<PAGE>
PAGE 1 OF 53
INDEX TO EXHIBITS - PAGE 14 OF 53
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 200549
-------------
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 27, 1996
-------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-24902
-----------
CENTRAL TRACTOR FARM & COUNTRY, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 42-1425562
- ---------------------------------------------- ---------------------
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer No.)
3915 Delaware Avenue, Des Moines, Iowa 50316-0330
- ---------------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (515) 266-3101
Not Applicable
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 6, 1996: 10,589,082.
-----------
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PAGE 2 OF 53
CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX
PART I. FINANCIAL STATEMENTS PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Condensed consolidated balance sheets, July 27, 1996
(unaudited) and October 28, 1995 . . . . . . . . . . . . . . . . . . . . 3
Condensed consolidated statements of income (unaudited), for the
nine months and three months ended July 27, 1996 and the nine months
and three months ended July 29, 1995. . . . . . . . . . . . . . . . . . . 4
Condensed consolidated statements of cash flows (unaudited),
nine months ended July 27, 1996 and July 29, 1995 . . . . . . . . . . . . 5
Notes to consolidated financial statements (unaudited). . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . .12
ITEM 2. CHANGES IN SECURITIES. . . . . . . . . . . . . . . . . . . . . . . .12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . . . .12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . .12
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . .12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . .12
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Exhibit 10.15 - Asset Purchase Agreement By and Between Central Tractor
Farm & Country, Inc. (the "Buyer") and Big Bear Farm
Stores, Inc. (the "Seller") dated May 22, 1996 filed
herewith. . . . . . . . . . . . . . . . . . . . . . . . .15
Exhibit 11 - Statement Re: Computation of Per
Share Earnings. . . . . . . . . . . . . . . . . . . . . .50
Exhibit 27 - Financial Data Schedule . . . . . . . . . . . . . . . . .51
Exhibit 99 - Important Factors Regarding Forward-Looking
Statements. . . . . . . . . . . . . . . . . . . . . . . .52
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC. Page 3 of 53
CONDENSED CONSOLIDATED BALANCE SHEETS
( IN THOUSANDS EXCEPT SHARE DATA )
JULY 27, OCTOBER 28,
1996 1995
----------- -----------
(UNAUDITED) (NOTE)
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 4,205 $ 3,094
TRADE RECEIVABLES, NET 1,204 883
INVENTORY 98,455 93,874
OTHER 2,050 1,383
NET ASSETS OF DISCONTINUED OPERATIONS 0 13,520
----------- -----------
TOTAL CURRENT ASSETS 105,914 112,754
PROPERTY, IMPROVEMENTS AND EQUIPMENT, NET 22,443 18,227
GOODWILL, NET 17,982 16,930
OTHER ASSETS 1,596 2,066
----------- -----------
TOTAL ASSETS $ 147,935 $ 149,977
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
NOTE PAYABLE TO BANK $ 2,643 $ 6,789
ACCOUNTS PAYABLE 30,315 39,150
ACCRUED EXPENSES AND OTHER LIABILITIES 8,153 4,319
----------- -----------
TOTAL CURRENT LIABILITIES 41,111 50,258
LONG-TERM DEBT, LESS CURRENT PORTION 16,000 16,000
OTHER LONG-TERM LIABILITIES 2,604 2,442
----------- -----------
TOTAL LIABILITIES 59,715 68,700
STOCKHOLDERS' EQUITY:
PREFERRED STOCK,$.01 PAR VALUE: AUTHORIZED
SHARES-5,000,000; NONE ISSUED AND OUTSTANDING ---- ----
COMMON STOCK, $.01 PAR VALUE: AUTHORIZED
SHARES-45,000,000; ISSUED AND OUTSTANDING
SHARES-10,589,082 IN 1996, 10,576,676 IN 1995 106 106
STOCK WARRANT OUTSTANDING 665 665
ADDITIONAL PAID IN CAPITAL 69,709 69,667
RETAINED EARNINGS 17,740 10,839
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 88,220 81,277
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 147,935 $ 149,977
----------- -----------
----------- -----------
NOTE: THE BALANCE SHEET AT OCTOBER 28, 1995 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE
INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC. Page 4 of 53
CONDENSED CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED )
( IN THOUSANDS EXCEPT PER SHARE DATA )
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ --------------------------
JULY 27, JULY 29, JULY 27, JULY 29,
1996 1995 1996 1995
------------------------ --------------------------
<S> <C> <C> <C> <C>
NET SALES $ 86,169 $ 74,362 $ 219,125 $ 195,545
COST OF SALES 60,752 51,805 155,601 137,412
--------- --------- ---------- ----------
GROSS PROFIT 25,417 22,557 63,524 58,133
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 18,217 14,975 49,934 43,350
AMORTIZATION OF INTANGIBLES 228 216 670 646
--------- --------- ---------- ----------
OPERATING INCOME 6,972 7,366 12,920 14,137
INTEREST EXPENSE 360 269 1,204 982
--------- --------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 6,612 7,097 11,716 13,155
INCOME TAXES 2,675 2,848 4,815 5,312
--------- --------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 3,937 4,249 6,901 7,843
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES OF $ 378 FOR THE NINE
MONTHS ENDED AND $110 FOR THE THREE
MONTHS ENDED 0 187 0 653
--------- --------- ---------- ----------
NET INCOME $ 3,937 $ 4,436 $ 6,901 $ 8,496
--------- --------- ---------- ----------
--------- --------- ---------- ----------
PER SHARE:
INCOME FROM CONTINUING OPERATIONS $ 0.36 $ 0.39 $ 0.63 $ 0.71
INCOME(LOSS) FROM DISCONTINUED OPERATIONS 0.00 0.02 0.00 0.06
NET INCOME 0.36 0.40 0.63 0.77
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 10,994 11,006 10,990 11,048
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC. PAGE 5 OF 53
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
------------------------
JULY 27, JULY 29,
1996 1995
---------- ----------
OPERATING ACTIVITIES
INCOME FROM CONTINUING OPERATIONS $ 6,901 $ 7,843
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATIONS:
DEPRECIATION AND AMORTIZATION 2,899 2,481
CHANGES IN OPERATING ASSETS AND LIABILITIES (7,334) (9,709)
---------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS 2,466 615
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 13,520 (1,183)
---------- ----------
15,986 (568)
INVESTING ACTIVITIES
PURCHASES OF PROPERTY, IMPROVEMENTS AND EQUIPMENT (5,850) (5,305)
ACQUISITION OF BIG BEAR FARM STORES, INC. - NOTE 5 (4,984) 0
OTHER 140 52
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (10,694) (5,253)
FINANCING ACTIVITIES
RECEIVABLE FROM SALE OF COMMON STOCK 0 6,703
NET BORROWINGS UNDER LINE OF CREDIT (4,146) (977)
PAYMENTS ON LONG-TERM DEBT (17) (338)
OTHER (18) (133)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,181) 5,255
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 1,111 $ (566)
---------- ----------
---------- ----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
PAGE 6 OF 53
CENTRAL TRACTOR FARM & COUNTRY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The condensed unaudited consolidated financial statements have been
prepared by the Company in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for the Securities and Exchange Commission's Form 10-Q
and Article 10 of Regulation S-X, and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The condensed unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries. All material
intercompany items and transactions have been eliminated in the
consolidation. In the preparation of the condensed unaudited
financial statements, all adjustments (consisting of normal recurring
accruals) have been made which are, in the opinion of management,
necessary for the fair and consistent presentation of such financial
statements. The operating results for the interim periods are not
necessarily indicative of the results that may be expected for the
year.
It is suggested that the condensed unaudited consolidated financial
statements contained herein be read in conjunction with the statements
and notes in the Company's Annual Report to Shareholders which is
incorporated by reference in the Company's Annual Report on Form 10-K
for the year ended October 28, 1995.
NOTE 2. DEFERRED CATALOG COSTS
The direct cost of printing and mailing the Company's annual mail
order catalog is deferred and amortized against mail order revenues
over the year the catalog is in use. The amount of unamortized
deferred catalog costs at July 27, 1996 and July 29, 1995 was $126,000
and $177,000, respectively, and $48,000 at October 28, 1995.
<PAGE>
PAGE 7 OF 53
NOTE 3. EARNINGS PER SHARE
Per share earnings are based on the weighted average number of shares
of common stock and common stock equivalents outstanding. The
dilutive effect of outstanding stock options and the stock warrant
were determined based upon the Treasury Stock Method. Fully diluted
earnings per share did not vary significantly from earnings per share
as presented.
NOTE 4. DISCONTINUED OPERATIONS
During the first quarter of fiscal 1996, the Company completed the
sale of its wholly owned subsidiary, Herschel Corporation (Herschel),
a manufacturer and wholesale distributor of equipment parts for use in
the agricultural industry. Herschel has been reported as a
discontinued segment of the business; accordingly, its net assets and
operating results have been segregated in the consolidated financial
statements.
Net sales of Herschel Corporation were $18.6 million for the nine
months and $5.7 million for the three months ended July 29, 1995 and
have been excluded from net sales in the condensed statements of
income for those periods.
NOTE 5. ACQUISITION
Effective May 31, 1996 the Company purchased the net operating assets
of Big Bear Farm Stores, Inc. ("Big Bear"), a privately held retail
chain based in St. Cloud, Minnesota, for approximately $5,000,000.
The transaction will be accounted for as a purchase. Proforma results
of operations assuming the acquisition had taken place as of October
29, 1995 would not be materially different from actual results for the
three and nine month periods ending July 27, 1996.
<PAGE>
PAGE 8 OF 53
CENTRAL TRACTOR FARM & COUNTRY, INC
Certain statements in this Report may contain "forward-looking" information
(as defined in the Private Securities Litigation Reform Act of 1995). All
forward-looking statements involve uncertainty, and actual future results
and trends may differ materially depending on a variety of factors. For a
discussion identifying some important factors that could cause actual
results or trends to differ materially from those anticipated in the
forward-looking statements contained herein, please see Exhibit 99 to this
Report.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THIRD QUARTER OF FISCAL 1996 COMPARED TO THIRD QUARTER OF FISCAL 1995
Sales for the third quarter of fiscal 1996 were $86.2 million, an increase
of $11.8 million, or 15.9%, as compared to total sales for third quarter of
fiscal 1995 of $74.4 million. The increase was due to the opening of
eleven new stores during fiscal 1996 and the two new stores opened during
the fourth quarter of fiscal 1995, the Big Bear stores acquisition and a
comparable store sales increase of 1.5%. Comparable store sales were weak
in the first part of the quarter due to cool, wet weather conditions, with
sales being stronger in the latter part of the quarter as weather
normalized. The increase in comparable store sales was primarily due to
increased sales in agricultural product lines.
Gross profit for the third quarter of fiscal 1996 was $25.4 million, an
increase of $2.9 million or 12.7%, as compared to $22.6 million for the
third quarter of fiscal 1995. Gross profit as a percentage of sales was
29.5% for the third quarter of fiscal 1996, as compared to 30.3% for the
third quarter of fiscal 1995. The decrease in gross profit percentage was
primarily the result of the effect of the Big Bear store sales at a lower
gross margin and sales increases coming from products with lower than
average gross margins.
Selling, general and administrative (SGA) expenses for the third quarter of
fiscal 1996 were $18.2 million, an increase of $3.3 million, or 21.8%, as
compared to the third quarter of fiscal 1995, due primarily to costs
related to new store openings, the Big Bear stores acquisition and the
effect of the timing of recognition of incentive compensation expense. SGA
expenses as a percentage of sales increased to 21.1% for the third quarter
of fiscal 1996 as compared to 20.1% for the third quarter of fiscal 1995.
Operating income for the third quarter of fiscal 1996 was $7.0 million, a
decrease of $0.4 million, or 5.6%, as compared to $7.4 million for the
third quarter of fiscal 1995. Operating income as a percentage of sales
decreased to 8.1% for the third quarter of fiscal 1996 from 9.9% for the
third quarter of fiscal 1995. The decrease was the result
<PAGE>
PAGE 9 OF 53
of the factors affecting sales, gross profit and SGA as discussed above.
