SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 24, 1997
Tejon Ranch Company
(Exact Name of Registrant Specified in Charter)
Delaware 1-7183 77-0196136
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
Incorporation)
4436 Lebec Road, Lebec, California 93243
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 327-8481
Not Applicable
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On March 10, 1997, the Company completed the purchase of certain
assets from Champion Feeders, Inc., a cattle feedlot company in
western Texas. The assets purchased include land, a feed mill,
cattle pins, office and shop buildings, all rolling stock,
inventory and intangibles. No debt or material liabilities of
Champion Feeders, Inc. were assumed in the purchase of these
assets. The purchase price for these assets is $3.5 million plus
inventory value as of February 28, 1997 and will be accounted for
as a purchase. The purchase price of the assets was based upon a
dollar value per head of capacity at the feedyard and the fair
market value of assets purchased. The acquisition of these
assets was consummated pursuant to an Asset Purchase Agreement
dated as of February 28, 1997. For a more complete understanding
of the structure of the transaction, reference should be made to
the Asset Purchase Agreement that is attached to this report as
Exhibit 2.1.
The purchase of these assets allows the Company to begin to meet
its long-term objective of becoming vertically integrated within
the beef industry. The assets purchased will allow the Company
to own and operate a cattle feedyard operation in western Texas.
Item 7(a). Financial Statements of Businesses Acquired.
Included herein are the historical audited financial statements
of Champion Feeders, Inc., listed in the index below. These
statements are included because the income effect before income
taxes exceeds 10% of such consolidated income. The Company is
only purchasing the assets described above and not assuming any
debt or material liabilities of Champion Feeders, Inc.
INDEX TO FINANCIAL STATEMENTS OF CHAMPION FEEDERS, INC.
Page
Historical Financial Statements of Champion Feeders, Inc. 3
Report of Independent Auditors 4
Balance Sheets as of December 31, 1996 and 1995 5
Statements of income for the years ended
December 31, 1996 and 1995 7
Statements of Stockholders' Undistributed Income for years
ended December 31, 1996 and 1995 8
Statements of Cash Flows for the years ended
December 31, 1996 and 1995 9
Notes to Financial Statements 11
CHAMPION FEEDERS, INC.
Audited Financial Statements
Years Ended December 31, 1996 and 1995
Brown, Graham & Company
Professional Corporation
Certified Public Accountants
218 West 3rd, Hereford, Texas 79045
(806) 364-3741
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
of Champion Feeders, Inc.
Hereford, Texas
We have audited the accompanying balance sheets of Champion
Feeders, Inc. (a Texas corporation) (the Company) as of December
31, 1996 and 1995, and the related statements of income,
stockholders' undistributed income, and cash flows for the years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts of disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Champion Feeders, Inc. as of December 31, 996 and 1995, and
the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting
principles.
Brown, Gorham & Company, P.C.
Hereford, Texas
February 10, 1997
<TABLE>
CHAMPION FEEDERS, INC.
BALANCE SHEETS
DECEMBER 31,1996 AND 1995
ASSETS
1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash in Bank-Note 9 $ 2,422 $ 2,424
Trade Accounts Receivable-
Notes 1,2,6, & 8 3,189,514 2,821,322
Miscellaneous and Employee
Accounts Receivable-Note 2 155,305 576,089
Notes Receivable and Accrued
Interest Receivable-Note 5 2,210,261 1,872,629
Inventories-Raw Materials-
Notes 1 & 6 340,334 296,624
Prepaid Expenses 35,546 35,581
Total Current Assets 5,933,382 5,604,679
PROPERTY, PLANT AND EQUIPMENT:-
NOTE 1
Land 131,709 131,709
Buildings and Improvements 1,476,529 1,455,233
Machinery and Equipment 713,498 686,152
2,321,736 2,273,094
Less Accumulated Depreciation (1,876,866) (1,849,054)
Total Property, Plant and
Equipment 444,870 424,040
OTHER ASSETS 136 136
TOTAL ASSETS $6,378,388 $6,028,855
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
CHAMPION FEEDERS, INC.
BALANCE SHEETS
DECEMBER 31,1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
<S> <C> <C>
CURRENT LIABILITIES
Bank Overdraft $1,132,214 $ 124,322
Payable-Cattle Clearing 119,791 64,885
Payable-Grain Commitments 130,543 96,885
Accounts Payable
Trade Accounts-Commodities 451,192 651,946
Trade Accounts-Other 148,593 117,730
Employee Profit Sharing Plan-
Notes 1 & 4 3,940 5,791
Champion Employees-Note 3 0 23,754
Credit Accounts Receivable 554 13,424
Accrued Expenses-Note 7 60,765 38,081
Notes Payable-Note 6 3,338,397 3,338,397
Total Current Liabilities 5,385,989 4,475,215
STOCKHOLDERS' EQUITY
Common Stock-Authorized
2,000,000 shares $1 par, issued
384,000 shares and 480,000
shares 384,000 480,000
Additional Paid-in Capital 300,000 300,000
Stockholders' Undistributed
Income-Note 1 863,073 1,088,314
Less Treasury Stock, 216,000
shares and 120,000 shares-Note
10 (554,674) (314,674)
Total Stockholders' Equity 992,399 1,553,640
$6,378,388 $6,028,855
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
CHAMPION FEEDERS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,1996 AND 1995
1996 1995
<S> <C> <C>
SALES AND SERVICES-Note 2 $15,109,489 $15,586,183
COST OF SALES:
Inventory Beginning of Year 296,624 338,402
Purchases 12,640,290 12,966,548
Total Available for Sale 12,936,914 13,304,950
Less: Ending Inventory (340,334) (296,624)
Cost of Sales 12,596,580 13,008,326
GROSS PROFIT ON SALES 2,512,909 2,577,857
OPERATING EXPENSES
Yard Expenses 537,026 624,542
Feedmill Expenses 345,929 409,264
Feed Delivery Expenses 196,434 228,294
Office and Administrative
Expenses-Notes 1, 4, & 7 609,629 735,905
Total Operating Expenses 1,689,018 1,998,005
INCOME FROM OPERATIONS 823,891 579,852
OTHER INCOME & (EXPENSES)
Interest Income-Note 2 249,642 233,674
Income from Far (Net of expenses
of $7,338 and $5,593) 1,543 1,782
Miscellaneous Income 30,367 22,818
Interest Expense-Note 2 (242,707) (184,688)
Total Other Income & (Expenses) 38,845 73,586
NET INCOME-Note 1 $ 862,736 $ 653,438
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
CHAMPION FEEDERS, INC.
STATEMENT OF STOCKHOLDERS' UNDISTRIBUTED INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
<S> <C> <C>
Balance-Beginning of Year $ 1,088,314 $1,130,367
Net Income for Current Year 862,736 653,438
Distributions to Stockholders (1,087,977) (695,491)
Balance-End of Year $ 863,073 $1,088,314
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
CHAMPION FEEDERS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
<S> <C> <C>
Cash Flows from Operating
Activities:
Net Income $ 862,736 $ 653,438
Adjustments to Reconcile Net
Income to Net Cash
Depreciation Expense 85,852 75,263
(Increase) Decrease in Current
Assets (328,705) (168,732)
Increase (Decrease) in Current
Liabilities 910,774 (9,460)
Net Cash Flow From Operating
Activities 1,530,657 550,509
Cash Flows From Investing
Activities:
Purchase of Equipment &
Improvements (106,682) (122,752)
Net Cash Flow From Investing
Activities (106,682) (122,752)
Cash Flows From Financing
Activities
Proceeds from Short-Term Debt 0 267,734
Payment to Stockholders'
Distributions (1,087,977) (695,491)
Purchase of Treasury Stock (336,000) 0
Net Cash Flows From Financing
Activities 1,423,977 427,757
Net Increase (Decrease) in Cash (2) 0
Cash at the Beginning of Year 2,424 2,424
Cash at the End of Year 2,422 2,424
Supplemental disclosures of cash
flows information
Cash Paid During the Year for
Interest $ 219,305 $ 182,200
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<TABLE>
CHAMPION FEEDERS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
<S> <C> <C>
Changes in Components of Current
Assets and Current Liabilities
for Cash Provided by Operating
Activities:
Current Assets-(increase)
decrease
Trade accounts receivable ($ 368,182) ($ 287,668)
Miscellaneous and employees
accounts receivable 420,784 (258,172)
Notes receivable and accrued
interest receivable (337,632) 335,876
Inventories (43,710) 41,778
Prepaid Expenses 35 (546)
Net increase (decrease) in
current assets ($ 328,705) ($ 168,732)
Current liabilities-increase
(decrease) in current liabilities
Bank overdraft $1,007,892 $ 193,591
Payable-cattle clearing 54,906 (419,658)
Payable-grain commitments 33,658 4,906
Accounts payable
Trade commodities (200,754) 180,611
Trade other 30,863 17,513
Employees profit-sharing plan (1,851) 227
Champion Employees (23,754) 0
Credit accounts receivable (12,870) 9,963
Accrued expenses 22,684 3,387
Net increase (decrease) in
current liabilities $ 910,774 ($ 9,460)
The accompanying notes are an integral part of these financial
statements.
</TABLE>
CHAMPION FEEDERS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE 1. Accounting Policies
General:
Champion Feeders, Inc. (the Company) is a Texas Corporation which
operates a commercial feed lot about three miles northeast of
Hereford, Texas, with a capacity of approximately 33,500 head.
The Company feeds cattle for customers and does not feed any of
its own cattle.
Method of Writing off Receivables:
The Company sells its products primarily to customers whose
accounts are generally paid the next month after billing.
Occasionally, no monthly payments are made and the customer's
entire feed cost is deducted from the gross proceeds received
from the packer for sale of the customer's cattle. Management
does not consider any accounts receivable to be uncollectible.
Depreciable Assets and Depreciation:
The cost of property, plant and equipment is depreciated over the
estimated useful lives of the related assets. Depreciation is
computed using straight line, declining balance, double declining
balance, and accelerated methods for both financial reporting and
income tax purposes.
The useful lives of property, plant, and equipment for purposes
of computing depreciation are:
Building and Improvements 10-20 years
Machinery and Equipment 5-10 years
Inventories:
Inventories consisting of feed commodities and veterinary medical
supplies are stated at the lower of cost determined by the first-
in, first-out method or average cost or market.
Federal Income Taxes:
The Company operates as an S corporation for federal income tax
purposes under Section 1361 of the Internal Revenue Code. As a
result, the income of the Company is taxed for federal income tax
purposes to the stockholders instead of the Company; therefore,
no provisions for federal income taxes is made on the financial
statements.
Profit-Sharing Plan Accounting and Funding Policies:
The Company has a profit-sharing plan that covers substantially
all employees. Profit-sharing costs include current service
costs, which are accrued and funded on a current basis.
NOTE 2. Transactions with Related Parties
Sales and services to related parties included in the gross sales
amount for the years ended December 31, 1996 and 1995 are
$5,978,114 and $5,866,948 respectively. Interest income includes
$10,934 and $11,653 from related parties respectively at December
31, 1996 and 1995. Accounts receivable for feed sales at
December 31, 1996 and 1995 of $831,147 and $633,127 are from
related parties. Also included in accounts receivable at
December 31, 1996 and 1995 is $21,232 and $70,657 from employees.
Interest expense paid to related parties includes $123,424 and
$127,976 for the years ended December 31, 1996 and 1995
respectively. Miscellaneous accounts receivable includes
$151,835 and $575,511 due from a related party at December 31,
1996 and 1995. The related parties are stockholders and entities
controlled by the stockholders. The manager of the feed yard is
a stockholder of the Company.
