EXHIBIT 10.1
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AGREEMENT AND PLAN OF MERGER
BETWEEN
VECTOR TOBACCO INC.,
THE MEDALLION COMPANY, INC.
AND
XXXX X. XXXX
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Dated as of November 14, 2001
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of November 14,
2001 between Vector Tobacco Inc., a Delaware corporation ("Purchaser"), The
Medallion Company, Inc., a Virginia corporation (the "Company"), and Xxxx X.
Xxxx and the family trusts listed on the signature page hereto, the sole
stockholders of the Company ("Seller").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Boards of Directors of the Company and Purchaser
have each determined that it is in the best interests of their respective
stockholders for the Company and Purchaser to combine their respective
businesses upon the terms and conditions set forth herein; and
WHEREAS, in furtherance of such business combination, upon the
terms and subject to the conditions of this Agreement and in accordance with the
General Corporation Law of the State of Delaware ("Delaware Law") and the Stock
Corporation Act of the State of Virginia ("Virginia Law"), the Company will
merger with and into Purchaser (the "Merger").
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements hereinafter contained, the parties hereto do hereby agree as
follows:
ARTICLE I
THE MERGER AND CLOSING
SECTION 1.01. THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with Section 252 of Delaware Law and Section
13.1-722 of Virginia Law, at the Effective Time (as defined below in Section
1.02), the Company shall be merged with and into Purchaser. As a result of the
Merger, the separate corporate existence of the Company shall cease and
Purchaser shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
SECTION 1.02. CLOSING; EFFECTIVE TIME.
The closing of the Merger (the "Closing") shall take place at
the offices of the Purchaser, 000 Xxxx Xxxx Xxxxxx, Xxxxxx, Xxxxx Xxxxxxxx at
10:00 a.m. local time on the later to occur of (a) April 1, 2002 and (b) subject
to Section 10.02, the fifth business day following the date the conditions to
the Closing set forth in Articles VI and VII shall have been satisfied (other
than for conditions to be satisfied at the Closing), or at such other location,
time or date as may be agreed to in writing by Purchaser and Seller (such time
and date of the Closing being herein called the "Closing Date"). On the Closing
Date, the parties hereto shall cause the Merger to be consummated by filing (i)
a certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware, in such form as is required by, and executed and
acknowledged in accordance with, Section 252 of Delaware Law and (ii) articles
of merger (the "Articles of
Merger") with the State Corporation Commission of the State of Virginia, in such
form as is required by Section 13.1-720 of Virginia Law. The term "Effective
Time" means the date and time of the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware and the Articles of Merger with
the State Corporation Commission of the State of Virginia (or such later time as
may be agreed by the parties hereto and specified in the Certificate of Merger
and the Articles of Merger).
SECTION 1.03. EFFECT OF THE MERGER.
At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of Delaware Law and Virginia Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of each of the
Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.04. CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Purchaser, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law.
(b) At the Effective Time, the By-Laws of Purchaser, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such By-Laws.
SECTION 1.05. DIRECTORS AND OFFICERS.
The Directors of Purchaser immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation, and the officers of Purchaser immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
SECTION 1.06. CONVERSION OF SECURITIES.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Purchaser, the Company or the holders of capital stock
thereof, each share of Common Stock, $.01 par value, of Purchaser issued and
outstanding immediately prior to the Effective Time shall remain outstanding as
a share of Common Stock of Purchaser after the Merger, and all shares of Common
Stock, $1.00 par value, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time shall be cancelled and shall
be converted into the right to receive the following amounts in the aggregate:
(i) $75,000,000 by wire transfer to an account designated in
writing by Seller to Purchaser on or prior to the Closing Date; and
(ii) $10,000,000 by delivery of promissory notes of Purchaser
(together with the $25,000,000 promissory note of Purchaser to be
delivered on the Closing Date to Xxxx X. Xxxx pursuant to the Asset
Purchase Agreement referred to in Section 4.16(a), the "Promissory
Notes"), in substantially the form of Exhibit A attached hereto;
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with such cash and Promissory Notes to be issued ratably to each holder of the
Company Common Stock based on the number of shares thereof issued and
outstanding immediately prior to the Effective Time; PROVIDED, HOWEVER, if the
confirmed number of cigarettes sold by the Company used in computing the
Company's Market Share exemption (the "MSA Grandfathered Market Share") for the
purposes of Section IX(i) of the Master Settlement Agreement, dated November
1998, as amended, by the Settling States and Participating Manufacturers
signatories thereto (the "MSA") is less than 1,292,078,785 as a result of the
claim set forth in Schedule 1.06, the amount of cash and the principal amount of
the Promissory Notes to be paid at the Closing shall be proportionally reduced.
(b) Upon conversion of the Company Common Stock pursuant to
clause (a) of this Section 1.06, such shares shall be cancelled and cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, other than the right to receive cash
and Promissory Notes as provided in clause (a) above.
SECTION 1.07. CLOSING OF TRANSFER BOOKS.
From and after the Effective Time, the stock transfer books of
the Company shall be closed and no transfer of any capital stock of the Company
shall thereafter be made. If, after the Effective Time, certificates
representing any shares of such capital stock are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the Merger consideration
specified in Section 1.06.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser, as of the
date hereof and (except to the extent such representations and warranties
expressly relate to a prior date) as of the Closing Date, as follows (as used in
this Article II, the words "the knowledge of Seller" mean that Seller represents
and warrants as to Seller's actual knowledge after due inquiry of the officers
of the Company as to the subject matter covered by such representation or
warranty and receipt of confirmation of the accuracy of such representation or
warranty from the officers of the Company):
2.01. LEGAL CAPACITY.
The Seller has the legal capacity to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
2.02. DUE AUTHORIZATION; BINDING OBLIGATION.
The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate or other action on the part of Seller
and the Company. This Agreement has been approved by Seller, the sole
stockholder of the Company, as required by Virginia Law. This Agreement has been
duly and validly executed and delivered by Seller and the Company. This
Agreement constitutes the valid and binding obligations of Seller and the
Company, enforceable in accordance with its terms, subject to the qualification,
however, that the enforcement of the rights and remedies created hereby is
subject to bankruptcy and other similar laws of general application relating to
or affecting the rights and remedies of creditors and that the availability of
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the remedy of specific enforcement or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought. If
Seller is married and the Company Common Stock constitutes community property
under applicable law, this Agreement has been duly authorized, executed and
delivered by, and constitutes the valid and binding agreement of, Seller's
spouse enforceable against such spouse in accordance with its terms.
2.03. NON-CONTRAVENTION.
The execution, delivery and performance of this Agreement by
Seller and the Company and the consummation of the transactions contemplated
hereby do not and will not, with or without the giving of notice or the lapse of
time, or both, violate, conflict with, result in the breach of or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration of any obligation of any person or to the loss of any material
right of any person under or to increased, additional, accelerated or guaranteed
rights or entitlements of any person under, or result in the creation of any
pledge, lien, charge or other encumbrance upon any of the properties or assets
of the Company or Seller under, any of the terms, conditions or provisions of
(a) the charter documents or by-laws or other governing documents of the Company
or any trust agreement or other documents governing Seller or (b) any covenant,
agreement or understanding to which the Company or Seller is a party, or any
Contract (as defined in Section 2.16) to which the Company or Seller is a party
or by which its properties or assets are bound, or (c) any order, ruling,
decree, judgment, arbitration award, law, rule, permit, regulation or
stipulation to which Seller or the Company is subject, other than, in the case
of clauses (b) and (c) above, any such items that, individually or in the
aggregate, would not have a material adverse effect on the business, assets,
financial condition, results of operations or prospects of the Company, or the
ability of Seller or the Company to consummate the transactions contemplated
hereby ("Material Adverse Effect").
2.04. REGULATORY APPROVALS.
Except as set forth in Schedule 2.04, neither Seller nor the
Company is required to file, seek or obtain any governmental notice, filing,
authorization, approval, order or consent, or any bond in satisfaction of any
governmental regulation, in connection with the execution, delivery and
performance of this Agreement by Seller and the Company, or the consummation of
the transactions contemplated hereby.
2.05. TITLE TO SHARES.
Except as set forth in Schedule 2.05, Seller is the beneficial
and record owner of all of the 100 issued and outstanding shares of the Company
Common Stock, and such ownership is free and clear of any liens, pledges,
encumbrances, charges, agreements or claims. The shares of the Company Common
Stock owned by Seller are held (i) 70 shares by Xxxx X. Xxxx, (ii) 16 shares by
Xxxx X. Xxxx Retained Annuity Trust I pursuant to a Trust Agreement dated
January 21, 1999 between Xxxx X. Xxxx, as Grantor, and Xxxxx Xxx, as Trustee,
and (iii) 14 shares by Hall Family Trust pursuant to a Trust Agreement dated
December 31, 1998 between Xxxx X. Xxxx, as Grantor, and Xxxxx Xxx, as Trustee.
2.06. CAPITALIZATION OF THE COMPANY.
The Company's authorized capital consists solely of 1,000
shares of Company Common Stock, 100 shares of which are issued and outstanding.
Such issued and outstanding shares of Company Common Stock are validly issued,
fully paid and nonassessable. The Common Stock constitutes all of the ownership,
membership and equity interests of the Company, including all (a) rights to
participate in the management of the Company, to vote on any matter, and to
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grant or withhold consent or approval of actions of the Company and (b) rights
to receive all allocations of profits and losses, distributions and returns of
capital of the Company. Except for any rights granted to Purchaser under this
Agreement, there are no outstanding options, warrants or other rights to
purchase, obtain or acquire, or any outstanding securities or obligations
convertible into or exchangeable for, or any voting agreements with respect to,
any ownership, membership or equity interests in the Company or any other
securities of the Company, and the Company has no obligation, now or in the
future, contingent or otherwise, to issue, purchase or redeem ownership,
membership or equity interests or any other securities to or from anyone. Copies
of the charter documents and by-laws (or similar governing documents) and
corporate minute books of the Company have heretofore been delivered to
Purchaser and are true, correct and complete.
2.07. NO SUBSIDIARIES.
The Company does not own, directly or indirectly, the capital
stock or other ownership, membership, equity or other investment interests of or
in any other corporations or other entities.
2.08. ORGANIZATION.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Virginia, with full power
and authority to carry on its business as presently conducted by it and to own,
lease and operate its properties in the places where it maintains offices and
where its properties are owned, leased or operated. The Company has the full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby.
2.09. QUALIFICATIONS.
Schedule 2.09 sets forth each jurisdiction in which the
Company is duly qualified to do business and in good standing, and neither the
character of the properties owned or held under lease or license by the Company
nor the nature of the business conducted by the Company requires any
qualification in any other jurisdiction, except any such jurisdiction wherein
the failure to be so qualified would not in the aggregate have a Material
Adverse Effect.