Interest expense for the third quarter of fiscal 1996 was $0.4 million, an
increase of $0.1 million as compared to $0.3 million for the third quarter
of fiscal 1995.
Income taxes for the third quarter of fiscal 1996 were $2.7 million, a
decrease of $0.1 million as compared to the third quarter of fiscal 1995.
Income tax as a percentage of pretax earnings was 40.5% in 1996, compared
to 40.1% in 1995. This increase is primarily due to the effect of a
proportionately lower amount of non-deductible goodwill amortization and a
reduction of a prior year over-accrual in fiscal 1995, as compared to
fiscal 1996.
Net income from continuing operations for the third quarter of fiscal 1996
was $3.9 million, or $0.36 per share, as compared to $4.2 million or $0.39
per share for the third quarter of fiscal 1995.
During the first quarter of fiscal 1996, the Company completed the sale of
its wholly owned subsidiary, Herschel Corporation (Herschel). Herschel has
been reported as a discontinued segment of the business. Sales of Herschel
for the third quarter of fiscal 1995 were $5.7 million. Income from
discontinued operations for the third quarter of fiscal 1995 was $0.2
million or $0.02 per share.
NINE MONTHS ENDED JULY 27, 1996 COMPARED TO NINE MONTHS ENDED JULY 29, 1995
Sales for the nine months ended July 27, 1996 were $219.1 million, an
increase of $23.6 million, or 12.1%, as compared to total sales for the
nine months ended July 29, 1995 of $195.5 million. The increase was due to
the opening of eleven new stores during fiscal 1996, the two new stores
opened in the fourth quarter of fiscal 1995 and the Big Bear stores
acquired, offset by a comparable store decrease of 0.1%. The decrease in
comparable store sales was primarily due to the unseasonably cool early
spring weather conditions during the second quarter, which reduced the
sales of spring seasonal products, as well as a more competitive
environment in some markets.
Gross profit for the nine months ended July 27, 1996 was $63.5 million, an
increase of $5.4 million, or 9.3%, as compared to $58.1 million for the
nine months ended July 29, 1995. Gross profit as a percentage of sales was
29.0% for fiscal 1996, as compared to 29.7% for fiscal 1995. The decrease
in gross profit percentage was primarily the result of increased sales in
lower gross margin seasonal items, such as snowblowers and heating
equipment, a lower gross margin in the pet product lines and sales
increases in products with lower than average gross margins.
<PAGE>
PAGE 10 OF 53
SGA expenses for the nine months ended July 27, 1996 was $49.9 million, an
increase of $6.6 million, or 15.2%, as compared to the nine months ended
July 29, 1995, due primarily to costs related to new store openings and the
Big Bear stores acquired. SGA expenses as a percentage of sales increased
to 22.8% in fiscal 1996 as compared to 22.2% in fiscal 1995.
Operating income for the nine months ended July 27, 1996 was $12.9 million,
a decrease of $1.2 million, or 8.6%, as compared to $14.1 million for the
nine months ended July 29, 1995. Operating income as a percentage of sales
decreased to 5.9% in fiscal 1996 from 7.2% in fiscal 1995. The decrease
was the result of factors affecting sales, gross profits and SGA as
discussed above.
Interest expense for the nine months ended July 27, 1996 was $1.2 million,
an increase of $0.2 million as compared to $1.0 million for the nine months
ended July 29, 1995.
Income taxes for the nine months ended July 27, 1996 were $4.8 million, a
decrease of $0.5 million as compared to the nine months ended July 29,
1995. Income tax as a percentage of pretax earnings was 41.1% in 1996,
compared to 40.4% in 1995. This increase is primarily due to the effect of
a proportionately lower amount of non-deductible goodwill amortization and
a reduction of a prior year over-accrual in fiscal 1995, as compared to
fiscal 1996.
Net income from continuing operations for the nine months ended July 27,
1996 was $6.9 million or $0.63 per share, as compared to $7.8 million or
$0.71 per share in fiscal 1995.
During the first quarter of fiscal 1996, the Company completed the sale of
its wholly owned subsidiary, Herschel Corporation (Herschel). Herschel has
been reported as a discontinued segment of the business. Sales of Herschel
for the nine months ended July 29, 1995 were $18.6 million. Income from
discontinued operations for the nine months ended July 29, 1995 was $0.7
million or $0.06 per share.
ACQUISITION OF BIG BEAR
As discussed in Note 5 in the Notes to Consolidated Financial Statements,
the Company completed the acquisition of the net operating assets of Big
Bear on May 31, 1996. Big Bear operated forty-two retail stores located
primarily in Iowa and Minnesota. The Company currently plans to continue
to operate thirty-one stores. These thirty-one stores will be converted to
Central Tractor stores over approximately the next seven months. The Big
Bear Stores average approximately 10,000 to 12,000 square feet and will be
to the Company's small store prototype. The total net investment in these
stores, including acquisition cost, additional capital investment and
working capital needs and conversion costs is expected to be approximately
$12,000,000.
<PAGE>
PAGE 11 OF 53
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by continuing operations increased from $0.6 million for
the first nine months of fiscal 1995 to $2.5 million for the first nine
months of fiscal 1996. This increase resulted primarily from the decrease
in inventory and decrease in accounts payable being higher in the first
nine months of 1996 as compared to 1995. The Company received $13.5
million in cash as a result of the sale of Herschel Corporation in the
first quarter of fiscal 1996. The Company's capital expenditures were $6.4
million and $5.8 million for the nine months of fiscal 1996 and 1995,
respectively.
On July 27, 1996, the Company had working capital of $64.8 million, which
was a $2.3 million increase over working capital of $62.5 million on
October 28, 1995.
The Company believes that its cash flow from operations, borrowings
pursuant to a $25 million bank credit agreement and trade credit will be
sufficient to fund the Company's operations, store expansion plans and the
Big Bear acquisition and additional investment requirements.
<PAGE>
PAGE 12 OF 53
CENTRAL TRACTOR FARM & COUNTRY, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS - See Index to Exhibits included elsewhere herein.
(b) FORM 8-K - No reports on Form 8-K were filed during the third quarter
of fiscal 1996.
<PAGE>
PAGE 13 OF 53
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: September 6, 1996 Central Tractor Farm & Country, Inc.
Dean Longnecker
/s/ Dean Longnecker
------------------------------
Dean Longnecker
Executive Vice President, Finance and
Chief Financial Officer
<PAGE>
PAGE 14 OF 53
CENTRAL TRACTOR FARM & COUNTRY, INC.
INDEX TO EXHIBITS
PAGE
EXHIBIT 10.15 Asset Purchase Agreement By and Between Central
Tractor Farm & Country, Inc. (the "Buyer") and Big
Bear Farm Stores, Inc. (the "seller") dated May 22,
1996 filed herewith. . . . . . . . . . . . . . . . . . . .15
EXHIBIT 11 Statement Re: Computation of Per
Share Earnings . . . . . . . . . . . . . . . . . . . . . .50
EXHIBIT 27 Financial Data Schedule. . . . . . . . . . . . . . . . . .51
EXHIBIT 99 Important Factors Regarding Forward-Looking Statements . .52
<PAGE>
15
ASSET PURCHASE AGREEMENT
Agreement entered into on May 22, 1996, by and between Central Tractor Farm
& Country, Inc., a Delaware corporation (the "Buyer"), and Big Bear Farm Stores,
Inc., a Delaware corporation (the "Seller"). The Buyer and the Seller are
referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which the Buyer will purchase
substantially all of the assets (and assume certain of the liabilities) of the
Seller in consideration of the Purchase Price (as defined below).
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS:
"Acquired Assets" has the meaning set forth in Section 2.1.
"Adjusted Tangible Net Book Value of the Acquired Assets" has the meaning
set forth in Section 2.4(c) and shall be determined in accordance with EXHIBIT
"A" hereto.
"Affiliate" means the Shareholders, their family members, and all Persons
within the definition set forth in Rule 12b-2 of the regulations promulgated
under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a) or any similar group defined under a similar provision of state,
local, or foreign law.
"Agreement" has the meaning set forth in the preamble above.
"Assumed Liabilities" has the meaning set forth in Section 2.2.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preamble above.
<PAGE>
16
"Cash" means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
"Chemical Substance" means any chemical substance, including but not
limited to any: (i) pollutant, contaminant, irritant, chemical, raw material,
intermediate, product, byproduct, slag, construction debris; (ii) industrial,
solid, liquid or gaseous toxic or hazardous substance, material or waste, (iii)
petroleum or any fraction thereof; (iv) asbestos or asbestos-containing
material; (v) polychlorinated biphenyl; (vi) chlorofluorocarbons; and (vii) any
other substance, material or waste, which is identified or regulated under any
Environmental Law or Safety Law, as now and hereinafter in effect, or other
comparable laws.
"Closing" has the meaning set forth in Section 2.7.
"Closing Date Balance Sheet" means the balance sheet of the Seller as of
the Effective Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any and all information concerning the
businesses and affairs of the Seller that is not already generally or readily
obtainable by the public or is publicly known or becomes publicly known through
no fault of the Sellers.
"Contracts" has the meaning set forth in Section 2.1(f).
"Disclosure Schedule" has the meaning set forth in Section 3.
"Effective Date" means the close of business on the date of the Closing.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"Employees" has the meaning set forth in Section 5.4.
"Environment" means real property and any improvements thereon, and also
includes, but is not limited to, ambient air, surface water, drinking water,
groundwater, land surface, subsurface strata and water body sediments.
<PAGE>
17
"Environmental Laws" mean any federal, state, local and foreign law,
regulation or legal requirement relating to pollution, or protection or cleanup
of the Environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Clean Air Act, as amended, the
Clean Water Act, as amended, and any other law or legal requirement, as now or
hereinafter in effect, relating to: (a) the Release, containment, removal,
remediation, response, cleanup or abatement of any sort of any Chemical
Substance; (b) the manufacture, generation, formulation, processing, labeling,
distribution, introduction into commerce, use, treatment, handling, storage,
recycling, disposal or transportation of any Chemical Substance; (c) exposure of
persons, including employees, to any Chemical Substance; or, (d) the physical
structure, use or condition of a building, facility, fixture or other structure,
including, without limitation, those relating to the management, use, storage,
disposal, cleanup or removal of asbestos, asbestos-containing materials,
polychlorinated biphenyls or any other Chemical Substance.
"Environmental Liabilities and Costs" means all Losses incurred: (i) that
are required by a governmental agency or third party in order to comply with any
Environmental Law; (ii) that are required by a governmental agency or third
party as a result of a Release of any Chemical Substance; or, (iii) that are
required by a governmental agency or third party as a result of any
environmental conditions present at, created by or arising out of the past or
present operations of Sellers through the Effective Date or of any operator of a
facility or site at which Sellers now operate or have previously operated.
"Environmental Permit'' means any permit or authorization from any
governmental authority required under, issued pursuant to, or authorized by any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" has the meaning set forth in Section 2.4(a).
"Escrow Agent" means Zapp National Bank of St. Cloud.
"Escrow Agreement" has the meaning set forth in Section 2.4(a).
"Extremely Hazardous Substance" has the meaning set forth in Section 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in Section 3.10.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Guarantee has the meaning set forth in Section 8.4.
"Indebtedness" has the meaning set forth in Section 3.11.
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18
"Indemnified Parties" shall have the meaning set forth in Section 8.6(a).
"Indemnifying Parties" shall have the meaning set forth in Section 8.6(a).
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), all computer hardware and all information systems
including documentation and source code relating thereto, (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Leased Assets" has the meaning set forth in Section 2.6.
"Leased Property Payments" has the meaning set forth in Section 2.3(f).
"Leases" has the meaning set forth in Section 2.1(b).
"Liability" means any liability or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, whether incurred or
consequential and whether due or to become due), including any liability for
Taxes.
