Exhibit 2(a)
ASSET PURCHASE AGREEMENT
by and among
SPINNAKER INDUSTRIES, INC.,
SPINNAKER COATING, INC.,
SPINNAKER COATING-MAINE, INC.
and
SP ACQUISITION, LLC
Dated as of January 18, 2002
TABLE OF CONTENTS
Page
1. Definitions.......................................................1
2. Purchase and Sale.................................................8
3. Purchase Price and Working Capital Adjustment....................11
4. Liabilities and Obligations......................................14
5. Obtaining of Procedures and Sale Order; Closing..................16
6. Deliveries at Closing............................................16
7. Representations and Warranties of Sellers........................17
8. Representations and Warranties of Buyer..........................23
9. Additional Agreement of the Parties..............................23
10. Conditions to Buyer's Obligation to Effect Closing...............26
11. Conditions to Sellers' Obligation to Effect Closing..............27
12. Termination; Effect of Termination...............................28
13. Employees........................................................30
14. Survival of Representations and Warranties; Indemnification......30
15. Jurisdiction.....................................................32
16. Miscellaneous....................................................33
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SCHEDULES AND EXHIBITS
Exhibits
A Motion of Debtors for Order Pursuant to Sections 105, 363, 365 and 1146
of the Bankruptcy Code
B Escrow Agreement
C Post-Closing Escrow Agreement
Schedules
1(f) Transamerica Encumbrances
2(a)(i) Permitted Encumbrances
2(a)(xviii) Description of Other Acquired Assets
3(c) Allocation of Purchase Price
3(d)(i) Target Statement of Net Working Capital
4(b)(ii) Assumed Prepetition Liabilities Related to Customer Claims and
Rebates, Taxes and Employee Benefits to the Extent Approved by the
Court and Not Satisfied Before Closing
4(b)(iv) Additional Pre-Petition Liabilities
7(b) Conflicts/Consents: Sellers
7(d) Executory Contracts; Assigned Contracts
7(e)(i) Audited Financials
7(e)(ii) Current Balance Sheet
7(f) Equipment
7(h) Intellectual Property
7(i) Compliance with Laws
7(k) Permits
7(l) Environmental Matters
7(m) Employee Matters
7(n) Absence of Certain Changes
7(o) Liabilities
7(p) Insurance
7(q) Taxes
7(t) Warranty Obligations, Pricing and Other Accommodations
7(u) Real Property
7(v) Litigation
8(b) Conflicts/Consents: Buyer
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ASSET PURCHASE AGREEMENT
AGREEMENT, dated as of January 18, 2002, by and among
SPINNAKER INDUSTRIES, INC., a Delaware corporation ("SII"), SPINNAKER COATING,
INC., a Delaware corporation and wholly-owned subsidiary of SII ("SCI"),
SPINNAKER COATING-MAINE, INC., a Delaware corporation and wholly-owned
subsidiary of SCI ("SCMI") (SII, SCI and SCMI are sometimes individually
referred to herein as "Seller" and collectively as "Sellers"), and SP
ACQUISITION, LLC, a Delaware limited liability company (and, except as otherwise
provided herein, any assignee to whom Buyer's rights and obligations are
transferred pursuant to Section 16(i), "Buyer").
W I T N E S S E T H:
WHEREAS, SCI is engaged in the business of manufacturing and
selling pressure sensitive adhesive roll and sheet products (as conducted by
SCI, the "Business");
WHEREAS, on November 13, 2001, each Seller (along with
Entoleter Inc., a wholly-owned subsidiary of SII) filed a voluntary petition for
relief under chapter 11 of the Bankruptcy Code (as defined below) with the
United States Bankruptcy Court for the Southern District of Ohio (the
"Bankruptcy Court") (collectively, the "Petition"), which petitions were
procedurally consolidated for joint administration pursuant to order of the
Bankruptcy Court dated November 14, 2001, commencing a case titled In re
SPINNAKER INDUSTRIES, INC., et. al., Case No. 01-38066; and
WHEREAS, Sellers desire to sell to Buyer substantially all of
the assets used in the Business and to assign to Buyer certain executory
contracts and unexpired leases relating to the Business, and Buyer desires to
purchase from Sellers such assets and assume such contracts and unexpired leases
(as hereinafter defined) upon the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein, the parties agree as follows:
1. DEFINITIONS
For all purposes of this Agreement, except as otherwise
expressly provided herein,
(a) the terms defined in this Section 1 include the plural as
well as the singular,
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them under GAAP (as defined below),
(c) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms,
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Section, Paragraph or other subdivision, and
(e) the words "include," "including" and other words of
similar import mean "include, without limitation" or "including, without
limitation," regardless of whether any reference to "without limitation" or
words of similar import is made.
(f) As used in this Agreement, the following definitions shall
apply:
"Accountant" shall have the meaning assigned to that term in
Section 3(d)(ii).
"Accounts Receivable" has the meaning assigned to that term in
Section 2(a)(i).
"Acquired Assets" has the meaning assigned to that term in
Section 2(a).
"Action" has the meaning assigned to that term in Section
14(e).
"Agreement" means this Asset Purchase Agreement, including all
exhibits and schedules hereto, as the same may be amended or supplemented from
time to time in accordance with its terms.
"Alternative Transaction" has the meaning assigned to that
term in Section 12(b).
"Assigned Contracts" means those Contracts which Buyer desires
to assume and to have Sellers assign to it which are designated as
"Assigned Contracts" on SCHEDULE 7(d) (or identified in a separate
schedule provided by Buyer to Sellers at least 1 Business Day prior to
the Due Diligence Termination Date as Contracts to be included as
Assigned Contracts). Assigned Contracts shall not include Contracts
identified in a separate schedule provided by Buyer to Sellers at least
7 days before the Auction Date as Contracts to be excluded from the
Assigned Contracts list in SCHEDULE 7(d) notwithstanding their initial
inclusion.
"Assumed Obligations" has the meaning assigned to that term in
Section 4(b).
"Auction" shall mean an auction under Section 363 of the
Bankruptcy Code scheduled by the Bankruptcy Court pursuant to the Procedures
Order.
"Auction Date" shall mean the date of the Auction scheduled
pursuant to the Procedures Order.
"Audited Financials" has the meaning assigned to that term in
Section 7(e).
"Bankruptcy Code" means title 11 of the United States Code, 11
U.S.C. section 101 et seq., commonly known as the Bankruptcy Code, as it may be
amended from time to time.
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"Bankruptcy Court" has the meaning assigned to that term in
the preamble to this Agreement.
"Business" has the meaning assigned to that term in the
preamble to this Agreement.
"Business Day" means any day other than a Saturday, Sunday or
other day on which the Bankruptcy Court is closed.
"Buyer Financing" has the meaning assigned to that term in
Section 4(c).
"Closing" means the closing of the purchase and sale of the
Acquired Assets pursuant to this Agreement.
"Closing Balance Sheet" has the meaning assigned to that term
in Section 3(d).
"Closing Cash Payment" has the meaning assigned to that term
in Section 3(b).
"Closing Date" means the time and date of the Closing
determined pursuant to Section 5.
"Closing Date Statement" has the meaning assigned to that term
in Section 3(d).
"Code" means the Internal Revenue Code of 1986, as amended.
"Continuing Due Diligence" has the meaning assigned to that
term in this Section 1(f).
"Continuing Employees" has the meaning assigned to that term
in Section 13.
"Contract" means any executory contract (as such term is used
in Section 365 of the Bankruptcy Code) to which any Seller is a party (i) as of
the date hereof or (ii) which is entered into by any Seller between the date
hereof and the Closing Date in accordance with Section 9(d) hereof that concerns
or is related to the Business, including, but not limited to, real and personal
property leases, license agreements and agreements with employees, consultants
or agents.
"Cure Amounts" has the meaning assigned to that term in
Section 7(d).
"Current Balance Sheet" has the meaning assigned to that term
in Section 7(e).
"Deposit" has the meaning assigned to that term in Section
3(a).
"DIP Lenders" means Transamerica Business Capital Corporation,
f/k/a Transamerica Business Credit Corporation and the CIT Group/Business
Credit, Inc.
"DIP Payment" has the meaning assigned to that term in Section
4(c).
"Disputed Items" shall have the meaning assigned to that term
in Section 3(d).
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"Dispute Notice" has the meaning assigned to that term in
Section 3(d).
"Due Diligence Termination Date" shall mean February 18, 2002
or such later date as Buyer, upon written notice to Sellers on or before
February 14, 2002, may designate (but not a date later than February 25, 2002)
in order to permit Buyer to complete the due diligence contemplated by Section
12(a)(iii) (the "Continuing Due Diligence").
"Entoleter" means Entoleter, Inc., a wholly-owned subsidiary
of SII.
"Environmental Laws" means Laws or Orders of any Governmental
Authority relating to pollution, protection of the environment or health and
safety.
"Equipment" has the meaning assigned to that term in Section
2(a)(ii).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" means State Street Bank and Trust Company.
"Escrow Agreement" has the meaning assigned to that term in
Section 3(a).
"Estimated Net Working Capital" has the meaning assigned to
that term in Section 9(b).
"Excluded Assets" has the meaning assigned to that term in
Section 2(b).
"Excluded Permits" has the meaning assigned to that term in
Section 2(b)(iii).
"Expense Reimbursement" has the meaning assigned to that term
in Section 12(b).
"Final Working Capital Adjustment" has the meaning assigned to
that term in Section 3(d)(iii).
"GAAP" means generally accepted accounting principles in the
United States, consistently applied.
"Governmental Authority" means any government or any agency,
bureau, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"Holdback Amount" means, at any given time, $500,000 less the
aggregate dollar amount paid in respect of claims under the Post-Closing Escrow
Agreement.
"Initial Deposit" has the meaning assigned to that term in
Section 3(a).
"Initial Deposit Repayment" has the meaning assigned to that
term in Section 3(a).
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"Intellectual Property" shall mean all of the following as
they exist in any jurisdictions throughout the world, in each case, to
the extent owned by, licensed to, or otherwise used or held for use by
Sellers:
(i) patents, patent applications, industrial rights and the
inventions, designs and improvements described and claimed therein,
patentable inventions, and other patent rights (including any
divisionals, continuations, continuations-in-part, renewals,
substitutions or reissues thereof, whether or not patents are issued on
any such applications and whether or not any such applications are
amended modified, withdrawn or refiled) (collectively, "Patents");
(ii) trademarks, service marks, trade dress, trade names,
brand names, designs, logos or corporate names (including, in each
case, the goodwill associated therewith), whether registered or
unregistered, and all registrations and applications for registration
thereof (collectively, "Trademarks");
(iii) copyrights, including all renewals and extensions
thereof, copyright registrations and applications for registration
thereof, and non-registered copyrights (collectively, "Copyrights");
(iv) trade secrets, confidential business information and
other proprietary information including, without limitation, designs,
research and development information, technical information,
specifications, operating and maintenance manuals, methods, engineering
drawings, know-how, data, mask works, discoveries, inventions,
industrial designs and other proprietary rights (whether or not
patentable or subject to copyright, mask work, or trade secret
protection) (collectively, "Trade Secrets");
(v) all web sites and web pages and related rights and items
(collectively, "Internet Assets"); and
(vi) computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level or "proprietary" languages, and all related
material documentation and information, whether in source code, object
code or human readable form (collectively "Software").
