EXHIBIT 2.1
PURCHASE AGREEMENT
AMONG
ROYAL NUMICO N.V.,
NUMICO USA, INC.
AND
APOLLO GNC HOLDING, INC.
DATED AS OF OCTOBER 16, 2003
TABLE OF CONTENTS
PAGE
ARTICLE 1 SALE OF INTERESTS AND PURCHASED ASSETS; CLOSING............................................... 1
1.01 Purchase and Sale............................................................................. 1
1.02 Purchase Price................................................................................ 1
1.03 Closing....................................................................................... 1
1.04 Post-Closing Purchase Price Adjustment........................................................ 2
1.05 Equity Commitment............................................................................. 4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER...................................................... 4
2.01 Organization of Seller........................................................................ 4
2.02 Authority..................................................................................... 4
2.03 Organization of the Company................................................................... 4
2.04 Interests..................................................................................... 5
2.05 Subsidiaries.................................................................................. 5
2.06 Noncontravention.............................................................................. 6
2.07 Title to Assets............................................................................... 6
2.08 Brokers' Fees................................................................................. 6
2.09 Financial Statements.......................................................................... 7
2.10 Absence of Certain Material Developments...................................................... 7
2.11 Undisclosed Liabilities....................................................................... 9
2.12 Legal Compliance.............................................................................. 9
2.13 Tax Matters................................................................................... 10
2.14 Real Property................................................................................. 11
2.15 Intellectual Property......................................................................... 12
2.16 Tangible Assets............................................................................... 14
2.17 Contracts..................................................................................... 14
2.18 Accounts...................................................................................... 16
2.19 Powers of Attorney............................................................................ 16
2.20 Insurance..................................................................................... 16
2.21 Litigation.................................................................................... 17
2.22 Employees..................................................................................... 17
2.23 Employee Benefits............................................................................. 17
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2.24 Environmental Laws............................................................................ 19
2.25 Certain Business Relationships With Seller.................................................... 20
2.26 Inventory..................................................................................... 21
2.27 Franchise Matters............................................................................. 21
2.28 No Material Adverse Change.................................................................... 22
2.29 Full Disclosure............................................................................... 22
2.30 Product Liability............................................................................. 22
2.31 Personnel Policies............................................................................ 22
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER................................................... 23
3.01 Organization and Power........................................................................ 23
3.02 Authority..................................................................................... 23
3.03 No Breach..................................................................................... 23
3.04 Governmental Consents, etc.................................................................... 23
3.05 Litigation.................................................................................... 23
3.06 Broker's Fees................................................................................. 24
3.07 Investment Representation..................................................................... 24
3.08 Financing..................................................................................... 24
3.09 Solvency...................................................................................... 24
ARTICLE 4 SELLER PRE-CLOSING COVENANTS.................................................................. 25
4.01 General....................................................................................... 25
4.02 Notices and Consents.......................................................................... 25
4.03 Conduct of Business Pending Closing........................................................... 25
4.04 Access........................................................................................ 27
4.05 Restructuring................................................................................. 28
4.06 Notice and Cure............................................................................... 29
4.07 Regulatory Filings............................................................................ 29
4.08 Shareholders Meeting.......................................................................... 29
4.09 No Solicitation............................................................................... 30
4.10 Financing..................................................................................... 31
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4.11 September Interim Financial Statements........................................................ 31
4.12 Audit......................................................................................... 32
4.13 Contact with Customers and Suppliers.......................................................... 32
ARTICLE 5 PURCHASER'S PRE-CLOSING COVENANTS............................................................. 32
5.01 General....................................................................................... 32
5.02 Regulatory Filings............................................................................ 32
5.03 Contact with Customers and Suppliers.......................................................... 33
5.04 Purchaser's Solvency.......................................................................... 33
5.05 Acknowledgment by Purchaser................................................................... 33
5.06 Notification.................................................................................. 33
5.07 Completion of IRS Form 8023................................................................... 33
ARTICLE 6 POST-CLOSING COVENANTS........................................................................ 34
6.01 General....................................................................................... 34
6.02 Covenant Not to Compete....................................................................... 34
6.03 Purchaser Payment Obligations................................................................. 35
6.04 Purchaser Insurance........................................................................... 35
6.05 Excluded Proceeds............................................................................. 36
6.06 Seller Insurance.............................................................................. 36
6.07 Name Change................................................................................... 37
ARTICLE 7 CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE................................................. 37
7.01 Representations and Warranties................................................................ 37
7.02 Performance................................................................................... 37
7.03 Third Party Consents.......................................................................... 37
7.04 Payment Obligations........................................................................... 38
7.05 Shareholder Approval.......................................................................... 38
7.06 No Litigation................................................................................. 38
7.07 Seller's Officer's Certificate................................................................ 38
7.08 Royal Numico Officer's Certificate............................................................ 38
7.09 Governmental Consents......................................................................... 38
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7.10 Opinion of Counsel............................................................................ 39
7.11 Resignations of Directors and Officers........................................................ 39
7.12 Ancillary Agreements.......................................................................... 39
7.13 GNC Franchising Canada........................................................................ 39
7.14 Non-Foreign Status............................................................................ 39
7.15 Material Adverse Change....................................................................... 39
7.16 Employment Agreements......................................................................... 39
7.17 Financing..................................................................................... 39
7.18 Completion of IRS Form 8023................................................................... 39
7.19 Other Actions................................................................................. 39
ARTICLE 8 CONDITIONS TO SELLER'S OBLIGATION............................................................. 40
8.01 Representations and Warranties................................................................ 40
8.02 Performance................................................................................... 40
8.03 Litigation.................................................................................... 40
8.04 Other Certificate............................................................................. 41
8.05 Governmental Consents......................................................................... 41
8.06 Legal Opinion................................................................................. 41
8.07 Guarantees.................................................................................... 41
8.08 Other Actions................................................................................. 41
8.09 Shareholder Approval.......................................................................... 41
8.10 Completion of IRS Form 8023................................................................... 41
ARTICLE 9 INDEMNIFICATION............................................................................... 42
9.01 Indemnification by Seller..................................................................... 42
9.02 Indemnification by Purchaser.................................................................. 44
9.03 Method of Asserting Claims.................................................................... 45
9.04 Adjustments................................................................................... 46
9.05 Dispute Resolution............................................................................ 46
9.06 Remedies...................................................................................... 48
9.07 Joint and Several Liability................................................................... 48
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ARTICLE 10 TAX MATTERS................................................................................... 48
10.01 Tax Indemnity................................................................................. 48
10.02 Tax Contests.................................................................................. 50
10.03 Payments for Certain Adjustments.............................................................. 51
10.04 Refunds....................................................................................... 51
10.05 Cooperation and Exchange of Information....................................................... 51
10.06 Transfer Taxes................................................................................ 52
10.07 Tax Sharing Agreements; Powers of Attorney.................................................... 52
10.08 Foreign Subsidiaries.......................................................................... 52
10.09 Survival of Tax Claims and Section 2.13 Representations....................................... 52
ARTICLE 11 SECTION 338(H)(10) ELECTION................................................................... 52
11.01 Section 338(h)(10) Election................................................................... 52
11.02 Calculation and Payment of 338(h)(10) Tax Payment............................................. 53
11.03 Purchase Price Allocation..................................................................... 54
11.04 Tax Liabilities............................................................................... 55
ARTICLE 12 TERMINATION................................................................................... 56
12.01 Termination................................................................................... 56
12.02 Effect of Termination......................................................................... 57
ARTICLE 13 DEFINITIONS................................................................................... 58
13.01 Definitions................................................................................... 58
13.02 Cross-Reference of Other Definitions.......................................................... 66
ARTICLE 14 ADDITIONAL POST-CLOSING COVENANTS............................................................. 68
14.01 Employee Benefit Matters...................................................................... 68
14.02 Excluded Litigation........................................................................... 69
14.03 Benefits Relating to Royal Numico General Nutrition Management Stock Purchase Plan............ 70
14.04 Retention and Severance Agreements, and Bonus Plans........................................... 71
ARTICLE 15 MISCELLANEOUS................................................................................. 72
15.01 No Assignment; Binding Effect................................................................. 72
15.02 Headings...................................................................................... 72
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15.03 Press Releases and Communications............................................................. 72
15.04 No Third Party Beneficiaries.................................................................. 73
15.05 Entire Agreement.............................................................................. 73
15.06 Counterparts.................................................................................. 73
15.07 Notices....................................................................................... 73
15.08 Governing Law; Venue.......................................................................... 74
15.09 Amendments and Waivers........................................................................ 74
15.10 Severability.................................................................................. 74
15.11 Expenses...................................................................................... 74
15.12 Construction.................................................................................. 75
15.13 Incorporation of Exhibits, Annexes and Schedules.............................................. 75
15.14 Governing Language............................................................................ 75
Exhibit A -- [Intentionally Deleted]
Exhibit B -- Forms of Opinions of Seller's Counsel
Exhibit C -- Form of Opinion of Purchaser's Counsel
Exhibit D -- Company Accounting Policies
Exhibit E -- [Intentionally Deleted]
Exhibit F -- [Intentionally Deleted]
Exhibit G -- [Intentionally Deleted]
Exhibit H -- Certain Management Members
Exhibit I -- Calculation of EBITDA
Disclosure Schedule -- Exceptions to Seller's Representations and
Warranties, and Other Information
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PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") dated as of October 16, 2003 is
made and entered into by and among APOLLO GNC HOLDING, INC., a Delaware
corporation ("Purchaser"), ROYAL NUMICO N.V., a company organized under the laws
of The Netherlands ("Royal Numico"), and NUMICO USA, INC., a Delaware
corporation (hereinafter referred to as "Numico USA" or "Seller"). Capitalized
terms not otherwise defined herein have the meanings set forth in Section 13.01.