2.10. FINANCIAL STATEMENTS.
Seller has heretofore furnished to Purchaser audited financial
statements of the Company consisting of (i) balance sheets at December 31, 2000
and 1999, (ii) statements of income for the years ended December 31, 2000 and
1999, (iii) statements of retained earnings for the years ended December 31,
2000 and 1999 and (iv) statements of cash flows for the years ended December 31,
2000 and 1999, together with the report of Mense, Xxxxxxxxxx & Xxxxx ("MCM")
thereon and the notes thereto (the foregoing audited financial statements,
report and notes thereto are hereinafter collectively referred to as the
"Financial Statements"). The Financial Statements (A) have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") applied on a consistent basis, and (B) present fairly the
financial position of the Company at the dates thereof and the results of
operations and cash flows of the Company for the periods then ended. Except as
and to the extent reflected or reserved against in the audited balance sheet of
the Company at December 31, 2000 (the "Balance Sheet") or as set forth in
Schedule 2.10, neither the Company nor any of the Subsidiaries has any material
liability or obligation (whether absolute or contingent, or accrued or
unaccrued) required to be disclosed in financial statements, or in the notes
thereto, prepared in accordance with GAAP. The books of account and financial
records of the Company have been prepared and are maintained in accordance with
good accounting practice and, to the extent required, applicable laws.
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2.11. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Schedule 2.11, since December 31, 2000
there has not been, with respect to the Company or its business or properties:
(a) any material adverse change in the business,
assets, condition (financial or other), results of operations or
prospects of the Company or its properties;
(b) any destruction, damage by fire, accident or
other casualty or act of God of or to any of properties or assets of
the Company, whether or not covered by insurance, except any
destruction, damage, accident, casualty or act as would in the
aggregate not have a Material Adverse Effect; or
(c) any action that, if taken after the date of this
Agreement, would constitute a breach of any of the covenants set forth
in Section 5.01.
2.12. ASSETS OTHER THAN REAL PROPERTY INTERESTS.
(a) The Company is in possession of and has good and
marketable title to all assets used in or reasonably necessary to the conduct of
its business, including all assets reflected on the Balance Sheet or thereafter
acquired with a value in excess of $25,000, except those sold or otherwise
disposed of for fair value since the date of the Balance Sheet in the ordinary
course of business consistent with past practice and not in violation of this
Agreement, in each case free and clear of all mortgages, liens, security
interests, pledges, encumbrances, charges, agreements, claims, restrictions and
defects of title of any kind except (i) as are set forth in Schedule 2.12, (ii)
liens for Taxes (as defined in Section 2.18) which are not yet due and payable
or being contested in good faith by appropriate proceedings, (iii) mechanic's,
materialman's or other similar liens arising by operation of law or (iv) other
minor imperfections of title, if any, which items in clauses (ii) through (iv)
above do not, individually or in the aggregate, materially impair the value or
materially interfere with the continued use of the assets to which they relate
in the conduct of the business of the Company (such items in clauses (ii)
through (iv) are hereinafter referred to as "Permitted Liens").
(b) The tangible personal (moveable) property of the Company
has been maintained in all material respects in accordance with the past
practice of the Company and generally accepted industry practice, and its use by
the Company complies with all applicable laws. The tangible personal property of
the Company is in all material respects in good operating condition and repair,
ordinary wear and tear excepted. All leased personal property of the Company is
in all material respects in the condition required of such property by the terms
of the lease currently applicable thereto.
This Section 2.12 does not relate to real property or interests in real
property, such items being the subject of Section 2.13.
2.13. REAL PROPERTY OWNED AND LEASED.
Schedule 2.13 contains a complete list of all real property
(immovable property) (including, without limitation, plants, warehouses,
interests in real property, distribution centers, structures and other
buildings) owned or leased by the Company (the "Real Property"). The Company has
good and marketable title to the Real Property. Adequate ingress and egress
exists with respect to the Real Property, and the Real Property complies with
all applicable zonings
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laws, rules and regulations and land use restrictions. The interests in Real
Property are free and clear of all mortgages, liens, security interests,
pledges, leases, subleases, encumbrances, charges, assignments, easements,
claims or other restrictions and defects in title except (i) as are set forth in
Schedule 2.13 hereto and (ii) Permitted Liens. All interests in Real Property
are currently used in the operation of the business of the Company and are
adequately maintained and are in good operating condition and repair for the
requirements of the business as presently conducted by the Company.
2.14. PATENTS, TRADEMARKS, ETC.
(a) Schedule 2.14 sets forth a complete and accurate listing
of all patents, trademarks, trade names, service marks and copyrights used in
the conduct of the businesses of the Company, whether registered or
unregistered, and any applications or registrations therefor. Except as set
forth in Schedule 2.14, the Company solely owns and has the exclusive right to
use, or, for the items so identified in Schedule 2.14, the non-exclusive right
to use, free and clear of any payment (other than payments not yet due to
maintain the registration thereof) or encumbrance, all such patents, trademarks,
trade names, service marks and copyrights (all such patents, trademarks, trade
names, service marks and copyrights being hereinafter collectively referred to
as the "Intellectual Property"). Except as set forth in Schedule 2.14, there is
no claim or demand of any person pertaining to, or any proceedings which are
pending or, to the knowledge of Seller, threatened, which challenge the
exclusive rights of the Company in respect of any Intellectual Property. All
registrations and applications required to be made by Seller and the Company
with respect to the Company's Intellectual Property are in full force and
effect. No Intellectual Property is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, arbitrator, administrative
agency or governmental official and, except as set forth in Schedule 2.14, to
the knowledge of Seller, none of the Intellectual Property infringes the
intellectual property rights of others or is being infringed by others or is
used by others (whether or not such use constitutes infringement). The Company
has taken all reasonable measures necessary to protect the proprietary nature of
each item of Intellectual Property that it considers confidential, and to
maintain in confidence all trade secrets and confidential information that it
presently owns or uses, except where the failure to own, license or possess
legally enforceable rights to use such Intellectual Property would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) All knowledge and know-how required to operate the Company
as heretofore conducted is held and may be used by the Company without any
obligation to Seller or its affiliates (other than the Company). The Company has
not granted any licenses with respect to, nor otherwise disclosed or has agreed
to disclose, any such knowledge or know-how.
2.15. INSURANCE.
Schedule 2.15 sets forth a complete and accurate list of all
casualty, directors and officers liability, general liability (including product
liability) and all other types of insurance maintained by the Company, together
with the carriers and liability limits for each such policy. Seller has provided
to Purchaser a true and correct copy of each such policy. Each policy is in
force and has been issued by an insurer that is financially sound and reputable,
and no notice has been received by the Company from any insurance carrier
purporting to cancel or reduce coverage under any such policy. Seller and the
Company have not received any refusal of coverage or any notice that a defense
will be afforded with reservation of rights. The Company is current in all
premiums or other payments due thereunder. Schedule 2.15 identifies which
insurance policies are "occurrence" or "claims made". All insurance coverage
held for the benefit of the Company is reasonably adequate to cover risks
customarily insured against by similar companies in their industry.
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2.16. COMMITMENTS.
(a) Except as set forth in Schedule 2.16, the Company is not
a party to or bound by any:
(i) employment agreement or employment contract;
(ii) employee collective bargaining agreement or other
contract with any labor union;
(iii) covenant not to compete or other covenant restricting
the development, manufacture, marketing or distribution of the products
and services of the Company;
(iv) agreement, contract or other arrangement with (A) Seller
or any affiliate of Seller (other than the Company) or (B) any current
or former officer, director, employee or independent contractor of the
Company, Seller or any affiliate of Seller (other than employment
agreements covered by clause (i) above);
(v) lease, sublease or similar agreement with any person under
which the Company is a lessor or sublessor of, or makes available for
use to any person (other than the Company), (A) any Real Property or
(B) any portion of any premises otherwise occupied by the Company;
(vi) lease or similar agreement with any person (other than
the Company) under which (A) the Company is lessee of, or holds or
uses, any machinery, equipment, vehicle or other tangible personal
property owned by any person or (B) the Company is a lessor or
sublessor of, or makes available for use by any person, any tangible
personal property owned or leased by the Company, in any such case
which has an aggregate future liability or receivable, as the case may
be, in excess of $25,000 and, in the case of any such lease or similar
agreement entered into between the date hereof and the Closing, is not
terminable by the Company by notice of 60 days or less without cost or
penalty;
(vii) (A) continuing agreement or contract for the future
purchase of materials, supplies or equipment or (B) service,
consulting, management or other similar type of agreement or contract
(other than with the Company);
(viii) continuing agreement or contract for the sale or
distribution of any products manufactured by the Company, including by
franchise arrangement;
(ix) continuing agreement or contract for the purchase of any
finished goods manufactured by parties other than the Company;
(x) continuing agreement or contract for products manufactured
by the Company on behalf of parties other than the Company;
(xi) agreement, contract or arrangement for the placement of
advertising or other promotional activities;
(xii) except as set forth in Schedule 2.14, any license,
option or other agreement relating in whole or in part to the
Intellectual Property set forth in Schedule 2.14 (including any license
or other agreement under which the Company is licensee or licensor of
any such Intellectual Property) or to trade secrets or proprietary
rights and processes of the Company or any other person;
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(xiii) agreement, contract or other instrument under which the
Company has borrowed any money from, or issued any note, bond,
debenture or other evidence of indebtedness to, any person or any other
note, bond, debenture or other evidence of indebtedness issued to any
person;
(xiv) agreement, contract or other instrument (including
so-called take-or-pay or keepwell agreements) under which (A) any
person has directly or indirectly guaranteed indebtedness, liabilities
or obligations of the Company or (B) the Company has directly or
indirectly guaranteed indebtedness, liabilities or obligations of any
person (in each case other than endorsements for the purpose of
collection in the ordinary course of business);
(xv) agreement, contract or other instrument under which the
Company has, directly or indirectly, made any advance, loan, extension
of credit or capital contribution to, or other investment in, any
person (other than trade credits in the ordinary course of business);
(xvi) mortgage, pledge, security agreement, deed of trust or
other instrument granting a lien or other encumbrance upon any property
of the Company, which lien or other encumbrance is not set forth in
Schedule 2.12 or 2.13 or is not a Permitted Lien; or
(xvii) agreement, contract or instrument providing for
indemnification of any person with respect to liabilities relating to
any current or former business of the Company, or any predecessor
person (other than provisions of any contract or agreement providing
for indemnification solely in respect of breaches of such contract or
agreement).
(b) Except as set forth in Schedule 2.16, all agreements,
contracts, leases, licenses, commitments or instruments of the Company required
to be listed in the Schedules hereto (collectively, the "Contracts") are valid,
binding and in full force and effect. Except as set forth in Schedule 2.16, (i)
the Company has performed all obligations required to be performed by it to date
under the Contracts and it is not and, as a result of the transactions
contemplated hereby, will not be (with or without the lapse of time or the
giving of notice, or both) in breach or default in any respect thereunder and,
(ii) to the knowledge of Seller, no other party to any of the Contracts is (with
or without the lapse of time or the giving of notice, or both) in breach or
default in any respect thereunder. Seller and the Company have not received from
any person any notice or other communication (whether oral or written) regarding
any actual, alleged, possible or potential violation or breach of, or default
under, any Contract. On or before 30 days from the date hereof, Seller will
provide to Purchaser a true and correct copy of each of the Contracts.