"Interim Working Capital Adjustment" has the meaning assigned
to that term in Section 3(d)(i).
"Interim Working Capital Deficiency" has the meaning assigned
to that term in Section 3(d)(i).
"Interim Working Capital Excess" has the meaning assigned to
that term in Section 3(d)(i).
"Intertape" has the meaning assigned to that term in Section
2(b)(x).
"Inventory" has the meaning assigned to that term in Section
2(a)(iii).
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"IP License(s)" shall mean all permits, licenses, sublicenses
and other agreements or permissions under which any Seller is a licensee or
otherwise authorized to use or practice, or under which any Seller is a licensor
of, any Intellectual Property.
"Laws" means all applicable laws (including common law),
statutes, rules, codes, ordinances or any requirement of any Governmental
Authority.
"Letter of Intent" means the letter of intent between Buyer
and Sellers dated December 31, 2001.
"Liability" has the meaning assigned to that term in Section
4(a).
"Licensed IP" means Intellectual Property that is the subject
of an IP License.
"Licenses" has the meaning assigned to that term in Section
7(h)(ii).
"Liens" means any mortgage, lien, pledge, covenant
restriction, security interest, claim, charge, title defect, interest and other
encumbrance. Liens shall also include, in the case of the SCI Real Property,
survey defects, encroachments by the SCI Real Property on real property, or
interests thereon, not included in the Acquired Assets, and encroachments on SCI
Real Property by buildings and improvements not included in the SCI Real
Property.
"Loss" means any cost, damage, injury, expense, liability,
loss, claim, deficiency or penalty of any kind or nature, including interest,
penalties, and reasonable legal, accounting and other professional fees and
expenses incurred in the investigation, collection, prosecution and defense of
claims.
"Management Agreements" has the meaning assigned to that term
in Section 9(h).
"Material Adverse Change" means events, conditions or
circumstances that, individually or in the aggregate, result in or can
reasonably be expected to result in, a material adverse effect on the
operations, assets, or condition (financial or otherwise), of the Business, the
Acquired Assets or the ability of Sellers to consummate the transactions
contemplated hereby, other than as set forth on SCHEDULE 7(n) hereto.
"Material Customers" has the meaning assigned to that term in
Section 7(w).
"Motion" means the "Motion of Debtors for Order Pursuant to
Sections 105, 363, 365 and 1146 of the Bankruptcy Code" filed by Sellers on
January 4, 2002 with the Bankruptcy Court in Sellers' chapter 11 cases, a copy
of which Motion is attached to this Agreement as EXHIBIT A.
"Net Working Capital" means, at any designated time, the
dollar value of Sellers' cash on hand, Inventory, Accounts Receivable, prepaid
assets, refundable deposits, refundable retainers, advances to suppliers and
other non-trade receivables minus the sum of (i) the amount of Assumed
Obligations which would be "current liabilities" as of the
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Closing, determined in accordance with GAAP applied consistently with Sellers'
past practices, plus (ii) the amount of the DIP Payment.
"Net Working Capital at Closing" has the meaning assigned to
that term in Section 3(d)(iii).
"Order" means any decree, injunction, judgment, order, ruling
or writ of any Governmental Authority.
"Ordinary Course of Business" has the meaning assigned to that
term in Section 7(g).
"Permits" means licenses, permits, franchises, approvals,
authorizations, certificates of authority, and orders, or any waiver of the
foregoing, issued or issuable by any Governmental Authority.
"Permitted Encumbrances" means (i) liens for current Taxes not
yet due, (ii) interests of any lessors (in their capacity as such) in items
constituting part of the Acquired Assets which are leased by Sellers from such
lessor, (iii) assessments, rights of way and other similar non-monetary Liens,
(iv) mechanics' and materialman's liens for amounts not yet due and payable, but
only to the extent such liens secure Assumed Liabilities or amounts accruing
after the Closing under Assigned Contracts, which do not, individually or in the
aggregate, materially detract from the use or value of the Acquired Assets, and
(v) the liens set forth on SCHEDULE 2(a)(i).
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, trust, association, unincorporated
organization, other entity, or governmental body or subdivision, agency,
commission or authority thereof.
"Petition" has the meaning assigned to that term in the
preamble to this Agreement.
"Post-Closing Escrow Agent" means State Street Bank and Trust
Company.
"Post-Closing Escrow Agreement" has the meaning assigned to
that term in Section 3(b).
"Procedures Order" means an order of the Bankruptcy Court
substantially in the form of the "Procedures Order" attached as an Exhibit to
the Motion.
"Purchase Price" means the cash consideration paid pursuant to
Section 3 plus the amount of Assumed Obligations and repayment of Sellers'
debtor-in-possession financing pursuant to Section 4, subject to adjustment as
provided in Section 3(d).
"Retained Liabilities" has the meaning assigned to that term
in Section 4(a).
"Sale Hearing" shall mean a hearing of the Bankruptcy Court to
consider the approval of this Agreement and the transactions contemplated
hereby.
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"Sale Order" means a final, nonappealable Order from the
Bankruptcy Court, in form and substance reasonably satisfactory to Buyer,
approving the sale to Buyer of the Acquired Assets contemplated hereby under
Sections 363(b), 363(f) and 365 of the Bankruptcy Code free and clear of all
Liens other than the Permitted Encumbrances and finding, among other things,
that Buyer is a good faith purchaser entitled to the protections of Section
363(m) of the Bankruptcy Code and that the sale is covered by Section 1146(c) of
the Bankruptcy Code.
"SCI" has the meaning assigned in the first paragraph hereof.
"SCI Real Property" has the meaning assigned to that term in
Section 2(a)(xv).
"SCMI" has the meaning assigned in the first paragraph hereof.
"SETC" means Spinnaker Electrical Tape Company, a wholly-owned
subsidiary of SII.
"SII" has the meaning assigned in the first paragraph hereof.
"Survival Termination Date" has the meaning assigned to that
term in Section 14(a).
"Subsequent Deposit" has the meaning assigned to that term in
Section 3(a).
"Target Net Working Capital" has the meaning assigned to that
term in Section 3(d)(i).
"Taxes" means income, gross receipts, property, sales, use,
license, excise, franchise, employment, social security, governmental pension or
insurance, withholding or similar taxes or contributions, together with any
interest, additions or penalties with respect thereto and any interest in
respect of such additions or penalties.
"Termination Fee" has the meaning assigned to that term in
Section 12(c).
"Transamerica Encumbrances" means the liens and encumbrances
held by the DIP Lenders on any of the Acquired Assets, such liens and
encumbrances to be released as of the Closing, which liens and encumbrances are
listed on SCHEDULE 1(f).
2. PURCHASE AND SALE
(a) The Acquired Assets. Subject to the terms and conditions
of this Agreement and except as provided in Section 2(b), on the Closing Date
Sellers shall sell, transfer, assign and deliver to Buyer, and Buyer shall
purchase and acquire from Sellers, all right, title and interest of Sellers in
and to all of the assets of Sellers as of the Closing Date (other than the
Excluded Assets), free and clear of Liens other than Permitted Encumbrances,
including without limitation the following assets (collectively, the "Acquired
Assets"):
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(i) All accounts receivable, notes receivable, trade accounts,
security deposits, education loans receivable and other debts due or accruing to
Sellers, but excluding the items identified in Section 2(b) (collectively, the
"Accounts Receivable");
(ii) All machinery, equipment, vehicles, furniture,
furnishings, fixtures, operating equipment, supplies and tools, computer
hardware and all parts, spares and accessories thereof and accessions thereto
(collectively, the "Equipment");
(iii) All inventories of the Business, including, without
limitation, raw materials, work-in-progress, finished goods, and business
supplies (collectively, the "Inventory");
(iv) All cash and cash equivalents on hand and in bank
accounts;
(v) All right, title and interest in and to all forms of
Intellectual Property, including, without limitation, any issued patents,
pending patent applications, any continuations, continuations-in-part,
divisionals, reissues, reexaminations, interferences, extensions of the names,
domain names, trademarks, or additions thereof, know-how, trade secrets,
copyrightable works, mask works, trademarks, service marks and trade names
(which for these purposes shall include "Spinnaker" or any derivation thereof,
including the name "Spinnaker Electrical Tape Company," which SII shall cause
SETC to transfer to Buyer);
(vi) All customer, vendor and mailing lists of Sellers, and
existing telephone numbers, telecopier numbers and telex numbers used by
Sellers;
(vii) All outstanding orders for the purchase of goods or
services by or from Sellers;
(viii) All invoices, bills of sale and other instruments and
documents evidencing Sellers' title to assets that are in the possession of
Sellers;
(ix) All data processing systems, computer software, books,
records, files, data bases, specifications, manuals and other papers and
information of Sellers (including any and all accounting books and records, but
excluding such items as are identified in clause (b)(i) below);
(x) All stationery and other imprinted material and office
supplies, and packaging and shipping materials of Sellers;
(xi) All rights of Sellers under the Assigned Contracts;
(xii) To the extent their transfer is permitted by law, those
Permits of Sellers listed on SCHEDULE 7(k) (except for any designated on such
schedule as "Excluded Permits");
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(xiii) Except for items identified in Section 2(b) below,
prepaid interest and other prepaid items and deposits of any Seller as of the
Closing Date, and the leasehold improvements, prepaid rent and security deposits
in respect of any lease assigned to Buyer pursuant to this Agreement;
(xiv) To the extent transferable, all rights of Sellers in
respect of any insurance policies (including with respect to prepaid insurance
and any refund of insurance premiums paid);
(xv) All rights of recovery, rights of set-off, claims and
causes of action of Sellers relating to the Business, whether known or unknown,
other than those set forth in Section 2(b);
(xvi) All rights of Sellers under or pursuant to all
warranties, representations and guarantees made by suppliers, manufacturers and
contractors relating to the Business;
(xvii) The goodwill and other intangible assets associated
with the Business; and
(xviii) To the extent not otherwise identified by items (i) -
(xiv) above, real property owned by SCI (the "SCI Real Property") and described
on SCHEDULE 2(a)(xviii) and other assets of Sellers described on SCHEDULE
2(a)(xviii).
