote, exhibits, which were previously filed, are
incorporated by reference.
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------
2.1 Stock Purchase Agreement among Packaged Ice, Inc., WLR Foods, Inc.
and Cassco Ice & Cold Storage, Inc. dated July 31, 1998.
2.2 Non-Competition Agreement between WLR Foods, Inc. and Packaged Ice,
Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PACKAGED ICE, INC.
Date: August 14, 1998 By: /s/ JAMES C. HAZLEWOOD
----------------------
James C. Hazlewood
Chief Financial Officer
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Cassco Ice and Cold Storage, Inc.:
We have audited the accompanying balance sheets of Cassco Ice and Cold
Storage, Inc. (a wholly-owned subsidiary of WLR Foods, Inc.) as of June 27, 1998
and June 28, 1997 and the related statements of earnings, shareholder's equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cassco Ice and Cold Storage,
Inc. as of June 27, 1998 and June 28, 1997, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Richmond, Virginia
July 24, 1998
F-1
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
BALANCE SHEETS
JUNE 27, 1998 AND JUNE 28, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash ............................................... $ 118,362 $ 143,326
Accounts receivable (notes 9 and 10):
Parent company .................................. 1,025,650 1,093,940
Other ........................................... 3,189,307 2,813,858
----------- -----------
4,214,957 3,907,798
Notes receivable (note 2) ............................. 9,761 35,675
Inventories (note 3) .................................. 1,212,610 1,124,925
Deferred income taxes (note 5) ........................ 246,347 205,861
Prepaid expenses ...................................... 269,407 172,115
Due from parent company (note 10) ..................... 957,919 --
----------- -----------
Total current assets .................................. 7,029,363 5,589,700
----------- -----------
Property, plant and equipment, net (notes 4, 6 and 8) 23,878,030 24,626,766
Other assets .......................................... 385,337 399,235
----------- -----------
Total assets .......................................... $31,292,730 $30,615,701
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current installments of long-term debt (note 6) .... $ 529,487 $ 519,125
Current installments of obligations under capital
leases (note 8) .................................. 268,678 110,699
Accounts payable ................................... 1,128,644 1,322,998
Accrued expenses ................................... 476,919 449,891
Due to parent company (note 10) .................... -- 1,356,999
----------- -----------
Total current liabilities ............................. 2,403,728 3,759,712
----------- -----------
Long-term debt, excluding current installments (note 6) 1,975,701 2,506,616
Obligations under capital leases, excluding
current installations (note 8) ...................... 797,825 686,148
Deferred income taxes (note 5) ........................ 1,543,947 1,647,935
Other long-term liabilities ........................... 110,734 140,364
----------- -----------
Total liabilities ..................................... 6,831,935 8,740,775
----------- -----------
Shareholder's equity:
Common stock, $1,000 par value. Authorized
5,000 shares; issued and outstanding 70 shares ..... 70,000 70,000
Additional paid-in capital ......................... 10,613,855 10,513,855
Retained earnings .................................. 13,776,940 11,291,071
----------- -----------
Total shareholder's equity ............................ 24,460,795 21,874,926
----------- -----------
Commitments (note 8)
Total liabilities and shareholder's equity ............ $31,292,730 $30,615,701
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
STATEMENTS OF EARNINGS
YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
1998 1997
------------ ------------
Operating revenues (notes 9 and 10):
Parent company .............................. $ 7,297,937 $ 7,053,271
Other ....................................... 22,079,856 19,130,471
------------ ------------
29,377,793 26,183,742
Operating expenses ............................. 16,996,578 15,885,712
------------ ------------
Gross profit ................................... 12,381,215 10,298,030
Selling, general and administrative expenses ... 7,636,595 6,232,423
------------ ------------
Operating income ............................... 4,744,620 4,065,607
Other expense (income):
Interest expense ............................ 73,065 272,195
Interest income ............................. (9,797) (8,797)
Other, net .................................. 239,594 75,516
------------ ------------
Total other expense ............................ 302,862 338,914
------------ ------------
Income before income taxes ..................... 4,441,758 3,726,693
Provision for income taxes (note 5) ............ 1,725,139 1,401,401
------------ ------------
Net income ..................................... $ 2,716,619 $ 2,325,292
============ ============
See accompanying notes to financial statements.
F-3
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at June 29, 1996 ............ 70 $ 70,000 $ 9,940,105 $ 9,211,732 $ 19,221,837
Net income ............................ -- -- -- 2,325,292 2,325,292
Dividends declared: $3,513.61/share .. -- -- -- (245,953) (245,953)
Issuance of WLR Foods, Inc. stock for
business acquisition (note 11) .... -- -- 573,750 -- 573,750
-------- ------------ ------------ ------------ ------------
Balances at June 28, 1997 ............ 70 70,000 10,513,855 11,291,071 21,874,926
Net income ............................ -- -- -- 2,716,619 2,716,619
Dividends declared: $3,296.43/share .. -- -- -- (230,750) (230,750)
Issuance of WLR Foods, Inc. stock for
business acquisition (note 11) .... -- -- 100,000 -- 100,000
-------- ------------ ------------ ------------ ------------
Balances at June 27, 1998 ............ 70 $ 70,000 $ 10,613,855 $ 13,776,940 $ 24,460,795
======== ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 27, 1998 AND JUNE 28, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 2,716,619 $ 2,325,292
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .................... 3,401,617 3,111,198
Deferred income taxes ............................ (144,474) (167,968)
Loss on sales of property, plant and equipment ... 153,034 76,018
Change in assets and liabilities:
Increase in accounts receivable ................. (307,159) (470,392)
Increase in inventories ......................... (65,205) (47,425)
Increase in prepaid expenses .................... (97,292) (4,159)
Increase in other assets ........................ 94,840 (278,737)
Decrease in accounts payable and accrued expenses (654,753) (498,043)
Change in due from/due to parent company ........ (1,827,491)
Decrease in other long-term liabilities ......... (29,630) (32,585)
----------- -----------
Net cash provided by operating activities ............. 3,240,106 1,326,227
----------- -----------
Cash flows from investing activities:
Capital expenditures ................................ (1,683,293) (1,956,549)
Acquisition of businesses (note 11) ................. (650,000) (195,549)
Proceeds from sales of property, plant and equipment 24,665 95,899
Payments from notes receivable ...................... 25,914 55,115
Proceeds from lease financing ....................... -- 1,761,078
----------- -----------
Net cash used in investing activities ................. (2,282,714) (239,457)
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt ................ (520,553) (511,757)
Principal payments under capital lease obligations .. (231,053) (109,498)
Principal payments on notes payable to bank ......... -- (300,000)
Dividends paid ...................................... (230,750) (245,953)
----------- -----------
Net cash used in financing activities ................. (982,356) (1,167,208)
----------- -----------
Net decrease in cash .................................. (24,964) (80,438)
Cash at beginning of year ............................. 143,326 223,764
----------- -----------
Cash at end of year ................................... $ 118,362 $ 143,326
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................. $ 262,484 $ 273,657
=========== ===========
Income taxes .......................................... $ 1,628,880 $ 1,317,163
=========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
During 1998, the Company recorded additional paid-in capital as a result of
WLR Foods, Inc. stock valued at $100,000 issued to acquire a business (note
11).
During 1998, the Company recorded capital lease obligations of $500,709
related to the acquisition of transportation equipment.
During 1997, the Company recorded additional paid-in capital as a result of
WLR Foods, Inc. stock valued at $573,750 issued to acquire a business (note
11).
During 1997, the Company recorded capital lease obligations of $582,843
related to the acquisition of transportation equipment.
See accompanying notes to financial statements.
F-5
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
JUNE 27, 1998 AND JUNE 28, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Cassco Ice and Cold Storage, Inc.'s (Cassco or the Company) operations are
devoted primarily to refrigerated warehousing and to the manufacturing,
packaging and sale of ice.
Cassco operates primarily in the Mid-Atlantic region.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to June 30. Fiscal
years 1998 and 1997 ended on June 27 and June 28, respectively, and included 52
weeks in each year.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of
packaging materials and packaged ice is determined by a method that approximates
the first-in, first-out (FIFO) method. The cost of icemaking systems and parts
is determined by the specific identification method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Equipment under capital
leases is stated at the present value of minimum lease payments. Equipment held
under capital leases is amortized straight line over the shorter of the lease
term or estimated useful life of the asset. Depreciation on property, plant and
equipment is computed using the straight-line method and useful lives of the
respective assets are as follows:
Land improvements..................10-15 years
Buildings and improvements.........15-20 years
Machinery and equipment............3-5 years
Transportation equipment...........4-6 years
The costs of maintenance and repairs are charged to operations, while
costs associated with renewals, improvements and major replacements are
capitalized.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income for the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company is included in the consolidated federal income tax return and
certain consolidated state income tax returns of WLR Foods, Inc. The Company
provides income taxes on a separate company basis.
F-6
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, accounts receivable, notes receivable, due
from/to parent company, accounts payable and accrued expenses approximate fair
value due to their short maturities. The fair value of long-term debt is
calculated by discounting scheduled cash flows through maturity using estimated
rates currently offered for debt with similar terms and average maturities. The
carrying amount of long-term debt approximates fair value.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 presentation.
INTANGIBLES
Intangibles, primarily agreements not to compete, are stated at cost less
accumulated amortization and are included in other assets in the accompanying
balance sheets. Amortization is computed on the straight-line method over
periods of 3 to 5 years.
(2) NOTES RECEIVABLE
Notes receivable consist of the following:
1998 1997
------- -------
8.5% note receivable, due December 1996
(amended to August 1997) .......................... $ -- $30,272
8.5% note receivable, due August 1997 .............. -- 5,403
12% note receivable, due July 23,1998 .............. 3,667 --
10% note receivable, due August 15,1998 ............ 6,094 --
------- -------
Total notes receivable ............................. $ 9,761 $35,675
======= =======
(3) INVENTORIES
A summary of inventories follows:
1998 1997
------- -------
Packaging materials ................................ $ 860,958 $ 586,589
Package ice ........................................ 235,978 417,079
Ice maker systems and parts ........................ 105,505 120,139
Fuel and other ..................................... 10,169 1,118
---------- ----------
Total inventories .................................. $1,212,610 $1,124,925
========== ==========
F-7
<PAGE>
(4) PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment was as follows:
1998 1997
----------- -----------
Land and improvements ............................ $ 2,931,282 $ 2,930,878
Buildings and improvements ....................... 15,813,389 15,738,256
Machinery and equipment .......................... 28,477,175 26,614,563
Transportation equipment ......................... 4,998,416 4,412,380
Construction in progress ......................... 13,041 430,426
----------- -----------
52,233,303 50,126,503
Less accumulated depreciation and amortization ... 28,355,273 25,499,737
----------- -----------
Total property, plant and equipment, net ......... $23,878,030 $24,626,766
=========== ===========
(5) INCOME TAXES
The provision for income taxes was as follows for fiscal years 1998 and 1997:
1998 1997
----------- -----------
Current:
Federal .............................. $ 1,646,703 $ 1,360,235
State ................................ 222,910 209,134
----------- -----------
Total current .......................... 1,869,613 1,569,369
Deferred:
Federal .............................. (137,440) (160,127)
State ................................ (7,034) (7,841)
----------- -----------
Total deferred ......................... (144,474) (167,968)
----------- -----------
Total income tax provision ............. $ 1,725,139 $ 1,401,401
=========== ===========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets (liabilities) at June 27, 1998 and June 28,
1997 are listed below:
1998 1997
----------- -----------
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation and amortization .. $(1,943,504) $(1,980,911)
----------- -----------
Gross deferred tax liabilities ................... (1,943,504) (1,980,911)
Deferred tax assets:
Obligations under capital leases ............... 415,936 310,771
Insurance accruals ............................. 60,060 68,857
Tax credits .................................... 27,016 27,016
Accrual of compensated absences ................ 122,286 91,491
Other .......................................... 20,606 40,702
----------- -----------
Gross deferred tax assets ........................ 645,904 538,837
----------- -----------
Net deferred tax liability ....................... $(1,297,600) $(1,442,074)
=========== ===========
In assessing the recoverability of deferred tax assets, management considers
whether it is more likely than not that some or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax
assets is dependent on the generation of future taxable income, during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal
F-8
<PAGE>
of deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based on the level of historical
operating results and expectations of future taxable income and reversals of
deferred tax liabilities, management believes it is more likely than not that
the Company will realize the benefits of these deductible differences as
reflected at June 27, 1998 and June 28, 1997.
(6) LONG-TERM DEBT
Long-term debt as June 27, 1998 and June 28, 1997 consisted of the
following obligations:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Industrial Revenue Development Bond, due December 2001,
payable in initial monthly installments of $3,305 plus interest
(with annual increases in monthly payments to $11,598 plus
interest by 2001) at 70% of the bank's prime lending rate (year
end rate 7.163%). Secured by property, plant and equipment .............. $ 397,846 $ 500,396
Unsecured Bank Term Note, due June 2003, payable in monthly
installments of $33,389 plus interest at 30 day LIBOR +85
basis points (year-end rate 6.54%) ...................................... 2,003,342 2,404,012
Unsecured Note Payable, due September 2003, payable in
annual installments of $17,333 plus interest (year-end rate 7.5%)........ 104,000 121,333
---------- ----------
Total long-term debt ...................................................... 2,505,188 3,025,741
Less current installments ................................................. 529,487 519,125
---------- ----------
Total long-term, excluding current installments ........................... $1,975,701 $2,506,616
========== ==========
</TABLE>
The net book value of all property, plant and equipment encumbered under
long-term debt agreements at June 27, 1998 and June 28, 1997 was approximately
$6,968,000 and $7,081,000, respectively.
The Company had no agreements to maintain compensating balances.
Required annual principal repayments of long-term debt are as follows:
FISCAL AMOUNT
------ ------
1999.................................... $529,487
2000.................................... 538,953
2001.................................... 550,300
2002.................................... 451,113
2003.................................... 418,002
(7) EMPLOYEE BENEFITS
The Company participates in WLR Foods, Inc.'s Profit Sharing and Salary
Savings Plan that is available to substantially all employees who meet
certain age and service requirements. Participants may elect to make
contributions of up to 15% of their salary. For each employee dollar
contributed (limited to the first 4% of an employee's compensation), the
Company is required to contribute a matching amount of 50 cents. The Company
can also make additional contributions at its discretion. Cassco's total
contributions under this plan were approximately $94,000 for fiscal 1998 and
$78,000 for fiscal 1997.
F-9
<PAGE>
(8) LEASES
The Company is obligated under various capital leases for certain
transportation equipment that expire at various dates during the next five
years. At June 27, 1998 and June 28, 1997, the gross amount of equipment and
related accumulated amortization recorded under capital leases were as
follows:
1998 1997
---------- ----------
Transportation equipment ................... $1,458,484 $ 957,775
Less accumulated amortization .............. 433,450 184,358
---------- ----------
$1,025,034 $ 773,417
========== ==========
Amortization of assets held under capital leases is included with
depreciation expenses.
The Company has also entered into various noncancelable operating leases
for machinery and equipment. The leases are noncancelable and expire on
various dates through fiscal 2003. Total rent expense was approximately
$897,000 and $872,000 for the years ended June 27, 1998 and June 28, 1997,
respectively. Future minimum lease payments under noncancelable operating
leases and future minimum capital lease payments as of June 27, 1998 are:
CAPITAL OPERATING
FISCAL LEASES LEASES
------ ------- -------
1999.......................................... $333,012 $344,592
2000.......................................... 333,012 62,112
2001.......................................... 228,561 3,180
2002.......................................... 183,030 1,440
2003.......................................... 146,813 120
------- -------
Total minimum lease payments..................1,224,428 $411,444
========= ========
Less amount representing interest (at rates
ranging from 6.29% to 7.31%)................ 157,925
---------
Present value of net minimum capital lease
payments....................................1,066,503
Less current installments of obligations under
capital leases.............................. 268,678
---------
Obligations under capital leases, excluding
current installments........................$ 797,825
=========
(9) CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Most of the Company's customers are located in the Mid-Atlantic states.
Five customers, one of which is a related party, accounted for approximately
55% of the Company's revenues in fiscal 1998. Four customers, one of which is
a related party, accounted for approximately 55% of the Company's revenues in
fiscal 1997. Three customers, one of which is a related party, accounted for
45% of the Company's accounts receivable as of June 27, 1998. Six customers,
one of which is a related party, accounted for 66% of the Company's accounts
receivable as of June 28, 1997.
(10) RELATED PARTY TRANSACTIONS
Cassco is a 100% owned subsidiary of WLR Foods, Inc. (the Parent). The
Parent performs certain services for the Company. These services include
cash management, preparation of all income tax returns, information systems
services and the administration of worker's compensation, health and
property insurance and savings plans. The Company is charged a management
fee for these services provided by the Parent.
F-10
<PAGE>
CASSCO ICE AND COLD STORAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF WLR FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Management fees paid to WLR Foods, Inc. were $434,000 and $309,760 for
fiscal 1998 and 1997, respectively. The Company provides refrigerated
warehouse services and sells ice to the Parent. The intercompany account is
interest bearing at a rate of 6.25% at June 27, 1998.