The Company sells a substantial portion of its product to a
related party. During 1996 and 1995, sales to that customer
aggregated $4,414,443 and $5,012,495, respectively. At December
31, 1996 and 1995, amounts due from that customer included in
trade accounts receivable, were $322,075 and $348,180,
respectively. These amounts are included in the total related
party amounts in the preceding paragraph.
NOTE 3. Accounts Payable-Champion Employees
The Company finances and feeds cattle periodically for the
employees of the feed yard, who share in the profits on these
cattle based on their length of service to the Company. The
account payable of $23,754 is profit on these cattle which had
not been paid to the employees at December 31, 1995.
NOTE 4. Profit-Sharing Plan and Expenses
The Company sponsors a contributory profit-sharing plan that
covers substantially all groups of its employees. Profit-sharing
costs include current service costs, which are accrued and funded
on a current basis. During the years ended December 31, 1996 and
1995, contributions to the plan charged to operations, were
$42,595 and $52,692, respectively. Contributions to the plan are
based upon 3% of salary for the employee, and 7% of salary for
the employer, for contributing and participating employees.
NOTE 5. Notes Receivable
The Company has lent $2,169,672 and $1,837,743 at December 31,
1996 and 1995 to customers of the feed yard to finance cattle.
The notes accrue interest at a rate of one and one-half percent
(1 1/2%) over prime, adjusted monthly, and are secured by first
liens on the cattle. The total amount of accrued interest on
these notes at December 31, 1996 and 1995 is $40,589 and $34,886.
NOTE 6. Notes Payable
<TABLE>
Following is a summary of notes payable at December 31, 1996 and
1995.
1996 1995
<S> <C> <C>
Notes payable to stockholders on
demand, unsecured, with interest
accruing monthly at one percent over
prime. $ 900,000 $ 900,000
Notes payable to FirstBank Southwest
of Hereford due July 11, 1997 and May
30, 1996, respectively, with interest
at 1% over prime and secured by
pledges of accounts receivable, notes
receivable, and inventory. 2,000,000 2,000,000
Notes payable to individual on demand,
unsecured with interest accruing
monthly at 9%. 146,132 0
Notes payable to stockholders on
demand, unsecured with interest
accruing monthly at 9%. 292,265 438,397
$3,338,397 $3,338,397
</TABLE>
NOTE 7. Accrued Compensated Absences
Employees of the Company are entitled to paid vacation, depending
on job classification, length of service, and other factors. It
is impracticable to estimate the amount of compensation for
future absences, and accordingly, no liability has been recorded
in the accompanying financial statements. The Company's policy
is to recognize the cost of compensated absences when actually
paid to employees.
NOTE 8. Contingent Liability
Under the terms of an agreement with FirstBank Southwest of
Hereford, Texas, the Company has agreed to subordinate all feed
and medicine charges of CFII, a cattle feeding partnership made
up of all of the stockholders of the Company. Proceeds from the
sale of cattle owned by CFII will first be applied to principal
and interest on loans advanced by FirstBank Southwest of Hereford
Texas, before paying the feed accounts receivable owed to the
Company. The total amount of feed accounts for possible
subordination ranges from $0 to $400,779 for the partnership's
cattle on feed at December 31, 1996 and from $0 to 179,527 for
the cattle on feed at December 31, 1995.
NOTE 9. Cash in Bank
The Company maintains cash balances at one financial institution,
which are insured by the Federal Deposit Insurance Corporation up
to $100,000.
NOTE 10. Subsequent Event
In 1988, the shareholders entered into a buy-sell agreement
whereby at the demand of either the Company or a deceased
shareholder's successors in interest, their individual shares
would be repurchased for an "asset value" per share, which is set
by the shareholders at the annual meeting. One of the 20%
shareholders was deceased on December 21, 1995, which caused a
buy-sell agreement to become effective. Pursuant to the
agreement, the Company repurchased the deceased shareholder's
shares as treasury stock for $3.50 per share, on demand of the
deceased shareholder's successor in interest.
Item 7(b). Pro Forma Financial Information
TEJON RANCH CO. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Effective March 10, 1997, the Company purchased certain assets
from Champion Feeders, Inc., a cattle feedlot company in western
Texas. The assets purchased include land, a feed mill, cattle
pins, office and shop buildings, all rolling stock, inventory and
intangibles. No debt or material liabilities of Champion
Feeders, Inc. were assumed in the purchase of these assets. The
purchase price for these assets is $3.5 million plus inventory as
of February 28, 1997.
The following unaudited pro forma combined statement of financial
position and statement of income gives effect to the acquisition
of assets as a purchase. The pro forma combined statement of
financial position and statement of income assumes that the
acquisition occurred at the beginning of the period being
presented. For purposes of the pro forma presentation the 1996
audited statements of income of Tejon Ranch Co. and Champion
Feeders, Inc. have been combined.
For purposes of the pro forma combined statement of income, the
purchase price of the assets was based upon a dollar value per
head of capacity at the feedyard and the fair market value of
assets purchased. The Company believes the purchase price
approximates the fair value of assets being purchased.
The Tejon Ranch Co. unaudited pro forma combined statement of
income is presented for illustrative purposes only and is not
necessarily indicative of the consolidated results of operations
that would have been reported had the acquisition occurred on the
date indicated, nor does it represent a forecast of the
consolidated results of operations of the Company for any future
period. Furthermore, no effect has been given in the unaudited
pro forma statement of income for operating and synergistic
benefits that may be realized through the purchase of the above
assets. The Tejon Ranch Co. unaudited pro forma combined
statement of income should be read in conjunction with the
historical financial statements and related notes of Champion
Feeders, Inc., included herein, and the Company's historical
consolidated financial statements and related notes.
<TABLE>
TEJON RANCH COMPANY
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
For the Year Ended December 31, 1996
CHAMPION PRO FORMA PRO FORMA
TEJON (a) (b) ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash and Cash
Equivalents 693,000 2,000 (2,000) (c) 693,000
Marketable 16,287,000
Securities 20,127,000 --- (3,840,000) (d)
Accounts Receivable 4,303,000 5,555,000 (5,555,000) (c) 4,303,000
Inventories 3,430,000 340,000 --- (e) 3,770,000
Pre-paid and Other
Current Assets 1,319,000 36,000 (36,000) (c) 1,319,000
Total Current Assets 29,872,000 5,933,000 (9,433,000) 26,372,000
Property and
Equipment, Net 16,270,000 445,000 3,031,000 (e) 19,746,000
Other Assets:
Breeding Herd 1,054,000 --- 1,054,000
Other Assets 173,000 --- 24,000 (e) 197,000
Total Assets 47,369,000 6,378,000 (6,378,000) 47,369,000
Liabilities and
Stockholders' Equity
Current Liabilities:
Trade Accounts
Payable 488,000 1,987,000 (1,987,000) (c) 488,000
Other Accrued
Liabilities 569,000 61,000 (61,000) (c) 569,000
Current Deferred
Income 265,000 --- 265,000
Income Taxes Payable 856,000 --- 856,000
Short-term Note 2,808,000 3,338,000 (3,338,000) (c) 2,808,000
Current Portion of
Long-Term Debt 200,000 --- 200,000
Total Current
Liabilities 5,186,000 5,386,000 (5,386,000) 5,186,000 <PAGE>
Long-term Debt, Less
Current Portion 1,800,000 --- 1,800,000
Deferred Income
Taxes 2,651,000 --- 2,651,000
Stockholders' Equity:
Common Stock 6,341,000 384,000 (384,000) (c) 6,341,000
Additional Paid-In
Capital 387,000 300,000 (300,000) (c) 387,000
Treasury Stock --- (555,000) 555,000 (c) ---
Defined Benefit
Plan-Funding
Adjustment, Net of
Taxes (256,000) --- --- (256,000)
Unrealized Gains
(Losses) on
Available-For-Sale
Securities, Net of
Taxes 7,000 --- --- 7,000
Retained Earnings 31,253,000 863,000 (863,000) (c) 31,253,000
Total Stockholders'
Equity 37,732,000 992,000 (992,000) 37,732,000
Total Liabilities and
Stockholders' Equity 47,369,000 6,378,000 (6,378,000) 47,369,000
See accompanying notes
</TABLE>
Item 7(b). Pro Forma Financial Information
<TABLE>
TEJON RANCH COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Year Ended December 31, 1996
PRO FORMA PRO FORMA
TEJON (a) CHAMPION ADJUSTMENTS COMBINED
(b)
<S> <C> <C> <C> <C>
Revenues:
Livestock 5,481,000 --- 5,481,000
Farming 9,107,000 --- 9,107,000
Oil & Minerals 1,356,000 --- 1,356,000
Commercial & 1,643,000 --- 1,643,000
Land Use
Feedlot Operations --- 15,141,000 15,141,000
Interest Income 1,308,000 250,000 (227,000) (g) 1,331,000
Total Revenues 18,895,000 15,391,000 (227,000) 34,059,000
Expenses:
Livestock 5,028,000 --- 5,028,000
Farming 5,973,000 --- 5,973,000
Oil & Minerals 200,000 --- 200,000
Commercial & 2,001,000 --- 2,001,000
Land Use
Feedlot Operations --- 13,676,000 215,000 (h) 13,891,000
Corporate Expenses 2,590,000 610,000 3,200,000
Interest Expense 295,000 243,000 538,000
Total Expenses 16,087,000 14,529,000 215,000 30,831,000
Income Before Income 2,808,000 862,000 (442,000) 3,228,000
Taxes
Income Tax (f) 1,123,000 345,000 (177,000) 1,291,000
Net Income 1,685,000 517,000 (265,000) 1,937,000
Net Income Per Share 0.13 0.15 <PAGE>
See accompanying notes
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) Information from 1996 audited financial statements.
(b) Information from 1996 audited financial statements.
(c) Elimination of assets and liabilities not purchased or
assumed in the transaction.
(d) Purchase price of assets and inventory.
(e) Allocation of purchase price to fixed assets, inventory, and
goodwill acquired.
(f) Income Taxes are calculated at an estimated tax rate of 40%.
(g) Reduction in interest income due to cash purchase of feedlot
assets.
(h) Depreciation increases due to booking assets acquired at
fair market value. Average useful life of combined assets
purchased is 10 years.
Item 7(c). Exhibits. Page Number
2.1 Asset Purchase Agreement dated as of 22
February 28, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated March 6, 1997
TEJON RANCH COMPANY
Allen E. Lyda
Vice President Finance and
Treasurer
EXHIBIT INDEX
Exhibit
Number Description Page Number
2.1 Asset Purchase Agreement dated as of 22
February 28, 1997.
Asset Purchase Agreement
This Asset Purchase Agreement dated as of the 28th day of
February, 1997, (this "Agreement"), between CHAMPION FEEDERS,
INC., a Texas corporation ("Seller"), and for certain purposes,
three of its shareholders, Dave Hopper, Gordon Dutterer and Joe
Mendiburu ("individually, a "Shareholder" and collectively, the
"Shareholders"), on the one hand, and TEJON RANCH FEEDLOT, INC.,
a California corporation ("Buyer"), on the other hand.