WHEREAS, Seller owns all the sole membership interest in GNC US Newco 1
LLC, a Delaware limited liability company ("Newco 1 LLC"), and a partnership
interest in GNC US Newco DGP 1, a Delaware general partnership ("Newco DGP 1"),
of which Newco 1 LLC is the only other partner (such limited liability company
and partnership being referred to together as the "Company", and such interests
being referred to together as the "Interests"); and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase, the
Interests, on the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the parties contemplate that, prior to consummation of such sale
and purchase, the Company's Subsidiaries will undergo an internal reorganization
as described in Section 4.05 of the Disclosure Schedule;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
SALE OF INTERESTS; CLOSING
1.01 Purchase and Sale. On the terms and subject to the conditions set
forth in this Agreement, at the Closing, Seller agrees to sell to Purchaser, and
Purchaser agrees to purchase from Seller, all of the right, title and interest
of Seller in and to the Interests.
1.02 Purchase Price. Subject to adjustment pursuant to Sections 1.04 and
4.12, the aggregate purchase price for the Interests is Seven Hundred Fifty
Million Dollars ($750,000,000), minus the aggregate amount of all assumed
indebtedness listed on Section 1.02 of the Disclosure Schedule outstanding as of
the opening of business on the Closing Date (the "Purchase Price"), payable in
immediately available United States funds at the Closing in the manner provided
in Section 1.03.
1.03 Closing. The Closing will take place at the offices of Vedder,
Price, Xxxxxxx & Kammholz, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at
such other place as Purchaser and Seller mutually agree, at 10:00 A.M. local
time, on the Closing Date. At the Closing, Purchaser will pay the Purchase Price
by wire transfer of immediately available funds to such account as Seller
directs by written notice delivered to Purchaser by Seller at least two Business
Days before the Closing Date. Simultaneously, Seller will assign and transfer to
Purchaser all of Seller's right, title and interest in and to the Interests by
delivering to Purchaser such duly
executed instruments of conveyance, assignment and transfer, in form and
substance reasonably satisfactory to Purchaser, as shall be effective to vest in
Purchaser good title to the Interests. At the Closing, there shall also be
delivered to Seller and Purchaser the opinions, certificates and other
Contracts, documents and instruments to be delivered under Articles 7 and 8.
1.04 Post-Closing Purchase Price Adjustment. (a) As soon as practicable,
but in no event later than ninety (90) days after the Closing Date, Purchaser
shall deliver to Seller a schedule (the "Adjustment Schedule") setting forth (i)
the Working Capital Assets (as defined below) and the Working Capital
Liabilities (as defined below), in each case as of the opening of business on
the Closing Date (exclusive of borrowings in connection with the Closing)
("Closing Date Working Capital Amount"), and (ii) the amount by which the
Purchase Price should be adjusted (A) upward to the extent that the Closing Date
Working Capital Amount is greater than the WC Target; provided that no upward
adjustment shall be made to the extent that the aggregate value of the Company's
inventory and accounts receivable included in the Working Capital Assets are
greater than Three Hundred Fifty-One Million Eight Hundred Fifty Thousand
Dollars ($351,850,000) and (B) downward to the extent that the Closing Date
Working Capital Amount is less than the WC Target (such upward or downward
adjustment is hereinafter referred to as the "Adjustment Amount Due"). The
Adjustment Amount Due shall equal $0.00 if the Closing Date Working Capital
Amount is equal to the WC Target. For purposes of this Agreement, the "WC
Target" is One Hundred Ninety Million Dollars ($190,000,000). (The WC Target was
established without taking into account any Cash of the Company and the
Subsidiaries, it being the intent of the Seller to cause the Company and
Subsidiaries (based upon Seller's good faith estimate of the amount of such Cash
as of the Closing Date) to use all available Cash (other than System Cash) to
repay any Intercompany Debt and/or to pay dividends to Seller prior to the
Closing Date. Any remaining Cash shall be included in the Closing Date Working
Capital Amount). Seller shall cooperate reasonably with Purchaser and its
Representatives in order to facilitate preparation of the Adjustment Schedule
and determination of the Adjustment Amount Due, and Seller and its
Representatives shall have the right to perform reasonable procedures necessary
to verify the accuracy thereof.
(b) At any time and from time to time after receipt of the
Adjustment Schedule, Seller may request, and Purchaser will provide upon
reasonable notice, reasonable access during normal business hours to, or copies
of, as Seller shall request, the information, data and work papers used to
prepare the Adjustment Schedule and to calculate the Adjustment Amount Due, and
will make its personnel and accountants available to explain any information,
data or work papers used to prepare the Adjustment Schedule and to calculate the
Adjustment Amount Due. Seller shall notify Purchaser in writing within thirty
(30) Business Days following delivery of the Adjustment Schedule (the "Dispute
Period") that (i) Seller agrees with the Adjustment Schedule and the Adjustment
Amount Due (an "Approval Notice") or (ii) Seller disagrees with such
calculations, identifying with reasonable specificity the items with which
Seller disagrees (a "Dispute Notice"). Upon receipt by Purchaser of a Dispute
Notice, Purchaser and Purchaser's accountants, on the one hand, and Seller and
Seller's accountants, on the other hand, will use good faith efforts during the
twenty (20) Business Day period following the date of Purchaser's receipt of a
Dispute Notice (the "Resolution Period") to resolve any differences they may
have as to the calculations of the Adjustment Schedule and/or the Adjustment
Amount Due. If Purchaser and Seller cannot reach written agreement during the
Resolution Period, within five (5) Business Days thereafter, their
disagreements, limited to only those issues still in
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dispute ("Remaining Disputes"), shall be promptly submitted to the New York, New
York office of Ernst & Young, LLP (the "Independent Accountant"), which firm
shall conduct such additional review as is necessary to resolve the specific
Remaining Disputes referred to it. Seller and Purchaser will cooperate fully
with the Independent Accountant to facilitate its resolution of the Remaining
Disputes, including by providing the information, data and work papers used by
each party to calculate the Adjustment Amount Due and the Remaining Disputes,
making its personnel and accountants available to explain any such information,
data or work papers and submitting each of their calculations of the Closing
Date Working Capital Amount and the Adjustment Amount Due. Based upon such
review and other information, the Independent Accountant shall determine the
Closing Date Working Capital Amount and the Adjustment Amount Due strictly in
accordance with the terms of this Section 1.04 and the Company Accounting
Policies (the "Independent Accountant Determination"). Such determination shall
be completed as promptly as practicable and if possible no event later than
sixty (60) days following the submission of the Remaining Disputes to the
Independent Accountant and shall be explained in reasonable detail and confirmed
by the Independent Accountant in writing to, and shall be final and binding on,
Seller and Purchaser for purposes of this Section 1.04, except to correct
manifest clerical or mathematical errors.
(c) The fees and expenses of the Independent Accountant shall be
paid by the party whose calculation of the Adjustment Amount Due as submitted to
the Independent Accountant differs most from the Independent Accountant
Determination.
(d) On the fifth Business Day after the earliest of (i) the
receipt by Purchaser of an Approval Notice, (ii) the expiration of the Dispute
Period if Purchaser has not received an Approval Notice or a Dispute Notice
within such period, (iii) the resolution by Seller and Purchaser of all
differences regarding the Adjustment Schedule and the Adjustment Amount Due
within the Resolution Period and (iv) the receipt of the Independent Accountant
Determination, Seller or Purchaser, as applicable, shall pay any Adjustment
Amount Due, plus interest calculated from the Closing Date through, but not
including, the date of such payment at the Interest Rate, by wire transfer of
immediately available funds without set-off or deduction of any kind.
For purposes of this Section, the following defined terms have the
following meanings:
"Interest Rate" shall mean, on any date, a variable rate per annum, equal
to the rate of interest published from time to time by The Wall Street Journal
as the "prime rate" at large U.S. money center banks.
"Working Capital Assets" shall mean the Cash, net accounts receivable, net
accounts receivable from affiliates, net inventory and all other current assets
(which shall include, among other items, prepaid expenses) of the Company and
the Subsidiaries as of the opening of business on the Closing Date (exclusive of
borrowings in connection with the Closing), determined in accordance with the
Company Accounting Policies; provided, however, that no amounts related to any
tax receivables, deferred tax assets or prepaid income taxes shall be included
in determining Working Capital Assets.
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"Working Capital Liabilities" shall mean accounts payable, accounts
payable due to affiliates, accrued expenses, and all other current liabilities
of the Company and the Subsidiaries as of the opening of business on the Closing
Date, determined in accordance with the Company Accounting Policies; provided,
however, that no amounts related to deferred tax liabilities, federal and state
income tax liabilities, and intercompany and third party indebtedness for
borrowed money, including interest thereon, shall be included in determining
Working Capital Liabilities. (Any liabilities for which a check has been written
by the Company but for which funds have not yet been deducted from the Company's
account shall be treated as a Working Capital Liability for this purpose.)
1.05 Equity Commitment. Concurrently with its execution of this
Agreement, Purchaser shall deliver to Seller the duly executed Equity
Commitment.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
2.01 Organization of Seller. Royal Numico is a company duly organized,
validly existing and in good standing under the Laws of The Netherlands, and
Seller is a corporation duly organized, validly existing and in good standing
under the Laws of the State of Delaware. Royal Numico and Seller each have the
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby.