"Lien" means any mortgage, pledge, lien, Security Interest, charge, claim,
equity, encumbrance, restriction on transfer, conditional sale or other title
retention device or arrangement (including, without limitation, a capital
lease), transfer for the purpose of subjection to the payment of any
Indebtedness, or restriction on the creation of any of the foregoing, whether
relating to any property or right or the income or profits therefrom; provided,
however, that the term "Lien" shall not include (i) statutory liens for Taxes to
the extent that the payment thereof is not in arrears or otherwise due, (ii)
encumbrances in the nature of zoning restrictions, easements, rights or
restrictions of record on the uses of real property if the same do not detract
from the value of the property encumbered thereby or impair the use of such
property in the business of the Seller as currently conducted, (iii) statutory
or common law liens to secure landlords, lessors or renters under leases or
rental agreements confined to the premises rented to the extent that no payment
or performance under any such lease or rental agreement is in arrears or is
otherwise due, (iv) deposits or pledges made in connection with, or to secure
payment of, worker's compensation, unemployment insurance, old age pension
programs mandated under applicable laws or other social security regulations and
(v) statutory or common law liens in
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19
favor of carriers, warehousemen, mechanics and materialmen, statutory or common
law liens to secure claims for labor, materials or supplies and other like
liens, which secure obligations to the extent that payment thereof is not in
arrears or otherwise due.
"Losses" has the meaning set forth in Section 8.2.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" means the unaudited Financial Statements
for the Most Recent Fiscal Month End.
"Most Recent Fiscal Month End" has the meaning set forth in Section 3.10.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3.10.
"Non-Leased Property Payments" has the meaning set forth in Section 2.6.
"Noncompetition Agreements" means the Noncompetition Agreements referred to
in Section 2.5 to be executed at Closing in the form of EXHIBIT "B" hereto.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Partial Purchase Price" has the meaning set forth in Section 2.4(a).
"Parties" has the meaning set forth in the preamble above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2.4.
"Release" means any actual, threatened or alleged spilling, leaking,
pumping, pouring, emitting, dispersing, emptying, discharging, injecting,
escaping, leaching, dumping, or disposing of any Chemical Substance into the
Environment (including the abandonment or discarding of barrels, containers,
tanks or other receptacles containing or previously containing any Chemical
Substance).
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Retained Assets" has the meaning set forth in Section 2.1.
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20
"Review Report" has the meaning set forth in Section 2.4(b).
"Safety Laws" means any federal, state, local and foreign law, regulation
or legal requirement relating to health or safety, including the Occupational
Safety and Health Act, as amended, as now or hereinafter in effect relating to
(a) exposure of employees to any Chemical Substance or (b) the physical
structure, use or condition of a building, facility, fixture or other structure,
including, without limitation, those relating to equipment or manufacturing
processes, or the management, use, storage, disposal, cleanup or removal of any
Chemical Substance.
"Safety Liabilities and Costs" means all Losses incurred to comply with any
Safety Law or as a result of any health or safety conditions present at, created
by or arising out of the past or present operations of the Company through the
Effective Date.
"SEC" means Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, Lien, encumbrance, charge,
or other security interest, OTHER THAN (a) mechanic's, materialmen's, and
similar Liens, (b) Liens for Taxes not yet due and payable, (c) purchase money
Liens and Liens securing rental payments under capital lease arrangements, and
(d) other Liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Shareholders" means Jerry Hammerel, Greg Johnson and Larry Oseid.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" or "Taxes" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar, including FICA), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. ACQUISITION OF ASSETS BY BUYER
2.1. PURCHASE AND SALE OF ASSETS. The Seller agrees to sell and transfer to
the Buyer, and the Buyer agrees to purchase from the Seller at the Closing,
subject to and upon the terms
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21
and conditions contained herein, free and clear of any pledge, lien, option,
security interest, mortgage, claim, charge or other encumbrance of any kind
whatsoever, except for the assets to be retained by the Seller which are listed
in Section 2.1 of the Disclosure Schedule, all of the properties and assets of
the Seller (collectively, the "Acquired Assets") (which shall not include any of
the assets to be retained by the Seller listed on Section 2.1 of the Disclosure
Schedule (collectively the "Retained Assets") as to which Seller shall retain
title and which Seller shall not transfer to Buyer), including the following:
(a) All assets of the Seller listed on Section 2.1(a) of the Disclosure
Statement;
(b) All rights with respect to leasehold interests and subleases and
rights thereunder relating to the real and personal property as listed on
Section 2.1(b) of the Disclosure Schedule (the"Leases");
(c) All rights of the Seller under all licenses, permits, authorizations,
orders, registrations, certificates, variances, approvals, consents and
franchises used or useful in connection with the operation of the business of
the Seller or any pending applications relating to any of the foregoing, all as
described in Section 2.1(c) of the Disclosure Schedule;
(d) All of the Seller's rights in the name "Big Bear Farm Store" and all
other Intellectual Property, goodwill associated therewith, licenses and
sublicenses granted in respect thereto and rights thereunder, remedies against
infringements thereof and rights to protection of interest therein described in
Section 2.1(d) of the Disclosure Schedule;
(e) All customer, distributor, supplier files and mailing lists of the
Seller;
(f) All rights of the Seller under any contracts, indentures, mortgages,
instruments, Security Interests, guaranties, or other agreements relating to the
Seller as listed on Section 2.1(f) of the Disclosure Schedule (the "Contracts");
(g) All claims, deposits, prepayments, refunds, causes of action, choses
in action, rights of recovery, rights of set off and rights of recoupment
relating to the Seller;
(h) Copies (at Buyer's cost) of all business and financial records,
including but not limited to, books, ledgers, files, plans, documents,
correspondence, lists, plats, architectural plans, drawings, notebooks,
specifications, creative materials, advertising and promotional materials,
marketing materials, studies, reports, equipment repair, maintenance or service
records relating to the Seller whether written or electronically stored or
otherwise recorded which may be requested by the Buyer;
(i) All rights of the Seller, if any, in and with respect to the assets
associated with the Employee Benefit Plans listed on Section 2.1(i) of the
Disclosure Schedule; and
(j) All other assets of the Seller of every kind and description, tangible
or intangible, pertaining to or used in the business of the Seller, excluding
the Retained Assets.
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22
2.2. ASSUMPTION OF LIABILITIES OF THE SELLER. On the terms and subject to the
conditions set forth herein and subject to 2.3 hereof, from and after the
Effective Date, the Buyer will assume and satisfy or perform when due only the
following liabilities of the Seller (the "Assumed Liabilities"):
(a) all liabilities of the Seller under the Leases listed on Section
2.1(b) of the Disclosure Schedule to the extent such liabilities arise
subsequent to the Effective Date or are taken into consideration in
calculating the Adjusted Tangible Net Book Value of the Acquired Assets
(with respect to which Buyer and Seller shall cooperate to obtain any
amendments to such Leases which may be reasonably requested by Buyer);
(b) all liabilities under the Contracts listed in Section 2.1(f) of
the Disclosure Schedule to the extent such liabilities arise subsequent to
the Effective Date or are taken into consideration in calculating the
Adjusted Tangible Net Book Value of the Acquired Assets; and
(c) all liabilities of the Seller for indebtedness of the Seller
under Seller's existing bank line of credit with Zapp National Bank of St.
Cloud pursuant to agreement dated August 24, 1988, as revised on September
7, 1993, to the extent taken into account in the calculation of the
Adjusted Tangible Net Book Value of the Acquired Assets for purposes of
Section 2.4;
(d) all liabilities consisting of accounts payable and accrued
expenses set forth on the face of the Financial Statements to the extent
taken into account in the calculation of the Adjusted Tangible Net Book
Value of the Acquired Assets for purposes of Section 2.4; and
(e) all other liabilities that have been taken into consideration in
calculating the Adjusted Tangible Net Book Value of the Acquired Assets.
2.3. LIABILITIES NOT ASSUMED. Notwithstanding anything in this Agreement to the
contrary, the Buyer will not assume or perform any Liabilities not specifically
contemplated by Section 2.2 hereof nor any of the following Liabilities:
(a) to the extent not included in the calculation of the Adjusted Tangible
Net Book Value of the Acquired Assets, any Liability of the Seller for income,
franchise, transfer, sales, use and other Taxes;
(b) to the extent not included in the calculation of the Adjusted Tangible
Net Book Value of the Acquired Assets, any Liability of the Seller for the
unpaid Taxes of any Person, including Taxes imposed on the Seller, as a
transferee or successor, by contract, or otherwise;
(c) to the extent not included in the calculation of the Adjusted
Tangible Net Book Value of the Acquired Assets, any Liability of the Seller for
Taxes relating to the Seller's business, including payroll taxes, sales taxes
and real estate taxes, whether or not incurred prior to the Closing;
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23
(d) to the extent not included in the calculation of the Adjusted Tangible
Net Book Value of the Acquired Assets, any Liability of the Seller for costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby;
(e) to the extent not included in the calculation of the Adjusted Tangible
Net Book Value of the Acquired Assets, any Liability of the Seller incurred in
connection with the making or performance of this Agreement;
(f) to the extent not included in the calculation of the Adjusted Tangible
Net Book Value of the Acquired Assets, any Liability of the Seller under any
leases, contracts, or agreements not listed in Sections 2.1(b) and 2.1(f) of the
Disclosure Schedule, provided, however, that (i) in connection with each lease
listed in Section 2.3(f) of the Disclosure Schedule, Buyer shall pay the Seller
a monthly payment equal to the monthly base rent provided for in such lease plus
(i) 1/12 of the annual real estate taxes payable in 1996 plus (ii) $250 per
month (the "Leased Property Payments") for a term equal to remaining term of the
lease, not to exceed seven (7) years, provided, however, that the $250 per
month portion of the Leased Property Payments for any property shall cease
immediately after the property subject to such lease is sublet to any third
party; and (ii) with respect to the warehouse and office space comprising
approximately 70,000 square feet in St. Cloud, Minnesota, currently leased by
the Seller under that certain lease agreement with Nationwide Life Insurance Co.
("Nationwide") as landlord which became effective in 1974, the Buyer will
reimburse the Seller for all expenses it incurs pursuant to the terms of such
lease agreement with Nationwide during the remaining approximately 3-year term
of such lease, provided, however, that the Buyer's reimbursement shall include
only rent paid by the Seller to Nationwide and property taxes paid on such
warehouse and office space immediately after such warehouse and office space
property subject to such lease is sublet to any third party;
(g) any Liability relating to severance agreements with the Shareholders,
except as provided in Section 2.5 hereof; and
(h) any Liability for any long-term note obligations, except for
capitalized lease obligations and special assessments accrued on the Closing
Date Balance Sheet.
2.4. PURCHASE PRICE. The Buyer agrees to pay to the Seller an aggregate amount
(the "Purchase Price") equal to $2,000,000 plus the amount of the Adjusted
Tangible Net Book Value of the Acquired Assets (calculated in accordance with
EXHIBIT A hereto) if any, which is in excess of $4,400,000 less any amount by
which $4,050,000 exceeds the Adjusted Tangible Net Book Value of the Acquired
Assets (determined in accordance with the applicable provisions of Sections
2.4(b), (c), (d), (e) and (f) below).
(a) At the Closing, the Buyer shall pay an amount equal to Two Million
Dollars ($2,000,000) as follows:
(i) One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Partial Purchase Price") by wire transfer to the Seller; and
(ii) Five Hundred Thousand Dollars ($500,000.00) (the "Escrow") by
wire transfer to Zapp National Bank of St. Cloud (the "Escrow Agent")
pursuant to the terms
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24
and conditions of the escrow agreement (the "Escrow Agreement") between the
Buyer, the Seller, and the Escrow Agent in the form of EXHIBIT "C" hereto.
(b) As soon as practical after the Closing, the Buyer (with such
assistance from the Buyer's accountants, Ernst & Young, LLP, as the Buyer shall
deem necessary or appropriate) shall perform a review of the Acquired Assets
which shall include physical inventory. The Buyer or, at the election of the
Buyer, Ernst & Young, LLP shall prepare and issue a report concerning the
results of such review (the "Review Report").