W I T N E S S E T H:
WHEREAS, Seller is engaged in, among other things, the
cattle feeding business known as Champion Feeders located near
Hereford, Texas (the "Business");
WHEREAS, Buyer desires to acquire, and Seller desires to
sell, substantially all of the assets and business of the
Business as a going concern, upon the terms and conditions
hereinafter set forth;
WHEREAS, the parties hereto desire to set forth certain
representations, warranties and covenants made by each to the
other as an inducement to the execution, delivery and performance
of this Agreement and certain additional agreements related to
the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein
contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly
acknowledged, the parties hereto agree as follows:
1. Sale of Assets and Business by Seller.
1.1 Sale of Assets. Pursuant to the terms and
conditions of this Agreement, Seller agrees to sell to Buyer, and
Buyer agrees to purchase, all of the assets, properties, rights
and interests (other than those assets described in Section 1.3
below) of Seller, wherever located, of every type and
description, whether real, personal or mixed, and whether
tangible or intangible, which, as of the Closing (as defined in
Article 4 hereof), are used or held for use in connection with,
which are generated by, derived from or attributable to, or which
otherwise relate to, the business of the Business (collectively,
the "Assets"), including, but not limited to:
(a) all accounts receivable (except as noted in
Section 2.3 below) and general intangibles of a similar nature
arising after the Closing;
(b) all prepaid expenses and similar items, the
benefit of which may be effectively transferred to Buyer,
including, without limitation, advance payments, security
deposits and other prepaid items, to be apportioned pursuant to
Section 7.3 below;
(c) all inventories wherever located, including,
without limitation, all grain and feed stocks, livestock
medicines, raw materials, work-in-progress, finished goods,
office and operating supplies, and packaging materials and
supplies;
(d) the real property described on Annex A hereto
(the "Properties"), and all right, title and interest in and to
all buildings, structures, other improvements, fixtures and
appurtenances thereon and thereto, whether currently in existence
or under construction (the "Facilities");
(e) the name "Champion Feeders" and any
variations thereof;
(f) any copyrights, trademarks, trade names and
service marks of Seller;
(g) all owned personal property, including,
without limitation, all equipment, computer equipment,
machinery, office equipment, furniture, cars, trucks and other
vehicles, including, without limitation, those described on Annex
B hereto;
(h) to the extent assignable, all rights under
contracts, agreements or commitments, including, without
limitation, any existing insurance policies Buyer elects to have
assigned to it, natural gas supply contract with Enermart Trust,
contracts providing for the lease by the Business of equipment,
machinery, office equipment, furniture, cars, trucks and other
vehicles, sales representative agreements, consignment agreements
and other similar agreements, whether as principal or agent, and
under any license agreement (collectively, the "Contracts"),
including, without limitation, those described on Annex C hereto;
(i) all rights under orders, bids and quotations,
and similar arrangements relating to the purchase or sale of
goods or services (collectively, the "Service Contracts"),
including, without limitation, those so described on Annex C
hereto;
(j) all right, title and interest in and to all
patents, patent applications, trade secrets and secret processes
and similar items pertaining to the Business;
(k) to the extent transferable, all permits,
approvals, qualifications, licenses and the like issued by a
Governmental Authority (as defined in Section 5.6 hereof) or any
third party and any pending applications therefor (collectively,
the "Permits"), including, without limitation, those described on
Annex D hereto; and
(l) subject to the provisions of Section 12.2
hereof, all books and records of account and other records,
whether written or in machine-readable form (including, without
limitation, operating systems and application software, and
computerized records maintained on tapes, disks and other
electronic or optical storage media), generated in connection
with or otherwise related to the conduct of the business of the
Business, relating to operating, inventory, legal, personnel,
payroll, supplier/vendor rights, interests and customer records
and all sales and promotional literature, correspondence and
files.
1.2 Pre-Closing Disposition of Assets. Without
limiting the generality of the foregoing, the parties agree that
the Assets shall include the assets, properties and rights
described or listed in Section 1.1 hereof, except such assets,
properties and rights as may have been disposed of by Seller
prior to the Closing in the ordinary course of business of the
Business.
1.3 Exclusions from Assets. The parties agree that
the Assets shall not include the following:
(a) cash, investment securities and related bank
and brokerage accounts of Seller;
(b) all notes receivable, accounts receivable
(except as noted in Section 2.3 below), employee advances,
trade acceptances receivable and general intangibles of a
similar nature arising prior to the Closing;
(c) the corporate minute books and stock transfer
records of Seller and, subject to Section 12.3 hereof, any books
and records of account relating to any financial and tax records
of Seller;
(d) a 1979 Ford diesel tractor (Model 2W30,
Serial No. C615041) owned by a third party;
(e) feedlot supply purchase rebates;
(f) utility cooperative credits and/or dividends
attributable to periods prior to Closing and utility cooperative
capital stock; and
(g) income tax credits and/or refunds due in
connection with diesel fuel or gasoline used in the Business for
periods prior to Closing.
1.4 Independent Contract Consideration. On the date
hereof Buyer shall deliver to Seller a check in the amount of
$50.00 (the "Independent Contract Consideration"), which amount
Seller and Buyer hereby acknowledge and agree has been bargained
for and agreed to as consideration for Seller's execution and
delivery of this Agreement. The Independent Contract
Consideration is in addition to and independent of any other
consideration or payment provided for herein, and is
nonrefundable in all events.
1.5 Condition of Assets. It is understood and agreed
that Buyer has had adequate opportunity to inspect the condition
of the Assets and to observe the operation of the Business, and
that Buyer has determined that the condition of the Assets and
Business are suitable for Purchaser's intended use thereof. The
Properties and Facilities shall be conveyed and transferred to
Buyer on the Closing Date in "as is", "where is" condition and
with all faults, and, and except as set forth in Article 5 below,
Seller makes no representations and/or warranties of any kind
whatsoever relating to the condition of the Assets and Seller
specifically makes no representations and/or warranties as to the
merchantability and/or fitness for a particular purpose of any of
the Properties or the Facilities.
2. Buyer's Obligations With Respect to Purchase of Assets
and Related Matters.
2.1 Purchase Price.
(a) Subject to the terms and conditions of this
Agreement and in full consideration for the sale, conveyance,
transfer, assignment and delivery of the Assets and for the
Shareholder Covenants Not To Compete (as defined in Section
11.2), Buyer shall:
(i) at the Closing pay $3,500,000 (the
"Purchase Price") to Seller by delivery of a check payable to
Seller in such amount less the Deposit (hereinafter defined);
(ii) at the Closing pay to Seller by delivery
of a check payable to Seller in the amount of the fair market
value of Seller's grain and livestock feed inventories and
medicine inventories as of February 28, 1997 less the sum of
$2,362.50 representing the estimated cost of disposing of the
manure pile located in southeast portion of the feedyard; and
(iii) assume the obligations described in
Section 2.2 below (the "Assumed Liabilities").
At the Closing, appropriate adjustments will be made in the
Purchase Price to reflect amounts prepaid or deposits by or to
Seller under the Service Contracts and not fully used or earned
by Seller as of the Closing Date and prepaid premiums on any
existing insurance policies assigned to Buyer at Closing.
2.2 Assumption of Certain Obligations. On the Closing
Date, Buyer shall assume, and on and after the Closing Date,
Buyer agrees to pay, observe, perform and otherwise discharge all
liabilities and obligations of the Business arising after the
Closing and all liabilities and obligations of the Business under
all Permits, Service Contracts and Contracts in respect of
periods after the Closing Date. Other than the liabilities and
obligations described in the first sentence of this Section 2.2,
Buyer expressly does not assume any other liabilities and
obligations of Seller or of the Business, and Seller and the
Shareholders shall pay, observe, perform and otherwise discharge
all such liabilities and obligations not assumed by Buyer
hereunder. Buyer is not assuming any liabilities or obligations
set forth in Article 14 below.
2.3 Receivables. Buyer agrees that it shall, as soon
as reasonably practicable after receipt thereof, remit and
forward to Seller any payments or other items received in respect
of the assets described in Section 1.3(b). Buyer will make a
good faith effort to collect any sums due to Seller in respect of
the assets described in Section 1.3(b). It is understood and
agreed that all expenses owing to Seller for each lot of cattle
for which Seller has provided financing, feed, rations, medicine,
and services and accrued interest thereon (the "Expenses") shall
be computed as of February 28, 1997, and that interest on the
Expenses shall continue to accrue and be owing to Seller until
the sale of the cattle, and that as each lot of cattle is sold,
Buyer shall promptly remit and forward the proceeds of the sale
of each such lot of cattle in the following order:
(1) to Seller, the Expenses owing to Seller as of
February 28, 1997;
(2) to Seller, all accrued interest on the
Expenses owing to Seller from February 28, 1997 to date of sale
of the cattle.
(3) to Buyer, all Expenses owing to Buyer for
periods after February 28, 1997 and interest to accrue thereon;
and
(4) to the owner of the cattle, the remaining
proceeds.
2.4 Shareholder Covenants Not To Compete. On the
Closing Date, Buyer shall pay $1,000 to each of the Shareholders
in respect of each Shareholder's Covenant Not To Compete by
delivery of a check payable to each Shareholder in such amount.
Such payments are to be made pursuant to the understandings set
forth in Article 11 of this Agreement.
2.5 Allocation of Purchase Price, Assumed Liabilities
and Covenants Not To Compete. The aggregate amount of the
Purchase Price and the Assumed Liabilities shall be allocated
among the Assets and the Covenants Not To Compete as set forth on
Annex F attached hereto. Seller and Buyer shall duly prepare and
timely file such returns, reports and information returns as may
be required under section 1060 of the Internal Revenue Code of
1986, as amended (the "Code"), and any regulations thereunder and
any corresponding or comparable provisions of applicable state
and local tax laws to report the allocation of the Purchase Price
and the Assumed Liabilities among the Assets and the Covenants
Not to Compete as set forth in Annex F attached hereto.
2.6 Deposit. Within one (1) business day after
Buyer's execution of this Agreement, Buyer shall deposit with
Title Company (hereinafter defined), the sum of $50,000 in cash
("Deposit") to be held by the Title Company as earnest money in
accordance with the terms and provisions of this Agreement. The
Title Company is hereby instructed to hold the Deposit in an
interest bearing account with a federally insured bank. All
interest accruing on the Deposit shall belong to Buyer. Except
as provided in this Agreement to the contrary, the Deposit is
non-refundable. If Buyer terminates this Agreement pursuant to
an express right granted to Buyer pursuant to this Agreement, the
Title Company shall and is hereby instructed to immediately
return the Deposit to Buyer. Upon the Closing of the
transactions contemplated hereby, the Deposit will be delivered
to the Seller as part of the Purchase Price. Should Buyer
default in the performance of its obligations under this
Agreement when Seller is not in default under this Agreement,
Seller shall be entitled to receive the Deposit as liquidated
damages for such default by Buyer, and the Title Company is
directed to deliver the Deposit to Seller upon notice of a
default by Buyer hereunder.
3. Seller's Obligations; Further Assurances.
3.1 Title. Promptly after the date hereof, Seller
shall cause A. O. Thompson Abstract Co., Inc., 242 E. 3rd St.,
Hereford, Texas (the "Title Company"), as agent for Stewart Title
Company, to issue to Buyer a title commitment (the "Title
Commitment") covering the Properties and the Facilities, showing
all matters affecting title thereto and binding the Title Company
to issue to Buyer at the Closing an Owner Policy of Title
Insurance (the "Title Policy") in the form prescribed by the
Texas Department of Insurance in the amount of $3,176,100.
3.2 Title Review Period. Buyer shall have fifteen
(15) business days (the "Title Review Period") after the receipt
of the (i) Title Commitment and (ii) legible copies of all
instruments referred to in Schedules B and C of the Title
Commitment to notify Seller, in writing, of such objections as
Buyer may have to anything contained in the Title Commitment.
Liens for ad valorem taxes not then due and payable and any item
contained in the Title Commitment to which Buyer does not object
during the Title Review Period shall be deemed a "Permitted
Exception". In the event Buyer shall notify Seller of an
objection to anything contained in the Title Commitment prior to
the expiration of the Title Review Period, Seller shall have
twenty (20) business days, or such greater period of time as may
be mutually acceptable to Buyer and Seller (the "Cure Period"),
within which Seller may (but shall in no event be required to)
cure or remove such objection. If Seller fails to either cure or
remove such objection to the reasonable satisfaction of Buyer and
the Title Company prior to the expiration of the Cure Period, and
if by reason of such objection the Title Company refuses to issue
the Title Policy in the form provided for in Section 3.3 of this
Agreement, Buyer may either waive such objection and accept such
title as Seller is able to convey without any reduction in the
Purchase Price or, as its sole and exclusive remedy, terminate
this Agreement by written notice to Seller given within five (5)
days following the expiration of the Cure Period, except that
Buyer shall be entitled to a reduction in the Purchase Price in
the amount of any valid mortgage liens or valid tax liens
actually filed of record against the Assets to the extent such
liens are not paid at or before the Closing. Failure of the
Buyer to send written notice of the election available to it
pursuant to the preceding sentence within five (5) days after the
expiration of the Cure Period shall be deemed an election by
Buyer to waive its objection and accept such title as Seller is
able to convey without any reduction in the Purchase Price.