In management's opinion, all related party transactions are conducted
under normal business conditions, with no preferential treatment given to
related parties.
(11) BUSINESS ACQUISITIONS
On March 10, 1998, the Company acquired substantially all of the assets of
Mt. Joy Ice Company (Mt. Joy) for $400,000 cash and $100,000 (15,534 shares)
of WLR Foods, Inc. common stock. The assets included primarily ice
merchandisers. This transaction has been accounted for as a purchase, and
accordingly, the financial statements include the assets acquired at fair
value and the results of operations of Mt. Joy from the acquisition date.
On March 30, 1998, the Company acquired substantially all of the assets of
Copes Ice Company (Copes) for $250,000 in cash. The assets included
primarily ice merchandisers. This transaction has been accounted for as a
purchase, and accordingly, the financial statements include the assets
acquired at fair value and the results of operations of Copes from the
acquisition date.
In the fiscal 1997, the Company acquired substantially all of the assets
of Jennings Ice Company (Jennings) for $573,750 (45,000 shares) of WLR
Foods, Inc. common stock. The assets included primarily ice merchandisers
and refrigeration equipment. This transaction has been accounted for as a
purchase, and accordingly, the financial statements include the assets
acquired at fair value and the results of operations of Jennings from the
acquisition date.
The Company also acquired substantially all of the assets of The Ice
Plant, Inc. for $195,000 in cash in fiscal 1997. The assets included
primarily ice merchandisers. This transaction has been accounted for as a
purchase, and accordingly, the financial statements include the assets
acquired at fair value and the results of operations of The Ice Plant, Inc.
from the acquisition date.
(12) SUBSEQUENT EVENT
WLR Foods, Inc. has entered a letter of intent to sell its stock in Cassco
Ice and Cold Storage, Inc. to Packaged Ice, Inc. of Houston, Texas. Closing
for the transaction is subject to certain conditions, including the
completion of customary due diligence by the purchasers and regulatory
approvals.
F-11
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed balance sheet as of June 30,
1998 gives effect to the Cassco Acquisition and related financing, as if
they had occurred on June 30, 1998.
The unaudited pro forma combined condensed statements of operations for
the year ended December 31, 1997, give effect to the (i) the Cassco
Acquisition and related financing, (ii) the acquisition of Reddy Ice
Corporation ("Reddy") and (iii) 80 insignificant prior acquisitions of the
Company and Reddy since January 1, 1997 (the "Acquisitions"), as if they had
occurred on January 1, 1997. The unaudited pro forma combined statements of
operations for the year ended December 31, 1997 are derived from (a) the
audited historical financial statements of the Company and Reddy for such
year, (b) the unaudited historical financial statements of Cassco for such
period and (c) the unaudited historical financial statements of the
Acquisitions for the applicable periods prior to their respective
acquisition dates.
The unaudited pro forma combined condensed statements of operations for
the six months ended June 30, 1998 give effect to the (i) the Cassco
Acquisition and related financing, (ii) the acquisition of Reddy and (iii)
26 insignificant prior acquisitions of the Company and Reddy since January
1, 1998 (the "1998 Acquisitions"), as if they had occurred on January 1,
1997. The unaudited pro forma combined condensed statements of operations
for the six months ended June 30, 1998 are derived from (a) the unaudited
historical financial statements of the Company and Reddy for such period,
(b) the unaudited historical financial statements of Cassco for such period
and (c) the unaudited financial statements of the 1998 Acquisitions for the
applicable periods prior to their respective acquisition dates.
These unaudited pro forma combined financial statements should be read in
conjunction with the Notes thereto; the separate audited and unaudited
financial statements of the Company, including the Notes thereto, previously
filed with the Securities and Exchange Commission; and the separate audited
and unaudited financial statements the of Reddy, including the Notes
thereto, previously filed with the Securities and Exchange Commission.
The pro forma adjustments which give effect to the various events
described above are based upon currently available information and upon
certain assumptions that management believes are reasonable. The Company has
accounted for all acquisitions under the purchase method and the resulting
assets acquired and liabilities assumed are recorded at their estimated fair
market values at the respective dates of acquisition. The adjustments
included in the unaudited pro forma combined condensed financial statements
reflect the Company's preliminary assumptions and estimates based upon
available information. There can be no assurance that the actual adjustments
will not vary significantly from the estimated adjustments reflected in the
unaudited pro forma combined condensed financial statements.
The unaudited pro forma combined condensed financial statements do not
purport to be indicative of the results of operations that would have
occurred or that may be obtained in the future if the transactions described
had occurred as presented in such statements. In addition, future results
may vary significantly from the results reflected in such statements due to
general economic conditions, utility prices, labor costs, competition, the
Company's ability to integrate the operations of the companies the Company
acquires with its current business successfully and several other factors,
many of which are beyond the Company's control.
F-12
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PACKAGED ICE CASSCO ADJUSTMENTS COMBINED
------------ ------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents ......................... $ 7,311 $ 118 $ (7,000)(a) $ 429
Accounts and notes receivable ................ 26,082 5,183 (958)(b) 30,307
Inventories .................................. 7,664 1,213 -- 8,877
Prepaid expenses and other assets............. 1,478 516 (246)(b) 1,748
-------- -------- -------- --------
Total current assets ....................... 42,535 7,030 8,204 41,361
Property, net .................................. 140,567 23,878 -- 164,445
Other assets, net .............................. 13,733 385 -- 14,118
Goodwill ....................................... 195,723 -- 31,693 (b) 227,416
-------- -------- -------- ---------
Total assets ............................... $392,558 $ 31,293 $ 23,489 $ 447,340
======== ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations .... $ 76 $ 798 $ (530)(b) $ 344
Accounts payable ............................ 9,644 1,129 -- 10,773
Accrued expenses ............................ 21,942 477 -- 22,419
--------- --------- --------- ---------
Total current liabilities ................. 31,662 2,404 (530) 33,536
Long-term obligations:
Credit Facility ............................. 15,000 -- 52,000 (c) 67,000
9 3/4% Senior Notes ......................... 270,000 1,976 (1,976)(b) 270,000
Other indebtedness .......................... 787 908 -- 1,695
Debt discount ............................... (263) -- -- (263)
--------- --------- --------- ---------
Total long-term obligations ............... 285,524 2,884 50,024 338,432
Deferred taxes ................................ -- 1,544 (1,544)(b) --
Exchangeable preferred stock .................. 36,006 -- -- 36,006
Mandatorily redeemable preferred stock ........ 26,438 -- -- 26,438
Preferred stock with put redemption option:
Series A .................................... 2,497 -- -- 2,497
Series B .................................... 726 -- -- 726
Common stock with put redemption option ....... 1,972 -- -- 1,972
Shareholders' equity:
Common stock ................................ 49 70 (70)(b) 49
Additional paid-in capital .................. 41,322 10,614 10,614 (b) 41,322
Treasury stock .............................. (1,491) -- -- (1,491)
Retained earnings (accumulated deficit) .... (32,147) 13,777 (13,777)(b) (32,147)
--------- --------- --------- ---------
Total shareholders' equity .................... 7,733 24,461 (24,461)(d) 7,733
--------- --------- --------- ---------
Total liabilities and shareholders' equity $ 392,558 $ 31,293 $ 23,489 $ 447,340
========= ======== ======== =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-13
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PACKAGED ICE REDDY CASSCO ACQUISITIONS ADJUSTMENTS COMBINED
------------ ----- ------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................ $ 28,981 $ 66,449 $ 28,675 $ 78,771 $ -- $ 202,876
Cost of sales ....................... 18,724 41,713 19,547 53,211 -- 133,195
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ........................ 10,257 24,736 9,128 25,560 -- 69,681
Operating expenses .................. 7,636 10,952 705 8,469 (155)(a) 24,919
(1,545)(b)
(446)(c)
(72)(d)
(499)(e)
(126)(f)
Depreciation & amortization ......... 5,130 6,070 3,062 6,719 5,311 (g) 26,292
Interest expense .................... 6,585 7,168 217 1,910 18,253 (h) 34,133
Other income (expense) .............. 655 580 (390) 302 (155)(a) 992
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before taxes .......... (8,439) 1,126 4,754 8,764 (20,876) (14,671)
Income taxes ........................ -- 441 1,788 -- (2,229)(j) --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) before
preferred dividends ........... (8,439) 685 2,966 8,764 (18,647)
(14,671)
Preferred dividends ................. 198 -- -- -- 7,502 (i) 7,700
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) to common
shareholders ................... $ (8,637) $ 685 $ 2,966 $ 8,764 $ (26,149) $ (22,371)
=========== =========== =========== =========== =========== ===========
Net loss per share to common
shareholders ................... $ (2.40) $ (6.21)
=========== ===========
Weighted average number of
common shares outstanding ...... 3,600,109 3,600,109
=========== ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-14
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL 1998 PRO FORMA PRO FORMA
PACKAGED ICE REDDY CASSCO ACQUISITIONS ADJUSTMENTS COMBINED
------------ ----- ------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues .............................. $ 59,416 $ 17,858 $ 12,886 $ 4,968 $ -- $ 95,128
Cost of sales ......................... 35,474 13,871 9,420 1,759 -- 60,524
----------- ----------- ----------- ----------- ----------- -----------
Gross profit .......................... 23,942 3,987 3,466 3,209 -- 34,604
Operating expenses .................... 11,763 4,179 472 2,700 -- 19,114
Depreciation & amortization ........... 6,823 3,089 1,593 423 1,762(g) 13,690
Interest expense ...................... 8,727 4,376 90 281 3,593(h) 17,067
Other income (expense) ................ 146 218 (273) 108 -- 199
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before taxes ............ (3,225) (7,439) 1,038 (87) (5,355) (15,068)
Income taxes .......................... -- -- 394 -- (394)(j) --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) before
extraordinary item and
preferred dividends .............. (3,225) (7,439) 644 (87) (4,961) (15,068)
Preferred dividends ................... 2,008 -- -- -- 1,842(i) 3,850
----------- ----------- ----------- ----------- ----------- -----------
Loss before extraordinary
item available to common
shareholders ..................... $ (5,233) $ (7,439) $ 644 $ (87) $ (6,803) $ (18,918)
=========== =========== =========== =========== =========== ===========
Loss per share before
extraordinary item available
to common shareholders ........... $ (1.11) $ (4.01)
=========== ===========
Weighted average number of
common shares outstanding ........ 4,721,536 4,721,536
=========== ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-15
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) Cash on hand used in Cassco Acquisition.
(b) The excess purchase price over the allocation of the fair value of the net
assets of Cassco will be recorded as goodwill, which is calculated and
based on the following assumptions:
(IN THOUSANDS)
Cassco purchase price ......................... $ 59,000
Allocation of net assets:
Historical net assets (equity) of Cassco ... 24,461
Historical assets of Cassco not acquired ... (1,204)
Historical liabilities of Cassco not assumed 4,050
--------
Total ................................... 27,307
--------
Goodwill ...................................... $ 31,693
========
The Company has not completed an assessment of the fair value of the net
assets to be acquired for the purpose of allocating the purchase price. To
the extent that such an assessment indicates the fair value of the fixed
assets is in excess of net book value, this excess would be allocated to
fixed assets and would reduce the goodwill calculated above. Assuming a
weighted average depreciable life for fixed assets of five years, every
$500 allocated to fixed assets rather than goodwill would increase
depreciation and amortization expense for the pro forma year ended
December 31, 1997 and the six-months ended June 30, 1998 by $87 and $44,
respectively.
(c) Borrowing from Credit Facility to finance Cassco Acquisition.
(d) Does not reflect $9,344 of additional pro forma undeclared preferred
dividends and $1,713 of additional pro forma accretion on the $40,000 13%
Exchangeable Preferred Stock as if the Ares and Culligan Equity
Investments had occurred on January 1, 1997.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(a) Elimination of intercompany revenues/expenses with respect to equipment
leasing and service agreements between Packaged Ice and certain acquired
companies purchased during 1997.
(b) Elimination of compensation and related benefits for certain owners that
did not continue with the Company after the respective acquisition dates.
(c) Elimination of costs associated with operations not acquired.
(d) Elimination of lease costs related for facilities not contemplated under
the respective acquisition agreements.
(e) Elimination of corporate overhead charges to acquired entities which are
not of a continuing nature with the Company's core business.
(f) Reduction of defined contribution plan matching costs to conform to the
Company's existing benefit plans.
F-16
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(g) The excess of total purchase price for the 1997 Acquisitions, the 1998
Completed Acquisitions and the Cassco Acquisition over the allocation of
fair value to the net assets acquired or to be acquired has been recorded
as goodwill, which is calculated and amortized based on the following
assumptions:
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
--------- ---------
(IN THOUSANDS)
Value of common stock consideration ........... $ 23,362 $ 23,362
Cash consideration ............................ 330,355 330,355
--------- ---------
Total purchase price ..................... 353,717 353,717
Total net assets acquired ..................... 124,790 124,790
--------- ---------
Goodwill ...................................... $ 228,927 $ 228,927
========= =========
Calculated amortization, 40-year estimated life $ 5,723 $ 2,862
Less: historical amortization ................. (412) (1,100)
--------- ---------
Adjustment to amortization .................... $ 5,311 $ 1,762
========= =========
(h) Interest expense adjustments are as follows:
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1997 1998
--------- ---------
(IN THOUSANDS)
9 3/4% Senior Notes ........................... $ 270,000 $ 270,000
========= =========
Borrowing on Credit Facility .................. $ 67,000 $ 67,000
========= =========
Pro forma interest expense on 9 3/4% Senior Notes 26,325 $ 13,163
Pro forma interest expense on Credit Facility . 6,365 3,183
Less: Packaged Ice historical interest expense (6,585) (8,727)
Reddy historical interest expense ........ (7,168) (4,376)
Cassco historical interest expense ....... (217) (90)
Acquisition historical interest expense .. (1,910) (281)
Plus: Additional interest on amortization
of debt issue costs:
Total debt issue costs of $9,820,
calculated amortization, 7-year life . 1,403 701
Amortization of discount on 9 3/4% Senior Notes:
Total discount of $280, calculated
amortization, 7-year life ............ 40 20
--------- ---------
Net adjustment to interest expense ............ $ 18,253 $ 3,593
========= =========
(i) Dividends on the $40,000 13% Exchangeable Preferred Stock and $25,000 10%
Mandatorily Redeemable Preferred Stock.
(j) The elimination of Reddy's and Cassco's income tax expense assumes that
the combined Company was in a loss position, therefore the Company would
not incur income tax expense.
F-17
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
2.1 Stock Purchase Agreement among Packaged Ice, Inc., WLR Foods, Inc.
and Cassco Ice & Cold Storage, Inc. dated July 31, 1998.
2.2 Non-Competition Agreement between WLR Foods, Inc. and Packaged Ice,
Inc.
EXHIBIT 2.1
CASSCO ICE & COLD STORAGE, INC.
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement"), dated as of July 31,
1998, is made by and among CASSCO ICE & COLD STORAGE, INC., a Virginia
corporation ("Company"), WLR FOODS, INC., the sole shareholder of the Company
("Seller"), and PACKAGED ICE, INC., a Texas corporation ("Buyer").
RECITALS
A. The Company is a corporation duly organized and validly
existing under the laws of the Commonwealth of Virginia with authorized capital
stock of 5,000 shares of common stock, with voting rights, without par value,
(the "Common Stock").
B. The Seller owns 1,000 shares of the Common Stock, (the
"Shares"), which Shares constitute all of the issued and outstanding shares of
the Common Stock.
C. The Buyer wishes to acquire and the Seller desires to sell the
Shares as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto covenant and
agree with each other as follows:
1. PURCHASE AND SALE OF STOCK.
1.1. STOCK PURCHASE. At the Closing provided for in
Section 2 herein, the Buyer agrees to purchase from the Seller and the Seller
agrees to sell to the Buyer the Shares, pursuant to the terms of the Agreement,
for the consideration provided in Section 1.3 below.
<PAGE>
1.2. CERTAIN LIABILITIES. The Company shall continue to
be responsible for all of the liabilities of the Company existing at the end of
business on the Closing Date (as defined in Section 2 below) except for those
liabilities (each an "Excluded Liability" and collectively the "Excluded
Liabilities") which are expressly excluded from this Agreement and set forth in
Section 1.2 of that certain letter from Seller to Buyer dated as of the date
hereof (the "Disclosure Letter") delivered prior to the execution of this
Agreement. Seller shall pay off or otherwise discharge all Excluded Liabilities
at or prior to the Closing. To the extent any Excluded Liabilities are not paid
off or discharged at or prior to Closing, then Buyer shall have the right to
reduce the Preliminary Payment (as defined in Section 1.4) by all amounts
necessary to discharge any or all such Excluded Liabilities.
1.3. PURCHASE PRICE.
(a) The purchase price to be paid for the Shares (the "Purchase
Price") shall be Fifty-Nine Million Twenty-Five Thousand Dollars ($59,025,000),
payable in cash, and subject to the Post Closing Adjustments as defined in
section 1.3(c) below.