(c) "Adjusted Tangible Net Book Value" of the Acquired Assets shall mean
for this purpose: the net book value of the Acquired Assets as reflected on the
Closing Date Balance Sheet, adjusted as provided in EXHIBIT "A" hereof.
(d) As soon as practical, and in all events, within thirty (30) days after
the Review Report becomes available, if the Buyer believes the Adjusted Tangible
Net Book Value of the Acquired Assets is more than $4,400,000 or less than
$4,050,000, the Buyer will notify the Seller of that conclusion and will furnish
with such notice a copy of the Review Report. In such event, unless the Buyer
and the Seller agree concerning the amount of the Adjusted Tangible Net Book
Value of the Acquired Assets within 30 days after Buyer's notice and a copy of
the Review Report have been sent to the Seller, the Buyer and the Seller shall
promptly submit the question of the proper amount of the Adjusted Tangible Net
Book Value of the Acquired Assets to binding arbitration under the terms of
Section 2.4(e) hereof.
(e) Any issue concerning the proper amount of the Adjusted Tangible Net
Book Value of the Acquired Assets shall be submitted to and determined by
arbitration in Des Moines, Iowa in accordance with the commercial rules of the
American Arbitration Association, except as otherwise provided in this Section
2.4(e). The parties shall jointly agree on an arbitrator who shall be a
certified public accountant who is an owner or employee of one of the six
largest accounting firms in the United States; provided, however, that no owner
or employee of Ernst & Young, LLP shall be eligible to act as the arbitrator.
In the event the parties are unable to agree on selection of an arbitrator
within 60 days after Buyer's notice and a copy of the Review Report have been
sent to the Seller, the Buyer and the Seller shall each promptly select one
certified public accountant who is an owner or employee of one of the six
largest accounting firms in the United States and the two certified public
accountants so selected shall select as the arbitrator a third certified public
accountant who is an owner or employee of one of the six largest accounting
firms in the United States; provided, however, that no owner or employee of
Ernst & Young, LLP or of the accounting firm of either of the two certified
public accountants making such selection shall be eligible to act as the
arbitrator. The foregoing arbitration proceedings may be commenced by either
Party by notice to the other Party. The provisions of this Section 2.4(e) may
be enforced in any court having jurisdiction over the award or either of the
Parties or any of their respective assets, and judgment on the award (including
without limitation equitable remedies) granted in any arbitration hereunder may
be entered in any such court.
(f) As soon as practical, and in all events, within thirty (30) days after
any issue concerning the proper amount of the Adjusted Tangible Net Book Value
of the Acquired Assets has been finally resolved, the amount of the Purchase
Price shall be determined.
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25
(g) Once the Purchase Price has been determined, the Escrow shall be
released in accordance with the terms of the Escrow Agreement. To the extent
the Purchase Price exceeds the Partial Purchase Price, the difference between
the Purchase Price and the Partial Purchase Price shall be paid by the Escrow
Agent to the Seller, and if the Escrow is insufficient to satisfy such
difference, the Buyer immediately shall pay to the Seller cash equal to the
deficiency. The balance of the Escrow, if any, shall be refunded to the Buyer.
In the event the Purchase Price is less than the Partial Purchase Price, then
the entire Escrow shall be refunded to the Buyer, and the Seller immediately
shall pay to the Buyer cash equal to the amount of the overpayment.
2.5 CONSULTING AND NONCOMPETITION AGREEMENTS; SEVERANCE PAYMENTS. The
Buyer shall retain the services of Jerry Hammerel, Greg Johnson and Larry Oseid
(collectively the "Shareholders") as consultants through the end of 1996 to
assist, subject to the direction of the Buyer, in the transition of business
from the Seller to the Buyer. A Consulting and Noncompetition Agreement signed
by each of the Shareholders shall be delivered to the Buyer at the Closing.
2.6. LEASE OF ASSETS AND NON-LEASED PROPERTY PAYMENTS. The Buyer shall
lease from the Seller up to 130,000 square feet of the real property owned by
Seller selected for lease by the Buyer (the "Leased Assets"). The Leased Assets
are listed in Section 2.6 of the Disclosure Schedule. Each leased site shall
have a separate lease containing terms and conditions mutually acceptable to
Buyer and Seller in the form attached hereto as EXHIBIT " D ". Rental under
each such lease shall be triple net to Seller (except for structural repairs and
special assessments which shall be borne by the Seller) at Two and no/100
Dollars ($2.00) per square foot per annum. Each such lease shall have a term of
seven (7) years beginning on the Effective Date. With respect to any real
property owned by Seller which is not selected for lease by the Buyer, the Buyer
shall made a monthly payment to the Seller in an amount equal to Two and no/100
Dollars ($2.00) per square foot per annum (the "Non-Leased Property Payments")
for seven (7) years beginning on the Effective Date. The real property as to
which the Buyer shall make the Non-Leased Property Payments is listed in Section
2.6 of the Disclosure Schedule.
2.7. THE CLOSING. The closing of the transactions contemplated by this
Agreement (herein called the "Closing") shall take place at the offices of Hall
& Byers, P.A., located at First Bank Place, 1010 West St. Germain, Suite 600,
St. Cloud, Minnesota, 56301 at 9:00 a.m., on May 31, 1996, or such other place
or date as the parties may approve in writing; provided, the Closing shall not
occur later than June 3, 1996.
2.8. DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
evidencing the authority set forth in Section 3.4 and referred to in Section 6.1
below; (ii) the Seller will execute, acknowledge (if appropriate), and deliver
to the Buyer (A) assignments of the Leases, Permits, Intellectual Property, and
Contracts (including Intellectual Property transfer documents) and such other
instruments of sale, transfer, conveyance, and assignment as the Buyer and its
counsel may reasonably request relating to the Acquired Assets; (iii) the Seller
will execute, acknowledge (if appropriate) and deliver the Bill of Sale in the
form attached hereto as EXHIBIT "E"; (iv) the Buyer will execute, acknowledge
(if appropriate), and deliver the Assignment and Assumption Agreement in the
form attached hereto
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26
as EXHIBIT "F" and the certificates referred to in Section 6.2(d) herein; (v)
the Parties will execute and deliver lease agreements concerning the Leased
Assets; and (vi) the Buyer will deliver to the Seller the consideration
specified in Sections 2.4 and 2.5 above. Buyer shall use reasonable efforts to
obtain and deliver to Seller at the Closing releases of all guaranties which
have been executed by the Seller or the Shareholders in favor of third parties,
but any expense associated with obtaining such releases shall be borne by the
Seller. Simultaneously with such delivery, the Seller will use its best efforts
and take all action as may be necessary to put Buyer in possession and operating
control of the Acquired Assets. At any time and from time to time after the
Closing, at the request of Buyer and without further consideration, except as
stated below, the Seller will, execute and deliver such other instrument of
sale, transfer, conveyance, assignment and confirmation and take such action as
Buyer may reasonably determine is necessary to transfer, convey and assign to
Buyer, and to confirm Buyer's title to or interest in the Acquired Assets, to
put Buyer in actual possession and operating control thereof and to assist Buyer
in exercising all rights with respect thereto.
2.9. PRELIMINARY ALLOCATION OF PURCHASE PRICE. The Parties agree that
they will make an allocation of the Purchase Price for the Acquired Assets based
on the principles set forth ON EXHIBIT "G" hereto. The Seller and Buyer agree
that the allocation may be amended or modified by mutual agreement to establish
a final allocation prior to the filing of the applicable Tax Returns of Buyer
and Seller based on the Most Recent Balance Sheet as adjusted pursuant TO
EXHIBIT "A". The Seller and Buyer shall use such final allocation in all Tax
Returns. The Seller and the Buyer agree that they will file Form 8594 with the
IRS which shall be consistent with such final allocation.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and
warrants to the Buyer that the statements contained in each paragraph of this
Section 3 are correct and complete as of the date of this Agreement and, if
different from the date of this Agreement, will be correct and complete as of
the Effective Date (as though made then and as though the Effective Date were
substituted for the date of this Agreement throughout this Section 3), except as
set forth in the portion of the disclosure schedule accompanying this Agreement
(the "Disclosure Schedule") corresponding to such paragraph. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3 and elsewhere in this Agreement.
3.1. ORGANIZATION OF THE SELLER. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware.
Copies of the charter and bylaws of the Seller as amended to date has been
heretofore delivered to Buyer and are accurate and complete.
3.2. Excluded from this Agreement.
3.3. Excluded from this Agreement.
3.4. AUTHORIZATION OF TRANSACTION. The Seller has the power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its respective obligations hereunder. All
corporate and other actions or proceedings to be taken by or on the part of the
Seller to authorize and permit the execution and delivery by Seller of this
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27
Agreement and the instruments required to be executed and delivered by Seller
pursuant hereto, the performance by Seller of its obligations hereunder, and the
consummation by Seller of the transactions contemplated herein, have been duly
and properly taken. Without limiting the generality of the foregoing, the board
of directors of the Seller and the holders of all of the outstanding shares of
the Seller have duly authorized the transactions contemplated by this Agreement
and the execution, delivery, and performance of this Agreement. This Agreement
has been duly executed and delivered by the Seller and constitutes the legal,
valid and binding obligation of the Seller, enforceable in accordance with its
terms and conditions.
3.5. NONCONTRAVENTION. Except to the extent that any Contracts
assigned to Buyer require the consent of a party to such Contract as disclosed
in Section 3.5 of the Disclosure Schedule, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby (including the assignments and assumptions referred to in
Section 2 above), will (i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or any
provision of the charter or by-laws of the Seller or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Seller is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Except as disclosed in Section 3.5 of the
Disclosure Schedule, the Seller has no obligation to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement (including the assignments and
assumptions referred to in Section 2 above).
3.6. BROKERS' FEES. The Seller has engaged Larson, Allen, Weishair &
Co., LLP to act as a business broker on its behalf in connection with the
transactions contemplated by this Agreement. Seller will pay in full and
discharge at the Closing all Liability to pay any fees or commissions to Larson,
Allen, Weishair & Co., LLP and any other broker, finder, or agent engaged by the
Seller with respect to the transactions contemplated by this Agreement.
3.7. TITLE TO ASSETS. Except as disclosed in Section 3.7 of the
Disclosure Schedule, the Seller has good and marketable title to, or a valid and
subsisting leasehold interest in, and the power to sell or assign all of the
Seller's rights in, the Acquired Assets, free and clear of all Security
Interests.
3.8. Excluded from this Agreement.
3.9. SUBSIDIARIES. The Seller has no Subsidiaries and does not own,
directly or indirectly, any capital stock of, any partnership or other ownership
interest in, or any other security issued by, any other corporation,
organization, association or entity.
3.10. FINANCIAL STATEMENTS. The Seller has delivered to the Buyer the
following financial statements of the Seller (the "Financial Statements"): (i)
audited consolidated balance sheets, statements of income, and changes in
stockholders' equity as of and for the fiscal years ended on December 31, 1995
(the "Most Recent Fiscal Year End"), and December 31, 1994, and
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(ii) unaudited consolidated balance sheets, statements of income, and changes in
stockholders' equity (the "Most Recent Financial Statements") as of and for the
month and year to date ended immediately prior to the Effective Date (the "Most
Recent Fiscal Month End"). Such financial statements will have been prepared
in accordance with year-end GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Seller as
of such dates and the results of operations of the Seller for such periods and
in a manner which is consistent with the books and records of the Seller (which
books and records are correct and complete).
3.11. INDEBTEDNESS; NO GUARANTEES. Except as set forth in the Most
Recent Financial Statements and as described in 3.11 of the Disclosure Schedule,
the Seller has no indebtedness for money borrowed or for the deferred purchase
price of property or services, excluding trade payables and other accrued
current liabilities incurred in the Ordinary Course of Business, or capital
lease obligations, conditional sale or other title retention agreements
("Indebtedness"). The Seller is not a guarantor or otherwise liable for any
Liability of any other Person.