2.02 Authority. The execution and delivery by Royal Numico and Seller of
this Agreement, and the performance by Royal Numico and Seller of its
obligations hereunder, have been duly and validly authorized by the respective
Supervisory Board and Board of Directors of Royal Numico and Seller, and except
for the approval of this Agreement by stockholders of Royal Numico (which
exception shall be deemed to have been deleted as of the Closing Date if the
Closing occurs), no other corporate action on the part of Royal Numico or Seller
or the sole stockholder of Numico is necessary. This Agreement has been duly
executed and delivered by Royal Numico and Seller, and constitutes the valid and
binding obligations of Royal Numico and Seller enforceable against Royal Numico
and Seller in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally and except as such enforceability of
this Agreement is subject to the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
2.03 Organization of the Company. Newco 1 LLC has been duly formed and is
validly existing in good standing as a limited liability company under the
Delaware Limited Liability Company Act (6 Del. C. 18-101, et seq.) (the "LLC
Act"), with all requisite limited liability company power and authority under
the LLC Act and the limited liability company agreement of Newco 1 LLC (the "LLC
Agreement") to own its Assets and to carry on its business, all as described in
the LLC Agreement. Newco DGP 1 has been duly formed and is validly existing as a
general partnership under the Delaware Revised Uniform Partnership Act (6 Del.
C. 15-101, et
4
seq.) (the "GP Act"), with all requisite partnership power and authority under
the GP Act and the partnership agreement of Newco DGP 1 (the "GP Agreement") to
own its Assets and to carry on its business, all as described in the GP
Agreement. The Company is duly qualified to do business and is in good standing
in each jurisdiction in which the ownership or leasing of its Assets or the
conduct of its business, makes such qualification necessary, except for those
jurisdictions in which all such failures by the Company to be qualified would
not, individually or in aggregate, reasonably be expected to have a Material
Adverse Effect.
2.04 Interests. There are no membership or economic interests (as defined
in the LLC Act) in Newco 1 LLC other than the Interests. Under the LLC Act and
the LLC Agreement, Seller has been duly admitted to Newco 1 LLC as the sole
member of Newco 1 LLC. Under the GP Act and the GP Agreement, Seller and Newco 1
LLC have been duly admitted to Newco DGP 1 as the only partners of Newco DGP 1.
Seller owns the Interests, beneficially and of record, free and clear of all
Liens, other than the restrictions on transfer set forth in the LLC Agreement
and the GP Agreement. The Interest in Newco 1 LLC issued to Seller has been duly
authorized and validly issued by Newco 1 LLC and is a fully paid and
nonassessable limited liability company interest in Newco 1 LLC. The Interest in
Newco DGP 1 issued to Seller and the partnership interest in Newco DGP 1 issued
to Newco 1 LLC have been duly authorized and validly issued. Except for this
Agreement and as disclosed in Section 2.04 of the Disclosure Schedule, there are
(a) no outstanding Options that have been issued by the Company, and (b) no
Contracts relating to any ownership or economic interest in the Company or
obligating the Company or Seller to issue, sell, redeem or otherwise acquire any
ownership or economic interest in the Company or any Option. The delivery of
instruments in the manner provided in Section 1.03 will transfer to Purchaser
good and valid title to the Interests, free and clear of all Liens, other than
Liens arising through Purchaser, and the terms and conditions of the LLC
Agreement and GP Agreement.
2.05 Subsidiaries. Section 2.05 of the Disclosure Schedule lists the name
of each Subsidiary, its jurisdiction of incorporation (or other organization)
and its principal business lines. Each Subsidiary is a corporation, limited
liability company or partnership duly organized or formed, validly existing and,
with respect to each corporate and limited liability company Subsidiary, in good
standing under the Laws of its jurisdiction of incorporation or organization
identified in Section 2.05 of the Disclosure Schedule (unless otherwise
disclosed therein), and has the requisite corporate, limited liability or
partnership power and authority to conduct its business as now conducted and to
own and lease its Assets. Each Subsidiary is duly qualified to do business and,
with respect to each corporate and limited liability company Subsidiary, is in
good standing in each jurisdiction in which the ownership or leasing of such
Subsidiary's Assets or the conduct of its business makes such qualification
necessary, except for those jurisdictions in which the adverse effects of all
such failures to be so qualified by the Subsidiaries would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 2.05 of the Disclosure Schedule lists for each Subsidiary the amount of
its authorized capital stock, the amount of its outstanding capital stock and
the record owners of such outstanding capital stock (or in the case of
non-corporate Persons comparable capitalization information). Except as
disclosed in Section 2.05 of the Disclosure Schedule, all of the outstanding
shares of capital stock of or membership, partnership and economic interests in
each Subsidiary have been duly authorized and, with respect to each corporate
Subsidiary, validly issued, and are fully paid and nonassessable, and are owned,
beneficially and of record, by the
5
Company or Subsidiaries directly or indirectly wholly owned by the Company, free
and clear of all Liens. Except as disclosed in Section 2.05 of the Disclosure
Schedule, there are (a) no outstanding Options to acquire capital stock,
membership, partnership or economic interests of any Subsidiary, and (b) no
Contracts obligating any Person to issue, sell, repurchase, redeem or otherwise
acquire any shares of any Subsidiary's capital stock or membership, partnership
or economic interests thereof or any Option. The rights, properties and other
assets presently owned, leased or licensed by the Company and the Subsidiaries
include all such rights, properties and other assets necessary to permit the
Company and the Subsidiaries to conduct the business of General Nutrition
Companies, Inc. and the Subsidiaries in all material respects in the same manner
as such business has been conducted prior to the date hereof.
2.06 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, by
Royal Numico or Seller, will (a) violate any Law or Order to which Royal Numico,
Seller, the Company or any of the Subsidiaries is subject or any provision of
the Constituent Documents of Royal Numico, Seller, the Company or any of the
Subsidiaries, or (b) except as set forth in Section 2.06 of the Disclosure
Schedule, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel any Contract to which Seller, the Company or any Subsidiary is a party
or by which it is bound or to which any of its Assets is subject (or result in
the imposition of any Lien upon any of its Assets), except where the violation,
breach, default, acceleration, termination, modification, cancellation or Lien
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. None of Royal Numico, Seller, the Company or any
Subsidiary is required to give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority (i) in order
for it to consummate the transactions contemplated by this Agreement or (ii)
that, to Seller's Knowledge, will adversely affect the ability of Purchaser
(other than due to any legal or regulatory facts specific to Purchaser) to
consummate the transactions contemplated by this Agreement or to obtain the
requisite financing in accordance with the commitment letters referred to in
Section 3.08, except as disclosed in Section 2.06 of the Disclosure Schedule,
and except where the failure to give notice, to file or to obtain any such
authorization, consent or approval would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
2.07 Title to Assets. Except as set forth in Section 2.07 of the
Disclosure Schedule, the Company and each of the Subsidiaries have good, valid
and marketable title to or a valid and binding leasehold interest in, all the
material tangible Assets that it uses in its business, including all such Assets
reflected in the Most Recent Balance Sheet (except for Assets sold since the
date of the Most Recent Balance Sheet in the Ordinary Course of Business) and
all of such Assets purchased or otherwise acquired by the Company and the
Subsidiaries since the date of the Most Recent Balance Sheet, in each case, free
and clear of all Liens other than Permitted Liens.
2.08 Brokers' Fees. Other than fees payable to Xxxxxxx, Xxxxx & Co. all
of which are to be paid by Royal Numico or Seller, none of Royal Numico, Seller,
the Company or any Subsidiary has any liability or obligation to pay any fees or
commissions to any investment banker, broker, finder or agent with respect to
the transactions contemplated by this Agreement.
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2.09 Financial Statements. Seller has delivered to Purchaser true and
complete copies of the audited balance sheets of the Company and its
consolidated subsidiaries as of December 31, 2002 (the "Most Recent Balance
Sheet"), and 2001, and the related audited consolidated statements of
operations, stockholders' equity and cash flows for each of the fiscal years
ended as of December 31, 2002, 2001 and 2000, together with a true and correct
copy of the report on such audited information by PricewaterhouseCoopers LLP
(the "Audited Financial Statements"). Except as set forth in the notes thereto,
and as disclosed in Section 2.09 of the Disclosure Schedule, the Audited
Financial Statements, including the notes thereto (a) have been prepared from,
are in accordance with and accurately reflect, in all material respects, the
books and records of the Company and the Subsidiaries, (b) were prepared in
accordance with GAAP, (c) fairly present the consolidated financial condition
and results of operations of the Company and its consolidated subsidiaries as of
the respective dates thereof and for the respective periods covered thereby, and
(d) were compiled from the books and records of the Company and the Subsidiaries
regularly maintained by management and used to prepare the financial statements
of the Company and the Subsidiaries in accordance with the principles stated
therein. All draft and final management letters issued by the auditors and any
management responses thereto have been provided to or made available to
Purchaser. As of the date of the Most Recent Balance Sheet, the Working Capital
of the Company, as calculated on Exhibit I to Exhibit D hereto, was
$205,340,000. Seller has delivered to Purchaser true and complete copies of the
unaudited balance sheet of the Company and its consolidated subsidiaries as of
June 30, 2003 and the related unaudited consolidated statements of operations,
stockholders' equity and cash flows for the six-month period ended as of June
30, 2003 (the "June Interim Financial Statements"). Except as disclosed in
Section 2.09 of the Disclosure Schedule (which exceptions shall be deemed to
apply to the June Interim Financial Statements to the same extent as they apply
to the Audited Financial Statements) and except for the absence of footnotes and
subject to year end adjustments, including, without limitation, the type of
adjustments excluded from EBITDA under clause (d) of Exhibit I, the June Interim
Financial Statements (a) were compiled from the books and records of the Company
and the Subsidiaries regularly maintained by management and used to prepare the
financial statements of the Company and the Subsidiaries in accordance with the
principles stated therein (b) were prepared in accordance with GAAP in all
material respects, and (c) were prepared in a manner consistent with the Company
Accounting Policies in all material respects.