(b) Excluded Assets. Notwithstanding anything to the contrary contained
in this Agreement, the Acquired Assets do not include the following assets (the
"Excluded Assets"):
(i) The capital stock of Sellers and the corporate seals,
minute books, stock record books and other corporate records having exclusively
to do with the corporate organization and capitalization of Sellers;
(ii) Contracts not constituting Assigned Contracts;
(iii) Rights under Permits designated on SCHEDULE 7(k) as
"Excluded Permits";
(iv) All tax records of Sellers and all tax refunds to which
any Seller is or may be entitled;
(v) To the extent not transferable, all rights of Sellers in
respect of any insurance policies (including with respect to prepaid insurance
and any refund of insurance premiums paid);
(vi) Any intercompany accounts receivable of Sellers from
Entoleter;
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(vii) The capital stock of Entoleter and all assets relating
to or used by Entoleter or its business;
(viii) The capital stock of SETC and all assets of SETC
(except for its trade name, which shall be an Acquired Asset);
(ix) Real property owned by SCMI;
(x) Warrants to purchase stock of Intertape Polymer Group,
Inc. ("Intertape"); and
(xi) All rights relating to the claim of SII against
Intertape.
(c) Assigned Contracts. At the Closing, Buyer shall acquire all right,
title and interest of Sellers in and to all of the Assigned Contracts, with Cure
Amounts to be allocated as provided in Section 4(b)(v).
3. PURCHASE PRICE AND WORKING CAPITAL ADJUSTMENT
(a) Deposit. Substantially contemporaneously with the execution of this
Agreement, Buyer shall pay to the Escrow Agent, by wire transfer, the sum of
$500,000 (the "Initial Deposit") to be held in an interest-bearing escrow
account subject to the terms of the Escrow Agreement substantially in the form
attached hereto as EXHIBIT B, with such changes as shall be required by the
Escrow Agent (the "Escrow Agreement"). On the Due Diligence Termination Date,
unless Buyer has terminated this Agreement pursuant to Section 12, Buyer shall
pay to the Escrow Agent, by wire transfer, the additional sum of $1,500,000 (the
"Subsequent Deposit") to also be held in said interest-bearing escrow account
subject to the terms of the Escrow Agreement (together with the Initial Deposit,
and the Subsequent Deposit are referred to collectively as the "Deposit"). At
any time on or prior to the Due Diligence Termination Date, Buyer may, in its
sole discretion, demand payment to it for any reason and at any time of the
Initial Deposit. Within one (1) Business Day after such demand to the Escrow
Agent, the Initial Deposit and any interest earned thereon shall be returned to
the Buyer (the "Initial Deposit Repayment").
(b) Closing Payment. At the Closing, pursuant to the terms of the
Escrow Agreement, in accordance with instructions of Buyer, the Escrow Agent
shall pay (the "Closing Cash Payment") (i) to Sellers by wire transfer to such
bank account(s) designated in writing by Sellers, an amount equal to the Deposit
minus the sum of (x) the Holdback Amount and (y) the amount of the Interim
Working Capital Deficiency, if any, (ii) to Buyer by wire transfer to such bank
account(s) designated in writing by Buyer, (x) the amount of the Interim Working
Capital Deficiency, if any, and (y) all earnings on the Deposit, and (iii) to
the Post-Closing Escrow Agent in accordance with the terms of the Escrow
Agreement substantially in the form attached hereto as EXHIBIT C, with such
changes as shall be required by the Escrow Agent (the "Post-Closing Escrow
Agreement"), the Holdback Amount. In addition, in the event that there is an
Interim Working Capital Excess, Buyer shall pay to Sellers at the Closing by
wire transfer to such bank accounts designated by Sellers an amount equal to the
Interim Working Capital Excess. If this Agreement is terminated after payment of
the Deposit for any reason whatsoever, the Deposit and any interest earned
thereon (minus $500,000 in the event that Sellers are entitled
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to liquidated damages as described in Section 3(e)) shall be returned to Buyer
within one (1) Business Day of demand by Buyer to the Escrow Agent.
(c) Allocation of Purchase Price. Sellers and Buyer shall allocate the
aggregate purchase price to be paid for the Acquired Assets in accordance with
Section 1060 of the Code. Sellers and Buyer shall use reasonable best efforts to
agree upon such allocation and reduce it to writing as soon as practicable
following the execution of this Agreement, and in any event at least 7 days
before the Auction Date; such allocation shall be attached to this Agreement as
SCHEDULE 3(c). In addition, Sellers and Buyer hereby undertake and agree to file
timely any information that may be required to be filed pursuant to Treasury
Regulations promulgated under Section 1060(b) of the Code. Neither Sellers nor
Buyer shall file any tax return or other document or otherwise take any position
which is inconsistent with any allocation agreed upon by them.
(d) Working Capital Adjustments.
(i) Attached hereto as SCHEDULE 3(d)(i) is Sellers' projected
statement of Net Working Capital as of February 28, 2002 (the "Target Net
Working Capital"). Within five Business Days before the Closing Date, Sellers
shall deliver to Buyer a written estimate of the Net Working Capital as of the
Closing Date, which such estimate shall be calculated in good faith by Sellers
and which shall be accompanied by a reasonably detailed schedule showing the
calculation thereof (the "Estimated Net Working Capital"). If the Estimated Net
Working Capital exceeds the Target Net Working Capital by an amount greater than
$350,000 and Buyer does not elect to terminate this Agreement pursuant to
Section 12(a)(vi) hereof, then the Purchase Price shall be increased by an
amount equal to (x) the amount by which the Estimated Net Working Capital
exceeds the Target Net Working Capital minus (y) $350,000 (the "Interim Working
Capital Excess"). If the Target Net Working Capital exceeds the Estimated Net
Working by an amount greater than $350,000 and Sellers do not elect to terminate
this Agreement pursuant to Section 12(a)(vii) hereof, then the Purchase Price
shall be decreased by an amount equal to (x) the amount by which the Target Net
Working Capital exceeds the Estimated Net Working Capital minus (y) $350,000
(the "Interim Working Capital Deficiency"). In the event of any Interim Working
Capital Excess or Interim Working Capital Deficiency, the Closing Payment shall
be adjusted as provided in Section 3(b) (such adjustments to the Closing Payment
and the Purchase Price, the "Interim Working Capital Adjustment").
(ii) Within 60 days following the Closing Date, Buyer will
prepare and deliver to Sellers a statement (the "Closing Date Statement"),
certified in writing by Ernst & Young, containing Buyer's calculation of
Sellers' Net Working Capital at Closing. Unless Buyer shall have received a
written notice from Sellers (the "Dispute Notice") prior to the close of
business on the tenth Business Day following Sellers' receipt of the Closing
Date Statement which disputes Buyer's calculation of Sellers' Net Working
Capital at Closing set forth therein and which sets forth in reasonable detail
the items of dispute (the "Disputed Items"), Buyer's calculation of Sellers' Net
Working Capital at Closing set forth on the Closing Date Statement shall be
binding for all purposes of this Agreement. In the event that Sellers have
delivered a
12
Dispute Notice to Buyer in accordance with this Section 3(d), Buyer and Sellers
shall negotiate in good faith to resolve the Disputed Items and agree upon the
amount of Sellers' Net Working Capital at Closing and any items not identified
in Sellers' Dispute Notice and that are not affected by the determination of any
Disputed Items shall be final and binding and shall not be subject to further
negotiation between the parties. In the event that Buyer and Sellers fail to
agree on the Disputed Items and the amount of Sellers' Net Working Capital at
Closing within 14 Business Days following the date of the Dispute Notice, Buyer
and Sellers hereby agree that the final determination of the amount of Sellers'
Net Working Capital at Closing shall be made by Deloitte Touche (the
"Accountant"). The Accountant shall resolve the Disputed Items and determine
Sellers' Net Working Capital at Closing based solely on the written submissions
and presentations by Sellers and Buyer, and not by independent review. Buyer and
Sellers shall instruct the Accountant to make a determination with respect to
the Disputed Items and report such determination to the parties within 15
Business Days after the date of their submission. The Accountant's resolution of
the Disputed Items and determination of Sellers' Net Working Capital at Closing
shall be final and binding on the parties, and a judgment may be entered thereon
in any court of competent jurisdiction. Each party shall be responsible for the
fees and disbursements of the Accountant in the same proportion that (x) the
aggregate amount of the Disputed Items with respect to which such party was the
non-prevailing party (as finally determined by the Accountant) bears to (y) the
aggregate amount of all Disputed Items. Buyer and Sellers agree to execute, if
requested by the Accountant, an engagement letter upon terms and conditions that
are reasonable and otherwise customary for transactions similar in nature.
(iii) If the Net Working Capital at Closing as finally
determined pursuant to the previous paragraph (the "Net Working Capital at
Closing") exceeds the Target Net Working Capital and the amount of such excess
is greater than $350,000, then the Purchase Price, as may have been adjusted at
Closing pursuant to the Interim Working Capital Adjustment, shall be finally
increased (or decreased as the case may be) by an amount equal to (x) the amount
by which the Net Working Capital at Closing exceeds the Target Net Working
Capital minus (y) $350,000, all as adjusted upward or downward to give effect to
the Interim Working Capital Adjustment. If the Net Working Capital at Closing is
less than the Target Net Working Capital and the amount of such deficiency is
greater than $350,000, then the Purchase Price, as may have been adjusted at
Closing pursuant to the Interim Working Capital Adjustment, shall be finally
decreased (or increased as the case may be) by an amount equal to (x) the amount
by which the Net Working Capital at Closing is less than the Target Net Working
Capital minus (y) $350,000, all as adjusted upward or downward to give effect to
the Interim Working Capital Adjustment. Either final adjustment referred to in
this Section 3(d)(iii) is referred to as the "Final Working Capital Adjustment."
Any amount to which Sellers are entitled pursuant to the Final Working Capital
Adjustment shall be paid no later than five (5) Business Days after the
determination of the Final Working Capital Adjustment by wire transfer of
immediately available funds to an account or accounts designated in writing by
Sellers. Any amount to which Buyer is entitled pursuant to the Final Working
Capital Adjustment shall be paid from the Holdback Amount pursuant to the terms
of the Post-Closing Escrow Agreement.
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(iv) In the event that a Final Working Capital Adjustment is
not required under Section 3(d)(iii) but there was an Interim Working Capital
Excess or Interim Working Capital Deficiency, then the adjustments made to the
Purchase Price due to the Interim Working Capital Excess or Interim Working
Capital Deficiency, as the case may be, shall be reversed in whole or in part
and the Purchase Price shall be appropriately adjusted.
(e) Liquidated Damages. The parties hereby agree that it is impossible
to determine accurately the amount of damages that Sellers would suffer if the
transactions contemplated herein were not consummated as a result of a material
breach of this Agreement by Buyer. As a result, notwithstanding anything in this
Agreement to the contrary, the parties hereby agree that (i) in the event of a
failure by Buyer to consummate the transactions contemplated herein as a result
of a breach of its obligations under this Agreement and termination of this
Agreement by Sellers in accordance with Section 12 hereof, Buyer shall be
obligated to pay liquidated damages in the amount of $500,000 and (ii) such
liquidated damages shall be the sole and exclusive remedy of Sellers against
Buyer by reason of such breach and such termination. Accordingly, if liquidated
damages are payable hereunder, the Escrow Agent shall deliver $500,000 of the
Deposit to the Sellers, and shall deliver the balance of the Deposit and any
earnings thereon to the Buyer, provided, that nothing herein shall limit the
right of Buyer, at any time on or prior to the Due Diligence Termination Date,
to the return, at its request, of the Initial Deposit and any interest earned
thereon pursuant to Section 3(a).