2.17. LEGAL PROCEEDINGS.
Except as set forth in Schedule 2.17, neither Seller nor the
Company is engaged in or a party to, or, to the knowledge of Seller, threatened
with, any suit, investigation, legal action or other proceeding before any
court, administrative agency, arbitration panel or other similar authority, and
Seller knows of no reasonable basis for any such suit, investigation, action or
proceeding. There are no outstanding orders, rulings, decrees, judgments or
stipulations by or with any court, administrative agency, arbitration panel or
other similar authority against the Company or which challenge or otherwise
relate to the transactions contemplated by this Agreement.
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2.18. TAXES.
(a) Effective January 1, 1999, the Company has validly elected
under the Internal Revenue Code of 1986, as amended (the "Code"), to be taxed
for federal income tax purposes as a Subchapter S Corporation.
(b) All federal, state and local and all foreign tax returns,
reports, declarations, statements and other documents required to be filed by or
with respect to the Company, the Seller with respect to income arising from the
Company, and any predecessor corporations of the Company in respect of all
taxes, including income, franchise, value-added, sales, property, payroll and
other taxes, levies, imposts and duties of any nature whatsoever and any
interest, additions or penalties in respect thereof ("Taxes") have been filed
with the appropriate tax authorities, such documents are true, accurate and
complete in all material respects and all amounts shown by such documents to be
due and payable have been paid. Copies of the U.S. income tax returns of the
Company for the taxable periods ended 1998, 1999 and 2000 have been provided or
made available to Purchaser. The Company is not in default in the payment of any
Taxes due or payable or on any assessments received in respect thereof. Except
as and to the extent reflected or reserved against in the Balance Sheet or as
described in Schedule 2.10, the Company does not have any liability for Taxes or
any interest or penalties in respect thereof, that are or may become material to
the Company. All Taxes that are or may become material to the Company for
periods ending on or prior to December 31, 2000 that should be reserved on the
books of the Company or any of the Subsidiaries in accordance with GAAP and the
Company's past practice have been so reserved in the Balance Sheet, and all
estimated tax payments required to be made have been made. No waivers of
statutes of limitation are in effect in respect of taxes for the Company. There
are no pending, or to the knowledge of Seller threatened, material claims or
assessments against the Company in respect of Taxes, or interest or penalties,
other than claims or assessments for which adequate reserves have been provided.
(c) Seller shall not, and shall not agree to, enter into a
waiver agreement to extend the statute of limitations with respect to federal,
state, local or foreign taxes for periods on or prior to Closing, which includes
the year of the Closing, without the prior written consent of Purchaser.
Further, Seller agrees to allow Purchaser a period of 30 days to consider a
request for such extension.
2.19. COMPLIANCE WITH LAWS; PERMITS AND LICENSES.
Except as is disclosed on Schedules 2.17 and 2.19, (a) the
Company is in compliance with all laws, decrees, decisions, rulings, judgments,
orders, ordinances, regulations and other pronouncements adopted, rendered or
otherwise issued by any federal, state, regional, municipal or local
governmental authority, agency, board, body, court or instrumentality of the
United States of America and any other jurisdiction applicable to the Company,
except such instances of non-compliance as will not, individually or in the
aggregate, have a Material Adverse Effect, (b) no claims, complaints, audits or
investigations from or by any governmental authorities or other parties have
been asserted or received by the Company since January 1, 1996 alleging that the
Company is in violation of any applicable building, zoning or other law,
ordinance or regulation in relation to its business, plants, warehouses,
distribution centers, structures or other buildings or equipment, or the
operation thereof, that should the claimant or complainant prevail would have,
individually or in the aggregate, a Material Adverse Effect, (c) to the
knowledge of Seller, there are no claims or complaints from any governmental
authorities or other persons that are threatened of the type referred to in
clause (b) above that should the claimant or complainant prevail would have a
Material Adverse Effect and (d) the Company has not received notice from any
governmental authorities of any pending proceedings to take all or any part of
the properties of the Company (whether leased or owned) by condemnation or right
of eminent domain and, to the knowledge of Seller, no such proceedings are
threatened.
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Schedule 2.19 sets forth all governmental permits, licenses and authorizations
necessary for the operation of the businesses of the Company as presently
conducted and for the operation or occupancy of the properties owned or used by
the Company in the business. All such licenses, permits and authorizations are
validly held by the Company, the Company has complied with all terms and
conditions thereof, except such instances of non-compliance as would not,
individually or in the aggregate, have a Material Adverse Effect, and the same
will not be subject to suspension, modification, revocation or nonrenewal as a
result of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
2.20. ENVIRONMENTAL MATTERS.
Except as set forth on Schedule 2.20 attached hereto, the
Company (a) is in compliance in all material respects with applicable
Environmental Requirements (as defined below), (b) have received no notice of
violation from any government and authority or the commencement of any claim,
suit or proceeding by any government authority or other party with respect to
environmental conditions concerning the Real Property, (c) are not aware of any
activity conducted on Real Property which would likely result in a violation of
any applicable Environmental Requirement in any material respect, and (d) to the
knowledge of Seller, no Hazardous Material (as defined below) is located on, at,
in, under or about the Real Property or has been transported, treated, stored,
handled, transferred, disposed, recycled or received by or on behalf of the
Company, in a manner that could result in liability to the Company. Seller has
provided Purchaser a true and correct copy of any environmental studies prepared
with respect to the Real Property. For the purpose of this Agreement, the
following terms shall have the following meanings:
(i) The term "Hazardous Material" means any material,
substance or constituent, including any petroleum product, that,
whether by its nature or its use, is subject to regulation under any
Environmental Requirement, excluding for purposes of this Section 2.20
tobacco leaf.
(ii) The term "Environmental Requirement" or "Environmental
Requirements" means any and all laws, ordinances, statutes, codes,
rules, regulations, decrees, orders, directives, permits, or licenses
of or by any federal, state, regional, municipal or local governmental
authority regulating, relating to or imposing liability or standards of
conduct concerning protection of the environment or of human health, or
employee health and safety, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act,
the Hazardous Materials Transportation Act, the Resource Conservation
and Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic
Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, Occupational Safety and Health Act and the Oil
Pollution Act of 1990, as such laws have been amended or supplemented,
and the regulations promulgated pursuant thereto, and all analogous
state or local statutes.
2.21. EMPLOYEE BENEFIT PLANS; TERMINATION AND SEVERANCE
AGREEMENTS.
(a) Except as indicated on Schedule 2.21(a), the Company and
its affiliates have never maintained, sponsored, participated in, administered,
contributed to or incurred any obligation to or any liability under any savings,
profit sharing, annuity, retirement, deferred compensation, bonus, incentive
(including, without limitation, cash, stock options, stock bonus, stock
appreciation rights, phantom stock, restricted stock and stock purchase),
medical, dental, vision, hospitalization, prescription drug and other health,
employee assistance, cafeteria, flexible benefits, life insurance, short and
long term disability, vacation pay, severance pay, other welfare or fringe
benefit or similar plans, programs, understandings, arrangements or agreements,
11
including without limitation any employee benefit plan as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether written or oral, direct or indirect, or actual or contingent
("Plan").
(b) The Company has never incurred or is not reasonably
expected to incur any liability under or related to any Plan that is a defined
benefit pension plan of any ERISA Affiliate. Except as set forth on Schedule
2.21(b), no employee of the Company is or has ever been within the six-year
period preceding the date of this Agreement entitled to participate in or
receive benefits under any Plan that is a defined benefit pension plan of any
ERISA Affiliate. For the purpose of this Agreement, the term "ERISA Affiliate"
means any entity, person or individual that, together with the Company, is or
was treated as a single-employer within the meaning of Section 414(b), (c), (m)
or (o) of the Code, or ERISA Section 4001(b).
(c) Each Plan that is intended to be qualified under Code
Section 401(a) is so qualified.
(d) Except as indicated on Schedule 2.21(d)(i), no "reportable
event" within the meaning of ERISA Section 4043 (other than an event described
in PBGC Regulation Section 4043.22, .27, .29 and .31 for which notice is waived)
has occurred with respect to any Plan within the six year period preceding the
date of this Agreement that is or was subject to Title IV of ERISA. Neither the
Company nor any ERISA Affiliate has any liability to the Pension Benefit
Guaranty Corporation, other than for premiums the payment of which is not yet
due. No Plan that is or was an "employee pension benefit plan" within the
meaning of ERISA Section 3(2) ("Pension Plan") has been terminated or merged, in
whole or in part, within the six-year period preceding the date of this
Agreement, except as indicated on Schedule 2.21(d)(ii). The present value of the
accrued benefits (both vested and unvested) under each Pension Plan (determined
as of the most recent actuarial valuation date for such Pension Plan and
determined in accordance with the same actuarial assumptions and methods as used
by the actuary for such Pension Plan as of such valuation date) did not exceed
the value of such assets for such Pension Plan on such valuation date. There are
no "underfunded benefit liabilities" (as defined in ERISA Section 4001(a)(16))
under any Pension Plan as of the most recent actuarial valuation date for such
Pension Plan. Each Pension Plan is in compliance with Code Section 412 and ERISA
Title I. No Pension Plan has incurred any "accumulated funding deficiency"
(whether or not waived) within the meaning of Code Section 412.
(e) No "prohibited transaction" within the meaning of ERISA
Section 406 or Code Section 4975 has occurred with respect to any Plan sponsored
or administered by the Company. All Plans sponsored or administered by the
Company comply currently, and have complied in the past in form and in
operation, with the provisions of ERISA, the Code, the rules and regulations
promulgated under these statutes, all other applicable federal, state, or common
law and with their respective benefit plans and trust agreements. There are no
actions, suits or claims pending (other than routine claims for benefits) which
could reasonably be expected to be asserted against any Plan or the assets or
fiduciaries of any Plan sponsored or maintained by the Company or any Plan
established or maintained by any ERISA Affiliate which would have a Material
Adverse Effect. No civil or criminal action under ERISA Title I, Subtitle B,
Part 5 is pending or threatened against any fiduciary of any Plan sponsored or
maintained by the Company. No Plan nor any fiduciary of a Plan sponsored or
maintained by the Company has been the direct or indirect subject of an audit,
investigation or examination by any governmental or quasi-governmental agency.
(f) Every Plan of the Company that is a "group health plan"
within the meaning of Code Section 4980B(g)(2) has been administered in
accordance with ERISA Title I, Subtitle B, Part 6 of ERISA and has met the
requirements of Section 4980B of the Code. Apart from benefits from Pension
Plans, benefits described under Code Section 4980B and health benefits provided
12
to retirees under welfare plans listed and categorized in Schedule 2.21(a) as
plans providing retiree health benefits, the Company has no obligation to
provide benefits under any Plan except to its active employees.
(g) Neither the Company nor any ERISA Affiliate has incurred
any obligation to contribute to any "multiemployer plan" within the meaning of
ERISA Section 4001(a)(3).
(h) The Company has not contracted with any "leased employee"
within the meaning of Code Section 414. Each person who performs services for
the Company or any of the Subsidiaries is and has been properly classified, to
the extent reasonably determinable under existing regulatory guidance at the
time of such classification, as a "common law employee," "leased employee" or
"independent contractor" for all purposes under U.S. federal income tax laws.
(i) Except as set forth in Schedule 2.16, the Company is not a
party to any employment, termination or severance agreement, contract,
arrangement or understanding with any employee or former employee of the
Company. The Merger will not result in any obligation of the Purchaser to pay
any employee of the Company severance pay or termination benefits.