3.3 Title Policy of Title Insurance. At Closing, the
Title Company shall issue to Buyer, at Seller's sole cost and
expense, the Title Policy covering the Properties (excluding the
appurtenant easements created by instruments recorded in Volume
237, Page 288, and Volume 256, Page 445, both in the Deed Records
of Deaf Smith County, Texas)and the Facilities, in the full
amount of $3,176,100. Such policy may contain as exceptions the
standard printed policy exceptions (modified, if applicable, but
at Buyer's expense) (the "Standard Exceptions") and the Permitted
Exceptions. The Standard Exceptions shall be modified as
follows:
(a) the Standard Exception with regard to
restrictive covenants shall either be deleted or shall list those
restrictions that constitute Permitted Exceptions;
(b) the Standard Exception with regard to real
estate taxes shall except taxes for 1997 and subsequent years;
and,
(c) the Standard Exception with regard to parties
in possession shall be deleted, except as to cattle being fed at
the feedyard at the time of the Title Company's inspection.
3.4 Conveyance Documents. The sale, assignment,
transfer, conveyance and delivery of the Assets (other than real
property) shall be made by such bills of sale and other
recordable instruments of assignment, transfer and conveyance as
Buyer shall reasonably request, provided that the warranties of
title contained in all such instruments shall be consistent with
the provisions of this Agreement, including Section 5.4 hereof.
The sale and conveyance of any real property constituting a
portion of the Assets shall be made by special warranty deeds in
form and substance satisfactory to Buyer and its counsel and
subject only to Permitted Exceptions. To the extent Seller holds
perfected security interests in any cattle being fed on the
Properties at Closing, Seller agrees that it retains such
security interests in such cattle for the benefit of Seller and
Buyer in proportion to the rights each have in the proceeds of
the sale of such cattle, which proportion is to be determined
pursuant to Section 2.3 above.
3.5 Further Assurances.
(a) At the Closing and at any time and from time
to time thereafter, Seller shall at the reasonable request of
Buyer take all reasonable action necessary to put Buyer in actual
possession and operating control of the Assets, and shall
execute, acknowledge and deliver such further instruments of
conveyance, sale, transfer and assignment, and take such other
action as Buyer may reasonably request in order more fully and
effectively to convey, sell, transfer and assign to Buyer all of
Seller's right, title and interest in and to the Assets.
(b) The parties recognize that a separate
instrument or instruments of assignment and assumption may be
necessary or proper with respect to certain of the Contracts,
Service Contracts and Permits to be transferred hereunder, and,
accordingly, the parties shall duly execute and deliver at or
prior to the Closing or thereafter, as required or reasonably
requested by Buyer, such separate instrument or instruments as
may be reasonably required to effect the assignment or transfer
thereof to the Buyer.
(c) Each party shall use all commercially
reasonable efforts to assist the other in obtaining any consents,
approvals and releases required for the assignment of all
Contracts, Service Contracts and Permits. If any material
consents or releases cannot be obtained prior to Closing with
respect to any Contract, Service Contract or Permit included in
the Assets and the Closing is nevertheless consummated, Seller
and Buyer shall fully cooperate in any arrangement reasonably
satisfactory to the parties designed to fulfill the obligations
under, and to afford Buyer the benefits of, such Contract,
Service Contract or Permit. Should the consent required for the
transfer of any Contract, Service Contract or Permit not be
received until after Closing, the parties will cooperate as
provided in this Agreement to cause thereafter the assignment
thereof or the assumption thereof by the Buyer without further
consideration.
3.6 Shareholder Feeding Agreement. At the Closing,
the Shareholders shall execute and deliver to Buyer the best
efforts feeding agreement attached hereto as Annex E (the
"Feeding Agreement").
3.7 FIRPTA Certificate. At the Closing, Seller shall
furnish to Buyer a certificate of Seller, as transferor, to
Buyer, as transferee, stating that Seller is not a foreign entity
in accordance with the Foreign Investment in Real Property Tax
Act of 1980 in the form promulgated by the Treasury Regulations
thereunder.
3.8 Release of Realty Liens. On or prior to Closing,
Seller, at its sole cost and expense, shall cause to be fully
released and discharged of record in Deaf Smith County, Texas,
any and all mortgage, deed of trust or other liens affecting the
Properties or the Facilities.
3.9 Insurance. Until Closing, Seller shall maintain
in full force and effect the insurance coverages specified in
Annex H hereto, and Seller shall not make any changes in such
insurance coverages or in the insurers issuing the same prior to
Closing without Buyer's prior written consent. Should Buyer
elect to have the benefit of any of such insurance after Closing,
Seller shall cooperate with Buyer in effecting appropriate policy
assignments at Closing.
4. Closing.
The sale and purchase of the Assets (herein called the
"Closing") shall take place at 9:00 a.m., Central Standard time,
on March 10, 1997, at the offices of The Title Company. At
Closing and upon Buyer's payment of the Purchase Price, Seller
shall take all steps necessary to cause title to and possession
of all Assets to be given to Buyer in satisfaction of this
Agreement, which obligation of Seller shall be continuing until
the same is fully performed.
5. Representations and Warranties by Seller and
Shareholders.
Each of Seller and the Shareholders severally represents and
warrants to Buyer as follows:
5.1 Incorporation. Seller is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Texas, with full corporate power and authority to
execute and deliver this Agreement and the other agreements and
instruments contemplated hereby to which it is or is to become a
party (the "Seller Documents", which term shall also include the
Shareholder Covenants Not To Compete and the Feeding Agreement)
and to perform its obligations hereunder and thereunder and to
own, lease and operate the Assets and to conduct the business of
the Business as the same is currently being conducted.
5.2 Authorization.
(a) The execution and delivery by Seller of this
Agreement and the Seller Documents, and its performance of its
obligations hereunder and thereunder, have been duly and validly
authorized by its Board of Directors and by all necessary
corporate action of it and by the affirmative vote of not less
than the owners and holders of two-thirds of the issued and
outstanding capital stock of Seller.
(b) This Agreement has been duly executed and
validly delivered by Seller and constitutes its legal, valid and
binding obligations enforceable against it in accordance with its
terms, except as such enforcement may be limited by (i) any
applicable bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent transfer and conveyance laws and other
similar laws of general application relating to or affecting the
rights and remedies of creditors or (ii) general principles of
equity, whether applied by a court of law or equity.
(c) The Seller Documents, when executed and
delivered by Seller at Closing, will have been duly executed and
validly delivered by it and will constitute its legal, valid and
binding obligations enforceable against it in accordance with
their respective terms, except as such enforcement may be limited
by (i) any applicable bankruptcy, insolvency, reorganization,
receivership, moratorium, fraudulent transfer and conveyance laws
and other similar laws of general application relating to or
affecting the rights and remedies of creditors or (ii) general
principles of equity, whether applied by a court of law or
equity.
5.3 No Conflict. Except for any Contract, Service
Contract or Permit terms requiring consent to assignment,
neither the execution and delivery by Seller of this Agreement
and the Seller Documents, nor its performance of its obligations
hereunder and thereunder, will (a) conflict with its articles of
incorporation or by-laws, (b) result in any breach of any of the
provisions of, or constitute a default under, any judgment,
order, decree or writ to which it is a party or by which it is
bound, which breach or default would have a material adverse
effect upon the Assets taken as a whole or the business,
financial condition or results of operations of the Business (a
"Material Adverse Effect"), (c) violate any provision of law
applicable to it or (d) breach or constitute a default (or an
event that, with notice or lapse of time or both, would
constitute a default) under, or permit the termination of any
provision of, or result in the creation or imposition of any lien
upon any Asset under, any note, bond, indenture, mortgage, deed
of trust, lease, franchise, permit, authorization, license,
contract, instrument or other agreement or commitment to which it
is a party or by which it or any Asset is bound or encumbered,
except for such breaches, defaults or liens that would not have a
Material Adverse Effect.
5.4 Title; Absence of Adverse Claims. Seller has and
will transfer to Buyer at Closing good title to the Assets free
and clear of all liens and encumbrances whatsoever, with the
following exceptions:
(a) liens for ad valorem taxes not yet due and
payable; and
(b) Permitted Exceptions relating to Assets
constituting real property.
None of the Assets is leased by Seller.
5.5 Financial Statements.
(a) Seller has delivered to Buyer the balance
sheet of Seller at December 31, 1996, and the income statement of
Seller for the year ended December 31, 1996 (collectively, the
"Seller Financial Statements"), together with a report of
Seller's certified public accountant thereon. Other than as
disclosed in such report, the Seller Financial Statements present
fairly, in all material respects, the financial position of
Seller as at December31, 1996, and the results of its operations
for the year ended December31, 1996.
(b) Since December 31, 1996, there has not been
any material change in Seller's accounting methods, principles or
practices.
5.6 Litigation and Claims. There are no claims,
actions, suits or proceedings pending or, to its or his
knowledge, threatened, against Seller or any of the Assets,
before or by any Governmental Authority, or before any
arbitration board or panel, wherever located. For the purposes
of this Agreement, "Governmental Authority" means the government
of the United States of America, any state of the United States
of America, any foreign country, or any political subdivision of
any of the foregoing, or any agency, board, bureau, court,
department or commission of any of the foregoing.
5.7 Labor and Employment. There are no (a) collective
bargaining or other agreements with labor unions covering any
Business employee or (b) written employment agreements with any
Business employee. There is no labor strike, dispute, work
slowdown, work stoppage or other job action pending or, to its or
his knowledge, threatened, against Seller or the Business, which
would have a Material Adverse Effect. To its or his knowledge,
the Business is in material compliance with all applicable laws,
rules or regulations respecting employment and employment
practices, terms and conditions of employment and wages and
hours, and has not engaged in any unfair or illegal labor
practice which has not been remedied as of the date hereof.
There is no unfair labor practice complaint or charge, or charge
of employment discrimination, pending or, to its, his knowledge,
threatened against Seller.
5.8 Employee Benefit Matters.
Neither Seller nor any Shareholder has incurred any
unsatisfied liability under ERISA or to any Governmental
Authority in respect of any employ benefit or similar plan, and
to its or his knowledge no such liability is threatened or
claimed. The consummation of the transactions contemplated by
this Agreement (and the employment by Buyer of former employees
of Seller) will not result in any liability to Buyer for taxes,
penalties, interest or any other claims resulting from any
employee benefit plan as defined in the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"). Seller shall
be and remain solely responsible for the fulfillment of all
obligations under any employee benefit plan currently maintained
by the Seller and shall comply with all requirements of ERISA,
and Buyer shall have no liability in respect of any such employee
benefit plan of Seller or any other benefit plan now or formerly
maintained by Seller or any of the Shareholders. None of the
persons employed by Seller are subject to, or employed under any
written contract of employment, but all such persons are or were
at-will employees of Seller.
5.9 Assets. The Assets constitute the material
properties, rights, interests and other assets, of every type and
description, whether real, personal or mixed and whether tangible
or intangible, used by Seller in connection with the conduct of
the business of the Business.