4. LIABILITIES AND OBLIGATIONS
(a) Non-Assumption of Liabilities. Notwithstanding anything to the
contrary contained herein and except as expressly set forth in Section 4(b),
Buyer does not assume and shall have no responsibility or obligation whatsoever
for any liabilities, commitments or obligations of Sellers of any kind or nature
whatsoever, known or unknown, accrued, fixed, contingent or otherwise,
liquidated or unliquidated, xxxxxx or inchoate, due or to become due
("Liabilities") including, without limitation, any liabilities or obligations in
respect of any intercompany accounts payable of Sellers to Entoleter or
liabilities associated with any Excluded Assets (collectively, the "Retained
Obligations").
(b) Assumed Obligations. At the Closing, subject to the limitation set
forth in Section 4(c), Buyer shall assume the following liabilities and
obligations (the "Assumed Obligations") of Sellers:
(i) post-Petition trade payables and liabilities incurred in
the Ordinary Course of Business consistent with present practice in Sellers'
chapter 11 cases (including an aggregate of up to $1,250,000 for court-retained
professionals' fees and reimbursement of Sellers for court-approved amounts
already paid, but excluding (x) any such professionals' fees in excess of such
amount and (y) any amounts payable to Deloitte Touche under Section 3 of this
Agreement);
(ii) Sellers' accrued pre-Petition liabilities for vacation,
payroll, payroll Taxes, real estate and personal property Taxes, customer claims
and rebates as set
14
forth on SCHEDULE 4(b)(ii) in an amount not to exceed $2,593,000, to the extent
approved by the Bankruptcy Court and not satisfied before Closing;
(iii) key employee retention bonuses approved by the
Bankruptcy Court in an amount not to exceed $750,000, and obligations under
employee Contracts set forth on SCHEDULE 7(d);
(iv) certain other pre-Petition liabilities set forth on
SCHEDULE 4(b)(iv) in an amount not to exceed $2,475,000, to the extent approved
by the Bankruptcy Court and not satisfied before Closing;
(v) the liabilities and obligations of Sellers under the
Assigned Contracts that have accrued as of the Closing Date, including all Cure
Amounts with respect thereto (except for Cure Amounts the payment of which would
cause the Assumed Liabilities and DIP Payments to exceed $23,763,000, in which
case Sellers shall make payments to the extent necessary to prevent such excess)
and liabilities and obligations of Sellers under purchase orders and supply
contracts; and
(vi) other post-Petition liabilities and obligations that have
accrued as of the Closing Date in the Ordinary Course of Business, including but
not limited to employee-related obligations such as 401(k), pension, health
insurance, etc. (but not with respect to employees of SCMI).
(c) Proceeds of Buyer Financing. The parties hereto acknowledge that
Buyer contemplates arranging for the DIP Lenders to provide revolving and term
credit facilities on terms and conditions equivalent to Sellers' existing
financing or with modifications thereto acceptable to Buyer in its sole
discretion (the "Buyer Financing"). Buyer shall use all or a portion of the
proceeds of the Buyer Financing (and any other funds required) to repay the
total amount of principal, accrued interest and other charges on Sellers' debtor
in possession financing with the DIP Lenders at Closing (the "DIP Payment").
(d) Limitation on Assumed Obligations. Notwithstanding the above, in no
event shall the aggregate amount of the Assumed Obligations as of the Closing
Date (excluding (i) obligations under the employee Contracts set forth on
Schedule 7(d) that will not be due and payable as of the Closing and that relate
to the period subsequent to the Closing and (ii) liabilities under Assigned
Contracts and other post-Petition obligations assumed by Buyer that, in each
case, relate to the period subsequent to the Closing which would not be "current
liabilities" as of the Closing under GAAP applied consistently with past
practices) and the DIP Payment exceed $23,763,000. In the event that the
aggregate amount of the Assumed Obligations (other than those excluded in the
parenthetical of the first sentence of this paragraph) as of the Closing Date
and the DIP Payment would otherwise exceed $23,763,000 (after giving effect to
payment of any Cure Amounts by Sellers pursuant to Section 4(b)(v)), a portion
of the Assumed Obligations (other than those excluded in the parenthetical of
the first sentence of this paragraph) shall be redesignated as Retained
Obligations such that the aggregate amount of Assumed Obligations (other than
those excluded in the parenthetical of the first sentence of this paragraph) as
of the Closing Date and the DIP Payment equals $23,763,000. Buyer shall have the
right, in its sole discretion, to determine which Assumed Obligations (other
than those
15
excluded in the parenthetical of the first sentence of this paragraph) shall be
redesignated as Retained Obligations pursuant to the preceding sentence.
(e) Rejection of Contracts. Sellers shall timely reject any Contracts
identified on SCHEDULE 7(d) for rejection (or which are otherwise determined not
to be Assigned Contracts pursuant to the definition thereof). Notwithstanding
the above, Sellers shall not be required to reject SCMI's lease with Sappi Fine
Paper North listed on SCHEDULE 7(d). Buyer shall not be liable for any claims
arising from the rejection or retention of such Contracts.
5. OBTAINING OF PROCEDURES AND SALE ORDER; CLOSING
(a) Obtaining Order. Sellers shall use their reasonable best efforts to
obtain entry of the Procedures Order and the Sale Order, subject to its
obligations under the Bankruptcy Code.
(b) Closing. If the Sale Order is entered, then, subject to the
satisfaction or waiver by the parties of the conditions to their respective
obligations to effect the Closing set forth in Sections 10 and 11, the Closing
shall take place at the offices of Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx at
10:00 a.m. (New York time) within two Business Days following the date that the
Sale Order has become final.
6. DELIVERIES AT CLOSING
(a) Deliveries by Seller. At the Closing, Sellers shall deliver, or
cause to be delivered (in addition to any other instruments required by Section
10 or otherwise by this Agreement to be delivered by Sellers at the Closing), to
Buyer the following (in form and substance reasonably satisfactory to Buyer):
(i) limited warranty deeds transferring title to and interest
in the SCI Real Property to Buyer;
(ii) a duly executed xxxx or bills of sale and assignment or
other appropriate instruments transferring title to and interest in all of the
Acquired Assets to Buyer;
(iii) appropriate (in both number and form) executed originals
of amendments to the certificates of incorporation of SII, SCI, SCMI and SETC
changing their names to names not using the name "Spinnaker" or any name that is
similar thereto, together with checks from Sellers in appropriate amounts
necessary for the filing and recording thereof in the appropriate state
governmental office;
(iv) a certified copy of the Sale Order;
(v) possession of all of the Acquired Assets;
(vi) evidence reasonably satisfactory to Buyer of compliance
with the notice provisions set forth in the Procedures Order and in the Sale
Order;
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(vii) evidence reasonably satisfactory to Buyer of the
transfer or reissuance to Buyer of the Permits listed on SCHEDULE 7(k) (other
than Excluded Permits);
(viii) copies of the resolutions of the Board of Directors of
each of the Sellers authorizing the execution and performance by such Seller of
this Agreement and authorizing the officers of such Seller to carry out and
perform the terms and provisions hereof, certified by an appropriate officer of
such Seller; and
(ix) such other instruments or documents as Buyer may
reasonably request to fully effect the transfer of the Acquired Assets and to
confer upon Buyer the benefits contemplated by this Agreement.
(b) Deliveries by Buyer. At the Closing, Buyer shall deliver, or cause
to be delivered (in addition to any other instruments required by Section 11 or
otherwise by this Agreement to be delivered by Buyer at the Closing), to
Sellers, the following:
(i) the Purchase Price payable in the manner described in
Section 3; and
(ii) a duly executed Assignment and Assumption Agreement in
form and substance reasonably satisfactory to Sellers, whereby Buyer will assume
and agree to pay, perform and discharge the Assumed Obligations.
7. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby jointly and severally represent and warrant to
Buyer as follows:
(a) Organization; Authorization. Each Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and, subject to entry of the Sale Order, has the requisite corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Subject to entry of the Sale Order, the execution,
delivery and performance of this Agreement have been duly authorized by all
necessary corporate action of Sellers. This Agreement has been duly and validly
executed by each Seller and, subject to the entry of the Sale Order, constitutes
a legal, valid and binding obligation of each Seller, enforceable against it in
accordance with its terms.
(b) No Conflict; Consents. Subject to the entry of the Sale Order and
except as otherwise set forth on SCHEDULE 7(b), neither the execution and
delivery of this Agreement nor the consummation of any or all of the
transactions contemplated hereby will (i) violate the certificate of
incorporation or by-laws (or other governing instrument) of any Seller; (ii)
violate, be in conflict with or constitute a default under, or require the
consent of any third party to, any Assigned Contract; or (iii) violate any Laws
or Orders applicable to the Business.
(c) Consents and Approvals of Governmental Authorities. Other than the
entry of the Sale Order by the Bankruptcy Court, no consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Authority is required in connection
17
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
(d) Contracts. SCHEDULE 7(d) sets forth a list of all Contracts. In the
event Buyer identifies any Contracts not listed on SCHEDULE 7(d) as executory
contracts (as such term is used in Section 365 of the Bankruptcy Code), then
Sellers shall amend SCHEDULE 7(d) to include such Contracts. Upon the written
request of Buyer, Sellers shall, at least 7 days prior to the Due Diligence
Termination Date, provide Buyer with a list of all amounts required, to the best
knowledge of Sellers, to cure all defaults under each of the Contracts
designated by Buyer in such request, so as to permit the assumption and
assignment of each such Contract pursuant to Section 365 of the Bankruptcy Code
(the "Cure Amounts"). Copies of all written Contracts have been made available
to Buyer. Except as otherwise set forth on SCHEDULE 7(d), all of the Contracts
are valid, binding and enforceable in accordance with their terms, and are in
full force and effect. Except as set forth on SCHEDULE 7(d) and in the case of
Seller, except for defaults of the type referred to in Section 365(b)(2) of the
Bankruptcy Code, there are no material defaults (or events that, with notice or
lapse of time or both, would constitute a material default) by any Seller, or to
the knowledge of Sellers, any other party under any of the Contracts.
(e) Financial Statements. Sellers have delivered to Buyer the audited
consolidated balance sheet and income statement of SII for the fiscal year ended
December 31, 2000 (the "Audited Financials") attached as SCHEDULE 7(e)(i) hereto
and the interim unaudited balance sheet of SCI and SCMI for the fiscal period
ended September 30, 2001 attached as SCHEDULE 7(e)(ii) hereto (the "Current
Balance Sheet"). The Audited Financials fairly and accurately reflect the
financial position of Sellers on a consolidated basis (including Entoleter) as
of the dates thereof, and have been prepared in accordance with GAAP
consistently applied during the periods involved, except as indicated in the
notes thereto. The Current Balance Sheet fairly and accurately reflects the
financial position of SCI and SCMI as of the date thereof, and have been
prepared in accordance with GAAP consistently applied during the periods
involved, subject to the absence of footnotes and year-end adjustments
(including adjustments resulting from Sellers' chapter 11 cases).