(b) Within 30 days following the Closing Date (as
such date is defined in section 2 below), Seller, at Seller's sole cost and
expense, shall cause KPMG Peat Marwick LLP ("KPMG") to prepare and deliver to
the Company, Seller and Buyer its report on a schedule in the form annexed in
Section 1.3 of the Disclosure Letter (the "Closing Schedule"). The Closing
Schedule shall reflect the net asset value of the Company ("NAV") as of the end
of business on April 25, 1998 (the "Base NAV"), July 25, 1998 (the "July 25
NAV"), the Closing Date (the "Closing Date NAV") and (if such date is prior to
the Closing Date) August 15, 1998 (the "August 15 NAV"). The Company NAV at each
2
<PAGE>
such date shall be determined in accordance with generally accepted accounting
principles consistently applied ("GAAP") except that the following shall be
excluded from such determination:
(i) intercompany receivables outstanding
as of the date of the NAV determination which such receivables will not be paid
into the Company by Seller or Seller's affiliates;
(ii) any receivables in favor of the
Company from Buyer outstanding as of the date of the NAV determination which
such receivables will not be paid into the Company by Buyer and shall be written
off simultaneously with the Closing;
(iii) current income taxes payable, which
shall be the responsibility of the Seller; and
(iv) deferred income tax assets and
liabilities, which shall be the responsibility of the Seller.
(c) The Purchase Price set forth in Section 1.3(a)
above shall be adjusted according to the following post-closing determinations
(the "Post-Closing Adjustments"):
(i) The Purchase Price shall be
decreased by the amount, if any, of Excluded Liabilities which have not been
satisfied by Seller prior to Closing.
(ii) The Purchase Price shall be increased
if more, or decreased if less, as the case may be by all of the following: (w)
the full amount, if any, by which the July 25 NAV is more or less than the Base
NAV; (x) fifty percent (50%) of the amount, if any, by which the August 15 NAV
is more or less than the July 25 NAV if the Closing Date is subsequent to August
15, 1998, or fifty percent (50%) of the amount, if any, by which the Closing
Date NAV is more or less than the July 25 NAV if the
3
<PAGE>
Closing Date is on or before August 15, 1998; (y) ten percent (10%) of the
amount, if any, by which the Closing Date NAV is more or less than the August 15
NAV if the Closing Date is subsequent to August 15, 1998, and (z) an amount
equal to thirty-nine percent (39%) of the total increase in NAV that does not
increase the Purchase Price pursuant to the formula set forth in (x) and (y)
above.
(d) During the thirty (30) days following the
Buyer's receipt of the Closing Schedule, Buyer and Deloitte & Touche, LLP
("Deloitte") shall be permitted, subject to the execution of customary and
standard releases, to review such Schedule and working papers of KPMG related
thereto. If any matter is in dispute and cannot be resolved in such thirty (30)
day period, both accounting firms shall, within an additional five (5) day
period following expiration of Deloitte's review period, submit the question or
questions in dispute to the Washington, D.C. office of Arthur Anderson, LLP, or,
in the event Arthur Anderson has a conflict or is otherwise unable or unwilling
to accept the engagement, such other mutually agreed upon, neutral auditor (the
"Neutral Auditor") which shall resolve the dispute within thirty (30) days after
the question(s) are referred to them and whose decision shall be final and
binding on all parties hereto. The parties shall share equally the fees, costs
and expenses of the Neutral Auditor.
4
<PAGE>
On the later of (i) 120 days after the Closing Date or
(ii), five (5) business days after the earlier of the Seller and Buyer agreeing
on the Post Closing Adjustments or the final decision of the Neutral Auditor,
the payments described in Section 1.4(b) below shall occur (the "Second Closing
Date").
1.4. PAYMENT.
(a) On the Closing Date, Buyer shall pay to or
for the benefit of the Seller, by wire transfer of immediately available funds,
Fifty-Nine Million Dollars ($59,000,000) (the "Preliminary Payment"); and
(b) On the Second Closing Date, if the Purchase
Price, after making the Post-Closing Adjustments, (i) exceeds the Preliminary
Payment, Buyer shall pay to or for the benefit of the Seller, by wire transfer
of immediately available funds, a sum equal to the amount of the excess in
accordance with Section 1.3(c)(ii) plus interest from the Closing Date or (ii)
is less than the Preliminary Payment, Seller shall remit to Buyer, by wire
transfer of immediately available funds, a sum equal to such deficiency plus
interest from the Closing Date. Interest shall be calculated at a rate equal to
the prime rate of the Chase Manhattan Bank on the Closing Date.
5
<PAGE>
2. CLOSING.
2.1. CLOSING DATE. The closing of the transaction
contemplated by the Agreement (the "Closing") shall take place at the offices of
Wharton, Aldhizer and Weaver, P.L.C. in Harrisonburg, Virginia at 10:00 a.m. on
the later of (a) August 3, 1998, or (b) the date that is two (2) business days
following the date on which all of the conditions contained in Article 8, to the
extent not waived, are satisfied (the "Closing Date"), or at such other place or
time as the parties may agree. The Closing shall be deemed to have taken place
at 12:01 a.m. on the Closing Date. Subject to provisions herein to the contrary,
failure to consummate the purchase and sale contemplated herein on the date and
time and at the place determined pursuant to this Section 2.1 will not result in
the termination of the Agreement and will not relieve any party of any of its
obligations herein; provided, however, either party may terminate this Agreement
as provided in Article 10.
2.2. CLOSING TRANSACTIONS. Subject to the conditions set
forth herein, on the Closing Date, the parties hereto agree as follows:
(a) The Seller shall deliver to Buyer certificates
representing the Shares, duly endorsed in blank or accompanied by duly executed
stock powers;
(b) Buyer shall deliver to Seller the Preliminary
Payment in accordance with Section 1.4(a); and
(c) There shall be delivered to the Company, the
Seller and Buyer, as applicable, the documents or instruments required to be
delivered as set forth in Section 2.2(c) of the Disclosure Letter.
6
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Except as set
forth in a corresponding numbered section of the Disclosure Letter, the Seller
represents and warrants to Buyer as follows:
3.1. ORGANIZATION, POWER AND AUTHORITY. The Seller
and the Company are each corporations duly organized and existing in good
standing under the laws of the Commonwealth of Virginia with all corporate power
and authority, including possession of all material licenses, permits and
authorizations, necessary to carry on their respective business as now being
conducted and to own and operate their respective assets. The Company is duly
qualified to do business in all jurisdictions where such qualification is
required. Schedule 3.1 of the Disclosure Letter lists each jurisdiction where
the Company is qualified to transact business as a foreign corporation. Seller
has delivered or made available to Buyer true and complete copies of the
Company's articles of incorporation, bylaws and resolutions of the board of
directors and shareholder.
3.2. AUTHORIZATION OF TRANSACTION . The execution,
delivery and performance by the Seller and the Company of this Agreement and the
performance by them of the transactions contemplated hereby have been duly
authorized by all necessary corporate action of the Seller and the Company. This
Agreement is a valid and binding obligation of the Seller and the Company, and
each instrument contemplated by this Agreement, when executed and delivered by
the Seller and the Company in accordance with the provisions hereof, will be a
valid and binding obligation of the Seller and the Company, in each case
enforceable against the Seller and the Company in accordance with its terms
(except as such enforceability may be limited by applicable creditors' rights
laws.) Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (a) conflict
7
<PAGE>
with or result in any violation of any provision of the certificate of
incorporation or bylaws of the Seller or the Company, (b) except as set forth in
Section 3.2 of the Disclosure Letter, constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) in the terms,
conditions or provisions of any material agreement or material obligation (or
agreements or obligations which in the aggregate would be material) to which the
Company or the Seller is a party or by which its or their assets are bound, (c)
except as expressly waived by Buyer, violate any judgment, order or award of any
court, administrative agency or governmental body against or binding upon the
Company, its assets or the Seller, (d) except as expressly waived by Buyer,
constitute a violation by the Company of any law or regulation of any
jurisdiction as relates to it or its assets, or (e) result in the creation of
any lien or encumbrance on any of the Company's assets.
3.3. CAPITALIZATION OF COMPANY . The Company is a
corporation duly organized and validly existing under the laws of the
Commonwealth of Virginia with authorized capital stock of 5,000 shares of common
stock, with voting rights, without par value of which 1,000 shares are issued
and outstanding and constitute the Shares. All issued and outstanding Shares of
the Company have been duly authorized and validly issued, are fully paid and
nonassessable, were issued in compliance with all applicable federal and state
securities or "blue sky" laws, and, except as set forth in Section 3.3 of the
Disclosure Letter, are owned by the Seller free and clear of all liens, pledges,
claims, security interests or other encumbrances of any nature whatsoever. There
are no outstanding or authorized options, warrants, rights, trusts, contracts or
agreements of any kind or nature whatsoever with respect to shares of stock in
the Company, except as set forth in Section 3.3 of the Disclosure Letter. Except
as set forth in Section 3.3 of the Disclosure Letter, the Company does not own
an
8
<PAGE>
equity interest in any corporation, limited liability company or other entity,
and is not a partner of any partnership or joint venture.
3.4. COMPLIANCE WITH LAWS . Seller and their respective
officers, directors, agents and employees have complied with all applicable
laws, regulations, and ordinances, whether federal, state or local, which affect
the business practices, or any owned or leased properties of the Company and to
which the Company or any of its directors, officers, agents or employees may be
subject, except where the failure to comply would not, individually or in the
aggregate, have a material adverse effect on the Company and no claims have been
filed against the Company alleging a violation of any such laws, regulations, or
ordinances.
3.5 ENVIRONMENTAL.
(a) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as
disclosed in Section 3.5 of the Disclosure Letter, the Company has been and is
operated in compliance with all Environmental Laws and all permits related to
Environmental Laws except when the failure to be in compliance would not
individually or in the aggregate, have a material adverse effect on the Company.
(b) HAZARDOUS MATERIALS. Except as disclosed in Section
3.5 of the Disclosure Letter, the Company has neither caused nor allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous Materials
at any of the properties or facilities used in connection with the Company's
business, including the Real Property (as defined in Section 3.26(c) hereof),
except in compliance with all Environmental Laws. To Seller's and the Company's
knowledge, no generation, treatment, manufacture, processing, distribution, use,
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storage, discharge, release, disposal, transport or handling of any Hazardous
Materials has occurred at any of the properties or facilities used in connection
with the Company's business, including the Real Property, except in compliance
with all Environmental Laws.
(c) EXISTENCE OF AN ACTION. Except as disclosed in Section
3.5 of the Disclosure Letter, neither Seller nor the Company has received any
notice from any Governmental Authority or other person alleging or concerning
any Environmental Claim against the Company, whether for personal injuries or
property damages. Except as disclosed in Section 3.5 of the Disclosure Letter,
there is no pending or, to the knowledge of Seller and the Company, threatened
claim affecting the Company or concerning any Environmental Claim, whether for
personal injuries or property damages.
(d) ENVIRONMENTAL PERMITS. The Company is in possession of
and in compliance with all material permits required under the Environmental
Laws with respect to the operation of its business. Except as set forth in
Section 3.5 of the Disclosure Letter, there are no claims, actions, proceedings,
inquiries or investigations pending or, to the knowledge of Seller and the
Company, threatened which seek to modify, revoke or deny renewal of any such
permit. Neither Seller nor the Company has any knowledge of any fact or
condition that is reasonably likely to give rise to any claims, actions,
proceedings, inquiries or investigations to modify, revoke or deny renewal of
any of such permit. Except as set forth in Section 3.5 of the Disclosure Letter,
no consent, waiver or approval from any person is necessary for the transfer of
any such permit, and the consummation of the transactions contemplated by this
Agreement will not violate, alter, impair or invalidate, in any respect, any
such permit.
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(e) MISCELLANEOUS. Without in any way limiting the
generality of the foregoing, except as set forth in Section 3.5 to the
Disclosure Letter, (i) to the knowledge of the Seller and the Company, none of
the off-site locations where the Company has transported, released, discharged,
stored, disposed or arranged for the disposal of Hazardous Materials has been
identified as a facility that is subject to any existing claims, actions,
proceedings, inquiries or investigations under any Environmental Law or, to the
knowledge of Seller and the Company, is the subject of any threatened claims,
actions, proceedings, inquiries or investigations by any person, (ii) no
underground improvement regulated by any Environmental Law, including any
storage or treatment tank, is located on the Real Property, (iii) to the
knowledge of Seller and the Company, there is no asbestos contained in or
forming part of the assets of the Company, and (iv) no polychlorinated biphenyls
or polychlorinated biphenyls-containing items are used or stored at the Real
Property.
(f) DEFINITIONS. For the purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "ENVIRONMENTAL CLAIM" shall mean a claim
under any Environmental Law or with respect to the presence, use, release,
manufacture, generation, storage, transportation or disposal of any Hazardous
Materials.
(ii)"ENVIRONMENTAL LAW" shall mean (i) the
Clean Air Act (42 U.S.C. Section 7401 et seq.), (ii) the Clean Water Act (33
U.S.C. Section 1251 et seq.), (iii) the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act of 1986 (42 U.S.C. Section 9601 et seq.), (iv) the Federal
Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
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(v) the Hazardous Materials Transportation Act (49 U.S.C. Section 5101 et seq.),
(vi) the National Environmental Policy Act (42 U.S.C. Section 4321 et seq.),
(vii) the Oil Pollution Act of 1990 (33 U.S.C. Section 2701 et seq.), (viii) the
Resource Conservation and Recovery Act, as amended by the Hazardous and Solid
Waste Amendments of 1984 (42 U.S.C. Section 6901 et seq.), (ix) the Safe
Drinking Water Act (42 U.S.C. Section 300f et seq.), (x) the Toxic Substances
Control Act (15 U.S.C. Section 2601 et seq.), (xi) any state or local law,
ordinance, regulation, or statute regulating any activity or substance regulated
by any of the foregoing statutes, or (xii) any other federal, state or local
law, ordinance, regulation, or statute regulating any activity or substance
regulated by law, ordinance, regulation, or statute prohibiting, regulating or
restricting the disposal, generation, handling, placement, recycling, release,
storage, or treatment of any contaminant, liquid, mass, material, matter,
pollutant, solid, substance, or waste classified or considered to be hazardous
or toxic to human health or the environment or otherwise related to
environmental protection or health and safety.
(iii)"GOVERNMENTAL AUTHORITY" shall mean any
federal, state, local, or other governmental agency, department, branch,
commission, board, bureau, court, instrumentality or body.
(iv)"HAZARDOUS MATERIAL" shall mean (i) any
contaminant, liquid, mass, material, matter, pollutant, solid, substance, or
waste for which any Environmental Law limits, prohibits, or regulates its
disposal, generation, handling, placement, recycling, release, storage, or
treatment, (ii) any carcinogenic, corrosive, explosive, flammable, infectious,
mutagenic, radioactive, or toxic substance, (iii) any diesel fuel, gasoline, or
other petroleum product in an unconfined manner, (iv) any substance that
contains polychlorinated biphenyls, (v) any substance that contains asbestos,
(vi) any substance that contains urea
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formaldehyde foam installation, (vii) any substance that constitutes a nuisance
upon any property or (viii) any substance that imposes a hazard to the health or
safety of any individual.
3.6. FINANCIAL STATEMENTS . The Seller has delivered or
made available to Buyer (a) the Company's audited balance sheets at June 28,
1997 and June 29, 1996 and the related statements of earnings, shareholder
equity and cash flows for the fiscal year ended June 28, 1997, and shall deliver
on or before the Closing Date (or as soon thereafter as available) the Company's
audited balance sheet at June 27, 1998, and the related statements of earnings,
shareholder equity and cash flows for the fiscal year ended June 27, 1998
(collectively, the "Financial Statements"), and (b) shall deliver, as soon as
they are available, the Company's unaudited balance sheet as of the end of the
month prior to the Closing Date and the related statement of earnings for the
period then ended (the "Interim Financial Statements"). The Financial Statements
and the Interim Financial Statements fairly present, in all material respects,
the financial position and results of operations and cash flows of the Company
as of the respective dates thereof and for the periods therein referenced, all
in accordance with generally accepted accounting principles; and the Financial
Statements and Interim Financial Statements referred to in this Section reflect
the consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes, if any, to such Financial Statements
and Interim Financial Statements.
3.7. UNDISCLOSED LIABILITIES . The Company is not liable
for or subject to any liabilities which are material, except (a) liabilities
disclosed or reserved for the Interim Financial Statements, (b) liabilities
specifically disclosed in Section 3.7 of the Disclosure Letter, and (c)
liabilities under any contract, commitment, or agreement specifically disclosed
in this Agreement or the Disclosure Letter (or not specifically required to be
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disclosed in this Agreement or the Disclosure Letter as a result of failure to
meet any minimum dollar thresholds), none of which liabilities under any such
contract, commitment or agreement are required under generally accepted
accounting principles consistently applied to have been adequately and
specifically disclosed or reserved for on the Financial Statements or Interim
Financial Statements, except for those liabilities as described in Section 3.7
of the Disclosure Letter. As used in this Agreement, the term "liability" shall
include any direct or indirect liability, indebtedness, obligation, guarantee or
endorsement (other than items, such as endorsements of notes, bills, and checks,
presented to banks for collection or deposit in the ordinary course of
business), either accrued, absolute, contingent or otherwise. Without limiting
the generality of the foregoing, except as disclosed in Section 3.7 of the
Disclosure Letter, the costs of all retirement, incentive, bonus, or other plans
or policies for the benefit of employees of the Company, including without
limitation, the costs of all past service benefits, are fully accrued and
reflected on the Interim Financial Statements.