2.22. EMPLOYEE AND LABOR MATTERS.
The Company is not a party to any collective bargaining
agreement or other contract with or commitment to any labor union or association
representing any employee of the Company, nor does any labor union or collective
bargaining agent represent any employees of the Company. No such agreement,
contract or other commitment has been requested by, or is under discussion by
management of the Company (or any management group or association of which the
Company is a member or otherwise a participant) with, any group of employees or
others, nor are there any other current activities known to the Company or
Seller to organize any employees of the Company into a collective bargaining
unit. The Company is in compliance with all applicable employment, labor and
similar laws, except such instances of non-compliance as will not individually
or in the aggregate have a Material Adverse Effect. Except as disclosed in
Schedule 2.22, there is, and during the past five years there has been, no labor
strike, dispute, slow-down or work stoppage pending, or, to the knowledge of
Seller, threatened against the Company. Except as set forth in Schedule 2.22,
since January 1, 1996, there have been no charges brought, or, to the knowledge
of Seller, threatened, against the Company or any current or former employee,
officer or director of the Company before any federal, state or local or foreign
agency responsible for the prevention of unlawful employment practices.
2.23. CAPITAL EXPENDITURES.
Except as set forth on Schedule 2.23, there are no contractual
commitments of the Company for capital expenditures.
2.24. BANK ACCOUNTS; POWERS OF ATTORNEY.
Schedule 2.24 sets forth the name of each bank in which the
Company has an account or safe deposit box, vault, lock-box or other
arrangement, the account number and description of each account at each bank and
the names of all persons authorized to draw thereon or to have access thereto;
and the names of all persons, if any, holding tax or other powers of attorney or
similar authorizations given by the Company.
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2.25. INVENTORIES.
The inventories of the Company, whether reflected on the
Balance Sheet or subsequently acquired, are generally of a quality and quantity
usable and/or salable at book value in the ordinary course of business. The
inventories of the Company are reflected on the Balance Sheet and in its books
and records in accordance with GAAP applied on a basis consistent with past
practice (except as described in the notes to the Balance Sheet). On the Closing
Date, the Company will have sufficient quantities (in an amount of not less than
$1,300,000) of inventory to operate the business in the ordinary course for a
15-day period.
2.26. INVESTMENT REPRESENTATIONS.
The Promissory Notes will be acquired by Seller for its
account and not with a view to distribution. Seller understands that it must
bear the economic risk of its investment in the Promissory Notes, which cannot
be sold by it unless registered under the Securities Act of 1933, or an
exemption therefrom is available thereunder. Seller is an "accredited investor"
within the meaning of the Securities Act of 1933. Seller has had both the
opportunity to ask questions and receive answers from the officers and directors
of Purchaser and its affiliates and all persons acting on their behalf
concerning the business and operations of Purchaser and its affiliates and to
obtain any additional information to the extent Purchaser possesses or may
possess such information or can acquire it without unreasonable effort or
expense necessary to verify the accuracy of such information.
2.27. RELATED TRANSACTIONS.
Except as set forth in Schedule 2.27 and except for
compensation to employees for services rendered in the ordinary course, neither
Seller, the Company or, to the knowledge of Seller, any director, officer,
employee or stockholder of the Company is presently, or since January 1, 1998
has been, a party to any transaction with the Company (including, but not
limited to, any contract, agreement or other arrangements providing for the
furnishing of services to or by, or rental of real or personal property to or
from, or otherwise requiring payments to or from, any such director, officer,
employee or stockholder).
2.28. NO MATERIAL MISSTATEMENT OR OMISSION.
No representation or warranty of Seller in this Agreement, the
Schedules delivered herewith or any certificate furnished by Seller in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which such statements are made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller, as of the
date hereof and as of the Closing Date, as follows:
3.01. ORGANIZATION AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing
and in good standing under the laws of Delaware, with full corporate power and
authority to execute and deliver this
14
Agreement and the Promissory Notes, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby.
3.02. DUE AUTHORIZATION; BINDING OBLIGATION.
The execution, delivery and performance by Purchaser of this
Agreement and the Promissory Notes, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been approved by
the sole stockholder of Purchaser as required by Delaware Law. This Agreement
has been, and the Promissory Notes will be on the Closing Date, duly and validly
executed and delivered by Purchaser. This Agreement constitutes, and the
Promissory Notes when executed and delivered will constitute, the valid and
binding obligations of Purchaser, enforceable in accordance with their terms,
subject to the qualification, however, that the enforcement of the rights and
remedies created hereby and thereby is subject to bankruptcy and other similar
laws of general application relating to or affecting the rights and remedies of
creditors and that the availability of the remedy of specific enforcement or of
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
3.03. NON-CONTRAVENTION.
The execution, delivery and performance of this Agreement and
the Promissory Notes by Purchaser and the consummation of the transactions
contemplated hereby do not and will not, with or without the giving of notice or
the lapse of time, or both, violate, conflict with, result in the breach of or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any obligation of any person or to the loss of
any material right of any person under or to increased, additional, accelerated
or guaranteed rights or entitlements of any person under, or result in the
creation of any pledge, lien, charge or other encumbrance upon any of the
properties or assets of Purchaser under, any of the terms, conditions or
provisions of (a) the charter documents or by-laws or other governing documents
of Purchaser or (b) any covenant, agreement or understanding to which Purchaser
is a party or by which its properties or assets are bound, or (c) any order,
ruling, decree, judgment, arbitration award, law, rule, permit, regulation or
stipulation to which Purchaser is subject, other than, in the case of clauses
(b) and (c) above, any such items that, individually or in the aggregate, would
not have a material adverse effect on the ability of Purchaser to consummate the
transactions contemplated hereby.
3.04. REGULATORY APPROVALS.
Except as set forth in Schedule 3.04, Purchaser is not
required to file, seek or obtain any governmental notice, filing, authorization,
approval, order or consent, or any bond in satisfaction of any governmental
regulation, in connection with the execution, delivery and performance of this
Agreement by Purchaser.
ARTICLE IV
FURTHER AGREEMENTS AND ASSURANCES
4.01. GOVERNMENT FILINGS AND APPROVALS.
Seller, Purchaser and the Company shall file as soon as
practicable after the date of this Agreement notifications under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Seller, Purchaser and the Company agree to use their reasonable best
efforts to make all other required regulatory filings and applications and to
15
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Merger.
Seller, Purchaser and the Company further agree to use their reasonable best
efforts to comply promptly with all requests or requirements which applicable
federal, state, regional, local or municipal law or governmental officials may
impose on them with respect to the transactions which are the subject of this
Agreement. The best efforts of Seller, Purchaser and the Company shall include,
but shall not be limited to, a good faith response, in cooperation with each
other, to all requests for information, documentary or otherwise, by any
governmental agency in connection with obtaining approval under the HSR Act;
PROVIDED, HOWEVER, that neither Purchaser nor any of its affiliates shall be
required to divest or otherwise restrict any operations, assets or business.
4.02. CORPORATE INVESTIGATION BY PURCHASER.
(a) Seller shall give and shall cause the Company and its
affiliates to give to Purchaser and its attorneys, accountants, lenders and
other representatives, reasonable access during normal business hours to make or
cause to be made such investigation of the properties and business of the
Company and its affiliates and of their financial and legal condition as
Purchaser deems reasonably necessary or advisable to familiarize itself with
such properties and business, PROVIDED that such investigation shall not
interfere unnecessarily with normal operations. Seller agrees to furnish, and to
cause the Company and its affiliates to furnish, such financial and operating
data and other information with respect to the business and properties of the
Company and its affiliates as Purchaser shall from time to time reasonably
request.
(b) Purchaser will hold and will cause its directors,
officers, employees, agents, advisors (including, without limitation, counsel
and auditors) and controlling persons to hold any such information which is
nonpublic in confidence on the same terms and conditions as the confidentiality
provisions set forth in the Confidentiality Agreement dated September 17, 2001,
between the Seller, Purchaser and the Company (the "Confidentiality Agreement").
4.03. MAINTENANCE OF INSURANCE.
Until the Closing Date, Seller shall maintain or cause the
Company to maintain in full force and effect all presently existing insurance
coverage or equivalent substitutes therefor with respect to the Company and its
business, and will take no action that will cause a cancellation, or a lapse or
reduction in benefits thereof. Seller shall take such action as may be necessary
to assure the availability to the Purchaser on or after the Closing Date of the
full benefits of liability insurance purchased on an "occurrence basis" by the
Company, Seller or their affiliates covering the Company for the periods prior
to the Closing Date, subject to the terms, conditions and limitations in such
policies, and shall cooperate with Purchaser in making any claims thereunder.
4.04. REASONABLE BEST EFFORTS.
Subject to the terms and conditions of this Agreement, each
party shall use reasonable best efforts to cause the Closing to occur.
4.05. ADDITIONAL DISCLOSURE.
(a) Seller shall promptly notify Purchaser of, and furnish
Purchaser any information it may reasonably request with respect to, the
occurrence to the knowledge of Seller of any event or condition or the existence
to the knowledge of Seller of any fact that would cause
16
any of the conditions to Purchaser's or Seller's obligation to consummate the
Merger not to be fulfilled.
(b) Purchaser shall promptly notify Seller of, and furnish
Seller any information it may reasonably request with respect to, the occurrence
to the Purchaser's knowledge of any event or condition or the existence to the
knowledge of Purchaser of any fact that would cause any of the conditions to
Seller's or Purchaser's obligation to consummate the Merger not to be fulfilled.
(c) No such notification shall effect the right of the other
party to rely on closing conditions or indemnities hereunder.
4.06. CERTAIN LICENSES AND PERMITS.
Seller covenants that all licenses, permits and authorizations
which are held in the name of Seller or any of its affiliates, or any of their
respective employees, officers, directors, stockholders, agents or otherwise on
behalf of the Company shall be duly and validly transferred to the Company
without consideration prior to the Closing and that the warranties,
representations, covenants and conditions contained in this Agreement shall
apply to the same as if held by the Company as of the date hereof.
4.07. RESIGNATIONS.
On the Closing Date, Seller shall cause to be delivered to
Purchaser duly signed resignations (including waivers of any claims against the
Company), effective upon the Closing, of the members of the boards of directors
and officers of the Company as shall be specified in writing by Purchaser and
delivered to Seller on or before the fifth day prior to the Closing and Seller
shall take all action as is necessary to accomplish the foregoing.
4.08. NON-COMPETITION; NON-INTERFERENCE; OTHER TRANSACTIONS
(a) Except as set forth in Schedule 4.08, none of Seller,
Xxxxx X. Xxxx or any of their affiliates shall, for a period of five years
following the Closing Date, compete, directly or indirectly, with the Purchaser
or its affiliates by engaging in the business, or lending assistance to anyone
engaged in the business of developing or manufacturing cigarettes in the United
States or elsewhere in the world, as an owner, investor, employee, or in any
manner whatsoever. Notwithstanding the foregoing, Seller, Xxxxx X. Xxxx and
their affiliates shall not be prohibited from making investments of less than 1%
in the aggregate of publicly-traded tobacco companies for their own account.