3.12. ABSENCE OF CHANGES. To the best of the Seller's knowledge, since
December 31, 1995, and except as disclosed in Section 3.12 of the Disclosure
Schedule Seller has operated solely in the Ordinary Course of Business and there
has not been any material adverse change in the business, financial condition,
operations, results of operations, or prospects of the Seller.
3.13. Excluded from this Agreement.
3.14. LEGAL COMPLIANCE. The Seller is, and at all times has been, in
compliance with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), the
violation of which could have a material adverse effect on the Seller or its
operations, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
3.15. TAXES.
(a) The Seller has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed by
the Seller (whether-or not shown on any Tax Return) have been paid. The Seller
currently is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a jurisdiction
where the Seller does not file Tax Returns that it may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets of the
Seller that arose in connection with any failure (or alleged failure) to pay any
Tax.
(b) The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Tax Liability of the
Seller either (A) claimed or raised by any authority in writing, or (B) as to
which the Seller has knowledge.
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29
Section 3.15 of the Disclosure Schedule lists all federal, state, local, and
foreign income Tax Returns filed with respect to the Seller for taxable periods
ended on or after DECEMBER 31, 1994, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit.
(d) The Seller has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) The Seller is not a party to any Tax allocation or sharing agreement
or a member of an Affiliated Group filing a consolidated federal income Tax
Return. The Seller does not have any Liability for the Taxes of any Person,
including the Seller, as a transferee or successor, by contract, or otherwise.
3.16. PROPERTY, PLANT AND EQUIPMENT.
(a) All real property leased or subleased to the Seller is listed and
described briefly on Section 3.16(a) of the Disclosure Schedule. The Seller has
delivered to the Buyer correct and complete copies of the leases and subleases
listed in Section 3.16(a) of the Disclosure Schedule which have not been amended
or modified. With respect to each lease and sublease listed in Section 3.16(a)
of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding, enforceable, and
in full force and effect;
(ii) no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or acceleration
thereunder; and
(iii) the Seller has not assigned, transferred, conveyed, mortgaged,
deeded in trust, or encumbered any interest in the leasehold or
subleasehold.
(b) Seller's obligations with respect to maintenance and repairs of the
buildings, real property and improvements which are included among the Leased
Assets are as set forth in the leases of the Leased Assets in the form attached
hereto as Exhibit "D".
(C) EACH ITEM OF MACHINERY, EQUIPMENT AND OTHER TANGIBLE PERSONAL PROPERTY
WHICH IS INCLUDED AMONG THE ACQUIRED ASSETS OR THE LEASED ASSETS IS SOLD OR
LEASED HEREUNDER "AS IS" AND WITH ALL FAULTS AND WITHOUT IMPLIED WARRANTIES.
3.17. INTELLECTUAL PROPERTY.
(a) The Acquired Assets include all rights in the trademarks or tradenames
owned by the Seller, all of which are listed on Section 3.17(a) of the
Disclosure Schedule, including those relating to the name "Big Bear Farm Store".
Subject to the Buyer receiving at the Seller's expense all necessary consents as
disclosed in Section 3.17(a) of the Disclosure Schedule, each such tradename or
trademark owned or used by the Seller in the Seller's business immediately prior
to the Closing hereunder will be owned or available for use by the Buyer on
identical terms and conditions
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30
immediately subsequent to the Closing hereunder. The Seller has no other rights
in Intellectual Property which are material to the Seller's business. With
respect to each item of Intellectual Property required to be identified in
Section 3.17(a) of the Disclosure Schedule:
(i) the Seller possesses all right, title, and interest in and to the
item, free and clear of any Security Interest, license, or other
restriction;
(ii) the item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the actual knowledge of the
Seller, is threatened, which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) the Seller has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other conflict
with respect to the item.
(b) Except as disclosed in Section 3.17(b) of the Disclosure Schedule, to
the best of the Seller's knowledge, the Seller has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and the Seller and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Seller have never received any charge, complaint, claim, demand,
or notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Seller must license or refrain from
using any Intellectual Property rights of any third party). To the knowledge of
the Seller and the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Seller, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Seller relating to any of the Acquired
Assets..
(c) Each license, agreement, or other permission which the Seller has
granted to any third party with respect to any of the Seller's Intellectual
Property which constitutes part of the Acquired Assets is identified in Section
3.17(c) of the Disclosure Schedule. The Seller has delivered to the Buyer
correct and complete copies of all such licenses, agreements, and permissions
(as amended to date) and has made available to the Buyer correct and complete
copies of all other written documentation evidencing ownership of each such
item.
(d) No item of Intellectual Property that any third party owns and that
the Seller uses pursuant to license, sublicense, agreement, or permission is
included among the Acquired Assets.
(e) To the knowledge of the Seller, the Seller will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of its businesses as presently conducted.
3.18. INVENTORIES. Except as disclosed in Section 3.18 of the Disclosure
Schedule, the inventory of the Seller consists and on the Effective Date will
consist, of raw materials and supplies, purchased parts, and finished goods, all
of which were acquired by the Seller in the Ordinary Course of Business. THE
INVENTORY OF THE SELLER IS SOLD HEREUNDER "AS IS" AND "WITH ALL FAULTS" AND
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31
WITHOUT IMPLIED WARRANTIES. The inventory of the Seller which appears on the
Most Recent Balance Sheet will be valued, subject only to the reserve for
inventory write down set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto), in accordance with GAAP and past custom and
practice of the Seller. No inventory will have been sold or disposed of by the
Seller after the date of the Most Recent Balance Sheet except through sales in
the Ordinary Course of Business.
3.19. CONTRACTS. The Seller has listed in Section 3.19 of the Disclosure
Schedule the following contracts and other agreements (including the Contracts,
and Leases listed on Section 2.1(b) and Section 2.1(f) of the Disclosure
Schedule) to which the Seller is a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of which
will extend over a period of more than one year;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any Indebtedness or under which it has
imposed a Security Interest on any of its assets, tangible or intangible;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement, commitment or understanding involving the Seller and
its Affiliates relating to the Seller, its assets, liabilities and business or
under which the Seller has advanced or loaned any amount to any of its
Affiliates, directors, officers, and employees;
(g) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other plan or arrangement for the benefit
of its current or former directors, officers, and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a full-time,
part-time, consulting or other basis or providing severance benefits;
(j) any agreement under which the consequences of a default or termination
could have an adverse effect on the business, financial condition, operations,
results of operations, or future prospects of the Seller; and
(k) any other agreement (or group of related agreements) the performance
of which involves consideration in excess of $10,000.
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32
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 3.19 of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 3.19 of the Disclosure Schedule. Except
as disclosed in Section 3.19 of the Disclosure Schedule with respect to each
such agreement: (A) the agreement is legal, valid, binding, enforceable, and in
full force and effect; (B) except as disclosed in Section 3.31 of the Disclosure
Statement, the agreement will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms following the consummation of
the transactions contemplated hereby (including the assignments and assumptions
referred to in Section 2 above); (C) no party is in material breach or default,
and no event has occurred which with notice or lapse of time would constitute a
material breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any provision
of the agreement.
3.20. Excluded from this Agreement.
3.21. POWERS OF ATTORNEY. No outstanding powers of attorney executed
on behalf of the Seller in respect of the Seller, its assets, liabilities or
business will exist as of the Effective Date.
3.22. Excluded from this Agreement.
3.23. LITIGATION. Except as disclosed in Section 3.23 of the Disclosure
Schedule, there are no judicial or administrative actions, claims, suits,
proceedings or investigations pending or, to the best of the Seller's knowledge,
threatened, that might result in any material adverse change in the condition
(financial or otherwise), properties, assets, business or operations of the
Seller or the Acquired Assets or which might interfere with any part of the
business of the Seller as currently conducted, that arise out of or in
connection with the conduct or operation of the Seller or that question the
validity of this Agreement or of any action taken or to be taken pursuant to or
in connection with the provisions of this Agreement, nor, to the best of the
Sellers' knowledge, is there any Basis for any such action, claim, suit,
proceeding or investigation. There are no judgments, orders, decrees, citations,
fees or penalties heretofore assessed against the Seller affecting the Acquired
Assets under any federal, state or local law.
3.24. Excluded from this Agreement.
3.25. Excluded from this Agreement.
3.26. EMPLOYEE BENEFITS.
(a) Section 3.26(a) of the Disclosure Schedule lists each Employee Benefit
Plan that the Seller maintains or to which the Seller contributes.
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) materially complies in form and in operation
in all respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(ii) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter
<PAGE>
33
received from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance contracts, and
other funding agreements which implement each such Employee Benefit Plan.
(b) The Seller does not maintain or contribute to and never maintained or
contributed to, and never has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare type benefits for current or future retired or terminated employees,
their spouses, or their dependents (other than in accordance with Code Section
4980B).
3.27. ENVIRONMENT, HEALTH, AND SAFETY.
(a) Except as disclosed in Section 3.27 of the Disclosure Schedule:
(i) to the best of the Seller's knowledge, the Seller is and has been
in compliance with all applicable Environmental Laws and all applicable
Safety Laws, the violation of which could have a material adverse effect on
the Buyer as sublessee under any of the Leases listed in Section 2.1(b) of
the Disclosure Schedule or as lessee of any of the Leased Assets;
(ii) to the best of the Seller's knowledge, the Seller has obtained,
and is and has been in compliance with the conditions of, all Environmental
Permits required for the continued conduct of the Seller's business in the
manner now conducted and presently proposed to be conducted the absence of
which could have a material adverse effect on the Buyer as sublessee of any
under the Leases listed in Section 2.1(b) of the Disclosure Schedule or as
lessee of any of the Leased Assets;
(iii) to the best of the Seller's knowledge, the Seller has filed all
required applications, notices and other documents necessary to effect the
timely renewal or issuance of all Environmental Permits required for the
continued conduct of the Seller's business in the manner now conducted and
presently proposed to be conducted the absence of which could have a
material adverse effect on the Buyer as sublessee under any of the Leases
listed in Section 2.1(b) of the Disclosure Schedule or as lessee of any of
the Leased Assets;
(iv) to the best of the Seller's knowledge, there are no circumstances
or conditions present at or arising out of the present or former assets,
properties, leaseholds, businesses or operations of the Seller or relating
to any storage, use, disposal or Release of a Chemical Substance, which
reasonably may be expected to give rise to any Environmental Liabilities
and Costs or Safety Liability and Costs which could have a material adverse
effect on the Buyer as sublessee under any of the Leases listed in Section
2.1(b) of the Disclosure Schedule or as lessee of any of the Leased Assets;
(v) the Seller, as lessee under any of the Leases listed in Section
2.1(b) or as owner of any of the Leased Assets has not received and is not
subject to, or within the past three years has not been subject to, any
outstanding order, decree, judgment, complaint, agreement, claim, citation,
or notice and has not been subject to any ongoing judicial or
<PAGE>
34
administrative proceeding indicating that the Seller or the Seller's past
and present use of any of the Leases listed in Section 2.1(b) of the
Disclosure Schedule or the Leased Assets are or may be: (i) in violation of
any Environmental Law; (ii) in violation of any Safety Laws; (iii)
responsible for the on-site or off-site storage or Release of any Chemical
Substance; or (iv) liable for any Environmental Liabilities and Costs or
Safety Liabilities and Costs;
(vi) the Seller has no reason to believe that the Seller will become
subject to a matter identified in subsection (v); and, no investigation or
review with respect to such matters is pending or threatened, nor has any
authority or other third-party indicated an intention to conduct the same;
(vii) neither the real property which is the subject of the Leases
listed in Section 2.1(b) of the Disclosure Schedule nor the Leased Assets
are subject to, or as a result of the transactions contemplated by this
Agreement would be subject to, the requirements of any Environmental Laws
which require notice, disclosure, cleanup or approval prior to sublease of
the Leases listed in Section 2.1(b) of the Disclosure Schedule or which
would impose Liens thereon;
(viii) All of the real property which is the subject of the Leases
listed in Section 2.1(b) of the Disclosure Schedule and all of the Leased
Assets that has been used by the Seller or by any other Person (including a
prior owner or operator) for the storage or disposal of Chemical Substances
is identified in Section 3.27 of the Disclosure Schedule;
(ix) All underground and above ground storage tanks owned or operated
at any time by the Seller on any of the real property which is the subject
of the Leases listed in Section 2.1(b) of the Disclosure Schedule or the
Leased Assets are listed in Section 3.27 of the Disclosure Schedule, and
except as disclosed in Section 3.27 of the Disclosure Schedule, no such
tank is leaking or has leaked at any time in the past, and there is no
pollution or contamination of the Environment caused by or contributed to
or threatened by a Release of a Chemical Substance from any such tank; and
(x) All environmental audits, inspections, assessments,
investigations or similar reports in the Seller's possession or of which
the Seller is aware relating to the real property which is the subject of
the Leases listed in Section 2.1(b) of the Disclosure Schedule or the
Leased Assets are listed in Section 3.27 of the Disclosure Schedule.