2.10 Absence of Certain Material Developments. Except as set forth in
Section 2.10 of the Disclosure Schedule, since the date of the Most Recent
Balance Sheet, the Company has conducted its business only in the Ordinary
Course of Business. Except as set forth in Section 2.10 of the Disclosure
Schedule, and except as expressly contemplated or permitted by this Agreement
since the date of the Most Recent Balance Sheet, neither the Company nor any
Subsidiary has:
(a) borrowed any amount of money or incurred or become subject to
any material Liabilities (other than Liabilities incurred in the Ordinary Course
of Business, Liabilities under Contracts entered into in the Ordinary Course of
Business, Liabilities set forth in Section 2.10 of the Disclosure Schedule and
borrowings from Affiliates necessary to meet Ordinary Course of Business working
capital requirements and made in an aggregate amount not to exceed $1,000,000);
7
(b) mortgaged, pledged, encumbered or subjected to any Lien any
material portion of its Assets, except Permitted Liens;
(c) effectuated (1) a "plant closing" (as defined in the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN Act")) affecting
any single site of employment or one or more facilities or operating units
within any single site of employment of the Company or any Subsidiary; or (2) a
"mass layoff" (as defined in the WARN Act) at any single site of employment or
one or more facilities or operating units within any single site of employment
of the Company or any Subsidiary. Nor has the Company or any Subsidiary
otherwise terminated or laid off employees in such numbers as to give rise to
liability under any Laws or Orders respecting the payment of severance pay,
separation pay, termination pay, pay in lieu of notice of termination,
redundancy pay, or the payment of any other compensation, premium or penalty
upon termination of employment, reduction of hours, or temporary or permanent
layoffs. Except as set forth in Section 2.10(c) of the Disclosure Schedule, none
of the employees of the Company or any Subsidiary has suffered an "employment
loss" (as defined in the WARN Act) within the last two (2) years.
(d) sold, assigned or transferred any portion of its tangible
Assets in excess of $1,000,000, except in the Ordinary Course of Business;
(e) sold, assigned, licensed or transferred any Intellectual
Property or other intangible assets, except in the Ordinary Course of Business;
(f) suffered any material extraordinary losses or waived any
rights of material value;
(g) issued, granted, sold or transferred any of its capital stock
or other equity securities, securities convertible into its capital stock or
other equity securities or Options or any bonds or debt securities, or any
membership or economic interests;
(h) made any change in the accounting methods or practices used by
the Company; or any new election or change in any existing election relating to
Taxes, settlement of any claim or assessment relating to Taxes, consent to any
claim or assessment relating to Taxes, or waiver of the statute of limitations
for any such claim or assessment;
(i) made any capital expenditures or commitments therefore in
excess of $2,000,000 that are not provided for in the 2003 Budgeted Large
Capital Projects, dated as of May 22, 2003, as amended September 12, 2003
(collectively, the "Large Capital Projects Budget"), which is attached hereto as
Section 2.10(i) of the Disclosure Schedule;
(j) purchased or agreed to purchase or entered into any Contract
relating to the purchase of Assets other than in the Ordinary Course of
Business;
(k) sold, transferred or otherwise disposed of, or agreed to sell,
transfer or otherwise dispose of, any Assets, or canceled, or agreed to cancel,
any debts or claims, other than in the Ordinary Course of Business;
8
(l) other than advances in the Ordinary Course of Business to pay
reasonable (i) business expenses and (ii) relocation expenses, entered into or
made any loan to any officer, director, employee, Affiliate, agent or consultant
of the Company or any Subsidiary or made any change in existing borrowing or
lending arrangement for or on behalf of any such Persons, whether pursuant to an
Employee Benefit Plan or otherwise;
(m) granted, issued, accelerated, paid, accrued or agreed to pay
or make any accrual or arrangement for payments or benefits pursuant to, or
adopted or amended, any new or existing Employee Benefit Plan, except in the
Ordinary Course of Business;
(n) entered into any employment Contract, compensation arrangement
or benefit of any kind, or changed (including, without limitation, any change
pursuant to any bonus, pension, profit-sharing or other plan, commitment, policy
or arrangement) the compensation payable or to become payable to any officer,
director or employee of the Company or any Subsidiary, except in the Ordinary
Course of Business;
(o) entered into any other transaction requiring expenditures by
the Company or the Subsidiaries in the aggregate in excess of $500,000; or
(p) entered into any agreement, whether oral or written, by the
Company or the Subsidiaries to do any of the foregoing.
2.11 Undisclosed Liabilities. Except as set forth in Section 2.11 of the
Disclosure Schedule, and except for Liabilities set forth on the face of the
Most Recent Balance Sheet, in the footnotes to the Audited Financial Statements
or incurred as a result of the conduct of the business since the date of the
Most Recent Balance Sheet in the Ordinary Course of Business, there are no
Liabilities (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated and whether due or to become due, including any Liability for
Taxes) that would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
2.12 Legal Compliance. Except as set forth in Section 2.12 of the
Disclosure Schedule, the Company and the Subsidiaries are in compliance with all
Laws and Orders applicable to any of them or any of their respective properties,
Assets, operations or businesses ("Legal Requirements"), including, but not
limited to, the Dietary Supplement Health and Education Act, as amended (the
"DSHEA"), the Federal Food, Drug and Cosmetic Act, as amended ("FFDC Act") and
any consent decrees to which the Company or the Subsidiaries are parties, except
for any such incompliance that would not, individually or in the aggregate, have
a Material Adverse Effect, and, to Seller's Knowledge, there does not exist any
reasonable basis for any claim of default under or violation of any of the Legal
Requirements that would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. All licenses, permits and approvals
(collectively, the "Permits") required under all Legal Requirements to be held
or obtained by the Company or any of the Subsidiaries are in full force and
effect and will continue to be so upon consummation of the transactions
specified in this Agreement except for any such Permits that are not held or
will not continue upon consummation of said transactions and that the absence of
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Permits listed in
9
Section 2.12 of the Disclosure Schedule collectively constitute all of the
authorizations of any Governmental Authority necessary to permit the Company and
the Subsidiaries to lawfully conduct and operate its business in the manner the
Company and the Subsidiaries currently conducts and operates such businesses and
to permit the Company and the Subsidiaries to own and use its assets in the
manner in which the Company and the Subsidiaries currently own and use such
Assets except as set forth in Section 2.12 of the Disclosure Schedule and except
for any such Permits, the absence of which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
2.13 Tax Matters.
(a) Except as set forth in Section 2.13 of the Disclosure
Schedule, (i) the Company and the Subsidiaries have duly filed all federal
Income Tax Returns and all other material Tax Returns that any of them were
required to file prior to the date hereof, (ii) all Taxes due and owing by each
of the Company and the Subsidiaries (whether or not shown on any Tax Return)
have been paid or accrued on the Most Recent Balance Sheet and (iii) neither the
Company nor any Subsidiary currently is the beneficiary of any extension of time
within which to file any Tax Return. The charges, accruals and reserves on the
most Recent Balance Sheet, or on such other books and records that have been
delivered to Purchaser, in respect of any Tax liability for any tax periods not
finally determined are adequate to meet any assessments of Tax or re-assessments
of additional Tax for any such period. There are no Liens for Taxes (other than
Taxes not yet due and payable) upon any of the Assets of the Company or any
Subsidiary that arose in connection with any failure (or alleged failure) to pay
any Tax.
(b) Except as set forth in Section 2.13 of the Disclosure
Schedule, there is no federal, state, or foreign income tax audit or any other
material audit, dispute or claim concerning any Tax Liability of the Company or
any Subsidiary (A) claimed, threatened or raised by any Governmental Authority
in writing or (B) of which Seller has Knowledge.
(c) Section 2.13 of the Disclosure Schedule lists all federal and
state Income Tax Returns filed with respect to the Company and the
Subsidiaries for taxable periods ended on or after December 31, 2000, indicates
those Income Tax Returns that have been audited and indicates those Income Tax
Returns that currently are the subject of audit. Except as set forth in Section
2.13 of the Disclosure Schedule, neither the Company nor any Subsidiary has
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency. No issue has been raised
by any Governmental Authority in any audit of either the Company or any
Subsidiary that, if raised with respect to any period not so audited, could
reasonably be expected to result in a material proposed deficiency or adjustment
for any period not so audited.
(d) Except as set forth in Section 2.13 of the Disclosure
Schedule, neither the Company nor any Subsidiary is a party to or bound by any
tax allocation or sharing agreement.
(e) Neither the Company nor any Subsidiary has been a United
States real property holding corporation within the meaning of Code Section
897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii).
10
(f) Except as set forth in Section 2.13 of the Disclosure
Schedule, neither the Company nor any Subsidiary has ever (i) joined in or been
required to join in filing a consolidated, combined, unitary or similar federal,
state, local or foreign income Tax Return other than a group the common parent
of which is Seller, or (ii) granted a power of attorney with respect to any Tax
matters that has continuing effect. Neither the Company nor any Subsidiary has
agreed to make nor is it required to make any adjustment under Section 481 of
the Code by reason of a change in accounting method or otherwise.
(g) The Company and each Subsidiary has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party.
(h) The Company has delivered or made available to Purchaser
complete and accurate copies of each of (i) all audit reports, letter rulings,
technical advice memoranda and similar documents issued by a Governmental
Authority relating to Taxes due from or with respect to the Company or any
Subsidiary and (ii) all closing agreements entered into by the Company or any
Subsidiary with any Governmental Authority, in each case existing on the date
hereof.