3.8. GOVERNMENTAL AUTHORITIES AND CONSENTS . Except as
provided in Section 3.8 of the Disclosure Letter, neither the Company nor the
Seller is required to submit any notice, report or other filing with any
governmental authority in connection with the execution or delivery by it of
this Agreement and the other agreements contemplated hereby to which the Seller
is a party or the consummation of the transactions contemplated hereby or
thereby. Other than as listed in Section 3.8 of the Disclosure Letter, no
consent, approval or authorization of any governmental or regulatory authority
or any other party or person is required to be obtained by the Company or the
Seller in connection with its execution, delivery and performance of this
Agreement and the other agreements contemplated hereby to which the Company is a
party or the transactions contemplated hereby or thereby.
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3.9. ACCOUNTS RECEIVABLE . All accounts receivable
reflected on the Financial Statements and the Interim Financial Statements and
all accounts receivable of the Company arising subsequent to June 27, 1998 have
arisen only in the ordinary course of business for goods sold and delivered or
services performed. Unless paid prior to the Closing Date, the accounts
receivable are current and are collectible net of the reserves shown on the
Interim Financial Statements. Subject to such reserves, each of the accounts
receivable has been or will be collected in full without setoff within 150 days
after which it first became due and payable. The reserves for bad debts, if any,
reflected on the Interim Financial Statements are in accordance with generally
accepted accounting principles and consistent with past practice.
3.10. INVENTORY . All inventory reflected on the Interim
Financial Statements and all inventory acquired by the Company subsequent to
June 27, 1998 is usable or salable in the ordinary course of business of the
Company consistent with past practice, and is reflected on the Interim Financial
Statements and books of the Company at prices at least equal to the lower of
cost or market value thereof. Proper recognition has been given to appropriate
mark-downs for unusable or unsalable inventory. The inventory on hand is, and
will be at the Closing, to the best of Seller's and Company's knowledge, ability
and estimation (a) adequate for the conduct of the business, and (b) not in
excess of normal operating requirements of the Company's business.
3.11. OWNERSHIP OF ASSETS . Except as set forth in Section
3.11 of the Disclosure Letter, the Company is the owner of its assets, and has
good and marketable title to all of its assets, free and clear of any lien,
security interest, lease, title, retention or financing agreement, charge or
other encumbrance, (collectively the AEncumbrances") except for:
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(a) statutory liens for current taxes or assessments not yet due or delinquent,
(b) mechanics', carriers', workers', repairers', warehousers' and other similar
liens arising or incurred in the ordinary course of business relating to
obligations as to which there is no default on the part of the Company, and (c)
such other liens, imperfections of title, charges, easements, restrictions,
encumbrances and other matters of similar nature which do not relate to borrowed
money and do not individually or in the aggregate, substantially impair or
materially adversely interfere with the operation of its business, or materially
detract from the value of the applicable property ("Permitted Encumbrances").
The assets of the Company as of the Closing Date will constitute all of the
assets necessary to conduct the business as currently conducted and as conducted
in generating the items of income and cash flows included in the Financial
Statements and Interim Financial Statements. The building, plants, structures,
and equipment of the Company are in operating condition and are sufficient for
the continued conduct of the Company's business after the Closing in
substantially the same manner as conducted prior to the Closing.
3.12. ABSENCE OF CERTAIN EVENTS . Except as set forth in
Section 3.12 of the Disclosure Letter, the Financial Statements or the Interim
Financial Statements, since April 30, 1998, the Company has not:
(a) Amended its articles of incorporation or
bylaws;
(b) Changed its authorized capital stock or
issued or sold, or purchased, redeemed or otherwise acquired, or issued any
rights to subscribe for, or warrants to purchase, or entered into any agreement,
commitment or obligation (including, without limitation, any convertible
securities) to issue, sell, purchase, redeem or otherwise acquire, any
16
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shares of its capital stock, or made any declaration or any payment or
distribution of any dividend or any other distribution with respect to its
capital stock;
(c) Incurred any liabilities, which are in the
aggregate material (other than liabilities incurred in the ordinary course of
business consistent with past practice and capital expenditures not in excess of
$25,000), or discharged or satisfied any lien or encumbrance, or paid any
liabilities, which are in the aggregate material (other than in the ordinary
course of business consistent with past practice), or failed to pay or discharge
when due any liabilities the failure to pay or discharge of which has caused or
will cause any actual material damage or risk of material loss to the Company;
(d) Sold, assigned or transferred any of its
assets or properties except in the ordinary course of business consistent with
past practice;
(e) Created, incurred, assumed or guaranteed any
indebtedness for money, borrowed, or mortgaged, pledged or subjected to any
lien, pledge, mortgage, security interest, conditional contract or other
encumbrances of any nature whatsoever, any of its assets or properties, except
in the ordinary course of business consistent with past practice and liens, if
any, of current taxes not yet due and payable or those arising by operation of
law;
(f) Entered into or suffered any amendment or
termination of any material contract, commitment or agreement to which it is a
party or by which it is bound, or cancelled, modified or waived any debts or
claims held by it, other than in the ordinary course of business consistent with
past practice;
(g) Suffered any damage, destruction or loss,
whether or not covered by insurance, materially and adversely affecting its
business, or suffered any repeated,
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recurring or prolonged shortage, cessation or interruption of inventory
shipments, supplies or utility services required by the Company to conduct its
business or suffered any change in its financial condition or in the nature of
its business or operations which has had or might have a material adverse effect
on its business;
(h) Received notice or had knowledge of any
actual or threatened labor trouble, strike or other occurrence, event or
condition of any similar character which has had or might have a material
adverse effect on its business;
(i) Increased the salaries or other compensation
of, or made any advance or loan to, any of its shareholders, directors, officers
or employees, or made any increase in, or any additions to, other benefits to
which any of its shareholders, directors, officers or employees may be entitled,
except in the ordinary course of business, provided however, that any increase
or authorization to increase salary or other compensation shall not exceed in
the aggregate in any twelve month period, three percent (3%) of the Company's
aggregate compensation to officers, directors, or employees.
(j) Changed any of the accounting principles
followed by it or the methods of applying such principles; or
(k) Entered into any transaction other than in the
ordinary course of business or conducted its cash management practices other
than in the ordinary course of business (including, without limitation, with
respect to maintenance of collection of accounts receivable and payment of
accounts payable);
3.13. TAXES AND TAX RETURNS.
(a) GENERAL. Seller has made available to Buyer
each Tax report and return in connection with the Company's assets, business,
and employees that either
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Seller or the Company filed during the five years immediately preceding the date
of this Agreement or such earlier period for which the statute of limitations
has not yet expired, including any of Seller's combined, consolidated, or
unitary income Tax reports and returns including the operations of the Company.
(b) CONSOLIDATED INCOME TAX RETURNS. The Company
has been included in Seller's combined, consolidated, and unitary income Tax
reports and returns for all periods for which the applicable statute of
limitations has not expired. In addition, the Company will remain a member of
Seller's affiliated group with respect to the filing of such income Tax reports
and returns through the Closing Date.
(c) TAX RETURNS AND PAYMENTS. Either Seller or the
Company has timely filed all Tax reports and returns required to be filed by
Seller or the Company in connection with the Company's assets, business, and
employees and either Seller or the Company has timely paid and discharged all
Tax obligations shown on such reports and returns, including any withholding
obligations. Such Tax reports and returns are accurate and complete in all
material respects and correctly compute the Tax obligation to which each such
report or return pertains.
(d) NO NOTICES. Except as disclosed in Section
3.13 of the Disclosure Letter, neither Seller nor the Company has received any
determination letter, revenue agent report, or other notice of any proposed or
outstanding Tax deficiency against or allocable to the Company which remain
pending and/or have not yet been resolved. Except as set forth in Section 3.13
of the Disclosure Letter, neither Seller nor the Company has executed any
extension agreement or waiver of any statute of limitations with respect to the
assessment or collection of any Tax against the Company.
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(e) NO AUDITS. Except as disclosed in Section
3.13 of the Disclosure Letter, neither the Internal Revenue Service ("IRS") nor
any other taxing authority (collectively with the IRS, the "Taxing Authorities")
has contacted Seller or the Company concerning a future audit or examination of
any Tax reports and returns that include the Company other than audits and
examinations which have been resolved and any taxes due in connection therewith
have been paid. Except as disclosed in Section 3.13 of the Disclosure Letter, no
such audit or examination is in process or has occurred with respect to any
period for which the statute of limitations has not expired.
(f) NO TAX LIENS. No Tax liens exist with
respect to any assets of the Company, other than statutory Tax liens for Taxes
not yet due.
(g) NO AGREEMENTS. No Tax ruling from any Taxing
Authority addressed to the Company or closing agreement with any Taxing
Authority has a continuing effect upon the Company. In addition, no such Tax
ruling or closing agreement is pending.
(h) NO GOLDEN PARACHUTES. The Company does not
have any contract that could require the Company to make any "excess parachute
payment" as defined under Section 280G of the Code, determined without
considering any of the exceptions contained in such Section.
(i) NO PARTNERSHIPS. The Company is not a member
of any joint venture, partnership, or other arrangement or Contract that is
treated as a partnership for income Tax purposes.
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(j) NO PROPERTY TREATED AS OWNED BY ANOTHER
PERSON. No property of the Company is property that the Company is required to
treat as owned by another Person pursuant to Section 168(f)(8) of the Code or
any other applicable Law.
(k) NO TAX EXEMPT USE PROPERTY. No property of
the Company is "tax exempt use property" as defined under Section 168(h)(1) of
the Code.
(l) NO TAX EXEMPT BOND FINANCED PROPERTY. Other
than certain of the Excluded Liabilities, no property of the Company is "tax
exempt bond financed property" under Section 168(g) of the Code.
(m) NO TRANSFER TAXES. Except as set forth in
Section 3.13 of the Disclosure Letter, the sale of the Shares to Buyer will not
impose or create any Tax obligations on Buyer or the Company, including any
withholding Tax obligations on Buyer.
(n) NO FOREIGN SELLER. Seller is not a "foreign
person" under Sections 1445 and 7701 of the Code.
(o) NOL CARRYFORWARDS. The Company has no net
operating loss carryforwards.
(p) DEFINITIONS. For the purposes of this
Agreement, "TAX" shall mean any assessment, charge, duty, fee, impost, levy,
tariff, or tax of any nature whatsoever imposed by any federal, state, local, or
other governmental agency, department, branch, commission, board, bureau, court,
instrumentality or body, or payable pursuant to any tax sharing agreement,
including any income, payroll, withholding, excise, gift, alternative minimum,
capital gain, added value, social security, sales, use, real and personal
property, use and occupancy, business and occupation, mercantile, real estate,
capital stock, and franchise tax or charge, together with any related interest,
penalties or additions thereon.
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3.14. PATENTS AND TRADEMARKS. Those intellectual
property assets listed in Section 3.14 of the Disclosure Letter are all those
necessary for the operation of the Company's business as it is currently
conducted. The Company or the Seller (or their respective officers) is the owner
of all right, title and interest in and to each such intellectual property
asset, free and clear of all liens, security interests, charges, or
encumbrances, except as otherwise disclosed in this Agreement and/or the
Disclosure Letter. To the knowledge of Seller and the Company, no person has
infringed upon or misappropriated any of such intellectual property.
3.15. LEGAL. Except as set forth in Section 3.15 of the
Disclosure Letter, there are no disputes, claims, actions, suits or proceedings,
arbitrations or investigations, either administrative or judicial, pending or,
to the knowledge of the Company or the Seller, threatened or contemplated, by or
against or affecting the business, at law or in equity or otherwise, before or
by any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind. The Company is not subject to, or in default with
respect to any, indictment, order, injunction, decree or award of any court,
arbitrator or governmental agency or body, domestic or foreign. Except as
disclosed in Section 3.15 of the Disclosure Letter, neither the Company nor the
Seller has any knowledge of any state of facts or occurrence of any event that
might reasonably form the basis of any claim against the Company which might
have a materially adverse effect on its assets.
3.16. SCHEDULES OF MATERIAL CONTRACTS. Set forth in
Section 3.16 of the Disclosure Letter are complete and accurate lists of the
following as of July 31, 1998:
(a) All employment, consulting, agency or
representative agreements to which the Company is a party or is otherwise bound;
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(b) Each instrument or agreement defining the
terms of which any debt of, or guarantee by, the Company has been or may be
issued;
(c) All loans or advances (excluding advances for
ordinary and necessary business expenses) by the Company to any of its officers,
directors or shareholders, or any member of their immediate families; and
(d) All contracts, commitments or agreements,
including without limitation, lease agreements, to which the Company is a party
or is otherwise bound which involve or might involve future payments by the
Company of more than $50,000 or which extend or might extend beyond twelve (12)
months from the date hereof, and all other contracts, commitments or agreements
which might materially affect the Company. Except as may be disclosed in Section
3.16 of the Disclosure Letter, the Company has no knowledge of any breach or
default, or claimed or alleged breach or default, by the Company or any other
party under any term or provision of any material contract, commitment,
agreement, plan, authorization, instrument or other document listed in the
Disclosure Letter.
3.17. OFFICERS AND DIRECTORS, EMPLOYEES, POWERS OF
ATTORNEY AND CERTAIN AUTHORIZED PERSONS . Section 3.17 of the Disclosure Letter
sets forth a complete and accurate list of:
(a) The names of all directors and the names and
offices of all officers of the Company;
(b) The names, job title, date of employment and
current compensation (including salary, bonus and amounts paid under any benefit
plan) of all employees and independent contractors of the Company whose total
compensation equals or exceeds $40,000 per annum (hereinafter "Key Employee");
and
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(c) The names of all persons authorized to borrow
money and guarantee indebtedness on behalf of the Company.
3.18. TRANSACTIONS WITH AFFILIATES . No director,
officer or shareholder of the Company, or any member of their immediate
families, owns or has an ownership interest in any business, corporate or
otherwise other than the Seller, which is a party to, or in any property which
is the subject of, business arrangements or relations of any kind with the
Company.
3.19. INSURANCE . Section 3.19 of the Disclosure Letter
contains a true and complete list of all policies or binders of fire, liability,
product liability, vehicular, title and other insurance held by the Company
specifying the insurer, the amount of the coverage, the type of insurance, and
the policy number, if any. As of the date of this Agreement, the policies and
binders listed in Section 3.19 of the Disclosure Letter are in full force and
effect, are valid, binding and enforceable in accordance with its terms, insure
the Company in reasonably sufficient amounts against all risks usually insured
against by persons operating similar businesses or properties in the localities
where such businesses or properties are located and have been issued by insurers
authorized to do business in locations in which the Company is located. There is
no default with respect to any provision contained in any such policy or binder
nor has there been any failure to give any notice or present any claim under any
such policy or binder in due and timely fashion. No notice of cancellation or
nonrenewal of any such policy or binder has been received.
3.20. DELIVERY OF DOCUMENTS: CORPORATE RECORDS . The
Company has made available to Buyer true, correct and complete copies of all
documents, including all amendments, supplements or modifications thereof or
waivers currently in effect thereunder,
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described in the Disclosure Letter and in the articles of incorporation and the
bylaws, as amended, of the Company. The minute record book of the Company, which
has been made available to Buyer for its inspection, contains accurate records
of all meetings and consents in lieu of meetings of the Board of Directors (and
any committee thereof) and voting of shareholders of Company since the time of
incorporation and accurately reflect all transactions referred to in such
minutes and consents and accurate records of all issuances and transfers of
record of the capital stock of the Company, and will be complete and current as
of the Closing.
3.21. BROKERAGE . Except as set forth in Section 3.21 of
the Disclosure Letter, there are no claims for brokerage commission, finders
fees or similar compensation in connection with the transaction contemplated by
this Agreement based on any arrangements or agreements made by or on behalf of
the Company. Seller shall be responsible for all such claims, fees and
compensation for the matters set forth in Section 3.21 of the Disclosure Letter.
3.22. EMPLOYEES.
(a) No Key Employee and no group of employees or
independent contractors of the Company has any plans to terminate his or her
employment or relationship as an independent contractor with the Company.
(b) All employees of the Company are either United
States citizens or resident aliens specifically authorized to engage in
employment in the United States in accordance with all laws. All sums due for
employee compensation and benefits and all vacation time owing to any employee
of the Company (including all persons whose employment by the Company terminated
prior to the date of this Agreement) have been duly and adequately accrued on
the accounting books and records of the Company.
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(c) CONTRACTS. SECTION 3.22 of the Disclosure
Letter lists each (i) contract between the Company and a Key Employee, and (ii)
collective bargaining agreement and other contract to or with any labor union,
employee representative or group of employees. Other than the contracts listed
in SECTION 3.22 of the Disclosure Letter, the Company's employment of each
employee is terminable at will without any penalty or severance obligation of
any kind on the part of the Company, subject to any requirements of applicable
law. To the knowledge of the Company and the Seller, there are no pending
attempts to form an employee or union organization affecting the Company, and to
the Seller's and Company's knowledge, no such attempts have taken place in the
past five years.