(b) For purposes of this Section 3.27 only, all references to the "Seller"
are intended to include any and all other entities to which the Seller may be
considered a successor under applicable Environmental Laws.
3.28. Excluded from this Agreement.
3.29. GOVERNMENT CONTRACTS. Except as set forth in Section 3.29 of the
Disclosure Schedule the Seller has not been and is not a party to any contract
or arrangement with any federal, state or local government agency.
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35
3.30. Excluded from this Agreement.
3.31. Excluded from this Agreement.
3.32. BOOK VALUE OF ACQUIRED ASSETS. The Acquired Assets will include
tangible personal property consisting of inventory (valued on a FIFO basis),
fixtures and equipment and other current assets having a total book value of not
more than $12,500,000.
3.33. DISCLOSURE. The representations and warranties contained in this
Section 3 (including the Disclosure Schedule and the Financial Statements) do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained therein not misleading. To the knowledge of the Seller, there is no
material fact relating to the Seller or the Acquired Assets which may materially
and adversely affect the same which has not been disclosed to the Buyer in
writing in this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Seller that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and, if different than the
date of this Agreement, will be correct and complete as of the Effective Date
(as though made then and as though the Effective Date were substituted for the
date of this Agreement throughout this Section 4).
4.1. ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of Delaware.
4.2. AUTHORITY FOR AGREEMENT. The Buyer has the power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. All corporate or other
actions or proceedings to be taken by or on the part of the Buyer to authorize
and permit the execution and delivery by the Buyer of this Agreement and the
instruments required to be executed and delivered by the Buyer pursuant hereto,
the performance by the Buyer of its obligations hereunder, and the consummation
by the Buyer of the transactions contemplated herein, have been duly and
properly taken. Without limiting the generality of the foregoing, the board of
directors of the Buyer has duly authorized the transactions contemplated by this
Agreement and the execution, delivery, and performance of this Agreement. This
Agreement has been duly executed and delivered by the Buyer and constitutes the
legal, valid and binding obligation of the Buyer, enforceable in accordance with
its terms and conditions.
4.3. NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2 above), will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject. The Buyer does not need to give any notice to, make any filing with, or
obtain any authorization,
<PAGE>
36
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement (including
the assignments and assumptions referred to in Section 2 above).
4.4. BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
4.5 LITIGATION. There is no litigation pending or, to Buyer's
knowledge, threatened which seeks to enjoin or obtain damages in respect of the
consummation of the transactions contemplated hereby.
4.6 DISCLOSURE. No representation or warranty by Buyer in this
Agreement and no document delivered by Buyer to Seller hereunder, contains any
untrue statement of a material fact or omits any material fact necessary to make
the statements made not misleading.
4.7 CONSENTS. No consent from any governmental or regulatory
authority or any other third party is required in connection with the execution,
delivery or performance by Buyer of this Agreement or the taking of an other
action contemplated hereby.
5. COVENANTS. The Parties agree as follows:
5.1. GENERAL. Each of the Parties will use its best efforts to bring
about the satisfaction of all of the closing conditions of the other Party to
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Section 6
below).
5.2. CONDUCT OF BUSINESS. From the date of this Agreement to the
Effective Date, the Seller's business will be operated only in the Ordinary
Course of Business.
5.3. Excluded from this Agreement.
5.4. EMPLOYEE MATTERS.
(a) Buyer may, at its option, hire any of the persons employed by the
Seller on the Effective Date (the "Employees") upon such terms and
conditions as the Buyer and such employee may negotiate. The benefits
granted to such employee and other terms and conditions of employment will
be determined in accordance with the practices of the Buyer as they change
from time to time. Buyer shall hire a sufficient number of Employees to
eliminate any required notice under any applicable federal or state statute
pertaining to advance notice of plant closings.
(b) Seller agrees to (i) terminate all the Employees immediately
prior to Closing and to pay any and all Liabilities not included in the
calculation of the Adjusted Tangible Net Book Value of the Acquired Assets
relating to such termination, including, without limitation any payments
and benefits due such Employees pursuant to accrued salary and wages,
pension, retirement, savings, health, welfare and other benefits and
<PAGE>
37
severance payments or similar payments of the Employees, and (ii) provide
to all Employees any notice (which notice shall be reasonably acceptable to
Buyer) required under any law or regulations in respect of such termination
including, without limitation COBRA (as discussed in Section 2.3(1)
hereof).
(c) Buyer shall reimburse the Seller for (i) payments of accrued
salary and wages to the extent that such expenses were taken into account
in determining the Purchase Price plus (ii) all non-accrued severance
payments.
5.5. ACCESS TO RECORDS AFTER CLOSING. For a period of four (4) years
after the Effective Date, the Buyer and its representatives shall have
reasonable access to all of the books and records of the Seller for a proper
purpose and to the extent that such access may reasonably be required by the
Buyer in connection with matters relating to or affected by the operations of
the Seller prior to the Effective Date. Such access shall be afforded by Seller
upon receipt of reasonable advance notice and during normal business hours.
Buyer shall be solely responsible for any costs or expenses incurred by it
pursuant to this Section 5.5. If Seller shall desire to dispose of any of such
books and records prior to the expiration of such four-year period, other than
in the ordinary course of records disposal consistent with the Seller's past
practice, the Seller shall, prior to such disposition, give the Buyer a
reasonable opportunity, at Buyer's expense, to segregate and remove such
appropriate books and records as Buyer may select.
5.6. ACCESS TO INFORMATION PRIOR TO CLOSING. From and after the date
of this Agreement, the Seller shall give to the Buyer, its counsel, accountants,
engineers and other representatives, full and free access to all the properties,
books, contracts, commitments and records of the Seller so that the Buyer may
have full opportunity to make such investigation as it shall desire to make of
the affairs of the Seller. Any such investigation shall not affect the
representations and warranties of the Seller contained in this Agreement. The
Seller shall cooperate with the Buyer, its representatives and counsel in the
preparation of any documents or other material which may be required by any
governmental agency.
5.7. PRESERVATION OF BUSINESS ORGANIZATION. The Seller shall use its
best efforts to keep available to the Buyer the services of the Employees of the
Seller and to preserve for the Buyer existing relationships with all suppliers,
customers and others having business relations with the Seller.
5.8. Excluded from this Agreement.
5.9. COOPERATION BETWEEN ACCOUNTANTS. The Seller shall direct its
accountants to cooperate fully with the Buyer and the Buyer's accountants in a
smooth transition of accounting issues, including reasonable access to the work
papers as they relate to tax and audit work performed with regard to the Seller.
5.10. FORM 10-K AND ACCOUNTANT'S CERTIFICATION OF BUYER'S COMPLIANCE
WITH COVENANTS. Until all amounts payable under the Consulting and Non-
Competition Agreements are paid in full, Buyer will furnish the Shareholders
with a copy of Buyer's Form 10-K as filed with the SEC within three (3) days
after such filling has been made. At the end of each fiscal year of the
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38
Buyer, the Buyer shall cause its accountant to certify that Buyer and the
Company are in compliance with all continuing covenants under the Agreement and
related agreements.
5.11 NOTICE OF INCORRECT FINANCIAL STATEMENTS AND MATERIAL ADVERSE
CHANGES. Until all amounts payable under the Consulting and Non-Competition
Agreements are paid in full, Buyer shall immediately advise the Shareholders if
it obtains any knowledge of any information which would cause any financial
statement furnished to the Shareholders to be incorrect for the period reported.
During such time, Buyer shall also immediately advise the Shareholders if it has
any knowledge of any event, matter or thing which Buyer believes is likely to
have a material adverse effect on the condition, financial or otherwise, of the
Buyer. The foregoing provisions of this Section 5.11 to the contrary
notwithstanding, nothing in this Section 5.11 shall require the Buyer to make
any disclosure in advance of a public announcement of such matter resulting from
Buyer's determination that it is required to make or wishes to make such an
announcement.
5.12 NOTICE OF CERTAIN EVENTS. Until all amounts payable under the
Consulting and Non-Competition Agreements are paid in full, Buyer will promptly
notify the Shareholders of:
a. any known litigation which might materially and adversely affect
Buyer;
b. the occurrence of any material default under any loan agreement or any
other agreement which could have a material affect on the business or
assets of Buyer; and
c. any material adverse change in the operations, business, properties,
assets or condition, financial or otherwise, of Buyer.
The foregoing provisions of this Section 5.12 to the contrary notwithstanding,
nothing in this Section 5.12 shall require the Buyer to make any disclosure in
advance of a public announcement of such matter resulting from Buyer's
determination that it is required to make or wishes to make such an
announcement.
5.13 LACK OF OR DELAY IN GIVING NOTICE NOT A DEFENSE TO
INDEMNIFICATION CLAIMS. Notwithstanding the provisions of Sections 5.10, 5.11
and 5.12, no failure or delay by the Buyer to give the Seller any notice
required to be given by Sections 5.10, 5.11 or 5.12 shall relieve the Seller or
any of the Shareholders from any obligation to indemnify the Buyer, its
directors, officers and affiliates or any other Indemnified Parties.
6. CONDITIONS TO OBLIGATION TO CLOSE.
6.1. CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section 3 above shall be materially true and
correct at and as of the Effective Date. For purposes of this subsection
(a), "materially true and correct" shall mean that any
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39
inaccuracies in the representations and warranties shall not collectively
exceed $300,000.00 or, if the inaccuracies are non-monetary, that such
inaccuracies will materially interfere with the use of the Acquired Assets
by Buyer;
(b) PERFORMANCE BY SELLER. The Seller shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(c) CONSENTS. The Seller shall have procured all of the governmental
approvals, consents or authorizations and third party consents specified in
Section 3.5 of the Disclosure Schedule;
(d) ABSENCE OF LITIGATION. No action, suit, or proceeding shall be
pending or threatened before any court or quasijudicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, or (iii) affect adversely
the right of the Buyer to own the Acquired Assets, to lease the Leased
Assets, and to operate the former businesses of the Seller (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(e) CONSULTING AND NONCOMPETITION AGREEMENT. The Consulting and
Noncompetition Agreement shall have been fully executed and delivered by
the Buyer and the Shareholders, and the same shall be in full force and
effect;
(f) NOTICES. The Seller shall have sent termination notices and
COBRA notices to employees as contemplated by Section 5.4(b);
(g) CERTIFICATES. The Seller shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above in
Section 6.1(a)-(f) are satisfied in all respects;
(h) OPINION. The Buyer shall have received from counsel to the Seller
an opinion in form and substance as set forth in EXHIBIT "H" attached
hereto, addressed to the Buyer, and dated as of the Effective Date; and
(i) ESTOPPEL CERTIFICATES. The Buyer shall have received estoppel
certificates in form reasonably acceptable to the Buyer from each lessor or
sublessor with respect to the Leases.