(i) Neither the Company nor any Subsidiary has received notice of
any claim made by a Governmental Authority in a jurisdiction where it does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
(j) Neither the Company nor any Subsidiary has filed with respect
to any item a disclosure statement for any taxable period pursuant to Section
6662 of the Code or any comparable disclosure with respect to foreign, state
and/or local tax statutes.
(k) No Subsidiary that is taxed as a corporation for United States
federal income tax purposes and not created in, or organized under the law of,
the United States or any State or political subdivision thereof (a "Foreign
Subsidiary"), has any "Subpart F income" as defined in Section 952 of the Code
for is current taxable year.
2.14 Real Property.
(a) Section 2.14 of the Disclosure Schedule contains a true and
correct list of (i) each parcel of real property owned by the Company or any
Subsidiary, the name of the entity owning the same, and the specific location
thereof (including street address, city and state), (ii) each lease, sublease,
license and other use or occupancy agreement entered into by the Company or any
Subsidiary (as lessor or lessee) for the use or occupancy of any real property,
the names of the parties to each such agreement, and the specific location
related thereto (including site or Store numbers, street address, city and
state) and (iii) all Liens (other than Permitted Liens) on any parcel of real
property referred to in clause (i). Seller has provided or made available to
Purchaser complete copies of all deeds and leases described in Section 2.14 of
the Disclosure Schedule, including, without limitation, all amendments,
modifications and supplements thereto, and any guarantees thereof.
(b) Except as disclosed in Section 2.14 of the Disclosure
Schedule, the Company or a Subsidiary has good and marketable fee simple title
to each parcel of real property
11
shown as owned by it, free and clear of all Liens other than Permitted Liens.
Except for the real property shown as leased to others in Section 2.14(a)(ii)
above, the Company or a Subsidiary is in possession of each parcel of real
property owned by it, together with all buildings, structures, facilities,
fixtures and other improvements thereon and except for the real property shown
as subleased to its franchisees in Section 2.14(a)(ii) above, the Company or a
Subsidiary is in possession of all the premises leased to it.
(c) The Company or a Subsidiary has a valid and binding leasehold
estate that is in full force and effect in the real properties shown in Section
2.14 of the Disclosure Schedule as leased by it for the full term of the lease
thereof. Each lease and other agreement referred to in Section 2.14(a)(ii) above
is a valid and binding agreement, enforceable in accordance with its terms
against the Company or a Subsidiary, except, in each case, as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar law relating
to or affecting the rights of creditors generally and except as such
enforceability of any such lease is subject to the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law). Except as set forth in Section 2.14 of the Disclosure Schedule, none
of Seller, the Company or any Subsidiary has received written notice of any
material default or breach under any lease or other agreement referred to in
Section 2.14(a)(ii) above, or of any material violation of Laws thereat, or of
any event which has occurred that with notice or lapse of time or both would
constitute a material default or breach of such lease or material violation of
Laws thereunder by the Company or any Subsidiary.
(d) Except as described in Section 2.14 of the Disclosure
Schedule, there is a completed, open and operating Store located at each of the
premises that are the subject of a Store Lease described in Section 2.14(a)(ii)
above.
(e) The Company's and the Subsidiaries' current use, occupancy and
operation of their owned and leased property does not violate any instrument of
record or other agreement affecting such property except for any violation that
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(f) No damage or destruction has occurred with respect to any of
the Company's or the Subsidiaries' owned or leased property except for damage
and destruction that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(g) The Company's and the Subsidiaries' owned and leased property
(other than HVAC equipment and property leased to franchisees as to which no
representation or warranty is made), taken as a whole, is in good condition and
repair and adequate for the use, occupancy and operation of the businesses and
activities conducted thereat (ordinary wear and tear excepted) except for
matters that would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
2.15 Intellectual Property.
(a) All of the Patents, Patent applications, Domain Names,
registered Trademarks, Trademark applications, registered Copyrights, Copyright
applications and material
12
unregistered Copyrights and Trademarks included in the Company Owned
Intellectual Property are set forth in Section 2.15 of the Disclosure Schedule.
Except as set forth in Section 2.15 of the Disclosure Schedule or as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: (i) the Company or one of the Subsidiaries owns and possesses
all right, title and interest in and to, free and clear of all Liens (except for
Permitted Liens), the Company Owned Intellectual Property, (ii) neither the
Company nor any Subsidiary has received any written notice of Infringement of
any Person's Intellectual Property rights with respect to the Company Owned
Intellectual Property and (iii) to Seller's Knowledge, neither the Company nor
any Subsidiary is currently Infringing the Intellectual Property rights of any
other Person.
(b) All of the Patents, Patent applications, Domain Names,
registered Trademarks, Trademark applications, registered Copyrights, Copyright
applications and material unregistered Copyrights and Trademarks included in the
Company Licensed Intellectual Property are set forth in Section 2.15 of the
Disclosure Schedule. Except as set forth in Section 2.15 of the Disclosure
Schedule or as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, the Company or one of the
Subsidiaries possesses the valid and enforceable right (except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally and except as such
enforceability of any such Contract is subject to the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law)) to use, free and clear of all Liens (except for Permitted Liens and
the rights of the applicable licensor), the Company Licensed Intellectual
Property.
(c) Section 2.15 of the Disclosure Schedule identifies each
material item of Company Licensed Intellectual Property that the Company or any
Subsidiary uses pursuant to any Contract. With respect to each such item of
Company Licensed Intellectual Property identified in Section 2.15 of the
Disclosure Schedule, the Contract covering the item is valid, binding,
enforceable against the Company or a Subsidiary and, to Seller's Knowledge, any
other party thereto (except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally and except as such enforceability of any such
Contract is subject to the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at law)), and is
in full force and effect in all material respects.
(d) With respect to any material Contract included in the Company
Intellectual Property, neither the Company nor any Subsidiary or, to Seller's
Knowledge, any other party to any such Contract, is in material breach or
default and no event has occurred, as a result of any act or omission of the
Company or any Subsidiary or, to Seller's Knowledge, any other party thereto,
including the consummation of the transactions contemplated by this Agreement by
the Company or any Subsidiary, which with notice or lapse of time would
constitute a material breach or default or permit termination, modification or
acceleration thereof.
(e) Except as set forth on Section 2.15 of the Disclosure
Schedule, neither Company, nor any Subsidiary, has brought or, to the Knowledge
of the Seller, threatened a claim
13
against any Person alleging Infringement of the Company Owned Intellectual
Property rights, and to the Seller's Knowledge, there is no reasonable basis for
a such a claim.
(f) The Company Owned Intellectual Property (i) has been duly
maintained, (ii) has not been cancelled, expired or abandoned, and (iii) to
Seller's Knowledge, is valid and enforceable, provided, however, that Seller
makes no representations or warranties as to whether any pending Patent
application, Trademark application or Copyright application will issue or be
granted rights thereunder nor as to the scope of any rights issues or granted
from any such Patent application, Trademark application or Copyright
application.
(g) The Company and each Subsidiary have taken reasonable measures
to protect the confidentiality of its material Trade Secrets.
(h) The Company Intellectual Property is sufficient for the
continued conduct of the businesses of the Company and the Subsidiaries after
the Closing Date in the same manner as such businesses were conducted prior to
the Closing Date.
(i) Section 2.15 of the Disclosure Schedule identifies all
Contracts in which a license to any of the Company Intellectual Property is
granted to a third party.
2.16 Tangible Assets. The buildings, machinery, equipment and other
tangible Assets (other than inventory and Store HVAC) that the Company and the
Subsidiaries own or lease, taken as a whole, are free from material defects
(patent and, to Seller's Knowledge, latent), have been maintained in accordance
with normal industry practice and are, in all material respects, in good
operating condition and repair (subject to normal wear and tear).
2.17 Contracts. Section 2.17 of the Disclosure Schedule lists the
following Contracts to which the Company or any Subsidiary is a party:
(a) any Contract (or group of related Contracts) for the lease of
any property, real or personal, to or from any Person providing for lease
payments in excess of $250,000 per annum or payments in excess of $1,000,000 in
the aggregate;
(b) any Contract (or group of related Contracts) for the purchase
or sale of any property (real or personal) involving consideration in excess of
$250,000;
(c) any Contract concerning a partnership or joint venture;
(d) any Contract (or group of related Contracts) under which it
has created, incurred, assumed or guaranteed any indebtedness for borrowed money
or any capitalized lease obligation, in excess of $250,000 or under which it has
imposed a Lien on any of its Assets with a fair market value in excess of
$250,000;
(e) any material Contract concerning confidentiality and any
Contract concerning noncompetition;
(f) any profit sharing, bonus, stock option, stock purchase, stock
appreciation, deferred compensation, incentive, severance, change-in-control, or
other material plan
14
arrangement or agreement for the benefit of its current or former directors,
officers or employees;
(g) any Contract for the employment of any individual on a
full-time, part-time, consulting or other basis providing annual compensation in
excess of $250,000 or aggregate compensation in excess of $1,000,000 (other than
any at-will employment relationship with any individual who does not have a
Contract providing for a specified term or length of employment);
(h) any Contract under which the Company or any Subsidiary has
advanced or loaned any other Person amounts in the aggregate exceeding $250,000;
(i) any stand-by letter of credit, guarantee or performance bond
in excess of $250,000;
(j) any Contract not made in the Ordinary Course of Business
involving amounts in excess of $250,000;
(k) any other Contract (or group of related Contracts) the
performance of which involves consideration in excess of $250,000;
(l) any Contract materially restricting the Company's ability to
conduct its business in the Ordinary Course of Business; and
(m) any Contract that either requires the Company or any
Subsidiary to purchase a minimum amount (measured by volume, dollar amount or
otherwise), or at a minimum price, any product or service in excess of $250,000
in the aggregate.