5.10 Compliance with Laws. Except with respect to
Environmental Laws (as defined in and the representations and
warranties in respect of which are set forth in Section 5.13), to
its or his knowledge, Seller is in compliance with all laws,
ordinances, codes, restrictions, judgments, orders, rules,
regulations and other legal requirements, domestic or foreign,
applicable to the Assets or the conduct of the business of the
Business, other than where the noncompliance therewith would not
have a Material Adverse Effect.
5.11 [Intentionally left blank]
5.12 [Intentionally left blank.]
5.13 Environmental Matters.
(a) The business of the Business, the Properties,
the Facilities, and buildings, structures, other improvements,
fixtures and appurtenances thereon and thereto are in substantial
compliance with all Environmental Laws, except as disclosed in
the Phase I Environmental Site Assessment dated January 27, 1997
prepared by Enviro-Ag Engineering Inc. with respect to the
Properties and the Facilities (the "Enviro Report"), a copy of
which has been reviewed by Seller.
(b) To its knowledge, Seller has no liability for
remediation actions (including removal, response, cleanup,
investigation and monitoring of contaminants or pollutants)
resulting from any release, discharge, placement, migration or
movement of contaminants, pollutants or other substances that are
listed, regulated or designated as toxic or hazardous under any
Environmental Laws into the environment from any of the
Facilities or the Properties, except as indicated in the Enviro
Report.
(c) There are no claims, actions, suits or
proceedings, judgments, orders, writs or injunctions of any court
or Governmental Authority pending or presently in effect or, to
its or his knowledge, threatened, against Seller relating to
Environmental Laws.
(d) The Seller has never been the subject of any
order, schedule, decree or agreement issued or entered into under
any Environmental Law.
(e) Except as indicated in the Enviro Report, to
Seller's knowledge, there are no underground storage tanks
located on or under any of the Facilities or the Properties and
any underground storage tank previously removed was removed in
accordance with applicable Environmental Laws. To Seller's
knowledge there are no friable asbestos containing materials
present on or at any of the Facilities or the Properties.
(f) For the purposes of this Agreement,
"Environmental Laws" means any law, regulation, rule, ordinance,
by-law or order of any Governmental Authority, in effect on the
Closing Date, which relates to or otherwise imposes liability,
obligations or standards with respect to (i) the control of any
potential pollutant or the protection of the environment, (ii)
solid waste, gaseous waste or liquid waste generation, handling,
treatment, storage, disposal or transportation, and (iii)
exposure to hazardous, toxic or other substances alleged to be
harmful, but in each case excluding the Occupational Safety and
Health Act of 1970, as amended, and any regulation issued
thereunder.
5.14 Broker's Fees. No broker, finder, agent or
similar intermediary has acted on behalf of Seller, any affiliate
of Seller or any Shareholder in conjunction with this Agreement
or the transactions contemplated hereby. Bill Helming of Bill
Helming Consulting Services, located at 10640 South Glenview
Lane, Olathe, Kansas 66061, represents the Seller in a
professional consulting and financial capacity, and Seller shall
be solely responsible for payment of consulting and financial
advisory fees owing to Bill Helming at Closing.
5.15 Contracts and Service Contracts. Each of the
Contracts and the Service Contracts is a valid and binding
obligation of Seller and, to its knowledge, a valid and binding
obligation of the other party or parties thereto, except, in each
case, as may be limited by (a) the course of conduct of the
parties to the Contracts and the Service Contracts, (b) any
applicable bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent transfer and conveyance laws and other
similar laws of general application relating to or affecting the
rights and remedies of creditors or (c) general principles of
equity, whether applied by a court of law or equity. Neither
Seller nor, to its or his knowledge, any other party has
terminated or canceled any of the Contracts or the Service
Contracts. Neither Seller nor, to its or his knowledge, any
other party is in breach of, or default under, any provision of
such Contract or Service Contract, which default or breach, in
each case, could have a Material Adverse Effect.
5.16 Permits. The Permits constitute the permits and
licenses necessary for the conduct of the business of the
Business as it is now being conducted and necessary to own,
operate, maintain and use the Assets in the manner in which they
are now being operated, maintained and used.
5.17 Tax Matters. Seller has timely filed with all
appropriate governmental and taxing authorities all tax or
information returns and tax reports that are required to be filed
by Seller. All taxes of Seller and all interest, penalties,
assessments, deficiencies, charges, fees or other government
impositions or charges claimed to be due by any governmental or
taxing authority with respect to taxes have been fully paid or
adequately reserved for, and Seller has collected and paid all
sales taxes with respect to the sale of any of its assets
required to be so collected and paid on or before the Closing
Date. Seller has made adequate accruals on its financial
statements for the payment of all taxes, and those accruals have
been made on a basis consistent with past practices. Seller has
no liability for any taxes or other governmental charges in
excess of the amounts so paid or accruals so made and required to
be accrued. Seller is not a party to any pending audit, action
or proceeding with respect to taxes or any other governmental
charges and has not waived any statute of limitations in respect
of taxes or agreed to any extension of time with respect to any
tax assessment or deficiency.
5.18 Restatement; Survival. All representations and
warranties by Seller and the Shareholders herein shall be
restated in writing at the Closing, but such representations and
warranties shall be of no force and effect after August 31, 1998.
5.19 Several Liability. The liabilities of the
Shareholders under this Article 5 are several, not joint, with
each Shareholder's liability being limited to one-third (1/3rd)
of the liability of all Shareholders.
6. Representations and Warranties by Buyer.
Buyer hereby represents and warrants to Seller as follows:
6.1 Incorporation. It is a corporation duly
organized, validly existing and in good standing under the laws
of the State of California, with full corporate power and
authority to execute and deliver this Agreement and the other
agreements and instruments contemplated hereby to which it is or
is to become a party (the "Buyer Documents") and to perform its
obligations hereunder and thereunder. Buyer will be qualified to
do business in the State of Texas prior to the Closing Date.
6.2 Authorization.
(a) The execution and delivery by it of this
Agreement and the Buyer Documents, and its performance of its
obligations hereunder and thereunder, have been duly and validly
authorized by all necessary corporate action of it.
(b) This Agreement has been duly executed and
validly delivered by it and constitutes its legal, valid and
binding obligations enforceable against it in accordance with its
terms, except as such enforcement may be limited by (i) any
applicable bankruptcy, insolvency, reorganization, receivership,
moratorium, fraudulent transfer and conveyance laws and other
similar laws of general application relating to or affecting the
rights and remedies of creditors or (ii) general principles of
equity, whether applied by a court of law or equity.
(c) The Buyer Documents, when executed and
delivered by it at the Closing, will have been duly executed and
validly delivered by it and will constitute its legal, valid and
binding obligations enforceable against it in accordance with
their respective terms, except as such enforcement may be limited
by (i) any applicable bankruptcy, insolvency, reorganization,
receivership, moratorium, fraudulent transfer and conveyance laws
and other similar laws of general application relating to or
affecting the rights and remedies of creditors or (ii) general
principles of equity, whether applied by a court of law or
equity.
6.3 No Conflict. Neither the execution and delivery
by it of this Agreement and the Buyer Documents, nor the
performance by it of its obligations hereunder and thereunder,
will (a) conflict with its articles of incorporation or by-laws,
(b) result in the breach of any of the provisions of, or
constitute a default under, any judgment, writ, order or decree
to which it is a party or by which it is bound, which breach or
default would have a material adverse effect upon the business,
financial condition or results of operations of it and its
subsidiaries, taken as a whole, (c) violate any provision of law
applicable to it, or (d) breach or constitute a default (or an
event that, with notice or lapse of time or both, would
constitute a default) under, or permit the termination of any
provision of, or result in the creation or imposition of any lien
upon any of its properties, assets or business under, any note,
bond, indenture, mortgage, deed of trust, lease, franchise,
permit, authorization, license, contract, instrument or other
agreement or commitment to which it is a party or by which it or
any of its assets or properties is bound or encumbered, except in
any of the cases enumerated in clause (d), those which breach or
default would not adversely affect its ability to execute and
deliver this Agreement or any Buyer Document or perform its
obligations hereunder or thereunder.
6.4 Broker's Fees. No broker, finder, agent or
similar intermediary has acted on behalf of the Buyer or its
affiliates in conjunction with this Agreement or the transaction
contemplated hereby, and there are no brokerage commissions,
finder's fees, or similar fees or commissions payable by or on
behalf of the Buyer in connection with the transactions
contemplated by this Agreement.
6.5 Restatement. All representations and warranties
of Buyer shall be restated in writing at the Closing.
7. Covenants of Seller and Buyer.
7.1 Notices; Consents; Reasonable Efforts. Subject to
the terms and conditions of this Agreement, Seller and Buyer
shall cooperate to (a) give notice to all third parties and
obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby and (b) take, or cause to be
taken, all reasonable action, and do, or cause to be done, all
reasonable things to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
7.2 Transfer Taxes; Governmental Fees and Charges; Ad
Valorem Taxes.
(a) Notwithstanding any provision of law imposing
the burden of Transfer Taxes (as hereinafter defined) on Seller
or Buyer, as the case may be, any sales (except as provided
below), use, franchise and other transfer taxes imposed in
connection with the consummation of the transactions contemplated
by this Agreement (collectively, "Transfer Taxes") shall paid by
Seller.
(b) Seller and Buyer agree to cooperate in good
faith with each other, and to use their commercially reasonable
efforts, to minimize Transfer Taxes. Without limiting the
generality of the preceding sentence, (i) the appropriate party
hereto shall promptly and properly complete, execute and deliver
to the other resale, exemption, and/or similar certificates or
other documentation necessary or appropriate under any applicable
law to claim and/or evidence that all or any portion of the sale
or transfer of the Assets under this Agreement is exempt from or
otherwise not subject to Transfer Taxes imposed under such
applicable law, and (ii) each of the parties hereto shall consult
and cooperate in good faith with each other on a timely basis in
order to effectively handle and contest any audit, examination,
investigation, or administrative, court, or other proceeding
relating to Transfer Taxes.
(c) Buyer shall pay and be responsible for all
filing and recordation of vehicle license transfers and the
license fees related thereto and the sales taxes on non-exempt
farm/agricultural vehicles referred to in Annex B,
notwithstanding any provision of law imposing the burden of such
fees or charges on Seller or Buyer, as the case may be.
(d) (i) Ad valorem and similar taxes relating to
the Assets or any portion thereof for any taxable period that
includes the Closing Date shall be prorated between Seller and
Buyer as of February 28, 1997 based upon such taxes in the
taxable period immediately preceding such taxable period that
includes the Closing Date (in which case such taxes shall be
readjusted as provided in the next sentence), and Buyer shall
receive a credit against the Purchase Price at the Closing for
Seller's pro rata portion of such taxes. As soon as the amount
of such taxes is known for such taxable period that includes the
Closing Date, Seller and Buyer shall readjust the amount of such
taxes to be paid by each party (by means of a payment from Seller
to Buyer or from Buyer to Seller, as the case may be) with the
result that Seller shall pay for such taxes attributable to the
portion of such taxable period prior to February 28, 1997 and
Buyer shall pay for such taxes attributable to the portion of
such taxable period from and after February 28, 1997. Each of
the Shareholders severally agree (each to the extent of one-third
(1/3rd) of the applicable amount) to cause Seller to timely
perform its obligations under this subsection.
(ii) For purposes of calculating any
proration required by Section 7.2(d)(i), (A) Seller's pro rata
portion shall be 59/365ths of the total amount of taxes being
prorated; and (B) Buyer's pro rata portion shall be 306/365ths of
such taxes.
(e) If a party hereto shall fail to pay on a
timely basis any amount such party is responsible for under this
Section 7.2, the other party may pay such amount to the
appropriate governmental authority or authorities or other
appropriate third party or parties, and the party responsible for
payment of such amount shall promptly reimburse the other party
for such amount so paid.