The Buyer may waive any condition specified in this Section 6.1 if it executes a
writing so stating at or prior to the Closing.
6.2. CONDITIONS TO OBLIGATIONS OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
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40
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Section 4 above shall be materially true and
correct at and as of the Effective Date. For purposes of this subsection
(a), "materially true and correct" shall mean that any inaccuracies in the
representations and warranties shall not collectively exceed $300,000.00;
(b) PERFORMANCE BY BUYER. The Buyer shall have performed and complied
with all of its covenants hereunder through the Closing;
(c) ABSENCE OF LITIGATION. No action, suit, or proceeding shall be
pending or threatened before any court or quasijudicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(d) CERTIFICATES. The Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions specified above in
6.2(a)-(c) is satisfied in all respects; and
(e) OPINION. The Seller shall have received from counsel to the Buyer
an opinion in form and substance as set forth in EXHIBIT "I" attached
hereto, addressed to the Seller, and dated as of the Effective Date.
The Seller may waive any condition specified in this 6.2 if it executes a
writing so stating at or prior to the Closing.
7. CONFIDENTIALITY. The Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and, except for books and records
which the Seller needs to retain for possible tax audits, deliver promptly to
the Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in its
possession. In the event that the Seller is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Seller will notify the Buyer promptly
of the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this Section 7. If,
in the absence of a protective order or the receipt of a waiver hereunder, the
Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, that Seller may
disclose the Confidential Information to the tribunal; provided, however, that
the Seller shall use its best efforts to obtain, at the request of the Buyer, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate.
8. INDEMNIFICATION.
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41
8.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, COVENANTS AND
INDEMNITIES. Unless otherwise provided, the representations and warranties of
the Parties hereto contained in this Agreement or in any documents, certificates
or other instruments delivered by the Parties or any other Person pursuant to
this Agreement, shall survive the Closing and continue in full force and effect
until April 30, 1998. The representations and warranties of the Seller
contained in Section 3.26 of this Agreement shall survive the Closing and shall
continue in full force and effect for three years following the Closing. The
representations and warranties of the Seller contained in Sections 3.4, 3.7,
3.15 and 3.19 shall survive the Closing and continue in full force and effect
without limitation as to time (subject to any applicable statute of limitations
for the underlying claims). All covenants and indemnities of either Party or any
other Person in this Agreement or in any document or certificate delivered
hereunder shall, unless otherwise specifically provided therein, remain in full
force and effect until the expiration of the applicable statute of limitations.
8.2. INDEMNITY BY SELLER. Seller hereby agrees to indemnify and defend
and hold harmless pursuant to this Section 8.2 Buyer and its directors, officers
and Affiliates against and in respect of all Liabilities, obligations,
judgments, liens, injunctions, charges, orders, decrees, rulings, damages, dues,
assessments, Taxes, losses, fines, penalties, expenses, fees, costs, amounts
paid in settlement (including reasonable attorneys' and expert witness fees and
disbursements in connection with investigating, defending or settling any action
or threatened action), in each case net of insurance proceeds and tax benefits
calculated at an assumed forty percent (40%) tax rate (collectively, the
"Losses") (provided, however, that Buyer shall retain the right in its sole
discretion to determine whether to pursue such claims by, through or against an
insurer or to bring such claims directly or indirectly against the Seller)
arising out of or relating to:
(a) the inaccuracy of any representation or warranty made by Seller
or any misrepresentation or breach of warranty by Seller (as each such
representation or warranty would read if all materiality provisions were
not contained therein and, in the case of representations and warranties of
the Seller set forth in Section 3.12 and Section 3.27, as if the limitation
to the best of the Seller's knowledge were not contained in those sections)
or the non-fulfillment of any agreement or covenant of Seller or the
omission of any information required to be provided by the Seller by the
terms of (i) this Agreement, (ii) any agreement or instrument required to
be entered into in connection herewith, or (iii) any schedule, document,
certificate (including, without limitation, the certificate required to be
delivered to the Buyer by Section 6.1(h) hereof) or other instrument
required to be furnished by Seller hereunder; provided, however, that the
Seller shall be liable under this Section 8.2(a) in respect of Losses
(other than Losses which arise from violation of any agreements or
covenants of the Seller, as to which Losses shall be paid from the first
dollar) only to the extent that the aggregate of such Losses exceeds
$100,000 (net of insurance proceeds and tax benefits calculated at an
assumed forty percent (40%) tax rate) in which case the Seller will be
liable for the amount of such Losses in excess of such $100,000 (net of
insurance proceeds and tax benefits calculated at an assumed forty percent
(40%) tax rate) threshold;
(b) any Liability of the Seller which is not an Assumed Liability
(including any Liability of the Seller that becomes a Liability of the
Buyer under any bulk transfer law of any jurisdiction, under any common law
doctrine of de facto merger or successor liability, or otherwise by
operation of law); and
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42
(c) the failure of the Parties to comply with the bulk transfer laws
of any jurisdiction except for the failure of Buyer to pay Assumed
Liabilities hereunder.
In the event that the Seller may be obliged to indemnify Buyer under both
subsection (a) and subsection (b) of this Section 8.2, their obligations under
subsection (b) shall be controlling and the limitations provided in Section
8.2(a) hereof relating to their obligations in respect of Losses resulting from
the inaccuracy of any representation and warranty, or any misrepresentation,
breach of warranty or non-fulfillment of an agreement or covenant or the
omission of any information required to be provided, as described in Section
8.2(a), shall not apply. Buyer shall provide Seller written notice for any claim
made in respect of the indemnification provided in this Section 8.2, whether or
not arising out of a claim by a third party.
8.3. ENVIRONMENTAL INDEMNIFICATION. Notwithstanding any other
provision of this Agreement or any provision of any lease or sub-lease to the
contrary, this Section 8.3 shall control and limit Seller's obligation to
indemnify Buyer and its directors, officers and Affiliates for Environmental
Liabilities and Costs and Buyer's obligation to indemnify Seller and its
directors, officers and Affiliates for Environmental Liabilities and Costs.
Seller agrees to indemnify and hold harmless Buyer and its directors, officers
and Affiliates against and in respect of any Environmental Liabilities and Costs
without limit in point of time, knowledge or amount. Buyer shall indemnify
Seller and hold Seller harmless against and shall reimburse Seller for all costs
relating to any and all claims, demands, judgments, penalties, liabilities,
costs, damages, and expenses including costs of experts and attorney's fees and
disbursements directly or indirectly incurred by Seller in connection with and
prior to any trial or administrative hearing in any action or involving Seller
or affecting any premises under any Lease listed in Section 2.1(b) of the
Disclosure Schedule or any of the Leased Assets resulting solely from Buyer
storing, transporting, disposing or releasing a Chemical Substance or solely
from Buyer allowing a third party to store, transport, dispose or release a
Chemical Substance.
8.4 GUARANTEE OF SELLER'S INDEMNIFICATION OBLIGATIONS; RIGHTS OF
SETOFF. At the Closing, the Shareholders shall execute an agreement pursuant to
which they, jointly and severally, guarantee the indemnification obligations of
the Seller under this Agreement (the "Guarantee"). The Guarantee shall be in
the form of EXHIBIT "J " hereto. The Buyer shall have the right to setoff any
unpaid indemnification obligation of any or all of the Shareholders which are
due and payable to Buyer against any amount due and payable by Buyer to the
Shareholders Similarly, the Shareholders shall have the right to setoff any
unpaid amount which is due and payable to any or all of the Shareholders by
Buyer against unpaid indemnification obligation of any or all of the
Shareholders which are due and payable to Buyer.
8.5. INDEMNITY BY BUYER. Buyer hereby agrees to indemnify, defend and
hold harmless pursuant to this Section 8.5 Seller and its respective directors,
officers and Affiliates against and in respect of all Losses (provided, however,
that Seller shall retain the right in its sole discretion to determine whether
to pursue such claims by, through or against an insurer or to bring such claims
directly or indirectly against the Buyer) arising out of or relating to the
inaccuracy of any representation or warranty made by Buyer or any
misrepresentation or breach of warranty by Buyer (as if such representation or
warranty would read if all materiality provisions were not contained therein) or
the non-fulfillment of any agreement or covenant of Buyer (including Buyer's
agreement to assume certain Liabilities of the Seller pursuant to Section 2.2 of
this Agreement)
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43
or the omission of any information required to be provided by Buyer by the terms
of (i) this Agreement, (ii) any agreement or instrument required to be entered
into in connection herewith, or (iii) any schedule, document, certificate
(including, without limitation, the certificate required to be delivered to the
Seller by Section 6.2(d) hereof) or other instrument required to be furnished by
Buyer hereunder.
8.6. MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify either Party alone or together
with any other Person or Persons (the "Indemnified Parties") with respect
to any matter (a "Third Party Claim") which may give rise to a claim for
indemnification against the other Party alone or together with any other
Person or Persons (the "Indemnifying Parties") under this Section 8, then
each of the Indemnified Parties shall promptly notify each of the
Indemnifying Parties thereof in writing; provided, however, that no delay
on the part of any of the Indemnified Parties in notifying each of the
Indemnifying Parties shall relieve any of the Indemnifying Parties from any
obligation hereunder unless (and then solely to the extent that) any of the
Indemnifying Parties thereby is prejudiced.
(b) Each of the Indemnifying Parties will have the right to defend
each of the Indemnified Parties against the Third Party Claim with counsel
of its choice reasonably satisfactory to the Indemnified Parties so long as
(A) the Indemnifying Parties notify the Indemnified Parties in writing
within 15 days after the Indemnified Parties have given notice of the Third
Party Claim that the Indemnifying Parties will indemnify the Indemnified
Parties from and against the entirety of any Losses any of the Indemnified
Parties may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim, (B) the Indemnifying Parties
provide the Indemnified Parties with evidence acceptable to the Indemnified
Parties that the Indemnifying Parties will have the financial resources to
defend against the Third Party Claim and fulfill their indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Parties, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Parties, and (E) the Indemnifying
Parties conduct the defense of the Third Party Claim actively and
diligently.
(c) So long as any of the Indemnifying Parties is conducting the
defense of the Third Party Claim in accordance with 8.6(b) above, (A) each
of the Indemnified Parties may retain separate co-counsel at its sole cost
and expense and participate in the defense of the Third Party Claim, (B)
the Indemnified Parties will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Parties (which consent shall not
unreasonably be withheld), and (C) the Indemnifying Parties will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim unless written agreement is obtained
releasing the Indemnified Parties from all Liability thereunder.
(d) In the event any of the conditions in 8.6(b) above is or becomes
unsatisfied, however, (A) the Indemnified Parties may defend against, and
consent to the
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44
entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner they may deem appropriate (and the
Indemnified Parties need not consult with, or obtain any consent from, any
of the Indemnified Parties in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Parties promptly and periodically
for the costs of defending against the Third Party Claim (including
attorneys' fees and expenses), and (C) the Indemnifying Parties will remain
responsible for any Losses the Indemnified Parties may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.
9. TERMINATION. This Agreement:
(a) may be terminated by the mutual written consent of the Seller and
the Buyer;
(b) may be terminated by the Buyer (without limiting any other
available remedies) if a default shall be made by the Seller in the
observance or in the due and timely performance by the Seller of any of the
covenants of the Seller herein contained (to the extent that such breach
exceeds $300,000) , or if there shall have been a breach by the Seller of
any of the warranties and representations of the Seller herein contained
(to the extent that such breach exceeds $300,000), or if any condition set
forth in Section 6 hereof shall not have been met at or before the Closing
and such condition shall not have been waived by the Buyer;
(c) may be terminated by the Seller (without limiting any other
available remedy) if a default shall be made by the Buyer in the observance
or in the due and timely performance by the Buyer of any of the covenants
of the Buyer herein contained, or if there shall have been a breach by the
Buyer of any of the warranties and representations of the Buyer herein
contained, or if any condition set forth in Section 6 hereof shall not have
been met at or before the Closing and such condition shall not have been
waived by the Seller; or
(d) shall automatically terminate on June 5, 1996, if the Closing
shall not have occurred on or before such date, unless the Parties shall
have otherwise agreed in writing prior to such date.