(f) Equipment. Set forth on SCHEDULE 7(f) is a complete and correct
list of all Equipment as of October 31, 2001. Such Equipment is sufficient to
operate the Business as operated prior to November 13, 2001. The Equipment which
is necessary to operate the Business as operated prior to the November 13, 2001
is in good operating condition and repair, subject to normal wear and tear.
(g) Inventory. With respect to the Business, the amount of Inventory on
hand (i) has been manufactured and/or purchased in the ordinary course of
business, consistent with past custom and practice (the "Ordinary Course of
Business"); and (ii) is not obsolete and is of a quality usable and saleable in
the Ordinary Course of Business, other than with respect to reserves maintained
by Sellers for obsolete or "slow moving" inventory.
(h) Intellectual Property.
(i) SCHEDULE 7(h) sets forth the following items owned or
licensed by Sellers or otherwise used or held for use by Sellers: (i) all U.S.
and foreign
18
issued patents and utility patents, and all pending patent applications relating
to any inventions, and all reissues, divisions, continuations,
continuations-in-part, extensions, reexaminations or interferences of them; (ii)
all U.S. and foreign registered trademarks, registered service marks, trademark
and service xxxx applications, unregistered trademarks and service marks, trade
names and logos; (iii) all U.S. and foreign registered copyrights and copyright
applications and all renewals and extensions; and (iv) a general identification
of all logos and domain name addresses.
(ii) SCHEDULE 7(h) sets forth all material IP Licenses granted
by or to any Seller and all other material agreements to which any Seller is a
party, which create rights in such Seller or in any third party regarding any
Intellectual Property specifically or other intellectual property generally. The
IP Licenses are binding against the Seller and in full force and effect. The
continued use by Buyer of any IP License or Licensed IP is not restricted by any
IP License.
(iii) Except as set forth on SCHEDULE 7(h), Sellers are the
owners, free and clear of all liens, claims and encumbrances (except Permitted
Encumbrances and Transamerica Encumbrances), of all right, title and interest in
the Intellectual Property (except for Licensed IP) and Sellers have the absolute
right to use and assign those rights without seeking the approval or consent of
any third party and without payments to any third party. The Intellectual
Property constitutes all of the intellectual property necessary to conduct the
Business as it is presently conducted or anticipated to be conducted. All
registrations and applications for the Intellectual Property are in full force
and effect. There are no existing or, to the knowledge of Sellers, threatened
claims or proceedings by any Person and there is no basis for any claim or
proceeding relating to the use by Sellers of the Intellectual Property or
challenging its ownership of the same. Except as set forth on SCHEDULE 7(h), to
the knowledge of Sellers, there are no infringing or diluting uses of the
Intellectual Property, and no investigations are pending concerning the
possibility of such infringing or diluting use.
(iv) To the knowledge of Sellers, no Seller has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
intellectual property rights of third parties, and, except as set forth on
SCHEDULE 7(h), no Seller has received any charge, complaint, claim, or notice
alleging any such interference, infringement, misappropriation or violation and
there is no basis for any such claim.
(v) Sellers have taken commercially reasonable steps to
maintain the confidentiality of their Trade Secrets.
(vi) Each present or past employee, officer, consultant or any
other person who developed any part of any material Intellectual Property has
vested in a Seller any and all right, title and interest in and to all such
Intellectual Property.
(vii) All material Software owned or licensed by Sellers for
use in the Business or necessary for the conduct of the Business as currently
conducted or anticipated to be conducted is set forth in SCHEDULE 7(h).
19
(viii) The execution of this Agreement will not result in the
loss or impairment of the rights of Buyer to own or use any of the Intellectual
Property.
(ix) Sellers products relating to the Business have been
marked as required by the applicable Patent statute and Sellers have given the
public notice of its Copyrights and notice of its Trademarks as required by the
applicable Trademark and Copyright statutes.
(i) Compliance with Law. Except as set forth on SCHEDULE 7(i), (i) the
operations of the Business have been conducted and are in all material respects
in accordance with all applicable Laws (including all Environmental Laws) of all
Governmental Authorities having jurisdiction over Sellers and applicable to the
Acquired Assets and (ii) no Seller has received any notification of any asserted
present or past failure by any Seller to comply with any such Laws during the
past three (3) years which apply to the operation of the Business.
(j) Books and Records. All of the books of account and other records of
Sellers relating to the Acquired Assets and the Business have been made
available to Buyer. To the best knowledge of Sellers, such books and records are
complete and correct in all material respects.
(k) Permits. Set forth on SCHEDULE 7(k) is a complete list of all of
Sellers' material Permits relating to the Acquired Assets and the Business.
Except as set forth on SCHEDULE 7(k), such Permits (i) are valid and effective,
(ii) represent all material Permits required by any Governmental Authority with
jurisdiction over the Acquired Assets to own and operate the Acquired Assets in
connection with the Business in the same manner as operated prior to the date
hereof and (iii) may be transferred or reissued to Buyer without the approval of
any third party.
(l) Environmental Matters. Except as set forth on SCHEDULE 7(l), there
are no events, conditions or circumstances which have resulted or are reasonably
likely to result in liability pursuant to Environmental Laws or principles of
common law relating to pollution, protection of the environment or health and
safety.
(m) Employees. Set forth on SCHEDULE 7(m) is the following: (i) a
listing of the names, titles and dates of hire of all of the employees of
Sellers who are not governed by any collective bargaining agreement, (ii) a list
of collective bargaining agreements entered into by Sellers and (iii) a list of
all "employee benefit plans" (within the meaning of Section 3(3) of ERISA),
whether or not subject to ERISA, in which current or former employees of the
Business participate. The annual salaries and bonuses of such employees of
Sellers and a copy of such collective bargaining arrangements and employee
benefit plans have been made available to Buyer on or prior to the date hereof.
(n) Absence of Certain Changes. Except as set forth in SCHEDULE 7(n),
since September 30, 2001: (i) there has been no Material Adverse Change; (ii)
there has been no damage, destruction or loss to any material asset or property,
tangible or intangible, of Sellers, ordinary wear and tear excepted; (iii) other
than in connection with the proposed sale of the Acquired Assets and the
Business, the Business has been conducted only in the Ordinary Course
20
of Business; (iv) no Seller has increased the compensation of any officer or
granted any general salary or benefits increase to their employees other than in
the Ordinary Course of Business; (v) the post-Petition liabilities have been
paid in the Ordinary Course of Business; and (vi) there has been no change by
Sellers, in relation to the Business or in accounting principles, practices or
methods.
(o) Liabilities. Sellers do not have any Liabilities other than (i)
Liabilities as set forth in the Current Balance Sheet or referred to in the
footnotes to the Audited Financials, (ii) Liabilities set forth in SCHEDULE 7(o)
and (iii) Liabilities incurred after September 30, 2001 in the Ordinary Course
of Business.
(p) Insurance. SCHEDULE 7(p) contains an accurate summary description
of all policies of property, fire and casualty, product liability, workers
compensation and other forms of insurance owned by or held by any Seller in
connection with the Business, together with a list of all material outstanding
claims against any insurer relating to the Business. Except as set forth on
SCHEDULE 7(p), no Seller has received (a) any notice of cancellation or
non-renewal of any policy described in such SCHEDULE 7(p) or refusal of coverage
thereunder, (b) any notice that any issuer of such policy has filed for
protection under applicable insolvency laws or is otherwise in the process of
liquidating or has been liquidated, or (c) any other indication that such
policies are no longer in full force or effect or that the issuer of any such
policy is no longer willing or able to perform its obligations thereunder.
(q) Taxes. All Tax returns, reports and forms of Sellers due prior to
the date hereof with respect to the Business have been timely filed and properly
reflect the tax liability of Sellers with respect to the applicable periods, and
no extension of time with respect to any date on which any Tax return, report or
form was or is to be filed with respect to Sellers is in force. All Taxes and
withholding amounts due and payable (or required to be withheld) prior to the
date hereof have been paid (or withheld). Except as set forth on SCHEDULE 7(q),
no claim for any Taxes has been proposed, threatened in writing or assessed
against any Seller and, to Sellers' knowledge, no facts exists that make such a
claim likely. Except as set forth on SCHEDULE 7(q), no ongoing audit, litigation
or similar proceeding concerning any Tax returns of any Seller with respect to
the Business or the Acquired Assets has been proposed, threatened, or is in
progress nor does there exist any waiver or agreement for the extension of time
for the assessment of any Taxes against any Seller with respect to the Business
or the Acquired Assets. Except as set forth on SCHEDULE 7(q), there are no Liens
on any of the Acquired Assets that arose in connection with any failure (or
alleged failure) to pay any Tax and there are no claims for Taxes, and no basis
for which any such claims might be made, that might result in any such Liens. No
claim has ever been made by a taxing authority in a jurisdiction where Sellers
do not currently file Tax returns that any Seller is or may be subject to
taxation by such jurisdiction. None of the Acquired Assets is a "tax exempt use
property" within the meaning of Section 168(h) of the Code. None of the Acquired
Assets is subject to a lease made pursuant to Section 168(f)(8) of the Internal
Revenue Code of 1954.
(r) Accounts Receivable. The Accounts Receivable constitute bona fide,
valid and collectible claims arising in the Ordinary Course of Business in a
manner consistent with Sellers' normal credit practices and are subject to no
set-offs or counterclaims (other than
21
returns in the Ordinary Course of Business), subject only to reasonable reserves
for bad debts calculated in a manner consistent with Sellers' past practice.
(s) Brokers; Agents. Except with respect to FTI Xxxxxxxx & Xxxxx,
Sellers have not dealt with any agent, finder, broker or other representative in
any manner which could result in Buyer being liable for any fee or commission in
the nature of a finder's fee or originator's fee in connection with the subject
matter of this Agreement.
(t) Warranty Obligations. SCHEDULE 7(t) contains a true and complete
description of Sellers' experience over the past three years with respect to
product warranty obligations, pricing and other accommodations. To the best of
Sellers' knowledge, as of September 30, 2001, sufficient reserves were
maintained on the books of Sellers to cover Sellers' product warranty
obligations. Over the past three years, Sellers have had no product recall
obligations.
(u) Real Property. SCI owns good and marketable fee title to the SCI
Real Property. At the Closing Date, such title shall be fee and clear of all
Liens other than Permitted Encumbrances. Except as set forth in SCHEDULE 7(u),
the SCI Real Property constitutes all of the real property used by any of
Sellers in the conduct of the Business. Each parcel included in the SCI Real
Property constitutes a separate tax lot. There is no pending or, to Sellers'
knowledge, threatened condemnation (or any sale in lieu thereof) affecting the
SCI Real Property.