Except as set forth in Section 2.17 of the Disclosure Schedule, neither the
Company nor any Subsidiary is a party to any material Contract with any
Governmental Authority. As to each Contract set forth on Section 2.17 of the
Disclosure Schedule: (i) the Contract is valid, binding, enforceable against the
Company or a Subsidiary and, to Seller's Knowledge, the other party(ies) thereto
(except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights of creditors generally
and except as such enforceability of any such Contract is subject to the
application of general principles of equity (regardless of whether considered in
a proceeding in equity or at law)) and in full force and effect in all material
respects; and (ii) neither the Company nor any Subsidiary is in breach or
default and no event has occurred (including the consummation of the
transactions contemplated by this Agreement) which with notice or lapse of time
would constitute a breach or default by the Company or any Subsidiary or permit
termination, modification or acceleration as a result of such default, of such
Contract by the other party thereto, except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect except as
set forth in Section 2.17 of the Disclosure Schedule. To Seller's Knowledge,
except as set forth in Section 2.17 of the Disclosure Schedule, no other Person
is in material default in the observance or the performance of any material term
or obligation to be performed by it under any material Contract with the Company
or any Subsidiary. To Seller's Knowledge, no bid or contract proposal made by
the Company or any Subsidiary that, if accepted or entered into, would
reasonably be expected to result in a material loss to either the Company or any
Subsidiary. Seller has
15
delivered or made available to Purchaser true and complete copies of all
Contracts listed in Section 2.17 of the Disclosure Schedule as in effect on the
date hereof.
2.18 Accounts. Except as set forth in Section 2.18 of the Disclosure
Schedule, the accounts and notes receivable of the Company and the Subsidiaries
reflected on the Most Recent Balance Sheet, and all accounts and notes
receivable arising subsequent to the date of the Most Recent Balance Sheet, (a)
arose from bona fide sales transactions in the Ordinary Course of Business and
are payable on ordinary trade terms, (b) are legal, valid and binding
obligations of the respective debtors enforceable in accordance with their
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally and except as the enforceability thereof is subject to the
application of general principles of equity (regardless of whether considered in
a proceeding in equity or at law), (c) to Seller's Knowledge, are not subject to
any valid set-off or counterclaim, (d) do not represent obligations for goods
sold on consignment, on approval or on a sale-or-return basis or subject to any
other repurchase or return arrangement, and (e) are collectible in the Ordinary
Course of Business consistent with past practice in the aggregate recorded
amounts thereof, net of a reserve for bad debts in an amount established
consistent with the policies and methodologies used to establish the reserve
therefor reflected on the Most Recent Balance Sheet. Except as disclosed in
Section 2.18 of the Disclosure Schedule, as of September 30, 2003, there were no
invoices, bills or accounts payable of the Company or the Subsidiaries that are
overdue other than those invoices or bills which the Company or any Subsidiary
has disputed or is disputing in good faith that do not exceed $2,000,000 in the
aggregate.
2.19 Powers of Attorney. Except as set forth in Section 2.19 of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company or the Subsidiaries.
2.20 Insurance.
(a) Section 2.20 of the Disclosure Schedule sets forth (i) a true
and complete list and description of all insurance policies (including insurer,
named insured, policy number, period of coverage, type of coverage, limits of
insurance under the policy, and required deductible co-payments and retentions),
which cover the Company and the Subsidiaries (other than any vendor's insurance
policies) and which are in force on the date hereof or were in force at any time
since August 1, 1999 with respect to the business or Assets of the Company and
the Subsidiaries (the "Policies"), and (ii) a description of such material risks
that the Company and the Subsidiaries has designated as being self-insured. The
Company and the Subsidiaries has policies of insurance of the type and in
amounts customarily carried by Persons conducting businesses or owning Assets
similar to those of the Company and the Subsidiaries.
(b) Until the Closing, all Policies shall be in full force and
effect, all premiums due thereon have been paid by or on behalf of the Company
and the Subsidiaries, and the Company and the Subsidiaries shall be otherwise in
compliance in all material respects with the terms and provisions of such
Policies. Furthermore, the Company and the Subsidiaries have not received any
notice of cancellation or non-renewal of any such Policy (except for technical
notices of termination in connection with a modification of such Policy) nor, to
Seller's Knowledge, is the termination of any such policy threatened, except
such policies that are
16
currently in effect will terminate as of Closing other than to the extent
provided herein. Any liability claims made against the Company or any of the
Subsidiaries that arise out of occurrences or accidents which took place prior
to the Closing, within the meaning of the applicable Policies or any loss
suffered by the Company or any of the Subsidiaries prior to the Closing, within
the meaning of the applicable Policies, will be covered by the Policies in
accordance with their terms, conditions, endorsements and exclusions.
2.21 Litigation. Except as set forth in Section 2.21 of the Disclosure
Schedule, there is no action, suit, proceeding or, to Seller's Knowledge,
investigation, either civil or criminal, or at law or in equity, or before any
Governmental Authority, of any kind now pending or, to Seller's Knowledge,
threatened against the Company or any Subsidiary or any of their respective
Assets, except for any action, civil proceeding or investigation that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. Except as set forth in Section 2.21 of the Disclosure Schedule,
there is no arbitration or mediation proceeding pending, scheduled, or, to
Seller's Knowledge, threatened against the Company or any Subsidiary or any of
their respective Assets, including under any collective bargaining agreement or
other agreement. None of the Company, any Subsidiary, or any of their properties
or Assets is subject to any Order specifically directed at them or at their
industry, including, without limitation, any condemnation, eminent domain or
similar proceeding, not disclosed in Section 2.21 of the Disclosure Schedule.
2.22 Employees. Neither the Company nor any Subsidiary is a party to or
bound by any collective bargaining agreement, nor has any of them experienced
any strike or material grievance, claim of unfair labor practices or other
collective bargaining dispute within the past two years. Seller has no Knowledge
of any organizational effort presently being made or threatened by or on behalf
of any labor union with respect to employees of the Company or any Subsidiary.
2.23 Employee Benefits.
(a) Section 2.23 of the Disclosure Schedule lists each Employee
Benefit Plan and separately identifies each Foreign Plan. Except as set forth in
Section 2.23 of the Disclosure Schedule:
(i) Each Employee Benefit Plan (and each related trust,
insurance contract or fund) has been maintained, funded and administered
in all material respects in accordance with the terms of Employee Benefit
Plan and complies in all material respects with the applicable
requirements of ERISA, the Code and other applicable Laws.
(ii) All required reports and descriptions (including annual
reports (DOL Form 5500), summary annual reports and summary plan
descriptions) have been timely filed and/or distributed in accordance with
the applicable requirements of ERISA and the Code with respect to each
Employee Benefit Plan. The requirements of COBRA have been met in all
material respects with respect to each Employee Benefit Plan which is an
Employee Welfare Benefit Plan subject to COBRA.
17
(iii) All contributions (including all employer contributions
and employee salary reduction contributions) that are due have been made
to each Employee Pension Benefit Plan and all contributions for any period
ending on or before the Closing Date that are not yet due have been made
to each such Employee Pension Benefit Plan or accrued in accordance with
the terms of such plan, ERISA, the Code and applicable Laws. All premiums
or other payments for all periods ending on or before the Closing Date
have been paid or accrued with respect to each Employee Welfare Benefit
Plan to the extent required by such Plans, applicable Law or GAAP.
(iv) Each Employee Benefit Plan which is intended to meet the
requirements of a "qualified plan" under Code Section 401(a) has received
a currently effective determination from the IRS that such Employee
Benefit Plan is so qualified or is a prototype plan for which a favorable
opinion letter was issued by the IRS and the Seller Knows of no facts or
circumstances that could adversely affect the qualified status of any such
Employee Benefit Plan.
(v) No Employee Benefit Plan is a defined benefit plan (as
defined in ERISA Section 3(35)) and no liability under Title IV of ERISA
has been incurred by the Company, any Subsidiary or any ERISA Affiliate
since the effective date of ERISA that has not been satisfied in full, and
no condition exists that presents a material risk to the Company, any
Subsidiary or any ERISA Affiliate of incurring any liability under such
Title.
(vi) There have been no Prohibited Transactions or Reportable
Events with respect to any Employee Benefit Plan. No Fiduciary has any
liability for material breach of fiduciary duty or any other material
failure to act or comply in connection with the administration or
investment of the assets of any Employee Benefit Plan. No action, suit,
proceeding, hearing or, to Seller's Knowledge, investigation with respect
to the administration or the investment of the assets of any Employee
Benefit Plan (other than routine claims for benefits) is pending or, to
the Knowledge of Seller, threatened.
(vii) None of the Company, any Subsidiary nor any ERISA
Affiliate has any formal plan or commitment, whether legally binding or
not, to create any additional Employee Benefit Plan or modify or change
any existing Employee Benefit Plan that would affect any current or former
employee, officer, director or consultant of the Company, any Subsidiary
or any ERISA Affiliate.
(viii) No Lien has been imposed under Section 412(n) of the
Code or Section 302(f) of ERISA on the assets of the Company, any
Subsidiary or any ERISA Affiliate, and no event or circumstance has
occurred that is reasonably likely to result in the imposition of any such
lien on any such assets on account of any Employee Benefit Plan.