(d) COMPLIANCE WITH LABOR LAWS. The Company has
complied and is presently complying in all material respects with all laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor practice
or unlawful employment practice.
(e) LABOR ACTIONS AND RELATIONS. There is no unfair
labor practice charge or complaint against the Company pending or threatened
before the National Labor Relations Board nor is there any grievance or any
arbitration proceeding arising out of or under any collective bargaining
agreement pending. There is no labor strike, slowdown or work stoppage pending
or threatened against the Company. The Company has neither experienced any
significant work stoppages nor been a party to any action before the National
Labor Relations Board involving any issue for the past three years nor been a
party to any arbitration proceeding arising out of or under any collective
bargaining agreement for the past three years. Except as disclosed in Section
3.22 of the Disclosure Letter, there is no charge or complaint pending or, to
the Seller's and Company's knowledge, threatened against
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the Company before the Equal Employment Opportunity Commission or the Department
of Labor or any state or local agency of similar jurisdiction.
3.23. EMPLOYEE BENEFIT PLANS.
(a) Each of the Company Plans is, and has been,
adopted and operated in material compliance with its terms and all applicable
laws, rules and regulations (including, where applicable, the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Code).
(b) None of the Company Plans or any trusts
relating thereto have engaged in any transaction in connection with which the
Company or any fiduciaries of any Company Plans or related trusts is or could be
subject either to a civil penalty or other liability under Sections 502(i), 406
or 409 of ERISA or a tax imposed by Section 4975 of the Code, and no event has
occurred and no condition exists with respect to the Company Plans that could
subject the Company to any other tax or penalty under the Code or civil penalty
or other liability under ERISA or other laws.
(c) Except as set forth in SECTION 3.23 of the
Disclosure Letter, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee, officer, director
or independent contractor of Company to severance pay, unemployment compensation
or any other payment; (ii) accelerate the time of payment or vesting, or
increase the amount of payments or compensation due any such person; or (iii)
result in any prohibited transaction described in Section 406 of ERISA or
Section 4975 of the Code for which an exemption is not available.
(d) Neither the Company nor Buyer shall have any
liability or obligation under the Company Plans after the Closing.
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(e) The following terms defined in this Section
3.23 shall have the meanings specified below for all purposes of this Agreement:
"COMPANY PLANS" shall mean all Plans maintained by or
contributed to by the Company or which cover any employees, former employees,
retirees, directors or independent contractors of the Company or any other Plan
as to which the Company has any liability, actual, contingent or otherwise.
"PLAN" shall mean any bonus, deferred compensation,
incentive compensation, stock purchase, restricted stock, stock option,
severance, hospitalization or other medical, life or other insurance, employee
welfare, supplemental unemployment benefit, profit-sharing, pension or
retirement plan, program, agreement or arrangement or any other employee benefit
plan, program, agreement or arrangement, including any such plan, program,
agreement or arrangement covering retirees or former employees and including
without limitation any "employee pension benefit plan" and any "employee welfare
benefit plan" as those terms are defined in Section 3 of ERISA.
3.24. SUPPLIERS AND CUSTOMERS . The relationships of the
Company with its material suppliers and material customers are satisfactory.
Except as set forth in Section 3.24 of the Disclosure Letter, no such material
supplier or customer has canceled or otherwise terminated, or, to the Seller and
Company's knowledge, threatened to cancel or otherwise terminate, its
relationship with the Company, or to materially decrease its services to the
Company or its usage of the services of the Company. Any such cancellation,
termination or threat by a material supplier or material customer which is not
also a material supplier or customer of the Buyer as of the date of this
Agreement shall not constitute a breach
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of this representation and warranty, if such material supplier or material
customer is, or shall have become, a material supplier or material customer of
the Buyer prior to the Closing Date.
3.25. BOOKS AND RECORDS . The books and records of the
Company, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls.
3.26. REAL PROPERTY .
(a) OWNED REAL PROPERTY. SCHEDULE 3.26(A) lists
each parcel of real property owned by the Company. Each parcel of real property
listed in SECTION 3.26(A) of the Disclosure Letter and any parcel of real
property purchased after the date hereof (collectively, the "OWNED REAL
PROPERTY") is (i) in compliance with all material laws, ordinances, rules and
regulations, including the Americans with Disabilities Act and any material
building, fire, land use, occupancy, safety, set-back, or zoning law or
ordinance, (ii) not burdened by any covenant, easement, encroachment,
restrictive covenant, right-of-way, servitude, lien, security interest or other
encumbrance, other than Permitted Encumbrances, and (iii) not subject to any
condemnation, eminent domain or similar action, claim or proceeding. Seller has
delivered or made available to Buyer a true and complete copy of all surveys,
title policies, title commitments, environmental reports and material
correspondence from any governmental authorities in the possession of Seller or
the Company with respect to each parcel of Owned Real Property.
(b) LEASED REAL PROPERTY. Section 3.26(b) of the
Disclosure Letter lists all the leases of real property ("LEASED REAL PROPERTY")
to which the Company is a party. All of the leases in Section 3.26(b) of the
Disclosure Letter and any leases of real
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property entered into after the date of this Agreement (collectively, the "REAL
PROPERTY LEASES") are valid, binding and in full force and effect. Seller has
made available to Buyer a true and correct copy of each Real Property Lease (and
will make such copy of any Real Property Lease entered into after the date of
this Agreement). Except as disclosed in SECTION 3.26(B) of the Disclosure Letter
(i) each of the Real Property Leases is in full force and effect and has not
been amended or modified; (ii) neither the Company nor any other party thereto
is in default thereunder, nor is there any event which with notice or lapse of
time, or both, would constitute a default thereunder; (iii) neither Seller nor
the Company has received any notice that any party to any Real Property Lease
intends to cancel, terminate or refuse to renew the same or to exercise or
decline to exercise any option or other right thereunder; and (iv) no rental
under the Real Property Leases has been paid more than one month in advance.
(c) The zoning of each parcel of the Owned Real
Property and Leased Real Property (collectively the "Real Property") permits the
improvements located thereon and the continuation of business presently being
conducted thereon. The Real Property is served by utilities and services
necessary for the normal and continued operation of the business presently
conducted thereon.
(d) At Closing, the Real Property will be free and
clear of all Encumbrances, other than Permitted Encumbrances, or other
restrictions which would materially affect the use for which it is held by the
Company. Neither Seller nor the Company has received notice that any of the Real
Property is subject to any governmental decree or order to be sold, or is being
condemned, expropriated or otherwise taken by any public authority with or
without payment of compensation therefor, nor to the Seller's and Company's
knowledge, has any such condemnation, expropriation or taking been proposed.
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3.27. PERSONAL PROPERTY
(a) OWNED PERSONAL PROPERTY. SECTION 3.27(A) of
the Disclosure Letter lists all of the personal property (including all
machinery, equipment, vehicles, structures, fixtures and furniture) owned by the
Company, located on its premises or shown on the Interim Financial Statements or
acquired after the date thereof (except for inventory subsequently sold in the
ordinary course of business and consistent with past practice and for personal
property with a net book value of less than $10,000 which may not be listed).
(b) LEASED PERSONAL PROPERTY. SECTION 3.27(B) of
the Disclosure Letter lists all the leases of personal property to which the
Company is a party and require payment of more than $12,000 per annum. All of
the leases on SECTION 3.27(B) of the Disclosure Letter and any leases of
personal property entered into after the date of this Agreement and require
payments of more than $12,000 per annum (collectively, the "PERSONAL PROPERTY
LEASES") are valid, binding and in full force and effect. Neither the Company
nor any other person is in default under any Personal Property Lease, nor is
there any event which with notice or lapse of time, or both, would constitute a
default thereunder by the Company or any other person. True and complete copies
of all the Personal Property Leases and any amendments thereto have been made
available to Buyer.
3.28. PERMITS. "PERMIT" shall mean any license, approval,
certificate, franchise, registration, permit or authorization issuable by any
federal, state, local or other governmental agency, department, branch,
commission, board, bureau, court, instrumentality or body (collectively,
"Governmental Authority"). SECTION 3.28 of the Disclosure Letter lists each
Permit issued to the Company or with respect to any of its assets
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that is material to the Company (the "MATERIAL PERMITS"). Each Material Permit
is currently in effect, no violation of the terms of such Material Permit has
occurred, the issuing Governmental Authority has not taken or, to Seller's and
Company's knowledge, threatened to take any action to revoke or limit such
Material Permit, and, to Seller's and Company's knowledge, no basis exists for
revoking or limiting it. In addition, to the Seller's and Company's knowledge,
no issuing Governmental Authority has indicated that it will not renew a
Material Permit and no basis for failing to renew a Material Permit exists. No
Material Permit will terminate or require re-issuance in connection with the
change in control of the Company upon the sale of the Shares to Buyer.
3.29. BANK ACCOUNTS; POWERS OF ATTORNEY . SECTION 3.29 of
the Disclosure Letter lists the names of (a) each bank, trust company and stock
or other broker with which the Company has an account, credit line or safe
deposit box or vault (the "BANK ACCOUNTS"), (b) all persons authorized to draw
on, or to have access to, each of the Bank Accounts, and (c) all persons
authorized by proxies, powers of attorney or other like instrument to act on
behalf of the Company. Each of the Bank Accounts has a zero or positive cash
balance. No proxies, powers of attorney or other like instruments are
irrevocable.
3.30. CAPITAL PROJECTS . SECTION 3.30 of the Disclosure
Letter sets forth a list of all capital projects of the Company, including
construction projects and acquisitions of capital assets, which have been
commenced but not completed, or with respect to which commitments have been
entered into with third persons, as of June 27, 1998 ("CAPITAL PROJECTS").
SECTION 3.30 of the Disclosure Letter also sets forth with respect to each
Capital Project (a) the amounts budgeted by the Company, or the amounts
contractually
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committed to be expended for such Capital Project, and (b) the amounts remaining
to be paid after June 27, 1998 for completion of such Capital Project.
4. REPRESENTATIONS AND WARRANTIES OF BUYER . Buyer hereby
represents and warrants to the Company and Seller as follows:
4.1. ORGANIZATION AND CORPORATE POWER. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, with full corporate power and authority to enter into
this Agreement and the other agreements contemplated hereby to which Buyer is a
party and perform its obligations hereunder and thereunder. Buyer has delivered
to Seller true and complete copies of Buyer's articles of incorporation and its
bylaws.
4.2. AUTHORIZATION OF TRANSACTION . The execution, delivery
and performance by the Buyer of this Agreement and the performance by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of the Buyer. This Agreement is a valid and binding obligation
of the Buyer, and each instrument contemplated by this Agreement, when executed
and delivered by the Buyer in accordance with the provisions hereof, will be a
valid and binding obligation of the Buyer, in each case enforceable against the
Buyer in accordance with its terms (except as such enforceability may be limited
by applicable creditors' rights laws.) Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(a) conflict with or result in any violation of any provision of the certificate
of incorporation or bylaws of the Buyer, (b) constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) in the
terms, conditions or provisions of any material obligation (or obligations which
in the aggregate would be material) to which the Buyer is a party or by
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which Buyer is bound, (c) violate any judgment, order or award of any court,
administrative agency or governmental body against or binding upon the Buyer, or
(d) constitute a violation by the Buyer of any law or regulation of any
jurisdiction as relates to it or its assets.
4.3. NO VIOLATION . Buyer is not subject to or obligated
under its certificate of incorporation, its by-laws, any applicable law, or rule
or regulation of any governmental authority, or any agreement or instrument, or
any license, franchise or permit, or subject to any order, writ, injunction or
decree, which would be breached or violated by its execution, delivery or
performance of this Agreement and the other agreements contemplated hereby to
which Buyer is a party.
4.4. GOVERNMENTAL AUTHORITIES AND CONSENTS . Except for
the pre-merger notification report required under the Hart Scott Rodino
Antitrust Improvement Act of 1976, as amended (the "HSR Act"), Buyer and its
officers, directors, employees, affiliates, subsidiaries or owners are not
required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by it of this Agreement
and the other agreements contemplated hereby to which Buyer is a party or the
consummation of the transactions contemplated hereby or thereby, and no consent,
approval or authorization of any governmental or regulatory authority or any
other party or person is required to be obtained by Buyer in connection with its
execution, delivery and performance of this Agreement and the other agreements
contemplated hereby to which Buyer is a party or the transactions contemplated
hereby or thereby.
4.5. LITIGATION . There are no actions, suits,
proceedings, orders or investigations pending or, to Buyer's knowledge,
threatened against or affecting Buyer (or any of Buyer's officers, directors,
employees, affiliates or subsidiaries) at law or in equity, or
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before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
would adversely affect Buyer's performance under this Agreement and the other
agreements contemplated hereby to which Buyer is a party or the consummation of
the transactions contemplated hereby or thereby.
4.6. BROKERAGE . There are no claims for brokerage
commissions, finders' fees or similar compensation incurred by Buyer in
connection with the transactions contemplated by this Agreement.
4.7 FINANCING . Buyer has the funds and/or the financing
available (and at Closing will have the funds and/or financing available) to
consummate the transactions contemplated by this Agreement.
5. COVENANTS OF SELLER AND COMPANY.
5.1. ACCESS . Until the Closing, the Company shall give
the authorized representatives of Buyer reasonable access, during normal
business hours and upon reasonable notice, to all of the records and properties
of the Company. The Company will furnish the representatives of Buyer during
such period with all information as such representatives may reasonably request
and cooperate with such representatives in connection with such review and
examination.
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5.2. OPERATION OF THE BUSINESS OF COMPANY . The Company and
the Seller agree that from the date hereof until Closing, except as otherwise
provided below, it and they will operate the Company's business substantially as
presently operated and only in the ordinary course, and, consistent with such
operation, it and they will (i) maintain the assets in good repair, order and
condition, reasonable wear and tear excepted; (ii) maintain in full force and
effect all licenses, permits, easements and rights and other authorizations
currently in effect; (iii) use their best efforts to maintain in full force and
effect the insurance policies and binders currently in effect, including,
without limitation, those listed in Section 3.19 of the Disclosure Letter; (iv)
use their best efforts to keep available the services of its present officers,
employees and agents and to maintain its relations and goodwill with its
suppliers, customers, distributors, and any others having business relations
with them; (v) give to Buyer and its respective accountants, counsel and other
representatives reasonable access, without unreasonably interfering with the
Company's business operations, to all of its assets, including without
limitation its properties, contracts, commitments, agreements and records
(financial and other) and furnish to Buyer all such documents and copies of
documents and records and information with respect to its affairs and copies of
any working papers relating thereto as Buyer shall from time to time reasonably
request; (vi) promptly advise Buyer in writing of the threat or commencement of
any dispute, claim, action, suit or proceeding, arbitration or investigation
when the amount claimed is $25,000 or more in the aggregate or the occurrence of
any development of a nature that is or may be materially adverse to the
business, operations, properties, assets or prospects of the Company; (vii) not
propose or take any action which would make any representation or warranty in
Section 3 hereof untrue; and (viii) maintain salaries, bonuses and other
compensation levels as of the date hereof except to the extent such
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salaries, bonuses and other compensation levels may be modified in the ordinary
course of the Company's business, not to exceed 3% of the Company's aggregate
compensation in any twelve month period.
5.3. REQUIRED APPROVALS. As promptly as practicable
after the date of this Agreement, the Seller will, and will cause the Company
to, make all filings required to be made by them in order to consummate the
transactions contemplated by this Agreement (including all filings under the HSR
Act), the cost of which shall be paid by Buyer. Between the date of this
Agreement and the Closing Date, the Seller will, and will cause the Company to
(a) cooperate with Buyer with respect to all filings that Buyer is required to
make in connection with the contemplated transaction, and (b) cooperate with
Buyer in obtaining all consents necessary, including taking all actions
requested by Buyer to cause early termination of any applicable waiting period
under the HSR Act.
5.4. COOPERATION BY SELLER. From July 2, 1998 through the
Closing, Seller has used and shall continue to use all reasonable efforts to
take all actions and do all things necessary or advisable to consummate the
transactions contemplated by this Agreement, and cooperate with the Buyer in
connection with the foregoing, and to cause all conditions set forth in Article
8 to be satisfied on or prior to Closing.
5.5. SUPPLEMENTS TO AGREEMENT AND DISCLOSURE LETTER. If,
between the date of this Agreement and the Closing Date, Seller or the Company
becomes aware that any of the representations and warranties in this Agreement
or the Disclosure Letter was materially inaccurate when made or if during such
period any event occurs or condition changes that would cause any such
representation or warranty to be materially inaccurate had such representation
or warranty been made as of the time of such occurrence or change, then
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Seller shall notify Buyer thereof in writing and supplement the Disclosure
Letter hereto to account for any such inaccuracy, event or change. Any such
supplement to the Disclosure Letter shall not be deemed to have been disclosed
as of the date of this Agreement or to have cured any breach of a representation
or warranty made in this Agreement, unless so agreed to in writing by Buyer.
5.6. STANDSTILL . Until the earlier to occur of the
Closing or August 15, 1998, Seller shall not, nor shall Seller permit the
Company or any representative of Seller or the Company to, (a) directly or
indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with, or provide any information or assistance to, any person
(other than Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets, investment proposals or similar
transaction involving the Company, (b) entertain or discuss any acquisition or
investment proposals whatsoever relating to the Company, or (c) disclose to any
third party any non-published information concerning the Company or its
financial condition.