(v) Litigation. Except as set forth on SCHEDULE 7(v) or claims made in
connection with Sellers' chapter 11 cases, there are no material actions,
claims, causes of action, proceedings, suits or investigations pending or, to
the knowledge of Sellers, threatened, against Sellers or any of their respective
assets, properties or rights, before any Governmental Authority. None of the
Sellers is subject to any Order entered in any lawsuit or proceeding.
(w) Trade Relations. On or prior to the date hereof, Sellers have
delivered to Buyer a list of SCI's ten largest customers (as determined by the
dollar amount of sales to such customers for the year ending December 31, 2001)
(the "Material Customers"). There exists no actual or, to the knowledge of
Sellers, threatened, cancellation of, or (except for the tightening of credit
terms as a result of Sellers' chapter 11 cases) any material adverse
modification to or change in, the business relationship of Sellers with any
Material Customer or material supplier.
(x) Accuracy of Representations. The representations and warranties
made by Sellers herein and the other information contained in the schedules
attached hereto contain no untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein and
therein not misleading. Sellers are not aware of any fact, event, circumstance
or condition that could reasonably be expected to result in a Material Adverse
Change that has not been disclosed in writing to Buyer.
(y) TERMS OF SALE. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS
AGREEMENT, THE ACQUIRED ASSETS ARE BEING SOLD TO BUYER ON AN "AS-IS, WHERE IS"
BASIS, WITHOUT WARRANTY. SELLERS HEREBY DISCLAIM ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR
22
PURPOSE. BUYER HEREBY ACKNOWLEDGES AND AGREES THAT BUYER, AND ITS SUCCESSORS AND
ASSIGNS, SHALL BEAR ALL RISKS OF INJURY OR DAMAGE TO PERSONS OR PROPERTY TO THE
EXTENT RELATING TO THE OPERATION OF THE ACQUIRED ASSETS ON AND AFTER THE CLOSING
DATE.
8. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
(a) Organization of Buyer; Authorization. Buyer is a limited liability
company or other entity duly organized, validly existing and in good standing
under the laws of the State of Delaware and, has the requisite organizational
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and performance of this Agreement
have been duly authorized by all necessary organizational action of Buyer. This
Agreement has been duly and validly executed by Buyer and, subject to the
entering of the Sale Order by the Bankruptcy Court, constitutes a legal, valid
and binding obligation of Buyer, enforceable against it in accordance with its
terms.
(b) No Conflict as to Buyer. Except as otherwise set forth on SCHEDULE
8(b), neither the execution and delivery of this Agreement nor the consummation
of any or all of the transactions contemplated hereby will (i) violate the
articles of organization or operating agreement (or other governing instrument)
of Buyer; (ii) violate, be in conflict with, or constitute a default under, or
require the consent of any third party to, any material contract or other
agreement to which Buyer is a party; or (iii) to the knowledge of Buyer, violate
any statute, law or regulation of any Governmental Authority applicable to
Buyer.
(c) Brokers; Agents. Buyer has not dealt with any agent, finder, broker
or other representative in any manner which could, solely as a result of action
by Buyer, result in Sellers being liable for any fee or commission in the nature
of a finder's fee or originator's fee in connection with the subject matter of
this Agreement.
9. ADDITIONAL AGREEMENT OF THE PARTIES
(a) Physical Inventory. Sellers shall continue their practice of
periodic cycle counts of the Inventory through the Closing Date. If such cycle
counts result in either increases or decreases to Inventory balances, such
adjustments shall be reflected in the calculation of the Estimated Net Working
Capital (as defined below) and the Closing Date Statement.
(b) Reasonable Best Efforts.
(i) Upon the terms and subject to the conditions of this
Agreement, Buyer and Sellers will use their reasonable best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to cause the
conditions precedent to Closing to be satisfied and to cause to the Closing to
occur on or prior to the date set forth in Section 12(a)(i), including, without
limitation, to obtain the consent or approval of any third party or Governmental
Authority necessary to consummate the transactions contemplated hereby
23
in accordance with the terms hereof and, in the case of Buyer, to timely obtain
the Buyer Financing; provided, that (i) nothing herein shall obligate Buyer to
accept financing under terms and conditions more onerous than those currently
provided by the DIP Lenders to Sellers and (ii) Buyer may, in its sole
discretion, seek financing from parties other than the DIP Lenders, but shall
not be obligated to seek such financing in order to comply with this Section
9(b)(i).
(ii) Each Seller agrees that it will promptly take such
actions as are reasonably intended to obtain the Bankruptcy Court's approval of
the Sale Order, including, without limitation, demonstrating that (x) Buyer is a
"good faith" purchaser under Section 363(m) of the Bankruptcy Code, (y) Buyer
has provided adequate assurance of future performance as assignee of the
Assigned Contracts and (z) Section 363(f) of Bankruptcy Code shall apply to the
sale of the Acquired Assets. In the event that stay of the Sale Order is sought
or any of such Orders are appealed, Sellers shall use their reasonable best
efforts to oppose such request for a stay or defend any such appeal, as
applicable. Buyer shall provide Sellers with all information reasonably
requested by Sellers in connection with such actions.
(iii) Sellers will provide Buyer with copies of all motions,
applications and supporting papers prepared by Sellers (including forms of the
Sale Order and other orders and notices to interested parties) relating to
Buyer, this Agreement or the Acquired Assets prior to the filing thereof in the
Bankruptcy Court, shall consult with Buyer and its counsel with respect thereto,
and shall incorporate therein such changes or additions as Buyer may reasonably
request. In connection with the Sale Order, Seller shall seek and obtain Buyer's
approval of such order (such approval not to be unreasonably withheld).
(iv) Sellers shall give appropriate notice, and provide
appropriate opportunity for hearing, to all parties entitled thereto, of all
motions, orders, hearings or other proceedings relating to this Agreement.
(v) Sellers shall give prompt notice to Buyer, and Buyer shall
give prompt notice to Sellers, of (x) the occurrence, or failure to occur, of
any event that would be likely to cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Closing Date, and (y) any failure of
Buyer or any Seller, as the case may be, to comply with or satisfy, in any
material respect, any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement.
(c) Access; Records; Bankruptcy Papers. From and after the date hereof,
authorized representatives of Buyer (including its accountants, advisors,
potential financing sources, consultants and legal counsel) shall have the
right, upon reasonable notice and at reasonable times, to inspect the Acquired
Assets and their condition and shall be provided reasonable access to Sellers'
officers, advisors, counsel, trade vendors, customers, properties, and
facilities, including for the purpose of environmental sampling, and, provided,
that Buyer shall not take any action which unreasonably interferes with Sellers'
operation of the Business prior to the Closing Date in any material respect.
From and after the date hereof, Sellers shall
24
give Buyer and its authorized representatives, full access to their books and
records relating to the Business, as Buyer may reasonably request, permit Buyer
to make inspections thereof, and cause Sellers' officers and advisors to furnish
Buyer with such financial, tax and other operating data and other information as
Buyer may reasonably request (subject to Buyer's execution of customary
confidentiality and similar agreements). Sellers hereby agree that they will
retain, until all appropriate statutes of limitations (including any extensions)
expire, copies of all tax returns and supporting work schedules and other
records or information which may be relevant to such tax returns, except for
such tax returns, supporting work schedules and other records which Buyer shall
acquire as a consequence of this Agreement (provided, that Sellers may elect not
to retain any such copies if they give such copies or make such copies available
to Buyer), and that they will not destroy or otherwise dispose of such materials
without first providing Buyer with a reasonable opportunity to review and copy
such materials. Buyer hereby agrees that it will retain, until all appropriate
statutes of limitations (including any extensions) expire, copies of all tax
returns and supporting work schedules received from any Sellers pursuant to this
Agreement and other records or information which may be relevant to such tax
returns (provided, that Buyer may elect not to retain any such copies if Buyer
gives such copies or makes such copies available to Sellers), and that it will
not destroy or otherwise dispose of such materials without first providing
Sellers with a reasonable opportunity to review and copy such materials. After
the Closing Date, Buyer shall give Sellers and their authorized representatives
full access to the books and records acquired as a consequence of this Agreement
for purposes of and relating to the prosecution of any claims of Sellers or
which may otherwise be needed to enforce their remaining rights and defend their
remaining obligations relating to the Acquired Assets and the Business or in
connection with Sellers' chapter 11 cases. Sellers will promptly deliver to
Buyer copies of all pleadings, motions, notices, statements, schedules,
applications, reports and other papers filed in Sellers' chapter 11 cases
relating to this Agreement or the transactions contemplated hereby.
(d) Operation in the Ordinary Course. Prior to the Closing Date,
Sellers shall operate in the Ordinary Course of Business, subject to changes
resulting from its chapter 11 cases and the requirements of the Bankruptcy Code
and the Bankruptcy Court, and in compliance with all Laws. In furtherance of and
without limiting the foregoing, (x) Sellers shall:
(i) maintain and preserve all of the physical Acquired Assets
in the same condition as of the date hereof, ordinary wear and tear excepted;
and
(ii) perform all of their obligations under the Assigned
Contracts, provided, that, except as otherwise required hereunder, Sellers shall
not be required to pay any Cure Amounts; and
(iii) maintain insurance at presently existing levels so long
as such insurance is available on commercially reasonable terms.
and (y) Sellers shall not, without the prior written consent of Buyer, sell,
transfer, mortgage, encumber or otherwise dispose of any of the Acquired Assets
other than in the Ordinary Course of Business, execute any Contract other than
in the Ordinary Course of Business or agree to or make any commitment to take
any actions prohibited by this Section 9(e).
25
(e) Confidentiality. Prior to the Closing and thereafter,
except to the extent required by applicable law (including the Bankruptcy Code)
or court order, Buyer and each Seller shall keep strictly confidential all
documents and other communications and information whether written or oral,
provided by the other prior to or after execution of this Agreement.
(f) Collection of Accounts Receivable. If, following the
Closing, Sellers shall collect any Accounts Receivable belonging to Buyer,
Sellers shall hold the same in trust and shall promptly pay the same over to
Buyer.
(g) Collective Bargaining Agreement. Sellers shall
continue to negotiate towards an initial collective bargaining agreement with
the labor union known as Paper, Allied-Industrial, Chemical and Energy
International Union, AFL-CIO-CLC ("P.A.C.E."), an affiliate of the American
Federation of Labor - Congress of Industrial Organizations, and Sellers shall
keep Buyer informed of its progress with respect to such negotiations and obtain
Buyer's prior written consent prior to executing such agreement.
(h) Continuing Due Diligence Update. On February 6 and
14, 2002, Buyer shall provide Sellers with an oral update on the status of its
Continuing Due Diligence. If, in its sole discretion, Buyer determines that it
has become aware of information that will result in a termination of this
Agreement pursuant to Section 12(a)(iii), Buyer shall so inform Sellers at the
February 6th or 14th update, as the case may be; provided, however, that the
failure to so inform Sellers shall not result in any liability on the part of
Buyer or affect any of its rights hereunder, including its rights under Section
12(b).