(ix) No amounts payable under any Employee Benefit Plan or
any other contract, agreement or arrangement with respect to which the
Company or any Subsidiary may have any liability will fail to be
deductible for federal income tax purposes by virtue of Section 162(m) or
Section 280G of the Code.
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(x) The consummation of the transactions contemplated by
this Agreement by Royal Numico and Seller will not (i) entitle any current
or former employee, officer, director or consultant of the Company, any
Subsidiary or any ERISA Affiliate to severance pay, unemployment
compensation or any other similar termination payment, or (ii) accelerate
the time of payment or vesting, or increase the amount of, or otherwise
enhance, any benefit due to any such employee, officer, director or
consultant.
(xi) There are no pending or, to the Seller's Knowledge,
threatened claims by or on behalf of any Employee Benefit Plan, by any
employee or beneficiary under or involving any such plan (other than
routine claims for benefits).
(xii) No "leased employee", as that term is defined in Section
414(n) of the Code, performs services for the Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary has ever contributed to
or had any obligation to contribute to any Multiemployer Plan.
(c) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to or has an obligation to contribute to or has any material
liability or potential liability with respect to, any Employee Welfare Benefit
Plan providing medical, health or life insurance or other welfare-type benefits
for current or future retired or terminated employees of the Company or the
Subsidiaries (or any spouse or other dependent thereof) other than in accordance
with COBRA.
(d) Except as disclosed in Section 2.23(d) of the Disclosure
Schedule, no current or former employee or director of the Company or any
Subsidiary participates in, or is entitled to benefits under any Foreign Plan.
2.24 Environmental Laws. The representations and warranties contained in
this Sections 2.24 and 2.21 are the sole and exclusive representations and
warranties of Seller pertaining or relating to any environmental matters,
including without limitation, any arising under any Environmental Laws and
Matters of Environmental Concern. Except as set forth in Section 2.24 of the
Disclosure Schedule:
(a) The Company and the Subsidiaries have complied and are in
compliance with all Environmental Laws, and, to the Seller's Knowledge, there
are no circumstances in existence as of the date hereof or that will be in
existence as of the Closing Date that would reasonably be expected to prevent
the Company's and the Subsidiaries' compliance with Environmental Laws in the
future, except for any noncompliance that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(b) Without limiting the generality of the foregoing, the Company
and the Subsidiaries have obtained and have complied with all material permits,
licenses and other authorizations that are required pursuant to Environmental
Laws for the occupation of their facilities and the operation of their
businesses, except for any noncompliance that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
19
(c) Neither the Company nor any Subsidiary has received any written
notice of any Environmental Claim regarding any actual or alleged violation of
or noncompliance with any Environmental Laws or any Liabilities or potential
Liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to the
Company or any Subsidiary or their facilities arising under Environmental Laws,
and, to the Seller's Knowledge, there are no circumstances in existence as of
the date hereof or that will be in existence as of the Closing Date that would
reasonably be expected to result in any Environmental Claim against the Company,
any of the Subsidiaries, or against any Person whose liability for any
Environmental Claim the Company or the Subsidiaries have retained or assumed
either contractually or by operation of law except for any Environmental Claim
that would not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect. Without limiting the generality of the foregoing,
since January 1, 2000, to Seller's Knowledge, there has been and is no release,
emission, discharge, presence or disposal of any Material of Environmental
Concern at or from any of the Company's or the Subsidiaries' owned properties in
violation of any Environmental Law, except for any such matter that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(d) Without limiting the generality of the foregoing, (i) there are
no underground storage tanks located at any property owned, or, to Seller's
Knowledge, leased or operated by the Company or the Subsidiaries, (ii) there is
no asbestos contained in or forming part of any building, building component,
structure or office space owned, or, to Seller's Knowledge, leased or operated
by the Company or the Subsidiaries in violation of Environmental Laws, and (iii)
no polychlorinated biphenyls (PCBs) or PCB-containing items are used or stored
at any property owned, or, to Seller's Knowledge, leased or operated by the
Company or the Subsidiaries in each case, in violation of Environmental Laws.
(e) The Company has provided to Purchaser all assessments, reports,
data, results of investigations or audits performed by or on behalf of the
Company or any of its Subsidiaries that is in the possession of or reasonably
available to Seller regarding environmental matters pertaining to or the
environmental condition of the business of the Company or the Subsidiaries, or
the compliance (or noncompliance) by the Company or the Subsidiaries with any
Environmental Laws.
(f) Except as expressly provided under this Agreement, neither the
Company nor the Subsidiaries are required by virtue of the transactions set
forth herein and contemplated hereby, or as a condition to the effectiveness of
any transactions contemplated hereby, (i) to perform a site assessment for
Materials of Environmental Concern, (ii) to remove or remediate Materials of
Environmental Concern, (iii) to give notice to or receive approval from any
Governmental Authority, or (iv) to record or deliver to any Person any
disclosure document or statement pertaining to environmental matters.
2.25 Certain Business Relationships With Seller. Except as disclosed in
Section 2.25 of the Disclosure Schedule, neither Seller nor any of its
Affiliates (other than the Company and the Subsidiaries) has been involved in
any business arrangement or relationship (other than employment) involving
amounts in excess of $250,000 or which are otherwise material with either the
Company or any Subsidiary within the past twelve (12) months or that is
currently in
20
effect and neither Seller nor any of its Affiliates (other than the Company and
the Subsidiaries) owns any material Asset which is used in the business of the
Company or any Subsidiary. Other than as set forth on Section 2.25 of the
Disclosure Schedule, following the Closing, there will be no Contracts between
the Seller and the Company, and the Company will not be liable to Seller or any
Affiliate of Seller (other than any Subsidiary) for any payments,
indemnifications or other obligations.
2.26 Inventory. (a) Except as disclosed in Section 2.26(a) of the
Disclosure Schedule, all inventory of the Company and the Subsidiaries reflected
on the Most Recent Balance Sheet consisted, and all such inventory acquired
since the date of the Most Recent Balance Sheet consists, of a quality and
quantity usable and saleable in the Ordinary Course of Business consistent with
past practice, subject to normal and customary allowances of the Company and the
Subsidiaries determined in accordance with the Company Accounting Policies for
spoilage, damage and outdated items. The value of all inventory items, including
finished goods, work-in-process and raw materials, has been recorded on the
books of the Company and the Subsidiaries as reflected in the Most Recent
Balance Sheet at the lower of cost (FIFO) (determined in accordance with Company
Accounting Policies) or fair market value.
(b) Except as disclosed in Section 2.26(b) of the Disclosure
Schedule, to Seller's Knowledge, the raw materials, food, herbal and dietary
supplements of the Company and the Subsidiaries (i) are not adulterated or
misbranded within the meaning of the FFDC Act, or within the meaning of any
other applicable Law, including the DSHEA, and (ii) are not articles which may
not, under the provisions of Sections 404, 505 and 512 of the FFDC Act, be
introduced into interstate commerce.
2.27 Franchise Matters.
(a) To the Company's Knowledge, each Contract executed by the
Company or any of the Subsidiaries in connection with the granting or operation
of a franchise ("Franchise Agreement") represents the legal, valid and binding
obligation of the franchisee thereunder, and is enforceable against such
franchisee in accordance with its terms except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally and except that such enforceability
is subject to the application of general principles of equity (regardless of
whether considered in or proceeding in equity or at law). Except as disclosed in
Section 2.27 of the Disclosure Schedule, neither the Company nor any
Subsidiaries is in violation of any Franchise Agreement to which it is a party,
which violation would reasonably be expected to cause a liability to the Company
or any Subsidiary in excess of $250,000, individually or in the aggregate, for
any such violation.
(b) The Company has delivered to Purchaser a true and correct copy
of Company's Uniform Franchise Offering Circular ("UFOC") which is currently
being used in connection with the offer to sell and sale of its franchises in
the United States. The UFOC does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, and its form is in compliance in all
material respects with all requirements of all Laws, except that the Company
will be required to amend the UFOC appropriately to reflect the transactions
contemplated hereby.
21
(c) Seller has delivered to Purchaser: (i) true and complete copies
of all minutes of any National Advisory Council meetings or committee meetings
since August 31, 2000; (ii) a schedule of each franchisee past due as of
September 30, 2003 on any fees owed to Seller; (iii) a list of any franchisee
that, to the Knowledge of Seller, as of September 30, 2003, was in material
default or breach of its sublease with the Company or any of the Subsidiaries
(iv) a schedule setting forth any rebate, discount (other than any rebate or
discount given in the Ordinary Course of Business) or write-off made for the
benefit of any franchisee since January 1, 2001; (v) a schedule setting forth
the EBITDA for Company-owned stores and a majority of the franchisee-owned
stores for the years ended December 31, 2001, and 2002; and (v) a schedule
setting forth a list of all Stores that the Company has repurchased from
franchisees since August 31, 2000 and prior to the date hereof. (With respect to
clauses (ii) and (iii) above, the aggregate amount of such fees and the
aggregate number of such franchisees has not materially changed since said
schedules were delivered to Purchaser).
2.28 No Material Adverse Change. Since the date of the Most Recent Balance
Sheet, there has not been any Material Adverse Change.
2.29 Full Disclosure. No representation or warranty by Seller contained in
this Agreement or the Disclosure Schedule contains or will contain any untrue
statement of material fact or omits or will omits to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading.