(b) None of Seller, Xxxxx X. Xxxx or any of their affiliates
shall, for the period from the date of this Agreement to the date five years
following the Closing Date, interfere with the Company's relationships with, or
endeavor to employ or entice away from the Company, any person who at any time
on or after January 1, 2001 was an employee of the Company (other than those
individuals resigning as contemplated by Section 4.07 and Xxxxxx Xxxxxx, who
will waive any claims against the Company in a form satisfactory to Purchaser
and be employed by Seller as of the Closing Date).
(c) Following the Closing Date, none of Seller, Xxxxx X. Xxxx
or any of their affiliates shall directly or indirectly, at any time, except
with the prior express written consent of Purchaser, disclose any Confidential
Information (as defined below) that they may learn or have learned by reason of
their employment or association with the Company, or use any such information
for their own personal benefit or gain. For the purpose of this Agreement, the
term "Confidential Information" includes, without limitation, information with
respect to the business,
17
operations, customers, facilities and methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential reports,
pricing information, financial information (including, without limitation, the
revenues, costs or profits) associated with any activities or products of the
Company and/or its affiliates, business plans, prospects, opportunities or other
information of or relating to the Company and/or its affiliates.
(d) From the date of this Agreement to the Closing, none of
Seller, the Company nor any other affiliate of Seller shall, nor shall they
permit any of their respective officers, directors or other representatives to,
directly or indirectly, encourage, solicit, initiate or participate in
discussions or negotiations with, or provide any information or assistance to,
any person or group (other than Purchaser and its representatives) concerning
any merger, sale of securities, sale of substantial assets or similar
transaction involving the Company. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any officer, director or other representative of Seller, the Company
or any other affiliate of Seller, whether or not such person is purporting to
act on behalf of Seller, the Company, any other affiliate of Seller or
otherwise, shall be deemed to be a breach of this Section 4.08 by Seller. In the
event that Seller, the Company or any other affiliate of Seller receives a
proposal relating to any such transaction, Seller shall promptly notify
Purchaser of such proposal.
4.09 DISTRIBUTION OF CASH AND RECEIVABLES.
(a) As of the Closing Date, all cash and receivables of the
Company shall be transferred to Seller by dividend or otherwise, without
additional consideration. Such receivables shall include accounts receivable
from the trade or affiliates and notes and interest receivable from
stockholders.
(b) Purchaser shall use its reasonable best efforts to
collect, as Seller's agent, for a period of 180 days after the Closing Date (the
"Collection Period"), the outstanding accounts receivable of the Company
(identified in writing to Purchaser by Seller on or prior to the Closing)
arising prior to the Closing Date from customers; PROVIDED, HOWEVER, that
Purchaser shall not be required to resort to commercial collections or legal
action. Any payment received by Purchaser from a debtor of the Company shall be
applied first to the accounts receivable of Purchaser prior to applying any such
payments to amounts owed to Seller by such debtor unless and except to the
extent that such debtor identifies the invoice to which payment is to be
applied. Purchaser shall pay collected amounts to Seller on the last business
day of each month and any accounts receivable not paid at the end of the
Collection Period shall be transferred to Seller. If Purchaser receives any
amounts due Seller after the end of the Collection Period, it shall promptly pay
such amounts to Seller. If Seller receives any amounts due Purchaser after the
Closing Date, it shall promptly pay such amounts to Seller.
4.10. ASSUMPTION OF LIABILITIES.
On the Closing Date, but effective as of the Effective Time,
Seller shall assume and shall discharge when due the Retained Liabilities (as
defined below), which shall remain the sole responsibility of, and shall be
retained, paid, performed and discharged solely by, Seller. For the purpose of
this Agreement, the following terms shall have the following meanings:
(i) The term "Retained Liabilities" shall mean every Liability
(as defined below) against, relating to or affecting the Company, whether
arising before or after the Closing Date, including without limitation:
(a) any trade account or other payable that remains
unpaid as of the Effective Time;
18
(b) any Liability to the Company's customers incurred
by the Company for orders outstanding as of the
Effective Time;
(c) any Liability to the Company's customers under
written or oral warranty agreements;
(d) any Liability incurred by the Company under any
lease of real property, including the lease at
0000 Xxxxx Xxxx, Xxxxxxxx, Xxxxxxxx;
(e) any Liability under any contract or agreement
(other than those contracts and agreements
specifically listed on Schedule 4.10 to be
assumed by Purchaser), including any liability
arising out of or relating to indebtedness or
credit facilities of the Company;
(f) any Liability under any guarantee or surety
arrangements;
(g) any Liability arising out of or relating to
products of the Company to the extent
manufactured or sold prior to the Effective Time,
other than any smoking-related litigation (which
shall not constitute a Retained Liability);
(h) any Liability under any contract or agreement for
any breach that arises after the Effective Time
but that arises out of or relates to any breach
that occurred prior to the Effective Time;
(i) any Liability for Taxes, including (A) any Taxes
arising as a result of the operations of the
Company's business prior to the Effective Time,
(B) any Taxes payable by the Company or Seller
that will arise as a result of the Merger, (C)
any deferred Taxes of any nature and (D) any
Liability of Seller under Section 4.14;
(j) any Liability under the MSA arising out of or
relating to products of the Company to the extent
manufactured or sold or the Company's acts or
omissions prior to the Effective Time;
(k) any Environmental, Health and Safety Liabilities
(as defined below) arising out of or relating to
the operation of the Company's business or the
Company's leasing, ownership or operation of real
property;
(l) any Liability under any Plan or relating to
payroll, vacation, sick leave, workers'
compensation, unemployment benefits, pension
benefits, employee stock option or profit-sharing
plans, health care plans or benefits or any other
employee plans or benefits of any kind for the
Company's employees or former employees or both;
(m) any Liability under any employment, severance,
retention or termination agreement with any
employee of the Company;
(n) any Liability arising out of or relating to any
employee grievance whether or not the affected
employees are hired by Purchaser;
19
(o) any Liability of the Company to Seller or any
other present or former stockholder of the
Company;
(p) any Liability to indemnify, reimburse or advance
amounts to any officer, director, employee or
agent of the Company;
(q) any Liability to distribute to any of the
Company's stockholders all or any part of the
Merger consideration received hereunder;
(r) any Liability arising out of any legal claim or
proceeding pending as of the Effective Time,
including FFP Marketing Company, Inc. v. The
Medallion Company, Inc., Case no. 4:CV-99 0665-P,
filed in the U.S. District Court for the Northern
District of Texas, and the claim set forth in
Schedule 1.06;
(s) any Liability arising out of any legal claim or
proceeding, other than any smoking-related
litigation (which shall not constitute a Retained
Liability), commenced after the Effective Time
and arising out of or relating to any occurrence
or event happening prior to the Effective Time;
(t) any Liability arising out of or resulting from
the Company's compliance or noncompliance with
any legal requirement or order of any
governmental entity;
(u) any Liability of Seller or the Company under this
Agreement or any other document executed in
connection with the transactions contemplated
hereby; and
(v) any Liability of Purchaser based upon Seller's
acts or omissions occurring after the Effective
Time.
(ii) The term "Liability" shall mean, with respect to
any person, any liability or obligation of such person of any kind,
character or description, whether known or unknown, absolute or
contingent, accrued or unaccrued, disputed or undisputed, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become
due, vested or unvested, executory, determined, determinable or
otherwise, and whether or not the same is required to be accrued on the
financial statements of such person.
(iii) The term "Environmental, Health and Safety
Liabilities" shall mean any costs, damages, expense, liability,
obligation or other responsibility arising from or under any
Environmental Requirement or Occupational Safety and Health Law (as
defined below), including those consisting of or relating to:
(a) any environmental, health or safety matter or
condition (including on-site or off-site
contamination, occupational safety and health and
regulation of any chemical substance or product);
(b) any fine, penalty, judgment, award, settlement,
legal or administrative proceeding, damages,
loss, claim, demand or response, remedial or
inspection cost or expense arising under any
Environmental Requirement or Occupational Safety
and Health Law;
20
(c) financial responsibility under any Environmental
Requirement or Occupational Safety and Health Law
for investigatory or cleanup costs or corrective
action, including any cleanup, removal,
containment or other remediation or response
actions ("Cleanup") required by any Environmental
Requirement or Occupational Safety and Health Law
(whether or not such Cleanup has been required or
requested by any governmental entity or any other
person) and for any natural resource damages; or
(d) any other compliance, corrective or remedial
measure required under any Environmental
Requirement or Occupational Safety and Health
Law.
(iv) The term "Occupational Safety and Health Law"
shall mean any legal requirement designed to provide safe and healthful
working conditions and to reduce occupational safety and health
hazards, including the Occupational Safety and Health Act, and any
program, whether governmental or private (such as those promulgated or
sponsored by industry associations and insurance companies), designed
to provide safe and healthful working conditions.
4.11. FURTHER ASSURANCES.
Without further consideration, at any time and from time to
time after the Closing, as and when requested by either party, each party shall
execute and deliver, or cause to be executed and delivered, to the other party
all such documents and instruments, and shall take, or cause to be taken, all
such other actions, as the first party may reasonably deem necessary or
desirable to evidence the consummation of the transactions contemplated by this
Agreement.
4.12. RECORD ACCESS AND RETENTION.
(a) Purchaser agrees to retain or cause to be retained all
accounting, business, litigation, financial and tax records (including, without
limitation, work papers) (i) relating to the Company or its business in
existence on the Closing Date, or (ii) coming into existence after the Closing
Date which relate to the Company or its business prior to the Closing Date (the
"Business Documents"), in each case for a period of three years from the Closing
Date (or, for records relating to a Tax return, the later of the expiration of
the relevant statute of limitations or six years from the date such Tax return
was filed). At any time following three years from the Closing Date, Purchaser,
at its election, may notify Seller of its desire to transfer records to Seller
and, if Seller does not desire to receive such records, Purchaser may destroy or
otherwise dispose of such undesired records. In addition, Purchaser agrees that
from and after the Closing Date, it will not unreasonably refuse to provide
Seller or its representatives, after reasonable notice and during normal
business hours, access to and copies of such Business Documents as are necessary
to properly prepare for, file, prove, answer, prosecute and/or defend any
financial statements, Tax return and any other filing, audit, judicial or
administrative proceeding relating to Taxes, or any third party protest, claim,
suit, inquiry or other proceeding by any third party against Seller or any of
its affiliates and, if requested by Seller, will use reasonable efforts to abide
with any record retention agreement entered into with tax authorities.
(b) Following the Closing, Purchaser shall provide Seller with
a copy of any correspondence or notices relating to obligations of the Company
under the MSA, whether from the Independent Auditor (as defined in the MSA) or
other parties.
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4.13. CAPITALIZATION OF PURCHASER.
On or prior to the Closing Date, VGR Holding Inc., the sole
stockholder of Purchaser, will contribute $25,000,000 to the capital of
Purchaser.