(f) The respective rights and obligations of the
parties hereto under this Section 7.2 shall survive the Closing
without limitation.
7.3 Apportionments. Except as otherwise specifically
provided below, all expenses and obligations relating to the
operation of the Business (including, without limitation, the
unpaid monetary obligations of Seller under the Contracts,
Service Contracts and the Assumed Liabilities; payroll and
employee benefits; and insurance premiums prepaid on policies
assumed by Buyer at Closing) and unearned income or other
payments or prepayments to Seller (including, without limitation,
payments received by reason of participation in the Conservation
Reserve Program) shall be pro rated between Buyer and Seller as
of February 28, 1997. The foregoing obligations shall survive
Closing. Deposits held by Seller with respect to Service
Contracts for feeding after the Closing shall be delivered to
Buyer on the Closing Date.
7.4 Utilities. Charges for water, electricity, sewer
service, gas, telephone and all other utilities shall be pro
rated on a per diem basis as of February 28, 1997, disregarding
any discount or penalty, with such proration to be made after
Closing when the bills for the current period are issued. The
foregoing obligations shall survive Closing. Seller and Buyer
shall cooperate to cause the transfer of the Property's utility
accounts and telephone numbers from Seller to Buyer.
8. Conditions Precedent to the Obligations of Buyer.
All obligations of Buyer under this Agreement are subject,
at Buyer's option, to the fulfillment or waiver prior to or at
the Closing, of each of the following conditions:
8.1 Litigation. No action, suit, proceeding,
investigation, inquiry or request for information by any third
person (including but not limited to any Governmental Authority)
shall have been instituted or threatened against Seller or Buyer
or any of their respective affiliates that questions, or
reasonably could be expected to lead to subsequent questioning
of, the validity or legality of this Agreement or the
transactions contemplated hereby or thereby which, if successful,
would adversely affect the right of Buyer to consummate the
transactions contemplated hereby or to continue the business of
the Business substantially as currently conducted.
8.2 Permits, Consents, etc. There shall be no
material permit, consent, approval or authorization of, or
declaration to or filing with, any Governmental Authority
required in connection with the transactions contemplated by this
Agreement or material consent of a third party which has not been
accomplished or obtained and which may not be accomplished or
obtained after the Closing.
8.3 Contracts. All consents required for the
assignment of any Contracts, Service Contracts or Permits to
Buyer shall have been obtained or the requirement therefor
waived.
8.4 Intentionally left blank.
8.5 Environmental. At its expense, Seller shall cause
the site of the former Centergas II of Amarillo leaking
underground storage tank to be excavated to a depth of 15 feet
and then have the excavated earth disposed of off the Properties
in accordance with any requirements of a Governmental Authority
and the excavated area refilled with clean soil compacted to
leave the excavated area level with the surrounding area.
8.6 Waiver. Buyer shall have waived any rights it may
have to terminate this Agreement pursuant to other Sections of
this Agreement.
8.7 Adverse Event. No condition or circumstance shall
exist or be reasonably threatened which Buyer reasonably believes
will cause or result in a Material Adverse Effect.
9. Condition Precedent to the Obligations of Seller.
All obligations of Seller under this Agreement are subject,
at Seller's option, to the fulfillment or waiver prior to or at
the Closing, of the condition that no action, suit, proceeding,
investigation, inquiry or request for information by any third
person (including but not limited to any Governmental Authority)
shall have been instituted or threatened against any of Seller or
Buyer or any of their respective affiliates that questions, or
reasonably could be expected to lead to subsequent questioning
of, the validity or legality of this Agreement or the
transactions contemplated hereby or thereby which, if successful,
would adversely affect the right of Seller to consummate the
transactions contemplated hereby.
10. Indemnification.
10.1 Definitions. As used in this Article:
(a) "Damages" means any and all penalties,
judgments, fines, damages, liabilities, losses, expenses or costs
(including, without limitation, Litigation Expenses).
(b) "Litigation Expenses" means reasonable
attorneys' fees and other costs and expenses incident to
proceedings or investigations respecting, or the prosecution or
defense of, a claim.
(c) "Third Party Claims" means any and all
claims, demands, suits, actions or proceedings by any person or
entity, other than Buyer or Seller or their respective
affiliates, relating to the Assets or the Business.
10.3 Indemnification by Buyer.
(a) Subject to the terms, conditions and
limitations of this Article, Buyer shall defend, indemnify and
hold Seller and the Shareholders, and their respective affiliates
and controlling persons, officers, directors and employees
harmless from and against any Damages caused by or arising out of
(i) the failure of Buyer to perform or fulfill any agreement or
covenant to be performed or fulfilled by it under this Agreement,
including without limitation thereto those agreements set forth
in Section 2.2 hereof, or under any Buyer Document, or (ii) any
inaccuracy in any representation or breach of any warranty of
Buyer set forth in Article 6 or any Buyer Document and any Third
Party Claims attributable to periods after the Closing Date. The
foregoing indemnity shall not extend to any matters for which
Seller is to indemnify Buyer pursuant to the Section 14.2 below.
(b) Notwithstanding the foregoing provisions of
this Section 10.2, Buyer shall not be obligated to indemnify
Seller and the Shareholders until the aggregate amount of any
Damages and Third Party Claims sustained by Seller and the
Shareholders exceeds on a cumulative basis $10,000, and then only
to the extent of any such Damages and Third Party Claims
sustained by Seller and the Shareholders in excess of such
$10,000. The amounts stated in the immediately preceding
sentence shall be exclusive of any Damages and Third Party Claims
sustained by Seller and the Shareholders by reason of their
respective obligations under Article 14 hereof.
(c) The representations and warranties of Buyer
set forth in Article 6 shall survive the Closing.
10.3 Indemnification by Seller and the Shareholders.
(a) Subject to the terms, conditions and
limitations of this Article, each of Seller and the Shareholders
(each to the extent of one-third of the applicable liability)
shall severally defend, indemnify and hold harmless Buyer, and
its affiliates and controlling persons, officers, directors and
employees from and against any Damages caused by or arising out
of:
(i) the failure of Seller or any Shareholder
to perform or fulfill any agreement or covenant to be performed
and fulfilled by it or him under this Agreement or under any
Seller Document;
(ii) any inaccuracy in any representation or
breach of any warranty of Seller or any Shareholder set forth in
Article 5 or in any Seller Document; or
(iii) Third Party Claims related to
periods prior to the Closing Date.
(b) Notwithstanding the foregoing provisions of
this Section 10.3, Seller and the Shareholders shall not be
obligated to indemnify Buyer until the aggregate amount of any
Damages and Third Party Claims sustained by Buyer exceeds on a
cumulative basis $10,000, and then only to the extent of any such
Damages and Third Party Claims sustained by Buyer in excess of
such $10,000. The immediately preceding sentence shall not be
applicable to limit the liability of Seller and the Shareholders
under Article 14 below. The amounts stated in the first sentence
of this subsection shall be exclusive of any Damages and Third
Party Claims sustained by Buyer by reason of Environmental
Liabilities (hereinafter defined).
(c) The representations and warranties of Seller
and the Shareholders set forth in Article 5 shall survive the
Closing until August 31, 1998, but no longer.
(d) The indemnity obligations of Seller and the
Shareholders under this Section 10.3 shall terminate August 31,
1998, except for Damages and claims asserted and not resolved by
said date. After August 31, 1998, Seller and Shareholders shall
have no further indemnity obligations to Buyer under this Section
except as to Damages and claims asserted and not resolved by said
date.
10.4 Procedure for Claims. If any party indemnified
under Section 10.2 or 10.3 (the "Claimant") desires to make a
claim against any party obligated to provide indemnification
under Section 10.2 or 10.3 (the "Indemnitor"), with respect to
any matter covered by such indemnification obligation, the
procedures for making such claim shall be as follows: (subject
to the limitation of Section 10.3(d) above).
(a) Third Party Claims. If the claim is for
indemnification with respect to any Third Party Claim, the
Claimant will give prompt written notice to the Indemnitor of the
institution, assertion or making of such Third Party Claim, and
the nature thereof. Upon delivery of such notice, the claim
specified therein shall be deemed to have been made for purposes
of this Agreement. If the Claimant fails to give such notice and
Indemnitor is precluded from asserting a defense, Claimant shall
be deemed to have waived rights to indemnification or payment
with respect to such Third Party Claim but only to the extent the
Indemnitor suffers actual loss as a result of such failure. Upon
prior written notice to Claimant, Indemnitor may, within 30 days
after receipt of Claimant's notice, proceed, at the Indemnitor's
sole expense, to cure, defend, compromise or settle the Third
Party Claim, in the name of the Claimant or otherwise. If
Indemnitor undertakes defense of any Third Party Claim, Claimant
shall cooperate with Indemnitor and its counsel in the
investigation and defense thereof, and may participate in such
investigation and defense, at its own expense, but Indemnitor
shall control the negotiation, tactics, trial, appeals and other
matters and proceedings related thereto, except that Indemnitor
shall not, without the prior written consent of Claimant, in
connection with such Third Party Claim, require Claimant to take
or refrain from taking any action, or make any public statement,
which Claimant reasonably considers to be against its interest,
or consent to any settlement that requires Claimant to make any
payment that is not fully indemnified hereunder. If the
Indemnitor notifies Claimant that it does not wish to assume the
defense of such Third Party Claim, or if the Indemnitor fails to
respond to the Claimant's notice of the Third Party Claim within
30 days after receipt of such notice or fails to proceed in a
diligent and timely manner to cure, defend, compromise or settle
a Third Party Claim for which it has assumed the defense pursuant
to the foregoing provisions, the Claimant may proceed to cure,
defend, compromise or settle the Third Party Claim as it shall in
its sole discretion deem to be advisable, without prejudice to
any right to indemnification the Claimant may have against the
Indemnitor with respect thereto, whether pursuant to this
Agreement or otherwise, and in such event any liability of the
Indemnitor to the Claimant for indemnification with respect to
such Third Party Claim shall be determined by a final and
nonappealable judgment entered by a court of competent
jurisdiction, or by written consent of the Indemnitor.
(b) Non-Third Party Claims. If the claim is for
indemnification with respect to a matter other than a Third Party
Claim, the Claimant will give prompt written notice to the
Indemnitor of such claim, setting forth with reasonable
particularity the basis, nature and dollar amount thereof. Upon
delivery of such notice the claim specified therein shall be
deemed to have been made for purposes of this Agreement. The
Indemnitor shall, within 30 days after receipt of such notice,
give written notice to the Claimant as to whether or not the
Indemnitor accepts the responsibility to indemnify the Claimant
with respect to such claim. If the Indemnitor fails to respond
to notice of such claim within 30 days after receipt of such
notice or denies responsibility therefor, the liability of the
Indemnitor to the Claimant for indemnification with respect to
such claim shall be determined by a final and nonappealable
judgment entered by a court of competent jurisdiction, or by
written consent of the Indemnitor.
(c) Feeding Contracts. If a Third Party Claim is
made in respect of a Service Contract for cattle feeding that
began before Closing and ended after the Assets were acquired by
Buyer (a "Feeding Claim"), the party hereto having notice of a
Feeding Claim shall give the initial notice required of a
Claimant by Section 10.4(a). Thereafter, Buyer will cure,
defend, compromise or settle (collectively, "Defense") the
Feeding Claim on behalf of Seller and Buyer. Any monetary
judgment or settlement resulting from the Defense and due in
response to a Feeding Claim, plus the court costs and reasonable
fees and expenses of Buyer's attorneys engaged in the Defense,
shall be promptly paid by Seller and Buyer in proportion to the
number of days each provided services during the entire term of
the Service Contract out of which the Feeding Claim arose.