In the event of termination by the Seller or the Buyer as provided above in
Section 9(b) or Section 9(c),, respectively, written notice thereof shall be
given to the other Party within five business days of said default.
l0. MISCELLANEOUS.
10.1. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Neither Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of the other Party; provided, however, that either Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case
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45
the disclosing Party will use its best efforts to advise the other Party prior
to making the disclosure).
10.2. NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties to this Agreement, the
Shareholders, and their respective successors and permitted assigns.
10.3. ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein), constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way to
the subject matter hereof, including that certain letter of intent between the
Parties which was executed in March 1996.
10.4. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. Neither Party may assign either this Agreement
or any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates or to any Person who is acquiring all or substantially all of its
stock or assets and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
10.5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, of which shall be deemed an original but all of which together
will constitute one and the same instrument.
10.6. HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7. NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) upon
confirmation of facsimile, (ii) when sent by overnight delivery and (iii) when
mailed by registered or certified mail return receipt requested and postage
prepaid at the following address:
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46
IF TO THE SELLER:
Big Bear Farm Stores, Inc.
640 54th Avenue North
P.O. Box 1247
St. Cloud, MN 56301
ATTENTION: Jerry Hammerel
TELECOPY NO.: 320-253-5163
COPY TO:
Hall & Byers, P.A.
First Bank Place
1010 West Germain
Suite 600
St. Cloud, MN 56301
ATTENTION: Steven B. Kutscheid
TELECOPY NO.: (320) 252-4482
IF TO THE BUYER:
Central Tractor Farm & Country, Inc.
3915 Delaware Avenue
Des Moines, IA 50313
ATTENTION: Dean Longnecker, Executive Vice President, Finance
and Secretary
TELECOPY NO.: (515) 266-2952
COPY TO:
Dickinson, Mackaman, Tyler & Hagen, P.C.
699 Walnut Street, 1600 Hub Tower
Des Moines, IA 50309-3986
ATTENTION: Paul Tyler
TELECOPY NO.: (515) 246-4550
Either Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Either
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
10.8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF IOWA
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47
WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF IOWA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF IOWA.
10.9. AMENDMENTS AND WAIVERS, No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. No waiver by either Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
10.10. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.11. EXPENSES. Each of the Parties will bear its own costs and
expenses (including legal, accounting and financial advisory fees and expenses)
in connection with this Agreement and the transactions contemplated hereby.
10.12. CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein except to the extent that the item in the
Disclosure Schedule refers to the representation or warranty in question,
identifies the exception with particularity and describes the relevant facts in
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If either Party
has breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
10.13. INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
10.14. SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of Sections 5.8 and 7 of this
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48
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the Parties agrees that the other Party shall
be entitled to an injunction or injunctions to prevent breaches of such
provisions of this Agreement and to enforce specifically such provisions of this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter in addition to any other remedy to which it may be
entitled, at law or in equity.
10.15. ARBITRATION.
(a) GENERALLY. Except solely as set forth in Sections 2.4(d) and
(e), 10.14 and 10.15(c) hereof, each dispute, difference, controversy or
claim arising in connection with or related or incidental to, or question
occurring under, this Agreement or the subject matter hereof shall be
finally settled under the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") by an arbitral tribunal composed of
three arbitrators, at least one of whom shall be an attorney experienced in
corporate transactions, appointed by agreement of the parties in accordance
with said Rules. In the event the parties fail to agree upon a panel of
arbitrators from the first list of potential arbitrators proposed by the
AAA, the AAA will submit a second list in accordance with said Rules. In
the event the parties shall have failed to agree upon a full panel of
arbitrators from said second list, any remaining arbitrators to be selected
shall be appointed by the AAA in accordance with said Rules. If, at the
time of the arbitration, the parties agree in writing to submit the dispute
to a single arbitrator, said single arbitrator shall be appointed by
agreement of the parties in accordance with the foregoing procedure, or,
failing such agreement, by the AAA in accordance with said Rules. The
foregoing arbitration proceedings may be commenced by either Party by
notice to the other Party.
(b) PLACE OF ARBITRATION. The venue of such arbitration shall be Des
Moines, Iowa, or any other place mutually agreed to by the Buyer and
Seller.
(c) RECOURSE TO COURTS - Subject to Section 10.14 hereof, the parties
hereby exclude any right of appeal to any court on the merits of the
dispute. The provisions of this Section 10.15 may be enforced in any court
having jurisdiction over the award or either of the Parties or any of their
respective assets, and judgment on the award (including without limitation
equitable remedies) granted in any arbitration hereunder may be entered in
any such court. Nothing contained in this Section 10.15 shall prevent
either Party from seeking interim measures of protection in the form of
pre-award attachment of assets or preliminary or temporary equitable
relief.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
SELLER:
BIG BEAR FARM STORES, INC.
By: S/ Gerald Hammerel
------------------------------------
<PAGE>
49
BUYER:
CENTRAL TRACTOR FARM & COUNTRY, INC.
By: S/ Dean Longnecker
------------------------------------
Dean Longnecker, Executive V.P.-Finance
<PAGE>
CENTRAL TRACTOR FARM & COUNTRY, INC. PAGE 50 OF 53
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------------- ---------------------------------------
JULY 27, JULY 29, JULY 27, JULY 29,
1996 1995 1996 1995
------------- -------------- ------------- -------------
( IN THOUSANDS EXCEPT PER SHARE DATA ) ( IN THOUSANDS EXCEPT PER SHARE DATA )
PRIMARY
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES OUTSTANDING 10,589 10,577 10,585 10,577
NET EFFECT OF DILUTIVE STOCK OPTIONS AND STOCK
WARRANT - BASED ON TREASURY STOCK METHOD 405 429 405 471
---------- ----------- ---------- ----------
TOTAL 10,994 11,006 10,990 11,048
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
NET INCOME $ 3,937 4,435 $ 6,901 8,497
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
PER SHARE AMOUNT $ 0.36 0.40 $ 0.63 0.77
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
FULLY DILUTED
WEIGHTED AVERAGE SHARES OUTSTANDING 10,589 10,577 10,585 10,577
NET EFFECT OF DILUTIVE STOCK OPTIONS AND STOCK
WARRANT - BASED ON TREASURY STOCK METHOD 405 429 403 471
ASSUMED CONVERSION OF 7% CONVERTIBLE NOTES 826 826 826 826
---------- ----------- ---------- ----------
TOTAL 11,820 11,832 11,814 11,874
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
NET INCOME $ 3,937 4,435 $ 6,901 8,497
ADD 7% CONVERTIBLE NOTE INTEREST, NET OF
INCOME TAX EFFECT 168 168 504 504
---------- ----------- ---------- ----------
TOTAL NET INCOME $ 4,105 4,603 $ 7,405 9,001
---------- ----------- ---------- ----------
PER SHARE AMOUNT $ 0.35(A) 0.39(A) $ 0.63(A) 0.76(A)
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
(A) FULLY DILUTED EARNINGS PER SHARE ARE NOT PRESENTED AS THE AFFECT OF THE
ASSUMED CONVERSION OF THE 7% CONVERTIBLE NOTES IS ANTIDILUTIVE OR LESS THAN
3% DILUTIVE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JULY 27, 1996 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE NINE MONTHS
ENDED JULY 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> JUL-27-1996
<CASH> 4,205
<SECURITIES> 0
<RECEIVABLES> 1,204
<ALLOWANCES> 0
<INVENTORY> 98,455
<CURRENT-ASSETS> 105,914
<PP&E> 37,599
<DEPRECIATION> 15,156
<TOTAL-ASSETS> 147,935
<CURRENT-LIABILITIES> 41,111
<BONDS> 17,391
0
0
<COMMON> 106
<OTHER-SE> 88,114
<TOTAL-LIABILITY-AND-EQUITY> 147,935
<SALES> 219,125
<TOTAL-REVENUES> 219,125
<CGS> 155,601
<TOTAL-COSTS> 155,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,204
<INCOME-PRETAX> 11,716
<INCOME-TAX> 4,815
<INCOME-CONTINUING> 6,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,901
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
<PAGE>
PAGE 52 OF 53
EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
The following factors, among others, could cause the Company's actual
results and performance to differ materially from those contained in forward-
looking statements made in this report and presented elsewhere by or on behalf
of the Company from time to time.
ABILITY TO ACHIEVE FUTURE GROWTH
The Company's ability to profitably open stores in accordance with its
expansion plan and to increase the financial performance of its existing stores
will be a significant factor in achieving future growth. The Company's ability
to profitably open stores will depend, in part, on matters not completely within
the Company's control including, among other things, locating and obtaining
store sites that meet the Company's economic, demographic, competitive and
financial criteria, and the availability of capital on acceptable terms.
Further, increases in comparable store sales will depend, in part, on the
soundness and successful execution of the Company's merchandising strategy.
SEASONALITY
The Company is an agricultural specialty retailer, and consequently its
sales fluctuate with the seasonal needs of the agricultural community. The
Company responds to this seasonality by attempting to manage inventory levels
(and the associated working capital requirements) to meet expected demand, and
by varying to a degree its use of part-time employees. Historically, the
Company's sales and operating income have been highest in the second and third
quarters of each fiscal year due to the farming industry's planting season and
the sale of seasonal products.
WEATHER, BUSINESS CONDITIONS AND GOVERNMENT POLICY
Unseasonable weather and excessive rain, drought, or early or late frosts
may affect the Company's sales and operating income. In addition, the Company's
sales volume and income from operations depend significantly upon expectations
and economic conditions relevant to consumer spending and the farm economy.
Government policy can also influence the level of farming activity and have a
material adverse effect upon the Company's farm-related sales.
<PAGE>
PAGE 53 OF 53
REGIONAL ECONOMY
The majority of the Company's existing stores are located in the
Northeastern United Sates and the Company's expansion plan includes locating
stores in Midwestern and Southeastern United States. As a result, the Company's
sales and profitability are largely dependent on the general strength of the
economy in these regions.
COMPETITION
The Company faces competition primarily from other chain and single-store
agricultural specialty retailers, and from mass merchandisers. Some of these
competitors have substantially greater financial and other resources than the
Company.
Currently, most of the Company's stores do not compete directly in the
markets of other agricultural specialty retail chains. However, the Company's
expansion plans will likely result in new stores being located in markets
currently serviced by one or more of these chains, and there can be no assurance
that these chains, certain of which have announced expansion plans, will not
expand into the Company's markets.
In addition, the Company competes in over half of its markets with mass
merchandisers. The Company believes that its merchandise mix and level of
customer service currently successfully differentiate it from mass
merchandisers, and that as a result the Company has to date not been
significantly impacted by competition from mass merchandisers. However, in the
past certain mass merchandisers have modified their product mix and marketing
strategies in an effort apparently intended to permit them to compete more
effectively in the Company's markets, and it is likely that these effort will
continue by these and other mass merchandisers.
ENVIRONMENTAL MATTERS
The Company was formed in 1935 as a tractor salvage yard marketing used
tractor parts and continues to conduct tractor salvage operation in connection
with its current marketing of used tractor parts. Tractor salvage operations
require the disposal of used oil and other petroleum products as well as other
environmentally sensitive material, and the manufacture of metal products
requires the use and disposal of a number of environmentally sensitive
materials. Moreover, since the Company has from time to time acquired, disposed
of and leased various sites, the Company's familiarity with the detail of past
operations at certain sites is necessarily limited. Although the Company
believes that it has conducted its operations in conformity with applicable
environmental laws or regulations, there can be no assurance that the Company
has not in the past violated applicable environmental laws or regulations, which
violations could result in remediation or other liabilities, or the past use or
disposal of environmentally sensitive material in conformity with then existing
environmental laws and regulations will not result under current or future
environmental laws in remediation or other liabilities.