4.14. TAX MATTERS.
(a) Seller and the Company agree that the Merger will be
treated for Federal income tax purposes as a purchase of all the Company's
assets followed by a liquidation of the Company. Seller, the Company and
Purchaser agree to allocate the purchase price to all assets acquired by
Purchaser consistently in accordance with Code Section 1060. Seller, Purchaser
and the Company agree to file Form 8594 - "Asset Acquisition Statement" with
their Federal income tax returns and file the Form 8594 or similar form with all
state and local tax returns where applicable. Seller, the Company and Purchaser
agree that Purchaser will prepare the Form 8594, which shall be prepared in a
manner reasonably satisfactory to Seller, and Purchaser will deliver the Form
8594 to Seller and the Company after the Closing. Seller shall promptly execute
and deliver to Purchaser all documentation reasonably requested by Purchaser,
included the completed Form 8594. Seller shall be responsible for and pay any
Federal, state, local and foreign income taxes (including any interests or
penalties that may become payable in respect thereof) imposed on the Company and
attributable to the Merger (including any state, local or foreign income taxes
imposed on the Company and attributable to the Merger), and shall indemnify
Purchaser and the Company against any such taxes.
(b) Seller shall bear and pay all transfer, stamp or other
similar taxes imposed in connection with the Merger.
(c) Seller will indemnify and hold Purchaser and the Company
harmless against (i) any and all liability for Federal, state, local or foreign
taxes (including any interest, penalties or additions to tax that may become
payable in respect thereof) assessed against or payable for the Company with
respect to any period ending on or before the Closing Date or any period ending
on or before the last day of the taxable year of Seller's in which the Closing
occurs and (ii) any liability for state, local or foreign taxes (including any
interest, penalties or additions to tax that may become payable in respect
thereof) assessed against the Company pursuant to any similar provision of
state, local or foreign law) with respect to any period ending on or before the
last day of the taxable year of Seller's in which the Closing occurs.
(d) Seller shall allow the Purchaser an opportunity to review
and comment on any tax returns to be filed for any period which includes the
Closing Date.
(e) Seller shall allow the Purchaser and its representatives
to participate in any audits and any tax contests of Seller's separate,
consolidated, combined or unitary tax returns to the extent such returns related
to the Company. Seller shall not settle any such audit in a manner which would
adversely affect Purchaser or the Company after the Closing Date without the
prior written consent of Purchaser. To the extent reasonably required by Seller,
Purchaser will, and will cause its representatives to, cooperate with and assist
Seller in connection with any such audits or tax contests covering any period
prior to the Closing.
4.15. SUBORDINATION.
Seller agrees to promptly execute and deliver any
subordination agreement or any other agreement modifying the subordination
provisions of the Promissory Notes, requested by any lender providing the
financing contemplated by Section 6.08, PROVIDED that any such agreement shall
be on terms reasonably satisfactory to Seller.
22
4.16. ADDITIONAL AGREEMENTS.
(a) On the Closing Date, Seller and Purchaser will execute and
deliver the Asset Purchase Agreement (the "Asset Purchase Agreement"), in
substantially the form of Exhibit B attached hereto, pursuant to which, among
other things, on the Closing Date, Xxxx X. Xxxx shall sell to Purchaser certain
goodwill and other intangible assets and Purchaser shall issue to Xxxx X. Xxxx
$25,000,000 of Promissory Notes. For all purposes of this Agreement, including
without limitation Section 9.03, the term "Promissory Notes" shall include the
Promissory Notes issued pursuant to both this Agreement and the Asset Purchase
Agreement.
(b) On the Closing Date, the parties hereto and/or certain
other persons will execute and deliver the following other agreements, in form
and substance reasonably satisfactory to the parties:
(i) Assumption Agreement between Seller, Purchaser and
the Company, pursuant to which Seller assumes the
Retained Liabilities;
(ii) Guarantee by Xxxxxxx Group Inc. ("Xxxxxxx") in favor
of Seller with respect to the Promissory Notes, in
substantially the form of Exhibit C attached hereto;
(iii) Agreement of Xxxxx X. Xxxx to comply with the
provisions of Section 4.08 (which Seller shall use
its reasonable best efforts to obtain); and
(iv) Security Agreement between Seller and Purchaser
granting Seller a lien on the Company's MSA rights to
secure the Promissory Notes, PROVIDED such lien shall
be junior and subordinated to the rights of, and
expressly conditioned on the approval (which
Purchaser shall use its reasonable best efforts to
obtain) of, any lender providing the financing
contemplated by Section 10.02 (y).
4.17. APPORTIONMENT OF MSA BENEFITS.
Seller and Purchaser agree that the benefits of the Company's
MSA Grandfathered Market Share for 2002 shall be apportioned between Seller and
Purchaser as of midnight of the night preceding the Closing Date. The
apportionment shall be based on the 2001 Number of cigarettes multiplied by the
fraction determined by dividing (i) the actual number of days elapsed between
January 1, 2002 and the day preceding the Closing Date (the "Pre-Closing
Period") by (ii) 365. If the number of cigarettes sold by the Company during the
Pre-Closing Period exceeds the Seller's apportionment, Seller shall pay
Purchaser at the Closing $15.50 per 1,000 cigarettes on the excess volume. If
the number of cigarettes sold by the Company during the Pre-Closing Period is
less than the Company's apportionment, Purchaser shall pay Seller at the Closing
$15.50 per 1,000 cigarettes on the amount of volume less than Seller's
apportionment. For the purpose of this Agreement, the "2001 Number" of
cigarettes shall be computed based on multiplying (i) the Company's Market Share
for 1998 (expressed as a percentage) under the MSA by (ii) the total number of
individual cigarettes sold in the fifty United States, the District of Columbia
and Puerto Rico during 2001, as measured by excise taxes collected by the
federal government and, in the case of sales in Puerto Rico, arbitrios de
cigarillos collected by the Puerto Rico taxing authority. The foregoing
calculation of the 2001 Number of cigarettes shall be subject to the second
sentence of Section II (z) of the MSA and shall be based on the determination of
the Independent Auditor (as defined in the MSA).
23
4.18. SCHEDULES.
Except for Schedules 1.06 and 4.08 delivered on the date
hereof, Seller and Purchaser shall deliver to each other on or before 30 days
from the date hereof, all of the Schedules required pursuant to the terms of
this Agreement.
ARTICLE V
CONDUCT OF BUSINESS
5.01. CONDUCT OF BUSINESS.
Seller agrees to cause the Company, and the Company hereby
agrees, prior to the Closing Date, (a) to conduct its business in the ordinary
course in accordance with present policies and as heretofore conducted, (b) to
preserve its business organization intact, (c) consistent with efficient and
economical management, to retain the services of its present officers, employees
and agents to the end that it may retain the goodwill of the Company and
preserve its business relationships with customers, suppliers and others, and
(d) to maintain all existing business permits, licenses, qualifications and
authorizations and to comply in all material respects with all of the terms and
conditions thereof. Seller shall not, and shall not permit the Company to, take
any action that would, or that could reasonably be expected to, result in any of
the conditions to the consummation of the Merger set forth in Article VII not
being satisfied. From and after the date hereof, and prior to the Closing Date,
Seller will prevent the Company, without the prior written approval of
Purchaser, from:
(i) changing or altering the Company's corporate structure
or amending its charter documents or by-laws or other governing
documents;
(ii) issuing or selling any shares of its ownership,
membership or equity interests, capital stock or any other securities
or issuing any securities convertible into or exchangeable for, or
options, warrants to purchase, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or entering into
any contract, understanding or arrangement with respect to the issuance
of, any ownership, membership or equity interests, shares of its
capital stock or any of its other securities, or entering into any
arrangement or contract with respect to the purchase, redemption or
voting of its ownership, membership or equity interests or shares of
capital stock, or adjusting, splitting, reacquiring, redeeming,
combining or reclassifying any of its securities, or making any other
changes in its capital structure;
(iii) incurring (contingently or otherwise) any indebtedness
for borrowed money;
(iv) incurring (contingently or otherwise) any other
obligation or liability except trade or other obligations or
liabilities to parties other than Seller or any of its affiliates in
the ordinary course of business;
(v) declaring, setting aside or paying any dividends (in
cash or in kind) on, or making any distributions in respect of, the
outstanding ownership, membership or equity interests in or other
securities of the Company or making any other payment to the Seller or
24
any of its affiliates (other than dividends paid out of the Company's
available cash resources and receivables);
(vi) entering into, amending or affirmatively renewing or
terminating any contract, commitment, lease (whether of real or
personal property) or other agreement, except in the ordinary course of
business;
(vii) guaranteeing or entering into any obligation to
guarantee the obligation of any person, firm, corporation or other
entity (other than endorsements for the purpose of collection in the
ordinary course of business);
(viii) mortgaging, pledging or subjecting to any lien, charge
or other encumbrance any of the assets, properties or business of the
Company which would not be a Permitted Lien if existing on the date
hereof;
(ix) selling or otherwise transferring or leasing any
properties or assets, or purchasing or otherwise acquiring or leasing
any properties or assets, in each case except for transactions in the
ordinary course of business;
(x) permitting to lapse any right, or defaulting, with
respect to any Contract, permit, license, Intellectual Property, or
other intangible asset used in the conduct of the business of the
Company;
(xi) granting any increase in wages or salary rates or in
employment, retirement, severance, termination or other benefits or
paying any bonus or making any loan to any officer, director or
employee, or entering into any employment contract with any person, or
adopting any bonus, profit sharing, compensation, stock option,
pension, retirement, deferred compensation, employment or other
employee benefit plan, agreement, trust, plan, fund or other
arrangement for the benefit or welfare of any employee of the Company;
(xii) making any material tax election, settling or
compromising any liability for Taxes, preparing and filing tax returns
or declarations other than on a basis consistent with the Company's
past practices or, other than in the ordinary course of business,
engaging in any transaction or operating the business in a manner that
would directly or indirectly result in any liability for Taxes of the
Company;
(xiii) making any changes in the type or amount of the
insurance coverages of the Company;
(xiv) making any change in its accounting methods or
practices; or
(xv) agreeing, in writing or otherwise, to do any of the
foregoing.
ARTICLE VI
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser hereunder to consummate the
Merger are subject to the satisfaction, or waiver in writing by Purchaser, on or
prior to the Closing Date, of the following conditions:
25
6.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of Seller made in
this Agreement qualified as to materiality shall be true and correct, and each
not so qualified shall be true and correct in all material respects as of the
date hereof and (except to the extent such representations and warranties
expressly relate to a prior date) as of the Closing Date as though made as of
such date, and Seller shall have delivered to Purchaser a certificate to that
effect, dated the Closing Date, and signed by Seller.
6.02. PERFORMANCE OF COVENANTS.
Each and all of the covenants and agreements of Seller to be
performed or complied with prior to or on the Closing Date shall have been duly
performed or complied with by Seller, and Seller shall have delivered to
Purchaser a certificate to that effect, dated the Closing Date, and signed by
Seller.
6.03. HSR ACT APPROVALS.
The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
6.04. NO LEGAL PROCEEDINGS.
No injunction shall be in effect prohibiting or restraining
the transactions contemplated by this Agreement and no investigation, action or
proceeding by or before any court or other governmental authority shall have
been commenced or threatened by any governmental entity to restrain or challenge
the transactions contemplated by this Agreement or seeking to obtain material
damages from Purchaser or its affiliates or the Company or the Subsidiaries if
such transactions are consummated.
6.05. SHARE CERTIFICATES.
Seller shall have delivered to Purchaser certificates
representing all the issued and outstanding shares of Company Common Stock, duly
endorsed in blank, or accompanied by appropriate stock powers in proper form for
transfer.