However, should a final judgment in litigation over a Feeding
Claim establish that either Seller or Buyer is solely liable for
a Feeding Claim or jointly liable in proportions other than as
determined under the immediately preceding sentence, such
judgment shall control over this subsection on the question of
responsibility for payment of such judgment. This subsection
shall control over any conflicting provisions of Article 10
hereof. Nothing herein shall be deemed to affect, release or
waive any party's indemnity obligations to the opposite party if
a party pays all of a Feeding Claim when such party only has the
obligation hereunder to pay a proportionate part of such Feeding
Claim.
11. Noncompetition.
11.1 Agreement. Seller and each Shareholder agrees
that during the five-year period following the Closing Date (the
"Term"), and anywhere within a radius of 300 miles of the
Facilities neither Seller, nor any Shareholder nor any respective
affiliate of any thereof shall, directly or indirectly, engage in
or manage a cattle feeding business, or any phase or aspect
thereof, in any manner or form, including by or through
ownership, individually or in conjunction with others, of a
controlling interest of any kind in any corporation, partnership
or other business entity of any nature or by or through the
solicitation of employees or customers of the Business. It is
specifically agreed that this Section does not restrict the
activities of Shareholder, Dave Hopper, relative to his farming
interests and cattle grazing interests on his farm property in
Deaf Smith County, Texas, and further does not restrict the
activities of Shareholder, Joe Mendiburu, relative to his
ranching and cattle gazing interests on his property situated in
El Paso, Texas and Bingham, New Mexico. Each Shareholder is
willing to enter into the foregoing covenant in consideration of
his or her receipt of a material portion of the Purchase Price
from Seller.
11.2 Interpretation of Covenant. The parties hereto
acknowledge and agree that the duration and area for which the
covenants not to compete set forth in this Article 11 (the
"Covenants Not to Compete") is to be effective are fair and
reasonable and are reasonably required for the protection of
Buyer, and Seller and each Shareholder hereby waives any
objections to or defenses in respect thereof. In the event that
any court determines that the time period or the area, or both of
them, are unreasonable and that the Covenants Not to Compete are
to some extent unenforceable, the parties hereto agree that this
Article 11 shall be deemed amended to delete therefrom such
provisions or portions adjudicated to be unenforceable so that
the Covenants Not to Compete shall remain in full force and
effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that the
Covenants Not to Compete shall be deemed to be a series of
separate covenants, one for each and every county of each and
every state of the United States of America where the Covenants
Not to Compete are intended to be effective and is not proscribed
by law.
11.3 Equitable Relief. Seller and each Shareholder
hereby acknowledges and agrees that its, his or her obligations
contained in this Article 11 are of special, unique and personal
character which gives them a peculiar value to Buyer, and Buyer
cannot be reasonably or adequately compensated in money damages
in an action at law in the event Seller or any Shareholder
breaches such obligations. Seller and each Shareholder therefore
expressly agrees that, in addition to any other rights or
remedies which the Buyer may have at law or in equity or by
reason of any other agreement, Buyer shall be entitled to
injunctive and other equitable relief in the form of preliminary
and permanent injunctions without bond or other security in the
event of any actual or threatened breach of such obligations by
Seller or any Shareholder and without the necessity of proving
actual damages.
12. Cooperation in Various Matters.
12.1 Mutual Cooperation. After the Closing, each party
to this Agreement shall cooperate with each other party and its
affiliates, which cooperation shall include the furnishing of
testimony and other evidence, permitting access to employees and
providing information regarding the whereabouts of former
employees, as reasonably requested by such other party in
connection with the prosecution or defense of any claims or other
matters relating to the Assets or the business of the Business.
12.2 Preservation of Buyer's Files and Records. For a
period of two years after the Closing, Buyer shall preserve all
files and records relating to the Business that are in existence
as of the Closing Date and that are less than five years old as
of the Closing Date, shall allow Seller and any Shareholder
access to such files and records and the right to make copies and
extracts therefrom at any time during normal business hours, and
shall not dispose of any thereof, provided that at any time after
the Closing, Buyer may give Seller and the Shareholders written
notice of its intention to dispose of any part thereof,
specifying the items to be disposed of in reasonable detail.
Seller and any Shareholder may, within a period of 60 days after
receipt of any such notice, notify Buyer of its, his or her
desire to retain one or more of the items to be disposed of.
Buyer shall, upon receipt of such a notice from Seller or any
Shareholder, deliver to such person, at such person's expense,
the items specified in Buyer's notice to such person which such
person has elected to retain.
12.3 Preservation of Seller's Files and Records. For a
period of two years after the Closing, Seller and the
Shareholders shall preserve in a location on the Properties,
those existing Business files and records relating to periods not
more than 5 years prior to Closing and designated by Buyer for
retention by notice given within 90 days after the Closing Date.
Buyer shall have access to such files and records and the right
to make copies and extracts therefrom at any time during normal
business hours, and shall not dispose of any thereof, provided
that at any time after the Closing, Seller and any Shareholder
may give Buyer written notice of its or his intention to dispose
of any part thereof, specifying the items to be disposed of in
reasonable detail. Buyer may, within a period of 60 days after
receipt of any such notice, notify Seller or such Shareholder of
Buyer's desire to retain one or more of the items to be disposed
of. Seller or such Shareholder, as applicable, shall, upon
receipt of such a notice from Buyer, deliver to Buyer, at Buyer's
expense, the items specified in such person's notice to Buyer
which Buyer has elected to retain.
12.4 Preparation of Reports, etc. Each of Buyer on the
one hand, and Seller and each Shareholder, on the other hand,
shall cooperate and cause its respective employees to cooperate
with the other in the preparation of financial and other reports
and statements relating to the Business, for periods ending on or
prior to the Closing.
13. Expenses; Termination of Services.
13.1 Expenses. Each party to this Agreement shall pay
all expenses incurred by it or him or on its or his behalf in
connection with the preparation, authorization, execution and
performance of this Agreement, the Seller Documents and the Buyer
Documents, including, but not limited to, all fees and expenses
of agents, representatives, counsel and accountants engaged by
such party. Seller shall be solely responsible for the cost of
obtaining the Title Policy. Buyer shall be solely responsible
for the costs and expenses incurred in connection with obtaining
new Permits required by Buyer to operate the business of the
Business, the Properties, and the Facilities after the Closing.
13.2 Broker's Fees. Each party to this Agreement shall
indemnify and hold harmless the other parties with respect to any
broker's, finder's or other similar agent's fee with respect to
the transactions contemplated hereby claimed by any broker,
finder or similar agent engaged, employed by or otherwise acting
on behalf of the indemnifying party.
14. Environmental Indemnification.
14.1 Environmental Liabilities. For purposes of this
Section 14.1, "Environmental Liabilities" means any and all
liabilities, responsibilities, claims, suits, losses, costs
(including remedial, removal, response, abatement, cleanup,
investigative, and/or monitoring costs and any other related
costs and expenses) related to contamination and violations of
Environmental Laws at the sites described in the Enviro Report
and elsewhere on or within the Properties and the Facilities,
other causes of action recognized now or in the future, damages,
settlements, expenses, charges, assessments, liens, penalties,
fines, prejudgment and post-judgment interest, attorneys' fees
and other legal costs incurred or imposed (a) pursuant to any
agreement, order, notice of responsibility, directive (including
requirements embodied in Environmental Laws), injunction,
judgment or similar documents (including settlements) arising out
of, in connection with or under Environmental Laws, (b) pursuant
to any claim by a Governmental Authority or other entity or
person for personal injury, property damage, damage to natural
resources, remediation, or payment or reimbursement of response
costs incurred or expended by such Governmental Authority or
other entity or pursuant to common law or statute, or (c) as a
result of any act, omission, event, circumstance or condition on
or in connection with the business of the Business or the Assets
prior to the Closing, including, but not limited to, any course
of conduct or operating practice which existed or commenced prior
to the Closing and any pollution, contamination, degradation,
damage or injury caused by, arising from or in connection with
the generation, use, handling, treatment, storage, disposal,
discharge, emission or release of contaminants or pollutants
prior to the Closing.
14.2 Indemnification. Subject to the terms, conditions
and limitations of this Article 14, each of Seller and the
Shareholders (each to the extent of one-third (1/3rd) of the
applicable liability) shall severally defend, indemnify and hold
harmless Buyer and its affiliates and controlling persons,
officers, directors and employees from and against and in respect
of any and all Environmental Liabilities that may be imposed
upon, asserted against or incurred by Buyer arising out of or
resulting from (i) the presence or existence, as disclosed by the
Enviro Report, of any contaminant, pollutant or other toxic or
hazardous substance on, in, under or affecting all or any portion
of the Business or the Assets, (ii) the warranties and
representations contained in Section 5.13 being false or
misleading, or (iii) a violation of Environmental Laws (excluding
any such violations disclosed by the Enviro Report) existing or
occurring on or before the Closing Date and asserted on or before
August 31, 1998. After August 31, 1998, Seller and Shareholders
shall have no further indemnity obligation under clause (iii)
next above, except as to Environmental Liabilities arising or
existing and not resolved by said date. Seller and the
Shareholders waive any common law or statutory right of
contribution from Buyer in respect of any Environmental
Liabilities.
14.3 Actions. With respect to the Environmental
Liabilities for which Buyer may be entitled to indemnification
under Section14.2, Buyer shall have the right to perform and
complete all actions required by a Governmental Authority.
14.4 Continuing Obligations. In the event Buyer sells
any of the Facilities or Properties, to one or more third
parties, any of Seller's and any Shareholder's continuing
indemnification obligations under this Article 14 for
Environmental Liabilities relating to the ownership or operation
of such Facilities or Properties, shall remain owing to Buyer,
to the extent Buyer may continue to have liability in respect
thereof, whether pursuant to a claim by a Governmental Authority
or any third parties (including any party that purchases such
Facilities or the Properties from Buyer), and so long as Buyer
continues to fulfill its obligations under this Article 14.
15. Notices.
15.1 Procedure and Addresses. All notices, requests,
demands and other communications required or permitted to be
given hereunder shall be deemed to have been duly given if in
writing and delivered personally or delivered by facsimile
transmission or delivered by courier service or delivered by
registered or certified U.S. mail, return receipt requested, at
the following addresses:
(a) If to Buyer:
P. O. Box 1000
Lebec, California 93243
Attention: Matt Echeverria
Facsimile number: (805) 858-2553
With a copy to:
J. S. Hollyfield
Fulbright & Jaworski L.L.P.
1301 McKinney Street, Suite 5100
Houston, Texas 77010-3095
Facsimile number: (713) 651-5246
(b) If to Seller or any Shareholder:
P. O. Box 150
Hereford, Texas 79045
Facsimile number: (806) 258-7252
With a copy to:
Terry D. Langehennig
Cowsert, Line & Langehennig
P. O. Box 1655
Hereford, Texas 79045
Facsimile number: (806) 364-9368
15.2 Notice of Change of Address. Any party may change
the address to which such communications are to be directed to it
by giving written notice to the other parties in the manner
provided in Section 15.1.
16. General.
16.1 Entire Agreement. This Agreement, including the
Annexes hereto, the Seller Documents and the Buyer Documents set
forth the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersede all
prior agreements, arrangements and understandings, whether
written or oral, among the parties or any of them, relating to
the subject matter hereof.
16.2 Headings. The Article and Section headings
contained in this Agreement are for convenient reference only,
and shall not in any way affect the meaning or interpretation of
this Agreement.
16.3 Governing Law; Venue. This Agreement shall be
governed by and construed and enforced in accordance with the
laws of the State of Texas, excluding the conflict of laws
provisions thereof that would otherwise require the application
of the law of any other jurisdiction. Venue for any proceeding
brought by any party to this Agreement against another party
hereto and related to or arising out of this Agreement shall lie
exclusively in Deaf Smith County, Texas.