10. CONDITIONS TO BUYER'S OBLIGATION TO EFFECT CLOSING
The obligation of Buyer to effect the Closing shall be subject
to the satisfaction, on or before the Closing Date, of the following conditions,
any one or more of which may be waived by Buyer:
(a) Representations and Warranties and Covenants. (i) The
representations and warranties of Sellers set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date, (ii) Sellers shall have performed and complied in all
material respects with the agreements contained in this Agreement required to be
performed and complied with by Sellers on or before the Closing, and (iii) each
Seller shall have delivered to Buyer at the Closing certificates, dated the
Closing Date, signed by their Chief Executive Officer, the President or any Vice
President certifying as to compliance with clauses (i) and (ii) above.
(b) Sale Hearing. Sellers shall have obtained the
Procedures Order from the Bankruptcy Court by no later than January 22, 2002
scheduling the Sale Hearing to occur by no later than March 6, 2002 and
scheduling the Auction to occur not more than two Business Days before the Sale
Hearing.
(c) Effectiveness of Sale Order. The Bankruptcy Court
shall have entered the Sale Order, 10 days shall have elapsed since such Sale
Order was entered (provided, that if the tenth day after such Sale Order is
entered is not a Business Day, such period shall be deemed to
26
have elapsed on the first Business Day following such tenth day), and the
effectiveness of such Sale Order shall not have been stayed or, if stayed, such
stay shall no longer be in effect.
(d) No Material Adverse Change. From September 30, 2001
until the Closing Date, no Material Adverse Change shall have occurred.
(e) No Litigation. There shall not be any Order,
litigation, action or proceeding pending or threatened to be brought before any
Governmental Authority seeking to enjoin, restrain or prohibit the transactions
contemplated hereby or which, individually or in the aggregate, can reasonably
be expected to result in a Material Adverse Change.
(f) Compliance With Procedures Order; Notice. Seller
shall have complied with all requirements of the Procedures Order, including the
notice requirements provided therein.
(g) Assumption and Rejection of Contracts. The Contracts
designated hereunder for assumption or rejection shall be so assumed or
rejected, as the case may be, by final Order of the Bankruptcy Court
satisfactory to Buyer.
(h) Paper Corp. of the United States. The contract
between Paper Corp. of the United States (with which SCI has a supply
relationship) and the Bureau of Engraving and Printing shall not have been
terminated and shall remain in full force and effect.
(i) Permits. Seller shall have all Permits required by
any Governmental Authority to own and operate the Acquired Assets in connection
with the Business and such Permits shall be valid and enforceable.
(j) Buyer Financing. The Buyer Financing shall have been
funded by the DIP Lenders in accordance with the terms of the Buyer Financing
documents and/or commitment letters referred to in Section 12(a)(ix) hereof.
(k) Management Agreements. No member of Sellers'
management who has executed a Management Agreement shall have disavowed,
canceled or threatened to disavow or cancel such Management Agreement.
(l) xpedx Contract. Sellers shall have obtained an order
of the Bankruptcy Court prior to the Closing Date approving the proposed
contract between xpedx and SCI pursuant to Section 363(b) of the Bankruptcy Code
and payment of the prepetition claims of xpedx pursuant to Section 105(a) of the
Bankruptcy Code, in a manner substantially consistent with the motion dated
December 21, 2001 now on file with the Bankruptcy Court.
11. CONDITIONS TO SELLERS' OBLIGATION TO EFFECT CLOSING
The obligation of Sellers to effect the Closing shall be
subject to the satisfaction, on or before the Closing Date, of the following
conditions, any one or more of which may be waived by Sellers:
27
(a) Representations and Warranties. (i) The
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date, (ii) Buyer shall have performed and complied in all
material respects with the agreements contained in this Agreement required to be
performed and complied with by Buyer on or before the Closing, and (iii) Buyer
shall have delivered to Sellers at the Closing certificates, dated the Closing
Date, signed by the sole member of Buyer certifying as to compliance with
clauses (i) and (ii) above.
(b) Effectiveness of Sale Order. The Bankruptcy Court
shall have entered the Sale Order, 10 days shall have elapsed since the Sale
Order was entered (provided, that if the tenth day after the Sale Order is
entered is not a Business Day, such period shall be deemed to have elapsed on
the first Business Day following such tenth day), and the effectiveness of the
Sale Order shall not have been stayed or, if stayed, such stay shall no longer
be in effect.
(c) No Litigation. There shall not be any Order,
litigation, action or proceeding pending or threatened in writing to be brought
before any Governmental Authority seeking to enjoin, restrain or prohibit the
transactions contemplated hereby.
12. TERMINATION; EFFECT OF TERMINATION
(a) Termination. This Agreement may be terminated before
the Closing occurs only as follows:
(i) By Buyer or by Sellers, if the
Closing shall not have occurred for any reason on or before March 27,
2002.
(ii) By Buyer, if one or more of the
conditions specified in Section 10 is not satisfied on the Closing Date
or such a condition is not reasonably likely to be satisfied prior to
the Closing Date.
(iii) By Buyer, by written notice to
Sellers on or prior to the Due Diligence Termination Date if Buyer
shall not have completed accounting, legal and environmental due
diligence concerning Sellers, the Acquired Assets and the Business,
including the information contained on the schedules attached hereto,
and obtained results satisfactory to it as determined by Buyer in its
sole discretion, or Buyer shall have obtained any information showing
that the due diligence information previously provided to Buyer by
Sellers (including, without limitation, financial projections) is
incorrect or incomplete in any material respect or, with respect to
financial projections, that there is a material risk that such
projections will not be achieved, as determined by Buyer in its sole
discretion.
(iv) By Sellers, if one or more of the
conditions specified in Section 11 is not satisfied on the Closing Date
or such a condition is not reasonably likely to be satisfied prior to
the Closing Date.
(v) By Buyer, if (x) the Procedures
Order has not been entered by January 22, 2002, (y) the Sale Order has
not been entered by March 6, 2002, or if, prior to such date, the
Bankruptcy Court approves another transaction involving the sale
28
or other transfer of any of the Acquired Assets to a third party or (z)
Buyer is not the winning bidder in the Auction held by March 4, 2002.
(vi) By Buyer, if the Estimated Net
Working Capital exceeds the Target Net Working Capital by an amount
greater than $350,000, unless Sellers waive in writing their right to
the Interim Working Capital Adjustment and the Final Working Capital
Adjustment.
(vii) By Sellers, if the Target Net
Working Capital exceeds the Estimated Net Working Capital by an amount
greater than $350,000, unless Buyer waives in writing its rights to the
Interim Working Capital Adjustment and the Final Working Capital
Adjustment.
(viii) By Buyer or Sellers, upon an
Initial Deposit Repayment.
(ix) By Buyers, by written notice to
Sellers on or prior to February 18, 2002, if (x) Buyer shall not have
received a binding commitment for the Buyer Financing in form and
substance satisfactory to Buyer in its sole discretion or (y) Buyer
shall not have entered into Management Agreements satisfactory to Buyer
in its sole discretion.
(x) By the mutual written agreement of
Buyer and Sellers.
(b) Transaction Expenses. Subject to the following
sentence, Sellers shall reimburse Buyer for all reasonable and documented
out-of-pocket expenses (including, without limitation, the reasonable fees and
expenses of Buyer's professionals) incurred by Buyer in connection with the
preparation and negotiation of this Agreement, the Letter of Intent, all
documents to be prepared in connection with the consummation of the transactions
contemplated by this Agreement (whether consummated or not), and all of Buyer's
other fees and expenses related to the transactions contemplated by this
Agreement including, but not limited to, Buyer's due diligence and fees and
expenses related to the Buyer Financing; provided, however, that in no event
shall the aggregate amount of such reimbursement exceed $300,000 (the "Expense
Reimbursement"). The Expense Reimbursement shall constitute an allowed
administrative expense claim against Sellers under sections 503 and 507(a) of
the Bankruptcy Code, payable, without limitation, from the proceeds of an
Alternative Transaction (as defined below) or the assets of Sellers, if and
when:
(i) this Agreement terminates for any
reason other than a material breach by Buyer of this Agreement;
(ii) Sellers materially breach any of
their obligations under this Agreement; or
(iii) Sellers seek approval of, or the
Bankruptcy Court approves, any agreement or transaction with a third
party for the sale or transfer of all or any portion of the Acquired
Assets, directly or indirectly, whether pursuant to a chapter 11 plan
for Sellers or under section 363(b) of the Bankruptcy Code, or
otherwise enters into
29
any transaction that is materially inconsistent with this Agreement (an
"Alternative Transaction").
(c) Termination Fee. Sellers shall be required to pay
Buyer a termination fee in an amount equal to (x) 3% of the Purchase Price minus
(y) the actual amount of the Expense Reimbursement (the "Termination Fee") upon
the consummation of an Alternative Transaction, which obligation shall
constitute an allowed administrative expense claim against Sellers under
sections 503 and 507(a) of the Bankruptcy Code, payable from the proceeds of an
Alternative Transaction; provided, however, that Buyer shall not be entitled to
the Termination Fee if Buyer shall have breached its obligations under this
Agreement in any material respect or shall have terminated this Agreement
pursuant to Section 12(a)(iii), (viii) or (ix).
(d) Deposit. If the Closing does not occur or this
Agreement is terminated, the Deposit shall be paid in accordance with the Escrow
Agreement.
(e) No Further Liability. Subject to Sections 12(b), (c)
and (d) hereof, if this Agreement is terminated by either or both of Sellers and
Buyer pursuant to this Section 12, neither party shall have any further
obligation or liability under this Agreement, except that the obligations under
Section 9(e) shall survive and any party that has materially breached this
Agreement shall not be relieved of any liability hereunder; provided, however,
that in the event that, as a result of a breach of this Agreement by Buyer, this
Agreement is terminated by Sellers or the Closing does not occur, Sellers shall
be entitled, as their sole and exclusive remedy, to liquidated damages as set
forth in Section 3(e).
13. EMPLOYEES
It is Buyer's intention, subject to the due diligence, to make
offers of employment to all employees employed by Sellers in connection with the
operation of the Business as of the Closing Date. On or prior to the Closing
Date, Buyer and Sellers shall give notice to such employees that they will no
longer be employees of Sellers, effective as of the Closing Date, and that Buyer
is offering such employees employment at compensation similar to their then
present salary and wage rates; provided, that nothing herein shall limit the
Buyer's right to terminate any such employee or to modify salaries or wage rates
following the Closing Date (any employee who commences employment with the Buyer
in connection with the transactions contemplated by this Agreement shall
hereinafter be referred to as a "Continuing Employee"). Buyer shall cause
Continuing Employees to be credited under any "employee benefit plans" (within
the meaning of Section 3(3) of ERISA) established by Buyer or to be established
by Buyer for employees of the Business generally with months and years of
service which they had been credited under Sellers' plan(s) as of the Closing
Date, provided, that such service shall only be recognized for purposes of
determining eligibility and vesting under such plans and not for benefit
accruals or any other purpose.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
(a) Survival of Representations and Warranties. The
representations and warranties of Sellers and Buyer made pursuant to this
Agreement shall survive until 90 days following the Closing Date (the "Survival
Termination Date").