6.06. OPINION OF COUNSEL.
Purchaser shall have received the opinion of Xxxxxxxx & Xxxxxx
L.L.P., counsel for Seller, substantially in the form set forth in Schedule
6.06.
6.07. MSA CONFIRMATIONS.
Purchaser shall have obtained confirmation satisfactory to
Purchaser that after the Closing Date (i) Purchaser will be able to fully
utilize, in the same manner it is currently utilizable, the Company's MSA
Grandfathered Market Share in computing the Purchaser's liabilities under the
MSA, without limiting or restricting in any manner during any period the full
utilization by Xxxxxxx, in the same manner it is currently utilizable, of its
MSA Grandfathered Market Share in computing its liabilities under the MSA and
(ii) the number of cigarettes sold by the Company used in computing the
Company's MSA Grandfathered Market Share is at least 1,142,078,785.
26
6.08. NO APPRAISAL RIGHTS.
No appraisal rights under the Delaware Law shall have been
demanded by any stockholder of the Company.
6.09. NO MATERIAL ADVERSE CHANGE.
Since the date of this Agreement, there has not been, and
Purchaser shall not have become aware of, any material adverse change in the
business, assets, condition (financial or other), results of operations or
prospects of the Company, and no event or condition has occurred or circumstance
exists that may result in such a material adverse change or, in Purchaser's
judgment, makes it impracticable or inadvisable for Purchaser to consummate the
Merger. Such change, event, condition or circumstance may include (i) an
outbreak or escalation of hostilities or acts of terrorism or other national or
international calamity or crisis or suspension or material limitation of trading
or other change in the financial markets of the United States, and (ii) the
enactment, enforcement, publication, decree, deeming applicable, issuance or
other promulgation of any federal, state or local statute, regulation, rule,
order, decision or determination of any court, other governmental authority or
the Independent Auditor (as defined in the MSA) challenging, or the bringing of
any action, suit or proceeding seeking to challenge, the continued validity and
enforceability of the MSA, Qualifying Statutes (as defined in the MSA) in any
state, the payment obligations of Participating Manufacturers thereunder, or
limiting or restricting, or seeking to limit or restrict, in any manner during
any period Purchaser's ability to fully utilize the Company's MSA Grandfathered
Market Share, in the same manner it is currently utilizable, in computing
Purchaser's liabilities under the MSA, without limiting or restricting in any
manner during any period Xxxxxxx'x full utilization of its MSA Grandfathered
Market Share, in the same manner it is currently utilizable, in computing its
liabilities under the MSA, or otherwise diminishing the value of rights under
the MSA or benefits expected to be derived by Purchaser thereunder, including,
without limitation, the grant of certiorari by the U.S. Supreme Court in the
A.D. Xxxxxx Wholesale Co. v. Xxxxxx Xxxxxx, Inc. case (or the failure of the
U.S. Supreme Court to rule in such case) or a ruling by the U.S. Court of
Appeals for the Fourth Circuit reversing or modifying the U.S. District Court's
decision in Star Scientific, Inc. v. Xxxx Xxxxxx (or the failure of the U.S.
Court of Appeals for the Fourth Circuit to rule in such case).
6.10. CONSENTS.
Purchaser, Seller and the Company shall have obtained, on
terms satisfactory to Purchaser, all consents and approvals of governmental
authorities and other third parties required in connection with the consummation
of the transactions contemplated hereby, and such consents and approvals shall
remain in full force and effect.
ARTICLE VII
CONDITIONS TO SELLER'S AND THE COMPANY'S OBLIGATIONS
The obligations of Seller and the Company hereunder to
consummate the Merger are subject to the satisfaction, or waiver in writing by
Seller, on or prior to the Closing Date of the following conditions:
7.01. ACCURACY OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Purchaser made in this
Agreement qualified as to materiality shall be true and correct, and those not
27
so qualified shall be true and correct in all material respects as of the date
hereof and (except to the extent such representations and warranties expressly
relate to a prior date) as of the Closing Date as though made as of such date,
and Purchaser shall have delivered to Seller a certificate to that effect, dated
the Closing Date, and signed by the President or a Vice President of Purchaser.
7.02. PERFORMANCE OF COVENANTS.
Each and all of the covenants and agreements of Purchaser to
be performed or complied with prior to or on the Closing Date shall have been
duly performed or complied with by Purchaser, and Purchaser shall have delivered
to Seller a certificate to that effect, dated the Closing Date, and signed by
the President or a Vice President of Purchaser.
7.03. HSR ACT APPROVALS.
The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
7.04. NO LEGAL PROCEEDINGS.
No injunction shall be in effect prohibiting or restraining
the transactions contemplated by this Agreement and no suit, action or
proceeding by or before any court or other governmental authority shall have
been commenced or threatened by any governmental entity to restrain or challenge
the transactions contemplated by this Agreement or seeking to obtain material
damages from Seller if such transactions are consummated.
7.05. OPINION OF COUNSEL.
Seller shall have received the opinion of Xxxx X. Xxxx, Senior
Vice President and General Counsel of Purchaser, substantially in the form set
forth in Schedule 7.05.
ARTICLE VIII
SURVIVAL
8.01. SURVIVAL.
Notwithstanding any right of Purchaser (whether or not
exercised) to investigate the affairs of the Company or any right of any party
(whether or not exercised) to investigate the accuracy of the representations
and warranties of the other party contained in this Agreement, Seller and
Purchaser have the right to rely fully upon the representations, warranties,
covenants and agreements of the other contained in this Agreement. The
representations, warranties and covenants set forth in this Agreement shall
survive the Closing Date. All representations and warranties contained in this
Agreement (including the Schedules hereto) or in any certificate delivered with
respect thereto will be deemed to be representations and warranties hereunder
and, except for those representations and warranties contained in Sections 2.01,
2.02, 2.05, 2.06, 2.18, 2.26, 3.01, 3.02, and 11.06 shall remain in full force
and effect until June 30, 2004; and the representations and warranties in
Section 2.01, 2.02, 2.05, 2.06, 2.18, 2.26, 3.01, 3.02 and 11.06 shall remain in
full force and effect until 60 days after the expiration of any applicable
statute of limitations. Any claim for indemnity asserted within the relevant
period shall survive until resolved.
28
ARTICLE IX
INDEMNIFICATION
9.01. INDEMNIFICATION BY SELLER.
Seller will indemnify, defend, save and hold Purchaser and any
of its affiliates (including the Company) and any of its and their respective
directors, officers, employees or agents ("Purchaser's Affiliates") harmless
from and against any and all damage, liability, loss, penalty, expense,
assessment, judgment or deficiency of any nature whatsoever (including, without
limitation, reasonable attorneys' fees and expenses, consultants' and
investigators' fees and expenses and other costs and expenses incident to any
suit, action or proceeding) (together, "Losses") incurred or sustained by
Purchaser or any of Purchaser's Affiliates which shall arise out of or result
from (a) any breach of any representation or warranty given or made by Seller
herein or in any certificate delivered with respect thereto if and only to the
extent Losses incurred as a result of such breach and all other breaches exceed
$25,000 in the aggregate (at which point Seller will be obligated to indemnify
Purchaser and Purchaser's Affiliates from and against all such Losses relating
back to the first dollar), (b) any Retained Liability, (c) any liability for
Taxes under Section 4.14, (d) the noncompliance with or nonperformance of any
other agreement, obligation or covenant of Seller under this Agreement or (e),
subject to the following sentence, any enactment, enforcement, publication,
decree, issuance or other promulgation, whether before or after the Closing
Date, of any federal, state or local statute, regulation, rule, order, decision
or determination of any court, other governmental authority or the Independent
Auditor (as defined in the MSA) challenging, or the bringing of any action, suit
or proceeding seeking to challenge, the continued validity and enforceability of
the MSA, Qualifying Statutes (as defined in the MSA) in any state, the payment
obligations of Participating Manufacturers thereunder, or limiting or
restricting, or seeking to limit or restrict, in any manner during any period
Purchaser's ability to fully utilize the Company's MSA Grandfathered Market
Share, in the same manner it is currently utilizable, in computing Purchaser's
liabilities under the MSA, without limiting or restricting in any manner during
any period Xxxxxxx'x full utilization of its MSA Grandfathered Market Share, in
the same manner it is currently utilizable, in computing its liabilities under
the MSA, or otherwise diminishing the value of rights under the MSA or benefits
expected to be derived by Purchaser thereunder. Notwithstanding anything
contained in this Agreement to the contrary, Seller's indemnification obligation
under clause (e) of this Section 9.01 shall be limited solely to those events,
conditions or circumstances which relate specifically to Medallion and not to
all participants under the MSA generally. Any claim for indemnification
hereunder must be made by notice to Seller within the applicable time period
specified in Section 8.01. In determining the amount of Losses for the purposes
of Section 9.01 and 9.02, the parties shall make appropriate adjustments for tax
benefits actually received and insurance payments actually received and Losses
shall not include consequential damages (unless reasonably foreseeable) or
punitive damages other than any consequential or punitive damages claimed by a
third-party.
9.02. INDEMNIFICATION BY PURCHASER.
Purchaser will indemnify, defend, save and hold Seller and any
of its affiliates and any of its or their respective directors, officers,
employees or agents ("Seller's Affiliates") harmless from and against any and
all Losses incurred or sustained by Seller or any of Seller's Affiliates which
shall arise out of or result from (a) any breach of any representation and
warranty given or made by Purchaser herein or in any certificate delivered with
respect thereto or (b) the noncompliance with or nonperformance of any
agreement, obligation or covenant of Purchaser under this Agreement. Any claim
for indemnification hereunder must be made by notice to Purchaser within the
applicable time period specified in Section 8.01.
29
9.03. RIGHT OF SETOFF.
Upon notice to Seller specifying in reasonable detail the
basis therefor, Purchaser may set off any amount to which it may be entitled
under this Article IX against amounts otherwise payable under the Promissory
Notes. The exercise of such right of setoff by Purchaser in good faith, whether
or not ultimately determined to be justified, will not constitute an event of
default under the Promissory Notes or any instrument guaranteeing or securing
the Promissory Notes.