5.7. DISCHARGE OF ENCUMBRANCES . Seller shall take all
actions and do all things necessary to pay off or otherwise discharge all
Excluded Liabilities and to cause all Encumbrances other than Permitted
Encumbrances on the assets of the Company to be terminated or otherwise
discharged at or prior to the Closing. Seller shall not use any of the Company's
assets or cash balances to pay off the Excluded Liabilities.
5.8. RESIGNATIONS . Seller shall cause each of the
Company's officers, directors, consultants and Key Employees whose resignation
Buyer requested in writing concurrent with the execution of this Agreement to
resign pursuant to a written
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resignation effective immediately before the Closing. Seller shall make any
severance or other payments to such persons in connection with their
resignations.
5.9. WITHDRAWAL OR TERMINATION OF COMPANY PLANS . At or
prior to the Closing, Seller shall cause the Company to withdraw as a
participating employer in, or cause the termination of, any and all plans,
programs, agreements and arrangements for the benefit of the Company's current
or former employees (collectively the "Company Plans"). Neither the Company nor
Buyer shall have any liability or obligation under the Company Plans after the
Closing.
5.10. ENVIRONMENTAL DUE DILIGENCE . Buyer shall have
completed the environmental site assessment audits and delivered to Seller an
executive summary of same (the "Executive Summary") which it has commissioned
Environmental Resources Management of Kennesaw, Georgia ("ERM") to conduct with
respect to the Real Property. From and after Closing, Seller shall be
responsible for the actual costs of any further restoration, remedial work or
other environmental action which is indicated in the Executive Summary
(including the need to conduct further testing and analysis (collectively,
"Environmental Remediation"). A copy of the Executive Summary is annexed to
Section 3.15 of the Disclosure Letter. If the estimated cost of Environmental
Remediation (as estimated by ERM prior to or at Closing and after consultation
with Seller and Buyer) is less than Five Million Dollars ($5,000,000.00), Buyer
shall not have the right to terminate this Agreement under Section 10.1(c) as a
result of the condition set forth in this Section 5.10 not
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being fulfilled. If the estimated cost of Environmental Remediation is
$5,000,000.00 or more, Buyer and Seller each shall have the right to terminate
this Agreement under Section 10.1(c) and Section 10.1(b), respectively, as a
result of the conditions set forth in this Section 5.10 not being fulfilled.
Seller shall have the exclusive right to control the Environmental Remediation
and Seller will have the obligation to commence and complete the Environmental
Remediation which shall (i) be conducted by an entity certified and qualified to
do such Environmental Remediation and (ii) bring the Real Property into
compliance with applicable law and regulation.
6. COVENANTS OF BUYER.
6.1. COOPERATION BY BUYER. From July 2, 1998 through
the Closing Date, Buyer has used and shall continue to use all reasonable
efforts to take all actions and do all things necessary or advisable to
consummate the transactions contemplated by this Agreement, and cooperate with
the Seller in connection with the foregoing, and to cause all conditions set
forth in Article 8 to be satisfied on or prior to Closing.
6.2. EMPLOYEE MATTERS. For the period beginning on the
Closing Date and ending on June 26, 1999, Buyer shall provide to the employees
of the Company employee benefits which are substantially similar to either the
benefits provided to similarly situated employees of the Buyer and its
affiliates, or those benefits which are provided to the employees of the Company
immediately prior to the Closing Date. Employees shall include all persons on
leave of absence in accordance with the Company's policies, including workers'
compensation.
7. MUTUAL COVENANTS.
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7.1. GOVERNMENTAL CONSENTS . Promptly after the date of
this Agreement, each party shall take all actions, do all things necessary and
cooperate with each other to obtain all consents required by any Governmental
Authority to consummate as promptly as possible the transactions contemplated
hereby, including the filing of any pre-merger notification required under the
HSR Act. The parties shall use all reasonable efforts to comply as promptly as
practicable with any request made pursuant to the HSR Act for additional
information. Buyer shall pay the statutory filing fee required by the HSR Act.
7.2. CONSENTS TO ASSIGN LEASES AND CONTRACTS .
(a) COOPERATION AND REASONABLE EFFORTS. Each party
hereby agrees to use reasonable efforts, to take reasonable actions, including
Buyer's delivery to third parties of its audited financial statement, and to
cooperate with each other as may be necessary to obtain consents to transfer and
assign all licenses, permits, contracts, leases and agreements requiring
consent. Prior to sending any request for a consent, Seller shall submit such
request to Buyer for its approval which shall not be unreasonably withheld.
Seller shall promptly deliver to Buyer copies of all consents received and all
correspondence and requests concerning the consents. Buyer shall have the right
to reasonably participate in any discussions between Seller and any person from
whom Seller seeks a consent. Except as expressly provided herein, neither party
shall be required to pay any sum, to incur any obligation or to agree to any
amendment of any license, permit, contract, lease or agreement in order to
obtain any such consent to transfer and assign the license, permit, contract,
lease or agreement.
(b) PRE-CLOSING; REQUIRED CONSENTS. Section 7.2 of
the Disclosure Letter sets forth the list which Buyer has delivered to Seller of
the licenses, permits, contracts, leases and agreements to which a consent to
transfer and assign must be obtained
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from the appropriate third party prior to Closing (collectively, the "REQUIRED
CONSENTS"). Except for the Required Consents, the obtaining of any consents
related to licenses, permits, contracts, leases and agreements shall not be a
condition to Closing, and Closing shall occur irrespective of whether any such
Consent has been obtained.
(c) POST-CLOSING EFFORTS TO OBTAIN CONSENTS. In the
event any Required Consent is not obtained on or prior to Closing, each Party
will, for a period of one year following the Closing Date, (i) abide by the
requirements of Section 7.2(a), and (ii) cooperate with each other in any lawful
and reasonable arrangement to provide that Buyer shall receive the benefits
under any license, permit, contract or agreement not assigned and transferred at
the Closing by reason of the failure to obtain such Required Consent (a
"NON-TRANSFERRED INSTRUMENT"), provided that, to the extent the parties are
successful in providing the material benefits of any Non-Transferred Instrument
to the Company, the Company shall pay, honor and discharge when due all
liabilities of the Company related thereto to the extent the liabilities were
incurred after the Closing Date.
7.3. BOOKS AND RECORDS.
(a) ACCESS. For a period of six years after
Closing, each party shall provide the other party with reasonable access during
normal business hours to its books and records relating to the Company (other
than books and records protected by the attorney-client privilege) to the extent
that they relate to the condition or operation of the Company prior to Closing
and are requested by such party to prepare its tax returns, to respond to third
party claims or for any other legitimate purpose specified in writing. Each
party shall have the right, at its own expense, to make copies of any such books
and records.
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(b) DESTRUCTION. For a period of three years after
Closing, no party shall dispose of or destroy any books and records relating to
the Company to the extent that they relate to the condition or operation of the
Company prior to the Closing without first offering to turn over possession
thereof to the other party by written notice at least 30 days prior to the
proposed date of disposition or destruction.
(c) CONFIDENTIALITY. Each party may take such
action as it deems reasonably appropriate to separate or redact information
unrelated to the Company from documents and other materials requested and made
available pursuant to this Section and may condition the other party's access to
documents and other materials that it deems confidential to the execution and
delivery of an agreement by the other party not to disclose or misuse such
information.
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(d) ASSISTANCE. Each party shall, upon the written
reasonable request of and at the requesting party's expense, make personnel
available to assist in locating and obtaining any books and records relating to
the Company to the extent that they relate to the condition or operation of the
Company prior to Closing and make personnel available whose assistance,
participation or testimony is reasonably required in anticipation of,
preparation for or the prosecution or defense of any third party claim in which
the other party does not have any adverse interest. Notwithstanding the
foregoing, neither party shall be obligated to provide any assistance or take
any action which would disrupt its business operations.
8. CONDITIONS PRECEDENT.
8.1. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. All
obligations of Buyer to consummate this Agreement are subject to the
fulfillment, prior to or as of the Closing, of each of the following conditions
and the receipt of the following documents (subject to the right of Buyer to
waive such requirement):
(a) CERTIFICATE AS TO REPRESENTATIONS, WARRANTIES
AND COVENANTS. All of the representations and warranties of the Seller contained
in this Agreement, the Disclosure Letter, or in any certification, list,
certificate or document delivered pursuant to the provisions hereof shall be
true at Closing Date as though such representations and warranties were made on
such date, (except to the extent stated therein to be true as of some other date
and except to reflect changes permitted or contemplated by this Agreement),
provided however, this Section 8.1(a) shall be deemed satisfied if the failures
of such representations and warranties to be true and correct would not
individually or in the aggregate be reasonably likely to result in damages to
the Company or Buyer of more than Seven
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Hundred Fifty Thousand Dollars ($750,000), and an executive officer of Seller
shall have delivered to Buyer a certificate, in the form set forth in Section
8.1(a) of the Disclosure Letter, confirming the satisfaction of the conditions
set forth in this Section 8.1.
(b) PERFORMANCE OF COVENANTS. Seller shall have
executed, delivered, performed and complied with all agreements, covenants,
obligations and conditions required by this Agreement to be executed, performed
or complied with by it including without limitation, the documents identified in
Section 2.2(c) of the Disclosure Letter.
(c) CERTIFICATE AS TO CORPORATE AUTHORITY. Annexed
to Section 8.1(c) of the Disclosure Letter is a certified copy of the
appropriate board and shareholder's resolution of the Seller authorizing the
execution and performance of this Agreement and all necessary documents to
consummate this Agreement, along with a certificate of the Secretary of State of
each state in which the Company is qualified to do business stating that the
Company is in good standing as of the Closing Date.
(d) OPINION OF COUNSEL. Seller shall have delivered
to the Buyer an opinion of counsel for Seller, dated as of the Closing Date and
in substantially the same form as set forth in Section 8.1(d) of the Disclosure
Letter.
(e) GOVERNMENT FILINGS. All governmental filings,
authorizations and approvals that are required for the consummation of the
transactions contemplated hereby and the continued operation of the Company's
businesses thereafter, shall have been duly made and obtained on terms
satisfactory to Buyer, including, without limitation, all filings under the HSR
Act, and pursuant to any rules or regulations promulgated by the U.S. Food and
Drug Administration and the U.S. Department of Agriculture, and copies
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of each of the foregoing shall have been delivered to Buyer, and all applicable
waiting periods under the HSR Act shall have expired or been terminated.
(f) AMENDMENT TO WAREHOUSE STORAGE AND SERVICES
AGREEMENT. Amendments, substantially in the form set forth in Section 8.1(f) of
the Disclosure Letter, shall have been made to that certain Warehouse Storage
and Service Agreement dated April 1, 1998 entered into between the Company and
Wampler Foods, Inc.
(g) NONCOMPETE COVENANTS/EMPLOYMENT AGREEMENTS. As
at Closing, Seller shall have executed a noncompetition agreement substantially
in the form set forth in Section 8.1(g) of the Disclosure Letter and Buyer shall
have entered into satisfactory employment agreement (including covenants not to
compete) with R. O. Deavers.
(h) CONSENTS. Seller shall have received and
delivered to Buyer all Required Consents, each in form and substance reasonably
satisfactory to Buyer, and all such Required Consents shall be in full force and
effect.
(i) RELEASE. Seller shall have executed and
delivered to Buyer a release in the form set forth in Section Schedule 8.1(i) of
the Disclosure Letter.
(j) NO ORDER AS ACTION. No order shall be in effect
forbidding or enjoining the consummation of the transactions contemplated by
this Agreement. No action shall be pending seeking to enjoin the Closing, or
seeking damages or other relief against Buyer as a result of the transactions
contemplated hereby.
(k) TRANSITIONAL SERVICES AGREEMENT. Seller and
Buyer will enter into the transitional services agreement in the form set forth
in Section 8.1(k) of the Disclosure Letter.
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8.2. CONDITIONS PRECEDENT TO COMPANY'S AND THE SELLER'S
OBLIGATIONS . All obligations of the Company and the Seller to consummate this
Agreement are subject to the fulfillment, prior to or at the Closing, of each of
the following conditions and the receipt of the following documents (subject to
the right of the Company or Seller to waive such requirement):
(a) REPRESENTATIONS AND WARRANTIES. Buyer's
representations and warranties contained in this Agreement or on any certificate
or document delivered pursuant to the provisions hereof shall be true as of the
Closing as though such representations and warranties were made on such date
(except to the extent that it is stated herein to be true as of some other date
and except to reflect changes permitted or contemplated by this Agreement)
provided, however, this Section 8.2(a) shall be deemed satisfied if the failure
of such representations and warranties to be true and correct would not,
individually or in the aggregate, be reasonably likely to result in damages to
the Company or the Seller of more than Seven Hundred Fifty Thousand Dollars
($750,000) and an executive officer of Buyer shall have delivered to Seller a
certificate in the form set forth in Section Schedule 8.2(a) of the Disclosure
Letter, confirming the satisfaction of the conditions set forth in this Section
8.2.
(b) PERFORMANCE OF COVENANTS. Buyer shall have
executed, performed and complied with all agreements and conditions required by
this Agreement to be executed, performed or complied with by it prior to or as
of the Closing Date and Buyer shall deliver to Seller a certificate signed by
its Secretary to such effect.
(c) CERTIFICATE AS TO CORPORATE AUTHORITY. Annexed
to Section 8.2(c) of the Disclosure Letter is a copy of the appropriate board
resolutions of Buyer ratifying
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or authorizing the execution and performance of this Agreement and all necessary
documents to consummate this Agreement as certified by its secretary.
(d) OPINION OF COUNSEL. Buyer shall have delivered
to the Seller an opinion of counsel for Buyer, dated as of the Closing Date, in
substantially the same form as set forth in Section 8.2(d) of the Disclosure
Letter.
(e) GOVERNMENT FILINGS. All governmental filings,
authorizations and approvals that are required for the consummation of the
transactions contemplated hereby shall have been duly made and obtained on terms
satisfactory to the Seller, including, without limitation, all filings under the
HSR Act, and pursuant to any rules or regulations promulgated by the U.S. Food
and Drug Administration and the U.S. Department of Agriculture, and copies of
each of the foregoing shall have been delivered to the Seller, and all
applicable waiting periods under the HSR Act shall have expired or been
terminated.
(f) COVENANTS AND AGREEMENTS. Buyer shall have
executed, performed and complied in all material respects with all of the
covenants and agreements required to be executed and performed by it under this
Agreement on or prior to the Closing.
9. INDEMNIFICATION .
9.1. INDEMNIFICATION OF BUYER INDEMNITEES. Seller shall
indemnify and hold harmless Buyer, the Company and their respective officers,
directors, employees, attorneys, stockholders, controlling persons, and
affiliates (collectively, the "Buyer Indemnitees") from, and will pay to the
Buyer Indemnitees the amount of any Damages (as defined in Section 9.3 below)
arising, directly or indirectly, from or in connection with:
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(a) the inaccuracy of any representation or
warranty made by Seller in this Agreement (but giving effect to any supplement
to the Disclosure Letter which Seller delivers to Buyer at or prior to Closing),
the Disclosure Letter, the supplements to the Disclosure Letter, or any other
certificate or document delivered by or on behalf of Seller pursuant to this
Agreement;
(b) the breach of any representation or warranty
made by Seller in this Agreement as if such representation or warranty were made
on and as of the Closing Date, but giving effect to any supplement to the
Disclosure Letter to this Agreement which Seller delivers to Buyer at or prior
to Closing;
(c) any breach by Seller of any covenant or
obligation of Seller in this Agreement, including, without limitation, the
obligation to pay Excluded Liabilities, to discharge Encumbrances other than
Permitted Encumbrances, and to pay for the Environmental Remediation.
(d) any product shipped or manufactured by, or any
services provided by, the Company prior to the Closing Date;
(e) any claim by any person for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such person with either Seller or
the Company (or any person acting on their behalf) in connection with this
Agreement or any of the transactions contemplated hereby;
(f) any action, arbitration proceeding, cause of
action, charge, counterclaim, cross claim, inquiry, investigation, suit, legal
action, litigation (hereinafter collectively, "actions" and each an "Action"),
order, consent decree, injunction,
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determination, judgment, award or writ of any Governmental Authority or
arbitrator (hereinafter collectively, "orders" and each an "Order") against the
Company pending or accrued on or prior to the Closing Date;
(g) (i) the Company's failure, at any time prior to
Closing, to obtain all Material Permits required by all Environmental Laws, to
comply with all Environmental Laws, or to comply with all Material Permits
required by all Environmental Laws; or (ii) the Company's failure, at any time
prior to Closing, to comply with any applicable covenant running with the Real
Property at any time prior to the Closing by the Company that relates to the
protection of human health, safety or the environment including, without
limitation, any such covenant that relates to protection from Hazardous
Materials;
(h) any Environmental Claim (i) against the Company
the basis of which arose prior to the Closing; (ii) against any person whose
liability for any Environmental Claim the Company may have retained or assumed
at any time prior to the Closing, either contractually or by operation of law;
or (iii) against, or in respect of, any real or personal property or operations
which at any time prior to the Closing were owned or leased, in whole or in
part, by the Company;
(i) the existence of Hazardous Materials upon,
about or beneath the Real Property at any time prior to the Closing by the
Company (whether or not caused, or contributed to, by the Company and including
Hazardous Materials that migrated on to the real property from an off-site
source prior to the Closing), or migrating or threatening to migrate from any
real property owned or leased at any time prior to the Closing by the Company,
or the existence of any Environmental Claim or violation of any Environmental
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Law pertaining to any real property owned or leased at any time prior to the
Closing by the Company;
(j) any Taxes attributable to taxable years or
periods ending on or prior to the Closing Date, that are attributable to the
Company or any affiliated group (as defined under Code Section 1504(a)) of which
the Company was a member on or prior to the Closing Date.