16.4 Counterparts. This Agreement may be executed in
multiple counterparts (including counterparts executed by one
party), each of which shall be an original, but all of which
shall constitute a single agreement.
16.5 Binding Agreement; Assignment. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but
this Agreement shall not be assignable by any party without the
prior written consent of the other parties. Subject to any
hereinabove stated expiration dates applicable thereto, Sections
2.3, 3.5, 7.2, 7.3 and 7.4 of this Agreement and Articles 5, 6,
10, 11, 12, 13 and 14 of this Agreement shall survive the
Closing.
16.6 Amendment. This Agreement may be amended only in
a writing executed by the parties hereto which specifically
states that it amends this Agreement.
16.7 No Waiver. Failure of any party to insist upon
strict observance of or compliance with any term of this
Agreement in one or more instances shall not be deemed to be a
waiver of its rights to insist upon such observance or compliance
with the other terms hereof, or in the future.
16.8 Third Party Beneficiaries. Neither this Agreement
nor any document delivered in connection with this Agreement
confers upon any person not a party hereto any rights or remedies
thereunder.
16.9 Severability. Any provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining
provisions of this Agreement, and, to the extent permitted by
law, any determination of invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
16.10 Annexes. Each of the Annexes hereto
constitutes part of this Agreement and by this reference are
incorporated herein for all purposes hereof.
16.11 Risk of Loss. Title to, and risk of loss or
destruction of or damage to, the Assets shall remain in and upon
Seller until completion of the Closing, at which time they shall
pass to Buyer.
16.12 Right of Inspection. Until the Closing,
Buyer shall have the right to inspect the tangible Assets and
make such non-destructive tests and evaluations of the same as it
chooses, including, without limitation, environmental tests, and
to examine all books and records maintained with respect to the
same. All such inspections shall be conducted at reasonable
times and conducted so as not to unreasonably interfere with the
Business.
16.13 Substantial Casualty or Condemnation. If at
any time prior to the Closing Date all or any portion of the
Facilities is destroyed or damaged as a result of fire or any
other casualty whatsoever and the cost of restoring such damage
exceeds $10,000, or if all or any portion of the Properties or
Facilities material for the operation of the Business is
condemned or taken by eminent domain proceedings by any
Governmental Authority or if a notice of any such prospective
condemnation or taking is given by any Governmental Authority,
then at the option of Buyer (exercised by written notice to
Seller within fifteen (15) days after receipt of notice of such
occurrence from Seller, this Agreement shall terminate and shall
be canceled with no further liability of either party to the
other (except for such obligations which expressly survive
termination hereof). Seller shall give Buyer prompt written
notice of any casualty or any actual or threatened taking of
which Seller has actual knowledge.
16.14 Seller's and Buyer's Rights. If there is any
partial or total damage or destruction or condemnation or taking,
as set forth in Section 16.13, and if Buyer elects not to
terminate (or is not permitted to terminate) this Agreement as
herein provided, then (1) in the case of a taking, there shall be
no adjustment to the Purchase Price but all condemnation proceeds
paid or payable to Seller shall belong to Buyer and shall be paid
over and assigned to Buyer at Closing, and Seller shall further
execute all assignments and any other documents or instruments as
Buyer may reasonably request or as may be necessary to transfer
all interest in all such proceeds to Buyer or to whomever Buyer
shall direct, free and clear of any claims or encumbrances and
(2) in the case of a casualty, there shall be no adjustment to
the Purchase Price and Seller shall (i) assign to Buyer Seller's
valid and unencumbered right, title and interest in and to all
insurance proceeds paid or payable under all insurance policies
required to be maintained by Seller hereunder (and to Seller's
interest in such policies to the extent necessary to enforce
Buyer's right to any proceeds thereunder), free and clear of any
claims or defenses of the insurer and (ii) pay to Buyer the
amount of any deductible under such policies (not to exceed the
amount of the actual loss); provided that in the event Buyer
determines prior to Closing that the amount collectible under
such insurance policies together with the amount of the
deductible is or will likely be less than the actual cost to
restore the Facilities either because the same were underinsured
by Seller or the insurer denies coverage for any reason, Buyer
shall have the right to terminate this Agreement at or prior to
Closing, unless Seller agrees to pay the uninsured deficiency.
16.15 Default. Should either party hereto fail to
consummate the sale and purchase of the Assets in accordance with
this Agreement, the party so failing shall be liable to the other
party hereto for all losses and damages suffered by the other
party, together with reasonable attorneys' fees and litigation
expenses. Additionally, the non-defaulting party shall have all
remedies available to it at law or in equity for the enforcement
of this Agreement, including, without limitation, specific
performance.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
Seller: CHAMPION FEEDERS, INC.
By:
Name:
Title:
Buyer: TEJON RANCH FEEDLOT, INC.
By:
Name:
Title:
FOR THE SPECIFIC PURPOSES INDICATED
HEREIN:
Shareholders:
Dave Hopper
Gordon Dutterer
Joe Mendiburu
ANNEX A
Tract 1: All of the South 1/2 of section 39, block K-3, Deaf
Smith County, Texas; Save and except a tract out of the southwest
portion thereof, more particularly described by metes and bounds
as follows, to-wit:
Beginning at a point which is the southwest corner of section 39;
Thence north along the west line of said section 39, 150 feet to
a point in said west line;
Thence east in a line parallel with the south line of said
section 39 for a distance of 750 feet to a point;
Thence south parallel with the west line of said section 150 feet
to a point in the south line of said section 39;
Thence west along the south line of said section 39, a distance
of 750 feet to the place of beginning.
Tract 2: The west one-half (W/2) of the northeast one-forth
(NE/4) of section no. 39, Block K-3, Deaf Smith County, Texas.
Tract 3: The east 235.6 acres of section 40, Block K-3, S. K. &
K. survey, Deaf Smith County Texas.
Tract 4: 1.51 acres, 0.15 thereof being in a public road, out of
the northeast part of the northwest 1/4 of section 10, Block K-3,
cert no. 334, S. K. & K. survey, in Deaf Smith County, Texas,
described by metes and bounds as follows, to-wit:
Beginning at a point in the north line of section 40, 1983.33
feet east of a stone and iron pipe set at its northwest corner;
Thence south 0 degrees 36 minutes 25 seconds west at 30 feet pass
a 3/4 inch iron pipe in the south line of a public road, and at
311.2 feet a 3/4 inch iron pipe by a corner post;
Thence north 0 degrees 39 minutes east, at 277.3 feet pass a 3/4
inch iron pipe in the south line of a public road, and at 307.3
feet a point in the north line of said section; thence west with
the north line of said section, 213.89 feet to the place of
beginning.
Tract 5: Easements created by instruments recorded in volume
237, page 288 and volume 256, page 445, deed records of Deaf
Smith County, Texas.
ANNEX B
1997 Chevrolet Tahoe
1989 Chevrolet 1/2 ton 4-T70
1981 GMC 1/2 Ton
1988 Ford 1/2 Ton
1995 GMC 1/2 Ton
1988 Chevrolet
1994 GMC 3/4 ton (utility)
1985 1 ton (stk. bed)
1995 Ford 1/2 Ton
1986 Ford 1/2 Ton Van
1972 Ford 1/2 Ton
1996 Livestock Trailer
1991 J.D. 544-E loader
1988 CAT 950 c loader
1968 Chevrolet 2 Ton (hay)
1975 International manure spreader
1972 GMC 2 Ton (hay)
1973 Ford 2 Ton Tank
1973 GMC 2 Ton Tank
I.H. 1086 Tractor
1995 J.D. 5400 Tractor
1976 Chevrolet BJM
1984 Chevrolet BJM
1997 Chevrolet Oswalt
1990 Chevrolet Oswalt
1991 Chevrolet BJM
JD AMT 626
1972 Wabco maintainer
1993 Bush Hog Shredder
Hay Piler
2 Lincoln welders
1993 Heston Hay Grinder
Case Bobcat Loader
1951 CAT D-7 Bulldozer
Overhead Gas Tank
2 Butane Tanks
3 Plows and Scrapers
8 Chutes
7 Horses
Office Equipment
Miscellaneous Small Tools, Equipment & Supplies
ANNEX E
TWO YEAR BEST EFFORTS CATTLE FEEDING AGREEMENT
The undersigned individuals shall, on a best efforts basis
only, feed and market at rates and prices prevailing from time to
time at the Champion Feeders feedlot located in Hereford, Texas,
a combined total of approximately 7,000 head of finished cattle
per year during the two years of (a) March 1, 1997 through
February 28, 1998 (first year) and (b) March 1, 1998 through
February 28, 1999 (second year). Therefore, this tow year best
efforts cattle feeding agreement results in a targeted total
number of cattle fed and marketed of 14,000 head over said two
year period. It is further anticipated and understood that the
targeted number of cattle fed and marketed in each of year one
and in year tow may be above or below the 7,000 head targeted
number per year, but the total cattle fed and marketed within
said tow year period will be, on a best efforts basis, close to
14,000 head. It is anticipated and estimated that the
approximate annual numbers fed and marketed by the undersigned
individuals, on a best effort basis, will be as follows, with the
understanding that each of the individuals listed below shall be
focused on a responsible for his individual specific annual
targeted number as shown below:
Names Targeted Number of Cattle
Fed and Marketed per year
1. Joe Mendiburu 2,000
2. Gordon Dutterer 4,000
3. Dave Hopper 1,000
TOTAL 7,000
Executed this ___ day of February, 1997
Joe Mendiburu, Individually
Gordon Dutterer, Individually
Dave Hopper, Individually
ANNEX F
ITEM AMOUNT
1. Real property as described in Exhibit A:
a. 399 acres upon which is situated
the feedyard facility and operationsthereof,
at $300.00 per acre. $119,700
b. 237 acres in Conservation Reserve
Program, at $200.00 per acre. 47,400
c. Total fixed plant and improvements
situated upon the real property including
but not limited to feed mill building,
feeding pens, water system and all other
feed yard fixed assets improvements. 3,009,000
2. Rolling stock equipment and machinery as
described in Exhibit B. 300,000
3. Goodwill 23,900
$3,500,000
ANNEX H
COMPANY DATES OF COVERAGE COVERAGE ORIGINAL
COVERAGE AMOUNT PREMIUM
Hartford Steam 1/20/97-1/20/98 $1,500,000 $2,323.00
Boiler Boiler Machinery
BMI-HN- Deductible $1,500
7314207-25 Business
Interruption
$225,000 included
The Hartford 4/1/95-4/1/98 $50,000 $249.00
Blanket Bond Employee
CBBLV4968 dishonesty profit
sharing plan
trustees
Lawyers Surety 1/22/97-1/22/98 $50.00
Corp LSC474086 Outside
advertising bond
Lexington Feedlot Cattle Deposit $2,800.00
Insurance deductible $1,000 $10,000,000
IF8790000015 Occurrence
.08HD + $4.95%
Tax
Texas Cattle Group Health Monthly $4,697.54
Feeders Assn. Insurance $2,000,000
Group #0033164 Deductible $500 Maximum
Individual Lifetime
Generally 80% Benefit
Coinsurance
Ranger 6/1/96-5/31/97 $1,000,000 $4,711.00
Insurance Commercial Liability,
TBA 0453380 Automobile $5,000
Deductible $250 Personal
Injury,
$1,000,000
Uninsured
Motorist
Ranger 6/1/97-5/31/97 $1,053,800 $6,789.00
Insurance Commercial Property
TXG 033331400 Property/Liability General
Deductible $1,000 Liability &
90% Coinsurance Inland Marine
Frontier 10/1/96-10/1/97 $500,000 $39,465.00
Insurance Co. Worker's Bodily injury
of NY TWC 2770 Compensation by accident,
Deductible $25,000 each accident
$500,000
Bodily injury
by disease-
policy limit:
$500,000
bodily injury
by disease by
employee