9.04. THIRD-PARTY CLAIMS.
Reasonably promptly after service of notice of any claim or of
process by any third party in any matter in respect of which indemnity may be
sought from the other party pursuant to this Agreement, the party in receipt of
the claim (the "Indemnified Party") shall notify the other party (the
"Indemnifying Party") of the receipt thereof. Failure to give such notice
reasonably promptly shall not relieve the Indemnifying Party of its obligation
hereunder; PROVIDED, HOWEVER, that if such failure to give notice reasonably
promptly irreparably prejudices the ability of the Indemnifying Party to defend
such claims or materially increases the amount of indemnification which the
Indemnifying Party is obligated to pay hereunder, the amount of indemnification
to which the Indemnified Party will be entitled to receive shall be reduced to
an amount which the Indemnified Party would have been entitled to receive had
such notice been timely given. Unless the Indemnifying Party shall notify the
Indemnified Party that it elects to assume the defense of any such claim or
process or settlement thereof at its sole cost and expense with counsel
reasonably satisfactory to the Indemnified Party (such notice to be given as
promptly as reasonably possible in view of the necessity to arrange for such
defense (and in no event later than 10 days following the aforesaid notice) and
to be accompanied by an acknowledgment of the Indemnifying Party's obligation to
indemnify the Indemnified Party in respect of such matter), the Indemnified
Party shall assume the defense of any such claim or process or settlement
thereof at the sole cost and expense of the Indemnifying Party. Such defense
shall be conducted expeditiously (but with due regard for obtaining the most
favorable outcome reasonably likely under the circumstances, taking into account
costs and expenditures) and the Indemnifying Party or Indemnified Party, as the
case may be, shall be advised promptly of all developments. If the Indemnifying
Party assumes the defense, the Indemnified Party will have the right to
participate fully in any such action or proceeding and to retain its own
counsel, but the fees and expenses of such counsel will be at its own expense
unless (i) the Indemnifying Party shall have agreed to the retention of such
counsel for both the Indemnifying and Indemnified Parties or (ii) the named
parties to any such suit, action or proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or the Indemnified Party has
additional defenses not available to the Indemnifying Party. No settlement of a
claim by either party shall be made without the prior written consent of the
other party, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to
assume the defense of any such action or proceeding (and shall be liable for the
fees and expenses of counsel incurred by the Indemnified Party in defending such
matter) to the extent that the action or proceeding seeks an order, injunction
or other equitable relief or relief for other than money damages against the
Indemnified Party subject to the same requirements referred to above for the
Indemnifying Party when it is entitled to assume such defense and the
Indemnified Party shall have the right to settle such matter without the prior
written consent of the Indemnifying Party unless such settlement involves the
payment of money, in which event the required prior written consent shall not be
unreasonably withheld or delayed.
30
ARTICLE X
TERMINATION
10.01. MUTUAL AGREEMENT.
This Agreement may be terminated at any time prior to the
Closing by mutual written agreement of Purchaser and Seller.
10.02. NONCOMPLIANCE OR NONPERFORMANCE.
This Agreement may be terminated by written notice by
Purchaser to Seller or by Seller to Purchaser, but in any event not by a party
in material breach of its obligations under this Agreement, without prejudice to
the terminating party's rights to claim damages or other relief, if (a)(i) any
of the conditions of this Agreement to be complied with at or before the Closing
by the party to whom notice is addressed shall have become incapable of
fulfillment prior to June 30, 2002, and (ii) such noncompliance shall not have
been waived by the party giving notice of termination or (b) the Closing shall
not have occurred on or prior to June 30, 2002. This Agreement may also be
terminated by Purchaser on or prior to the January 24, 2002 by written notice by
Purchaser to Seller if (x) Purchaser's due diligence examination of the Company
leads it to terminate this Agreement in its sole discretion, (y) Purchaser shall
not have received a binding commitment for $50,000,000 of senior secured debt
financing, available to fund a portion of the Merger consideration on the
Closing Date and, in the judgment of Purchaser, on market terms reasonably
satisfactory to Purchaser or (z) Purchaser shall not have received the consent,
in form and substance satisfactory to Purchaser, of Congress Financial
Corporation to the guarantee by Xxxxxxx of indebtedness of Purchaser incurred in
connection with the transactions contemplated hereby.
ARTICLE XI
MISCELLANEOUS
11.01. INTEGRATION; AMENDMENT.
This Agreement (including the Schedules and Exhibits attached
hereto) and the Confidentiality Agreement constitute the entire agreement and
understanding of the parties relating to the subject matter hereof and supersede
all prior agreements and understandings, whether oral or written, relating to
the subject matter hereof. The terms of this Agreement cannot be changed,
modified, released or discharged orally.
11.02. ASSIGNMENT.
This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.
This Agreement may not be assigned by Purchaser without the prior written
consent of Seller or by Seller without the prior written consent of Purchaser;
PROVIDED, HOWEVER, that this Agreement may be assigned by Purchaser to (i) any
corporate parent or any directly or indirectly wholly-owned subsidiary of such
corporate parent, (ii) any post-Closing purchaser of all of the issued and
outstanding stock of Purchaser or a substantial part of its assets or the
pre-Closing assets of the Company or (iii) any financial institution providing
31
purchase money or other financing to Purchaser from time to time as collateral
security for such financing, PROVIDED no such assignment shall relieve Purchaser
of its obligations hereunder.
11.03. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument. Delivery of an executed signature page
to this Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.
11.04. HEADINGS; CONSTRUCTION.
The headings in this Agreement are included for convenience of
reference only and shall not in any way affect the meaning or interpretation of
this Agreement.
For all purposes of this Agreement, including each
representation, warranty, covenant and indemnity contained herein, all
references to Seller shall include each Seller on a joint and several basis.
11.05. WAIVER; REQUIREMENT OF WRITING.
This Agreement cannot be changed or any performance, term or
condition waived in whole or in part except by a writing signed by the party
against whom enforcement of the change or waiver is sought. Any term or
condition of this Agreement may be waived at any time by the party hereto
entitled to the benefit thereof. No delay or failure on the part of any party in
exercising any rights hereunder, and no partial or single exercise thereof, will
constitute a waiver of such rights or of any other rights hereunder.
11.06. FINDER'S FEES; BROKERS.
Seller and Purchaser represent and warrant that there are no
claims (or any basis for any claims) for brokerage commissions, finder's fees or
like payments in connection with this Agreement or the transactions contemplated
hereby resulting from any action taken by it or on its behalf or, in the case of
Seller, on the Company's behalf. Seller shall indemnify and hold Purchaser
harmless and Purchaser shall indemnify and hold Seller harmless with respect to
their respective representations and warranties set forth in this Section 11.06.
11.07. EXPENSES.
Each of the parties hereto shall pay, without right of
reimbursement from the other party or from the Company, all the costs incurred
by it incident to the preparation, execution and delivery of this Agreement and
the performance of its obligations hereunder, whether or not the transactions
contemplated by this Agreement shall be consummated. Notwithstanding the
foregoing, (i) Seller and Purchaser shall share equally the cost of all filing
fees required to be paid by either of them, or their affiliates, in connection
with the transactions contemplated by this Agreement with respect to filings
under the HSR Act, and (ii) any expenses incurred by Seller in connection with
the transactions contemplated by this Agreement may be paid by the Company if
all such expenses to be paid by the Company are paid in full on or before the
Closing Date.
11.08. NOTICES.
Any notice, request, consent, waiver or other communication
required or permitted hereunder shall be effective only if it is in writing and
personally delivered or sent by telecopy or sent, postage prepaid, by registered
or certified mail, return receipt requested, or by
32
recognized overnight courier service, postage or other charges prepaid, and
shall be deemed given when so delivered by hand or telecopied, or when received
if sent by mail or by courier, as follows:
If to Seller:
Xx. Xxxx X. Xxxx
c/o Sunflower Supply Co.
0000 Xxxx 0xx Xxxxxx
Xxxxxx, Xxxxxx 00000
Fax: (000) 000-0000
with a copy to:
Xxxxxxxx & Xxxxxx L.L.P.
0000 Xxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
If to the Company:
The Medallion Company Inc.
000 Xxxxx Xxxxxx Xxxx
Xxxxx X000
Xxx Xxxxx, Xxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxx
President
with a copy to:
Xxxxxxxx & Xxxxxx L.L.P.
0000 Xxxxx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
If to Purchaser:
Vector Tobacco Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxx, Xxxxx Xxxxxxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx X. XxXxx
President
33
with a copy to:
Vector Group Ltd.
000 X.X. Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
Executive Vice President
or such other person or address as the addressee may have specified in a notice
duly given to the sender as provided herein.
11.09. APPLICABLE LAW.
This Agreement will be construed and interpreted in accordance
with and governed by the internal laws of the State of New York without regard
to conflicts of laws principles.
11.10. CONSENT TO JURISDICTION.
Each of the parties irrevocably submits to the jurisdiction of
(a) the Supreme Court of the State of New York, New York County, and (b) the
United States District Court for the Southern District of New York, for the
purposes of any suit, action or other proceeding arising out of this Agreement,
the Promissory Notes or any transaction contemplated hereby. Each of the parties
agrees to commence any action, suit or proceeding relating hereto either in the
United States District Court for the Southern District of New York or if such
suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of the parties further agrees that service of any process, summons,
notice or document by hand delivery or U.S. or foreign registered mail to such
party's respective address set forth in Section 11.08 hereof shall be effective
service of process for any action, suit or proceeding brought against such party
in any such court. Each of the parties irrevocably and unconditionally waives
any objection to the laying of venue of any action, suit or proceeding arising
out of this Agreement, the Promissory Notes or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
11.11. PUBLIC ANNOUNCEMENTS.
None of the parties shall make any press release or public
announcement with respect to the transactions contemplated hereby without (a) in
the case of Purchaser, obtaining the prior written approval of Seller and (b) in
the case of Seller, obtaining the prior written approval of Purchaser, except as
may be required by law or regulations of securities exchanges. Approvals under
this Section 11.11 shall not be unreasonably withheld or delayed.
11.12. NO THIRD-PARTY BENEFICIARIES.
Other than as contemplated by Article IX, nothing in this
Agreement will be construed as giving any person, firm, corporation or other
entity, other than the parties hereto, their successors and permitted assigns,
any right, remedy or claim under or in respect of this Agreement or any
provision hereof.
34
11.13. SEVERABILITY.
Whenever possible, each provision and term of this Agreement
will be interpreted in a manner to be effective and valid, but if any provision
or term of this Agreement is held to be prohibited or invalid, then such
provision or term will be ineffective only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of this
Agreement. If any of the covenants set forth in Section 4.08 hereof are held to
be unreasonable, arbitrary or against public policy, such covenants will be
considered divisible with respect to scope, time and geographic area, and in
such lesser scope, time and geographic area, will be effective, binding and
enforceable against Seller, Xxxxx X. Xxxx and any of their affiliates to the
greatest extent permissible.
11.14. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT THEREOF.
11.15. SPECIFIC PERFORMANCE.
The parties hereto acknowledge and agree that any remedy at
law for any breach of the provisions of this Agreement would be inadequate, and
each Party hereto hereby consents to the granting by any court of an injunction
or other equitable relief, without the necessity of actual monetary loss being
proved, in order that the breach or threatened breach of such provisions may be
effectively restrained.
35
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the date first above written.
VECTOR TOBACCO INC.
By /s/ Xxxxxxx X. Xxxxx
---------------------------------------
Name: Xxxxxxx X. XxXxx
Title: President and Chief Executive
Officer
THE MEDALLION COMPANY, INC.
By /s/ Xxxx X. Xxxx
---------------------------------------
Name: Xxxx X. Xxxx
Title: President
SELLER:
/s/ Xxxx X. Xxxx
-------------------------------------------
Xxxx X. Xxxx
XXXX X. XXXX RETAINED ANNUITY TRUST I
By /s/ Xxxxx Xxx
---------------------------------------
Name: Xxxxx Xxx
Title: Trustee
HALL FAMILY TRUST
By /s/ Xxxxx Xxx
---------------------------------------
Name: Xxxxx Xxx
Title: Trustee
AS TO SECTION 2.02 ONLY
/s/ Xxxxx X. Xxxx
-------------------------------------------
Xxxxx X. Xxxx
36
AS TO SECTION 4.13 ONLY
VGR HOLDING INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Executive Vice President
37