(k) any unpaid insurance premiums, audits,
application of experience modifiers, liabilities arising out of pre-Closing Date
insurance contracts, any loss sensitive rating scheme whereby the Company is
obligated to pay any portion of the loss under a retrospective rating agreement,
large deductible, retention plan or other rating scheme that obligates the
Company to pay any additional premium, as the foregoing relate to the Company's
insurance coverage, self insurance or other risk retention plans, including,
without limitation, the following types of insurance: worker's compensation,
products liability, commercial general liability, automobile liability,
property, cargo, transit, warehouseman's legal liability, and employee benefits
programs, such as health insurance, dental insurance and any other plan that is
subject to ERISA; PROVIDED, HOWEVER, the Buyer and the Company shall remit to
Seller all refunds or compensate Seller for all credits received by the Buyer or
the Company with respect to insurance premiums paid by Seller prior to the
Closing and not reflected on the Company's balance sheet.
9.2. INDEMNIFICATION OF SELLER INDEMNITEES. Buyer and
the Company shall indemnify and hold harmless Seller, its officers, directors,
employees, attorneys, stockholders, controlling persons and affiliates
(collectively the "Seller Indemnities") from
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and will pay to the Seller Indemnities the amount of any Damages (as defined in
Section 9.3 below) arising, directly or indirectly, from or in connection with:
(a) the inaccuracy of any representation or
warranty made by Buyer in this Agreement, or any other certificate or document
delivered by or on behalf of Buyer pursuant to this Agreement;
(b) the inaccuracy of any representation or
warranty made by Buyer in this Agreement or any other certificate or document
delivered by or on behalf of Buyer pursuant to this Agreement;
(c) the breach by Buyer of any covenant or
obligation of Buyer in this Agreement; or
(d) all liabilities assumed or maintained by the
Company pursuant to the terms of this Agreement;
(e) any liabilities or obligations of the Buyer or
the Company arising subsequent to the Closing Date pursuant to the terms of this
Agreement, except for liabilities or obligations for which Seller is responsible
pursuant to the terms of this Agreement; or
(f) any claim by any person for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such person with Buyer (or any
person acting on its behalf) in connection with this Agreement or any of the
transactions contemplated hereby.
9.3. DAMAGES. For purposes of this Article 9, "damages"
shall mean (i) the net amount of any loss, liability, claim, damage (including
incidental and consequential damages), expenses (including reasonable attorney's
fees), penalty, fine or
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diminution of value, whether or not involving a third party claim; and (ii) all
reasonable expenses of investigation and monitoring, reasonable costs of
containment, abatement, removal, repair, clean up, restoration, remedial work
and other reasonable response costs. Each party shall be required to mitigate in
full the Damages it seeks from the other and to assign all of its right, title
and interest in any claim for which the other party has made payment. Damages
shall be net of any and all recoveries or credits that a party receives with
respect to the matter for which a claim for indemnification is made.
9.4. INDEMNIFICATION PROCEDURE . The indemnification
obligations under this Agreement shall be subject to the following procedures:
(a) THIRD PARTY CLAIMS. Promptly after receipt by
an indemnified party (an "indemnitee") under Section 9.1 or 9.2 of notice of the
commencement of any Action against it, such Indemnitee will, if a claim is to be
made against an indemnifying party (an "indemnitor") under such Section, give
notice to the Indemnitor of the commencement of such Action, but the failure to
notify the Indemnitor will not relieve the Indemnitor of any liability that it
may have to any Indemnitee, except to the extent that the Indemnitor
demonstrates that the defense of such action is prejudiced by the Indemnitee's
failure to give such notice. Except as otherwise stated in this Section 9.4, the
Indemnitor shall have the exclusive right to settle such Action and to control
the response thereto or the defense thereof in any suit or proceeding arising
therefrom. The Indemnitee may employ counsel and participate in any such defense
all at Indemnitees' own expense. Should the Indemnitor fail to undertake such
defense or fail diligently to prosecute an Action, the Indemnitee may undertake
and assume control of such defense, at Indemnitor's expense. If the Indemnitor
pursues the defense of any Action, (i) no compromise or settlement of such
claims may be
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effected by the Indemnitor without the Indemnitee's consent unless (A) there is
no finding or admission of any violation of law or any violation of the rights
of any person and no effect on any other claims that may be made against the
Indemnitor, and (B) the sole relief provided is monetary damages that are paid
in full by the Indemnitor; and (ii) the Indemnitee will have no liability with
respect to any compromise or settlement of such claims effected without its
consent, which shall not be unreasonably withheld. If notice is given to an
Indemnitor of the commencement of any Action and the Indemnitor does not, within
ten days after the Indemnitee's notice is given, give notice to the Indemnitee
of its intent to assume the defense of such Action, the Indemnitor will be bound
by any determination made in such Action or any compromise or settlement
effected by the Indemnitee. Notwithstanding the foregoing, if an Indemnitee
determines in good faith that there is a reasonable probability that an Action
may adversely affect it or its affiliates other than as a result of monetary
damages for which it would be entitled to indemnification under this Agreement,
the Indemnitee may, by notice to the Indemnitor, assume the exclusive right to
defend, compromise, or settle such Action, but the Indemnitor will not be bound
by any determination of an Action so defended or any compromise or settlement
effected without its consent (which may not be unreasonably withheld).
(b) OTHER CLAIMS. A claim for indemnification for
any matter not involving a third-party claim may be asserted by notice to the
party from whom indemnification is sought.
9.5. SOLE AND EXCLUSIVE REMEDY. The parties agree that
except as otherwise provided in this Agreement, to the extent permitted by
applicable law, the indemnification provided in this Article 9 shall be the sole
and exclusive relief and remedy
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available to the parties hereto with respect to a breach of a representation,
warranty, covenant or agreement contained in this Agreement if the Closing
occurs. Notwithstanding the foregoing, no provision in this Agreement shall in
any manner limit the right of a party to seek judicial or other relief for
fraud.
9.6. NOTICE OF BREACH . If before the Closing a party
notifies another party of its breach of this Agreement, such notification shall
neither prevent such other party from seeking damages for such breach nor
decrease or mitigate such damages if such other party still closes the
transactions contemplated by this Agreement.
9.7. DISCOVERY OF BREACH . If before the Closing a party
discovers that another party has breached this Agreement, such discovery shall
neither prevent such party from seeking damages for such breach nor decrease or
mitigate such damages if such party still closes the transactions contemplated
by this Agreement.
9.8. LIMITATIONS ON AMOUNT . Neither party hereto will
have any liability (for indemnification or otherwise) with respect to the
matters described in Section 9.1 or 9.2 until the total of all Damages of the
indemnified party with respect to such matters exceeds $350,000 in the aggregate
(the "basket"), and then the indemnifying party shall be responsible to the
indemnified party only for those Damages which exceed the Basket; provided,
however, the Basket (as it applies to the Seller) shall not apply to any claim
for indemnification arising out of a breach of any representations, warranties
or covenants contained in Sections 3.1, 3.2, 3.3, 3.11, 3.13 and 3.23, and
litigation disclosed in Section 3.15 of the Disclosure Letter, indemnification
obligations under Section 9.1(k) and the Seller's obligation to discharge all
Excluded Liabilities and pay for Environmental Remediation. The maximum
liability that will be payable by Seller hereunder shall be Twenty-Five Million
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Dollars ($25,000,000) (the "cap"); provided, however, the Cap will not apply to
a claim: for indemnification arising out of a breach of any of Seller's
representations, warranties or covenants contained in Sections 3.1, 3.2, 3.3,
3.11, or 3.13; Damages resulting from either party's willful or intentional
misrepresentations; and the Seller's obligation to discharge all Excluded
Liabilities.
9.9. SURVIVAL OF TERMS . All agreements, covenants,
indemnity obligations and other terms of this Agreement and any documents
contemplated under this Agreement shall survive the Closing. All representations
and warranties set forth in this Agreement or the Disclosure Letter or
certificate delivered in connection with this Agreement and each party's
indemnification obligations to one another with respect to the representations
and warranties shall expire on the day which is one year from the Closing Date,
provided, however, that (a) the representations and warranties set forth in
Sections 3.1, 3.2, 3.3, 3.5, 3.11, 3.13, and 3.23 shall survive until the
expiration of the applicable statute of limitations, giving effect to any
extensions thereof, as applicable, (the "Expiration Date") and (b) the parties'
respective indemnification obligations shall expire and not be applicable with
respect to any liability arising out of a cause of action of the statute of
limitations (giving effect to any extensions thereof) which has expired prior to
the Expiration Date. If a party receives notice of a claim for indemnification
before the applicable Expiration Date, the party shall remain responsible for
any Damages relating thereto notwithstanding the subsequent expiration of such
representation or warranty.
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9.10. NEGLIGENCE AND STRICT LIABILITY . THE PROVISIONS OF
THIS AGREEMENT CONCERNING CLAIMS FOR DAMAGES AND INDEMNIFICATION SHALL APPLY
WHETHER OR NOT THE PARTY OR OTHER PERSON CLAIMING SUCH DAMAGES OR
INDEMNIFICATION WAS NEGLIGENT, GROSSLY NEGLIGENT, OR STRICTLY LIABLE IN
CONNECTION WITH THE EVENTS GIVING RISE TO SUCH CLAIM PROVIDED, HOWEVER, SELLER
SHALL HAVE NO INDEMNIFICATION OBLIGATION OR BE RESPONSIBLE FOR DAMAGES ARISING
IN CONNECTION WITH THE ACTS OR OMISSIONS OF BUYER OR THE COMPANY SUBSEQUENT TO
THE CLOSING DATE.
10. TERMINATION.
10.1. TERMINATION OF AGREEMENT . This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of Seller and Buyer;
(b) by the Seller if any of the conditions set
forth in Section 5.10 and Section 8.2 shall have become incapable of fulfillment
through no fault of the Seller and shall not have been waived by the Seller;
(c) by the Buyer if any of the conditions set forth
in Section 8.1 shall have become incapable of fulfillment through no fault of
the Buyer and shall not have been waived by the Buyer; or
(d) by the Buyer or Seller if the Closing has not
occurred (other than through the failure of the party seeking to terminate this
Agreement to fully comply with its obligations) on or before September 15, 1998
or such later date as the parties may agree upon.
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10.2. PROCEDURE UPON TERMINATION . In the event of
termination pursuant to Section 10.1, written notice thereof shall be
immediately given to the other party and the transactions contemplated by this
Agreement shall be terminated, without any further action by either party. If
the transactions contemplated by this Agreement are terminated as provided
herein:
(a) each party shall return all documents, work
papers and other materials of the other party, whether obtained before or after
the execution hereof, to the party furnishing the same; and
(b) such termination shall not in any way limit,
restrict or relieve any party of liability for any breach of this Agreement.
11. TAX MATTERS.
11.1. SECTION 338 ELECTION . The parties shall elect to
treat the purchase of the Shares as a purchase of assets for federal income Tax
purposes pursuant to Section 338(h)(10) of the Code and any similar provisions
under state and other income Tax laws (collectively, the "Section 338
Election").
11.2. APPORTIONMENT OF TAXABLE INCOME . With respect to
any combined, consolidated, or unitary income Tax reports or returns that Seller
files with the Company, the Parties shall elect to treat the Closing Date as the
last day of a taxable period of the Company (a "Pre-Closing Tax Period").
Notwithstanding the foregoing, Buyer or the Company shall be responsible for
preparing and filing all income Tax reports and returns covering the Company for
Tax periods ending after the Closing Date, even if such reports and returns
cover periods prior to the Closing Date.
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11.3. PREPARATION AND FILING OF INCOME TAX RETURNS . With
respect to any income Tax report or return applicable to the Pre-Closing Tax
Period, the Company shall provide to Seller the information necessary to prepare
such reports and returns no later than 60 days after the Closing Date.
11.4. PAYMENT OF INCOME TAXES . Any taxable income or loss
of the Company for any Pre-Closing Tax Period shall be included in Seller's
consolidated federal income Tax return and any consolidated, combined, or
unitary income Tax reports and returns that Seller files after the Closing Date.
Seller shall pay all Taxes owed with respect to such Pre-Closing Tax Period and
file all reports and returns when due. Notwithstanding anything to the contrary
in this Agreement, however, Seller shall pay any income Taxes owed in connection
with the Section 338 Election and the Company shall not reimburse Seller for any
such income Taxes.
11.5. TERMINATION OF TAX SHARING AGREEMENT . Any contract
or agreement between Seller and the Company that relates to the Company for the
income Taxes of Seller shall terminate as of the Closing Date and any rights or
obligations resulting from such contract shall be eliminated as of the Closing
Date, provided that the Company shall pay Seller at the Closing any amounts owed
under any such contract, including the estimated income Tax on the Company's
operations during the Pre-Closing Tax Period, or Seller shall pay the Company
any amounts owed under any such contract, including the estimated income Tax
benefit that Seller will realize from including the Company's operations with
Seller's operations during the Pre-Closing Tax period. The termination of any
such contract shall be pursuant to an agreement among Seller, the Company, and
any other relevant parties, which
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agreement shall be in form and substance satisfactory to Buyer (the "Tax Sharing
Termination Agreement").
11.6. AUDIT . If after the Closing either Buyer, Seller or
the Company receives a notice of deficiency or a proposed adjustment in
connection with any audit or other proceeding concerning any income Tax report
or return covering the operations of the Company on or before the Closing Date,
the party receiving such item shall notify the other party, or if the Company
received such notice the Company shall notify Seller, of its receipt. Seller
shall have the sole and exclusive right to settle or contest any such notice of
deficiency or proposed adjustment and to represent the Company in connection
with any audit or other proceeding relating to any income Tax reports or returns
including the operations of the Company for any Tax periods ending on or before
the Closing Date. Seller, however, shall not settle any issue without the prior
consent of Buyer, which consent shall not be unreasonably withheld, if such
settlement would adversely affect any past, present, or future income Taxes of
Buyer or the Company or the Company's future operations. Buyer shall have the
sole and exclusive right to settle or contest any notice of deficiency or
proposed adjustment, and to represent the Company in connection with any audit
or other proceeding relating to any income Tax report or return including the
operations of the Company for any Tax period ending after the Closing Date, even
if such report or return includes the operations of the Company for a period
before the Closing Date, provided, however, that the settlement or other
resolution of such notice adjustment, audit or proceeding does not result in any
liability or a finding of a violation of any law against Seller. Buyer must
obtain Seller's written consent, which will not be unreasonably withheld, to any
settlement or resolution which may result in any liability or a finding of a
violation of any law against Seller.
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11.7. BOOKS AND RECORDS . During the period beginning on
the Closing Date and ending on the day immediately preceding the fifth
anniversary of the Closing Date, Seller and Buyer shall provide each other with
reasonable access during normal business hours to the books and records of
Seller and the Company, respectively, to the extent that such books and records
relate to the condition or operation of the Company prior to the Closing and
Seller or Buyer requires such books and records to prepare income Tax reports or
returns or respond to third party claims, including any audits or proceedings
with respect to such reports or returns. Seller and Buyer shall have the right
to make copies of such books and records at its own expense. Prior to providing
access to such books and records, Seller or Buyer may redact such information
that it considers appropriate.
11.8. REFUNDS . Seller shall be entitled to any Tax refund
applicable or allocable to the Company for periods arising prior to the Closing
Date.
11.9. ALLOCATION STATEMENT . For purposes of Section 1060
of the Code and any Tax election requiring an allocation of the Purchase Price,
the aggregate of the Purchase Price and the Company's liabilities shall be
allocated to Company's assets and the covenant not to compete in accordance with
a mutually agreed upon allocation statement to be prepared by Buyer and
delivered to Seller on or before September 15, 1998. Consistent with Section
1060 of the Code, the Parties shall allocate any adjustment to the Purchase
Price proportionately to such assets and the covenant not to compete unless the
adjustment specifically relates to a particular asset. In such a case, the
parties shall allocate such adjustment to such asset.
12. MISCELLANEOUS.
12.1. STOCK REPRESENTATION.
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(a) Buyer understands that the Shares have not been
registered under the Securities Act of 1933 (the "Securities Act") and the
Shares are being offered and sold under an exemption from registration provided
by the Securities Act and the rules and regulations thereunder in reliance, in
good faith, upon the representations and warranties of the Seller and the
Company contained herein. Accordingly, the certificates evidencing the Shares
will bear the following restrictive legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES OR "BLUE SKY" LAWS, AND MAY
NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED PURSUANT TO THE PROVISIONS OF SUCH
ACT AND BLUE SKY LAWS OR AN EXEMPTION THEREFROM
IS AVAILABLE.