30
(b) Indemnification by Sellers. Sellers shall indemnify
and hold harmless Buyer, and shall reimburse Buyer for, any Loss arising from or
in connection with (i) any breach of any of the representations and warranties
of Sellers in this Agreement or in any certificate delivered by Sellers pursuant
to this Agreement, or any actions, omissions or state of facts inconsistent with
any such representation or warranty, (ii) any failure by Sellers to perform or
comply with any agreement or covenant in this Agreement, and (iii) any
liabilities or obligations of Sellers which are not Assumed Obligations. The
aggregate liability of Sellers for any such claims under clause (i) shall be
limited to, and payable only out of, amounts held under the Post-Closing Escrow
Agreement and shall be payable only as and to the extent provided therein. In
addition, Buyer shall not be entitled to indemnification by Sellers under
Section 14(b)(i) with respect to any claims until the aggregate Loss suffered by
Buyer arising from or in connection with all such claims exceeds $75,000,
whereupon Buyer shall be entitled to indemnification hereunder for the amount of
such Loss including amounts below $75,000.
(c) Indemnification by Buyer. Buyer shall indemnify and
hold harmless Sellers and shall reimburse Sellers for, any Loss arising from or
in connection with (i) any breach of any of the representations and warranties
of Buyer in this Agreement or in any certificate delivered by Buyer pursuant to
this Agreement, or any actions, omissions or state of facts inconsistent with
any such representation or warranty, (ii) any failure by Buyer to perform or
comply with any agreement or covenant in this Agreement, and (iii) the Assumed
Obligations. Sellers shall not be entitled to indemnification by Buyer under
Section 14(c)(i) with respect to any claims until the aggregate Loss suffered by
Sellers arising from or in connection with all such claims exceeds $75,000,
whereupon Sellers shall be entitled to indemnification hereunder for the amount
of such Loss including amounts below $75,000.
(d) Procedure for Indemnification with Respect to Direct
Claims.
(i) In the event that Buyer shall have
a claim for indemnification by Sellers pursuant to Section 14(b)(i),
Buyer shall have until the Survival Termination Date to make such claim
against Seller.
(ii) Buyer shall make any claim for
indemnification by Sellers under this Section 14 by sending to Sellers
and the Post-Closing Escrow Agent a written notice specifying the
nature of the claim and the dollar amount of Loss incurred by Buyer for
which indemnification is sought. The Post-Closing Escrow Agent shall
pay to Buyer in accordance with the Post-Closing Escrow Agreement the
amount of the Loss if and to the extent that such amount is determined
to be payable in accordance with the Post-Closing Escrow Agreement.
(iii) In the event that Sellers shall
have a claim for indemnification by Buyer pursuant to Section 14(c)(i),
Seller shall have until the Survival Termination Date to make such
claim against Buyer by sending Buyer a written notice specifying the
nature of the claim and the dollar amount of loss incurred by Sellers
for which indemnification is sought.
(e) Procedure for Indemnification with respect to Third
Party Claims. Promptly after receipt by an indemnified party under Section 14(b)
or (c) of notice of the
31
commencement or assertion of any action or proceeding, demand or claim (each an
"Action"), such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such section, give notice to the
indemnifying party of the commencement or assertion thereof, but the failure so
to notify the indemnifying party shall not relieve the indemnifying party of any
liability that it may have to any indemnified party except to the extent the
indemnifying party is prejudiced thereby. In case any such Action shall be
brought or asserted against an indemnified party and it shall give notice to the
indemnifying party of the commencement or assertion thereof, the indemnifying
party shall be entitled to participate therein and, at its election, to assume
the defense thereof with counsel reasonably satisfactory to such indemnified
party and, after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under such section for any fees of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party in connection with the defense thereof, other than reasonable
costs of investigation, provided, that any indemnified party may, at its own
expense, retain separate counsel to participate in any defense at its own
expense. Notwithstanding the foregoing, in any Action in which both the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, are, or are reasonably likely to become, a party, the indemnified party
shall have the right to employ separate counsel and to control its own defense
of such Action if, in the reasonable opinion of counsel to the indemnified
party, either (x) one or more defenses are available to the indemnified party
that are not available to the indemnifying party or (y) a conflict or potential
conflict exists between the indemnifying party, on the one hand, and such
indemnified party, on the other hand, that would make such separate
representation advisable, and in such case shall reimburse the indemnified party
for the fees and expenses of such counsel. If an indemnifying party assumes the
defense of such an Action, (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's consent
unless (i) there is no finding or admission of any violation of law or any
violation of the rights of any Person by the indemnified party and (ii) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party and (b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its consent. Notwithstanding
the foregoing, if an indemnified party determines in good faith that there is a
reasonable probability that an Action may adversely affect it or its affiliates
other than as a result of monetary damages or if the indemnifying party does
not, within ten days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense thereof, such
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise or settle such Action, provided, that the
indemnifying party shall not be bound by (i) any compromise or settlement
thereof unless the indemnifying party has given its prior written consent to
such compromise or settlement or (ii) any determination of an Action so
defended.
15. JURISDICTION
The parties agree that the Bankruptcy Court shall retain
jurisdiction to resolve any controversy or claim arising out of or relating to
this Agreement, or the breach hereof.
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16. MISCELLANEOUS
(a) Notices. All notices, requests, demands, consents and
other communications required or permitted under this Agreement shall be in
writing and shall be considered to have been duly given when (i) delivered by
hand, (ii) sent by telecopier (with receipt confirmed), provided that a copy is
mailed (on the same date) by certified or registered mail, return receipt
requested, postage prepaid, or (iii) received by the addressee, if sent by
Express Mail, Federal Express or other express delivery service (receipt
requested), in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
from time to time designate as to itself by notice similarly given to the other
party in accordance herewith). A notice of change of address shall not be deemed
given until received by the addressee.
If to Buyer, to it at:
c/o WR CAPITAL PARTNERS, LLC
000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Fax No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
with a copy to:
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Fax No.: (000) 000-0000
Attention: Xxxxxx X. Drain, Esq. and
Xxxxxxx X. Xxxxxxxxx, Esq.
If to Sellers, to them at:
c/o SPINNAKER INDUSTRIES, INC.
000 Xxxx Xxxxx Xxxxxx
Xxxx, XX 00000
Fax No.: (000) 000-0000
(000) 000-0000
Attention: Xxxxx X. Xxxxxxxx, Xx., Chairman and CEO
with a copy to:
Xxxx Xxxxxxx LLP
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Fax No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
Xxxxxx X. Israel, Esq.
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(b) Press Releases; Disclosure. The parties hereto will
cooperate in the issuance of any press releases or otherwise in making any
public statements with respect to this Agreement and the transactions
contemplated hereby. Neither Buyer nor any Seller shall issue any press release
regarding this Agreement or the transactions contemplated hereby without the
other party's prior written consent, which consent shall not be unreasonably
withheld. Buyer acknowledges and agrees that Sellers may provide copies of this
Agreement and the schedules and exhibits attached hereto to the parties in
interest in Sellers' chapter 11 cases, and those parties Sellers determine it is
necessary to provide copies to in connection with the Auction or as otherwise
necessary in connection with Sellers' chapter 11 cases. Sellers also shall be
entitled to file copies of this Agreement and the schedules and exhibits
attached hereto with the Bankruptcy Court or as otherwise required by law and
shall publish notice of this Agreement and the transactions contemplated hereby
in the Wall Street Journal or other similar publication.
(c) Definition of Knowledge. As used in this Agreement,
with respect to a particular fact or other matter, the phrase "to the knowledge
of Sellers," "to the best knowledge of Sellers, "to Sellers' knowledge" or "to
Sellers' best knowledge" and any similar phrase shall mean the actual knowledge
as of the date of this Agreement of Xxxxx X. Xxxxxxxx, Xx., Xxxxxx X. Xxxxxxx,
Xxxx X. Xxxxxx, Xxxxxx X. Xxxxx III, Xxxxx X. Xxxxxxxx, and Xxxxx X. Xxxxxxx.
(d) Entire Agreement. This Agreement and the instruments,
agreements, exhibits and other documents contemplated hereby supersede all prior
discussions and agreements between the parties with respect to the matters
contained herein (including, without limitation, the Letter of Intent, but
excluding the Confidentiality Agreement between Buyer and Sellers dated October
25, 2001, which shall remain in full force and effect), and this Agreement and
the instruments, agreements and other documents contemplated hereby contain the
entire agreement between the parties hereto with respect to the transactions
contemplated hereby.
(e) Further Assurances. After the Closing, each of the
parties hereto shall hereafter, at the reasonable request of the other party
hereto, execute and deliver such other instruments of transfer or assumption and
further documents and agreements, and do such further acts and things as may be
necessary to carry out the provisions of this Agreement.
(f) Waiver. Any term or condition of this Agreement may
be waived at any time by the party thereto which is entitled to the benefit
thereof, but such waiver shall only be effective if evidenced by a writing
signed by such party. A waiver on one occasion shall not be deemed to be a
waiver of the same of any other breach on a future occasion.
(g) Amendment. Except as otherwise expressly provided
herein, this Agreement may be amended only by a writing signed by all the
parties hereto.
(h) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
(i) Binding Agreement; Assignment; No Third Party
Beneficiaries. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by any party
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hereto, without the prior written consent of the other party. Any purported
assignment without such consent shall be void. Notwithstanding the foregoing,
Buyer may, by written notice delivered to Sellers not less than five Business
Days prior to the Closing Date, designate one of its affiliates to assume all of
the obligations and rights of Buyer hereunder effective as of the Closing Date
in a writing reasonably satisfactory to Sellers; upon the effectiveness of such
assignment, SC Acquisition, LLC shall be released from liability hereunder. This
Agreement is not made for the benefit of any third party (including any
non-Seller parties to the Assigned Contracts), and no third party shall be
deemed to be a beneficiary hereof.
(j) Governing Law. This Agreement shall be governed by
the laws of the State of New York, without regard to the conflicts of laws
principles thereof.
(k) Headings. The headings in this Agreement are for
convenience of reference only and should not be deemed a part of this Agreement.
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(l) Expenses. Except as otherwise expressly provided
herein, each of the parties hereto shall pay their own fees and expenses in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other instruments and agreements entered into pursuant to this
Agreement, and any amendments to the same.
(m) Liability of Members, Officers, Directors of Buyer.
No member, officer, or director of Buyer shall have any liability whatsoever for
the obligations of Buyer under this Agreement.
[Signatures on Next Page]
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed on the date first above written.
SELLERS:
SPINNAKER INDUSTRIES, INC.
By: __________________________
Name:
Title:
SPINNAKER COATING, INC.
By: __________________________
Name:
Title:
SPINNAKER COATING-MAINE, INC.
By: __________________________
Name:
Title:
BUYER:
SP ACQUISITION, LLC
By: __________________________
Name:
Title:
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