(b) Buyer acknowledges that the Shares are being
acquired solely for its own account, as principal, for investment and not for
the interest of any other entity and not with a view to, or in connection with,
any resale or distribution of such Shares.
12.2. NOTICES . Any notice or other communication required
or permitted hereunder shall be in writing and shall be mailed by certified
mail, return receipt requested, postage prepaid, telecopied (with copy to
follow) or delivered against receipt to the party to whom it is to be given at
the following address or telecopy number (or such other address or telecopy
number as the party shall have furnished in writing in accordance with the
provisions of this Section.
(a) If to the Company and the Seller, at:
WLR Foods, Inc.
PO Box 7000
Broadway, VA 22815-7000
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Attention: James L. Keeler, President, CEO
Telecopy: (540) 896-0498
with a copy to:
Wharton, Aldhizer & Weaver, P.L.C.
100 S. Mason Street
Harrisonburg, VA 22801
Attention: John W. Flora, Esquire
Telecopy: (540) 434-5502
(b) If to Buyer at:
Packaged Ice, Inc.
8572 Katy Freeway Suite 101
Houston, TX 77024
Attention: James F. Stuart, CFO
Telecopy: (713) 464-4681
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, LLP
300 Convent Street Suite 1500
San Antonio, TX 78205
Attention: Alan Schoenbaum, Esquire
Telecopy: (210) 224-2035
Any notice or other communication given by certified mail shall
be deemed given at the time of certification thereof, except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof.
12.3. ENTIRE AGREEMENT . This Agreement (together with the
Disclosure Letter) and the collateral agreements executed in connection with the
consummation of the transactions contemplated hereby contain the entire
agreement between the parties with respect to such transactions and supersedes
all prior agreements, written or oral, with respect thereto.
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12.4. WAIVERS AND AMENDMENT . This Agreement may be
amended and the terms hereof may be waived only by a written instrument signed
by the parties or, in the case of a waiver, by the party waiving compliance. No
delay on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
either party of any such right, power or privilege, or any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege.
12.5. GOVERNING LAW . This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Virginia without
regard to the conflicts of laws principles.
12.6. BINDING EFFECT; NO ASSIGNMENT . This Agreement shall
be binding upon and inure to the benefit of the parties and its respective
successors and legal representatives. This Agreement is not assignable without
the prior written consent of the non-assigning party, provided, however, Buyer
may assign its rights (but not its obligations) under this Agreement for (i)
collateral security purposes to any lenders providing financing to Buyer or any
of its affiliates or subsidiaries, and any such lender may exercise all of the
rights and remedies of the Buyer hereunder; and (ii) in whole or in part, to any
subsequent purchaser of the Company, or any of its subsidiaries, or any of their
divisions or any material portion of their assets (whether such sale is
structured as a sale of stock, a sale of assets, a merger or otherwise).
12.7. COUNTERPARTS . This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each
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counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, of the parties hereto.
12.8. SEVERABILITY OF PROVISIONS . If any provision or any
portion of any provision of this Agreement or the application of any such
provision or any portion thereof to any person or circumstance, shall be held
invalid or unenforceable, the remaining portion of such provision and the
remaining provisions or portion of such provisions as is held invalid or
unenforceable to persons or circumstances, other than those as to which it is
held invalid or unenforceable, shall not be affected thereby.
12.9, EXPENSES. Except as otherwise provided herein, the
Seller and Buyer shall pay all of their own fees, costs and expenses (including,
without limitation, fees, costs and expenses of legal counsel, investment
bankers, accountants, brokers or other representatives and consultants and
appraisal fees, costs and expenses) incurred in connection with the negotiation
of the letter of intent between the parties, this Agreement, the performance of
its obligations hereunder, and the consummation of the transactions contemplated
hereby. Buyer will pay the HSR Act filing fee. The determination of when any
party, or which party, has incurred any such expense shall be made in a manner
consistent with past billing and employment practices.
12.10. NO THIRD PARTY BENEFICIARIES . This Agreement is
solely for the benefit of the parties and no other person shall have any right,
interest, or claim under this Agreement, except as provided in Article 9 hereof.
12.11. CAPTIONS . All Section titles or captions contained
in this Agreement or in the Disclosure Letter or referred to herein are for
convenience only, shall not be deemed a part of this Agreement and shall not
affect the meaning or interpretation of this
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Agreement. All references herein to Section shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
12.12. WAIVER OF JURY TRIAL . As a specifically bargained
inducement for each of the parties to enter into this Agreement (each party
having had opportunity to consult counsel), each party expressly waives the
right to trial by jury in any lawsuit or proceeding relating to or arising in
any way from this Agreement or the transactions contemplated herein.
12.13. ARBITRATION PROCEEDINGS . Any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by binding arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association in Washington, D.C. and judgment
upon the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof, and shall not be appealable. The prevailing party in any
such arbitration shall be entitled to recover its reasonable attorneys' fees and
expenses in connection with any such arbitration.
12.14. NO STRICT CONSTRUCTION . The parties hereto have
participated jointly in the negotiation of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement will be
construed as negotiated jointly by the parties hereto and no presumption or
burden of proof will arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.
12.15. INSOLVENCY OR BANKRUPTCY OF BUYER . Notwithstanding
anything to the contrary contained herein, in the event Buyer, prior to Closing,
shall make an assignment for the benefit of creditors, shall file a voluntary
petition in bankruptcy, or shall be adjudicated bankrupt or insolvent, or shall
file any petition or pleading seeking or
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consenting to any reorganization or similar relief under any present or future
Bankruptcy Act or similar law then in addition to, and not in lieu of, any other
rights or remedies available to the Seller at law or in equity under this
Agreement, the Seller may terminate this Agreement without further obligation by
it or the Seller to Buyer.
12.16. PUBLIC ANNOUNCEMENTS . Any public announcements or
similar publicity with respect to this Agreement or the contemplated
transactions will be issued, if at all, at such time and in such manner as Buyer
and the Seller jointly determine or as required by law. Unless consented to by
the other party in advance or required by law, prior to the Closing the Buyer
and the Seller shall keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to anyone. The Seller and Buyer will consult
with each other concerning the means by which the Company's employees, customers
and suppliers and others having dealings with the Company will be informed of
the contemplated transaction.
12.17. CONFIDENTIALITY . Between the date of this
Agreement and the Closing Date, Buyer and the Seller will maintain in
confidence, and will cause the directors, officers, employees, agents, and
advisors of Buyer and the Seller to maintain in confidence any written, oral or
other information obtained in confidence from another party or the Company in
connection with this Agreement, unless (a) such information is already known to
such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required by the consummation of the
transaction herein, or (c) the furnishing or use of such information is required
by law.
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If the contemplated transactions are not consummated, each party
will return or destroy as much of such written information as the other party
may request.
12.18. TIME IS OF THE ESSENCE . With regard to all dates
and time periods set forth or referred to in this Agreement, time is of the
essence.
[STOCK PURCHASE AGREEMENT SIGNATURE PAGE FOLLOWS]
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[STOCK PURCHASE AGREEMENT SIGNATURE PAGE]
WITNESS the following signatures and seals; and
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by its respective officers hereunto duly authorized as of the day and
year first above written.
COMPANY
CASSCO ICE & COLD STORAGE, INC.
By:_______________________________________
Its:________________________________________
SELLER
WLR FOODS, INC.
By:________________________________________
Its: _______________________________________
BUYER
PACKAGED ICE, INC.
By:_______________________________________
Its:________________________________________
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EXHIBIT 2.2
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "Agreement") is made as of July 31,
1998, by and among Packaged Ice, Inc. ("Buyer"), a Texas corporation and WLR
Foods, Inc., a Virginia corporation ("Seller").
PRELIMINARY STATEMENTS
Seller was the holder of all of the outstanding capital stock of Cassco
Ice & Cold Storage, Inc., a Virginia corporation (the "Company") which was
purchased by Buyer pursuant to that certain Stock Purchase Agreement dated as of
July 31, 1998 (the "Stock Purchase Agreement")
The Stock Purchase Agreement requires that Seller execute and deliver a
noncompetition agreement as a condition to the consummation of the transactions
contemplated by the Stock Purchase Agreement.
AGREEMENT
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. ACKNOWLEDGMENTS BY SELLER.
Seller understands, acknowledges and agrees that (a) Buyer has required
that Seller make the covenants set forth in SECTIONS 2 AND 3 of this Agreement
as a condition to Buyer's purchase of the stock of the Company, (b) the
provisions of SECTIONS 2 AND 3 of this Agreement are reasonable and do not
impose a greater restraint on Seller than is necessary to protect the goodwill
or other business interest of Buyer, (c) the provisions set forth in SECTIONS 2
AND 3 are not oppressive to Seller nor injurious to the public; and (d) Buyer
would be irreparably damaged if Seller were to breach the covenants set forth in
SECTIONS 2 AND 3 of this Agreement.
2. CONFIDENTIAL INFORMATION.
Seller acknowledges and agrees that all confidential information or trade
secrets known or obtained by Seller, whether before or after the date hereof,
relating to the Company is now the property of Buyer. Therefore, Seller agrees
that it will not, at any time, disclose to any unauthorized persons or use for
its own account or for the benefit of any third party any such confidential
information or trade secrets, whether Seller has such information in its memory
or embodied in writing or other physical form, without the written consent of
Buyer, unless and to the extent that such confidential information or trade
secrets:
(i) is or becomes generally known to and available for use by the public,
other than as a result of the fault of Seller,
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(ii) becomes available to Seller on a non-confidential basis from a source
other than Buyer, provided that such source is not bound by a confidentiality
agreement or other contractual, legal or fiduciary obligation of confidentiality
to Buyer, or
(iii) Seller or any of its representatives are compelled to disclose by
judicial or administrative process or, in the opinion of Seller's counsel, by
other mandatory requirements of law.
Seller agrees to deliver to Buyer at any time Buyer may request, all
documents, memoranda, notes, plans, records, reports, and other documentation,
models, components, devices, however embodied (and all copies of all of the
foregoing, excluding Seller's personal copies of the transactional documents
related to the aforementioned Stock Purchase Agreement or other transactions
between the parties), relating to the Company that Seller may then possess or
have under its control. Seller's obligations with respect to this SECTION 2
shall terminate five years after the date of this Agreement.
3. NONCOMPETITION.
As an inducement for Buyer to enter into and consummate the Stock Purchase
Agreement and in exchange for the consideration paid to Seller under the Stock
Purchase Agreement, Seller agrees that:
(a) For a period of five years after the date hereof and within 250 miles
of any of the manufacturing, distribution or cold storage warehouse facilities
owned or leased by the Company as of the date hereof, except with respect to
that certain Warehouse Storage and Services Agreement entered into on April 1,
1998, Seller will not, directly or indirectly, engage or invest in, own, manage,
operate, finance, control or participate in the ownership, management,
operation, financing or control of, be employed by, associated with, or in any
manner connected with, lend Seller's name or any similar name to, lend Seller's
credit to, or render services or advice to, any business whose products or
activities compete in whole or in part with the products or activities of Buyer
as it relates to the production, distribution, transportation, and sale of ice
products, or the cold storage warehouse business, as of the date hereof. Seller
agrees that this covenant is reasonable with respect to its duration,
geographical area, and scope Notwithstanding the above, Seller may own, operate
or manage any cold storage warehouse in which it receives a controlling
ownership interest as a result of any acquisition by Seller of the stock or
assets of any entity engaged primarily in the poultry business, provided that
such cold storage warehouse is ancillary to such poultry business and, further
provided, that Seller's obligations under the Warehouse Storage and Services
Agreement dated April 1, 1998 are not affected; and
(b) Except as to any cold storage warehouse which Seller is allowed to
own, operate or manage pursuant to Section 3(a) above, Seller will not, directly
or indirectly, either individually or for any other person, solicit the business
of any person known to Seller to be a customer or prospective customer of Buyer
whether or not Seller had personal contact with such person, with respect to the
sale of ice products or the cold storage warehouse business.
(c) In the event of a breach by Seller of any covenant set forth in
Subsection 3(a) of this Agreement, the term of such covenant will be extended by
the period of the duration of such breach.
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4. NONSOLICITATION/NONINTERFERENCE. For a period of one (1) year after the date
hereof, neither party will, directly or indirectly, individually or for any
other person (a) solicit or attempt to solicit any employee of the other in
attempt to encourage the employee to leave the employ of such part, (b) in any
way interfere with the relationship between the other and any employee of the
other, (c) knowingly employ, or otherwise engage as an employee, independent
contractor, or otherwise any employee of the other or (d) induce or attempt to
induce any customer, supplier, licensee, or business relation of the other to
cease doing business with the other, or in any way interfere with the
relationship between any customer, supplier, licensee, or business relation of
the other. Notwithstanding the foregoing, Buyer and the company shall have the
right to hire Neil Showalter as an employee.
5. REMEDIES.
If Seller breaches the covenants set forth in SECTIONS 2 OR 3 of this
Agreement, Buyer will be entitled to the following remedies:
(a) Damages from Seller; and
(b) In addition to its right to damages and any other rights Buyer may
have, to obtain injunctive or other equitable relief to restrain any breach or
threatened breach or otherwise to specifically enforce the provisions of
SECTIONS 2 AND 3 of this Agreement, it being agreed that money damages alone may
be inadequate to compensate Buyer and would be an inadequate remedy for such
breach, and that any such breach or threatened breach will cause irreparable
injury to Buyer. Such injunction shall be available without the posting of any
bond or other security.
6. SUCCESSORS AND ASSIGNS.
This Agreement will be binding upon Seller and its respective assigns,
heirs and legal representatives and will inure to the benefit of Buyer and its
affiliates, successors and assigns. Neither this Agreement nor any rights or
obligations hereunder shall be assignable by Seller. Buyer shall have the right
to assign its rights under this Agreement to any entity which acquires all or
substantially all of the assets or stock of Buyer. For the purposes of this
Agreement, the defined term "Buyer" shall mean Packaged Ice, Inc. and all of it
subsidiaries, affiliates and successors. Buyer shall have the right to assign
this Agreement in whole or in part to any purchase of any significant portion of
the assets of Cassco Ice & Cold Storage, Inc. By way of example, and not by way
of limitation, if the Company sells any of its cold storage facilities to a
third party, the purchaser thereof shall be entitled to the benefits of this
Agreement.
7. WAIVER.
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power or
privilege. To the maximum extent permitted by applicable law:
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(a) no claim or right arising out of this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing and signed by the other party;
(b) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of
any obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement.
8. GOVERNING LAW.
This Agreement will be governed by the laws of the Commonwealth of
Virginia.
9. JURISDICTION.
The parties hereto intend to and hereby confer jurisdiction to enforce the
covenants contained in this Agreement upon the courts of any state or other
jurisdiction in which any alleged breach of any such covenant occurs. If the
courts of any of one or more of such states or other jurisdictions shall hold
such covenants not wholly enforceable by reason of the scope thereof or
otherwise, it is the intent of the parties hereto that such determination not
bar or in any way affect Buyer's right to relief provided above in the courts of
any other sates or jurisdictions as to breaches of such covenants in such other
respective states or jurisdictions, and the above covenants as they relate to
each state or jurisdiction being for this purpose, severable into diverse and
independent covenants.
10. SEVERABILITY.
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or term
of this Agreement is held to be prohibited by law or invalid, then such
provision or term will be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of this
Agreement. If any of the covenants set forth in this Agreement are held by a
court of competent jurisdiction to contain limitations as to time, geographical
area or scope of activity to be restrained that are not reasonable and impose a
greater restraint than is necessary to protect the goodwill or other business
interest of Buyer, the court shall reform the covenants to the extent necessary
to cause the limitations contained in the covenants as to time, geographical
area and scope of activity to be restrained to be reasonable and to impose a
restraint that is not greater than necessary to protect the goodwill or other
business interest of Buyer and enforce the covenants as reformed.
11. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.
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12. SECTION HEADINGS, CONSTRUCTION.
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
13. NOTICES.
All notices, consents, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given when:
(a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is mailed
by registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to other parties):
Seller: WLR Foods, Inc.
PO Box 7000
Broadway, VA 22815-7000
Attention: James L. Keeler, President, CEO
Telecopy: (540) 896-0498
With a copy to: Wharton, Aldhizer & Weaver, P.L.C.
100 S. Mason Street
Harrisonburg, VA 22801
Attention: John W. Flora, Esquire
Telecopy: (540) 434-5502
Buyer: Packaged Ice, Inc.
8572 Katy Freeway, Suite 101
Houston, Texas 77024
Attn: A.J. Lewis, President
With a copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Facsimile No.: (210) 224-2035
Attn: Alan Schoenbaum, Esq.
14. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter of this Agreement. This Agreement may not be
amended except by a written agreement executed by the party to be charged with
the amendment.
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
WLR FOODS, INC.
By:_________________________________
Print Name:_____________________
Print Title:_____________________
PACKAGED ICE, INC.
By:_________________________________
Print Name:_____________________
Print Title:_____________________
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