2.30 Product Liability. Except as set forth in Section 2.30 of the
Disclosure Schedule, there are not presently pending, or, to the Knowledge of
Seller, threatened, and, to the Knowledge of Seller, there is no reasonable
basis for, any civil, criminal or administrative actions, suits, demands,
claims, hearings, notices of violation, investigations, proceedings or demand
letters relating to any alleged hazard or alleged defect in design, manufacture,
materials or workmanship, including any failure to warn or alleged breach of
express or implied warranty or representation, relating to any product
manufactured, distributed or sold by or on behalf of the Company or the
Subsidiaries, except for any such matter that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except as
set forth in Section 2.30 of the Disclosure Schedule, in product manufacturing
agreements and except as implied or required by Law, neither the Company nor any
Subsidiary has extended to any of its customers any written, non-uniform product
warranties, indemnifications or guarantees.
2.31 Personnel Policies.
(a) All personnel policies, rules and procedures applicable to
employees of the Company or any Subsidiary are in writing.
(b) There are no written personnel manuals, handbooks, policies,
rules or procedures applicable to employees of the Company or any Subsidiary,
other than those set forth in Section 2.31 of the Disclosure Schedule, true and
complete copies of which have heretofore been provided or made available to
Purchaser.
22
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that:
3.01 Organization and Power. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation with full corporate power and authority to enter into this
Agreement and perform its obligations hereunder. Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby.
3.02 Authority. The execution and delivery by Purchaser and Apollo
Management V, L.P. ("Apollo") of this Agreement and the Equity Commitment,
respectively, and the performance by Purchaser and Apollo of its obligations
hereunder and thereunder, as the case may be, have been duly and validly
authorized by the respective Boards of Directors or general partner of Purchaser
and Apollo, no other corporate or limited partnership action on the part of
Purchaser or Apollo or their respective equity holders being necessary. This
Agreement and the Equity Commitment has been duly executed and delivered by
Purchaser and Apollo, respectively, and constitutes the valid and binding
obligation of Purchaser and Apollo, respectively, enforceable against Purchaser
and Apollo in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally and except as such enforceability of
this Agreement and the Equity Commitment is subject to the application of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law).
3.03 No Breach. Purchaser is not subject to or obligated, under its
Constituent Documents, any applicable Law, Order or any material Contract which
would be breached or violated in any material respect by Purchaser's execution,
delivery or performance of this Agreement.
3.04 Governmental Consents, etc. Except for the applicable requirements of
the HSR Act, Purchaser is not required to submit any notice to, make any filing
with or obtain any authorization, consent or approval of any Governmental
Authority or any other Person in connection with the execution, delivery or
performance by Purchaser of this Agreement or the consummation of the
transactions contemplated hereby. Purchaser is not subject to any outstanding
Order that would reasonably be expected to have a material adverse effect on
Purchaser's ability to consummate the transactions contemplated by this
Agreement.
3.05 Litigation. There are no actions, suits or proceedings pending or, to
Purchaser's Knowledge, threatened against or affecting Purchaser at law or in
equity, or before or by any Governmental Authority which, individually or in the
aggregate, would materially adversely affect Purchaser's performance under this
Agreement or the consummation of the transactions contemplated hereby.
23
3.06 Broker's Fees. Other than fees payable to Purchaser's proposed
lenders, which shall be paid by Purchaser, neither Purchaser nor any of its
Affiliates has any liability or obligation to pay any fees or commissions to any
investment banker, broker, finder or agent with respect to the transactions
contemplated by this Agreement.
3.07 Investment Representation. Assuming that the Interests constitute
"securities" within the meaning of the Securities Act, which Purchaser does not
admit, Purchaser (a) is purchasing the Interests for its own account with the
present intention of holding such Interests for investment purposes and not with
a view to or for sale in connection with any public distribution of such
Interests in violation of any federal or state securities laws, (b) is an
"accredited investor" as defined in Regulation D promulgated by the Securities
and Exchange Commission under the Securities Act, (c) has such knowledge and
experience in financial and business matters that it is capable of evaluating
and has been informed as to the risks of the transactions contemplated hereby
and of ownership of the Interests, and (d) further acknowledges that the
Interests have not been registered under the Securities Act, or any state or
foreign securities laws and that the Interests may not be sold, transferred,
offered for sale, pledged, hypothecated or otherwise disposed of unless such
transfer, sale, assignment, pledge, hypothecation or other disposition is
pursuant to the terms of an effective registration statement under the
Securities Act and are registered under any applicable state or foreign
securities laws or pursuant to an exemption from registration under the
Securities Act and any applicable state or foreign securities laws.
3.08 Financing. Subject to the conditions contained in the Commitment
Letters (as defined below), Purchaser will have at the Closing sufficient cash
and committed credit facilities to pay the full consideration payable to Seller
hereunder, to make all other necessary payments by it in connection with the
transactions contemplated by this Agreement and to pay all of its related fees
and expenses, and either (a) has the cash on hand or available under existing
credit facilities or (b) has obtained debt and equity financing commitment
letters (it being understood that any such equity commitment letter will entitle
Seller to rely upon the commitment contained in such letter), executed copies of
which have been delivered to Seller prior to the date of this Agreement (the
"Commitment Letters"), from responsible financial institutions and investors
providing for commitments to provide all funds necessary to consummate the
transactions contemplated hereby. Purchaser has made no material
misrepresentation in connection with obtaining such debt and equity financing
commitments. Subject to the conditions contained in the Commitment Letters,
Purchaser shall have at the Closing sufficient financing from its own sources,
said credit facilities and the funding of said Commitment Letters for the
consummation of the transactions contemplated hereby. Purchaser Knows of no
reason why such conditions will not be satisfied at or prior to Closing.
3.09 Solvency.
(a) Immediately after giving effect to the acquisition of the
Interests and the other transactions contemplated by this Agreement (including,
without limitation, the debt and equity financings being entered into in
connection therewith):
(i) the fair saleable value (determined on a going concern
basis) of the assets of Purchaser and the Company and the Subsidiaries
shall be greater than the total
24
amount of their liabilities (including all liabilities, whether or not
reflected in a balance sheet prepared in accordance with GAAP, and whether
direct or indirect, fixed or contingent, secured or unsecured, disputed or
undisputed);
(ii) Purchaser and the Company and the Subsidiaries shall be
able to pay their debts and obligations in the Ordinary Course of Business
as they become due; and
(iii) Purchaser and the Company and the Subsidiaries shall
have adequate capital to carry on their businesses and all businesses in
which they are about to engage.
(b) In completing the transactions contemplated by this Agreement,
Purchaser does not intend to hinder, delay or defraud any present or future
creditors of Purchaser, the Company or any of the Subsidiaries.
ARTICLE 4
SELLER PRE-CLOSING COVENANTS
The parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
4.01 General. Seller shall use its reasonable best efforts to take all
action and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article 7 below).
4.02 Notices and Consents. Seller shall cause each of the Company and the
Subsidiaries to use its reasonable best efforts to give any notices to, make any
filings with and use its reasonable best efforts to obtain any authorizations,
consents and approvals of Governmental Authorities and to use commercially
reasonable efforts to obtain any authorizations, consents and approvals of any
other Persons required to be obtained by Seller, the Company or the Subsidiaries
under any Contracts, Laws or otherwise in connection with their execution,
delivery and performance of this Agreement and their consummation of the
transactions contemplated hereby, including, without limitation, the consents
shown as required in either Section 2.06 or in item 1 of Section 4.02 of the
Disclosure Schedule; provided that Seller shall not be obligated to obtain the
authorization, consent or approval of any Person with respect to any Contract
described in item 2 of Section 4.02 of the Disclosure Schedule.
4.03 Conduct of Business Pending Closing. From the date hereof until the
Closing, except as consented to by Purchaser in writing (which consent shall not
be unreasonably withheld or delayed with respect to clauses (f) and (h)) or
required to effect the Restructuring:
(a) Except as disclosed in Section 2.05 of the Disclosure Schedule,
Seller will cause each of the Company and each Subsidiary to maintain itself at
all times as a limited liability company, partnership or corporation, as the
case may be, duly organized, validly existing and in good standing under the
laws of the jurisdiction under which it is organized;
25
(b) Seller will cause each of the Company and each Subsidiary to
carry on its business and operations in the Ordinary Course of Business and will
not permit the Company or any Subsidiary to engage in any activity or
transaction or make any commitment to purchase or spend or sell or lease other
than in the Ordinary Course of its Business and Seller shall cause the Company
and the Subsidiaries to make the scheduled capital expenditures contained in the
Large Capital Projects Budget, but will not permit the Company or any Subsidiary
to make any commitment to purchase capital Assets involving in excess of
$2,000,000 that are not so scheduled;
(c) Seller will not permit the Company or any Subsidiary to declare,
authorize or pay any distribution or dividend to its stockholders, other than
the dividends contemplated by Section 1.04, and will not permit the Company or
any Subsidiary to redeem, purchase or otherwise acquire, or agree to redeem
purchase or otherwise acquire, any shares of its stock;
(d) Seller will not permit the Company or any Subsidiary to change
the compensation payable in any material respect or make or modify in any
material respect any loans to any of its officers, directors, employees, agents
or consultants (other than general increases in wages to employees who are not
officers or directors in the Ordinary Course of Business), or grant, issue,
accelerate, pay, accrue or agree to pay or make any accrual or arrangement for
payments or benefits outside the Ordinary Course of Business pursuant to, or
adopt any new or amend any existing Employee Benefit Plan;
(e) Seller will cause each of the Company and each Subsidiary to use
commercially reasonable efforts to continue to carry all of its existing
insurance or will replace it with substantially comparable insurance, including
premiums, coverages, deductibles and limits;
(f) Seller will use commercially reasonable efforts to cause each of
the Company and each Subsidiary to preserve its business organization intact, to
keep available to Purchaser the services of its key employees and key
independent contractors and to preserve for Purchaser its relationships with
material suppliers, landlords, franchisees, licensees, distributors and
customers and others having material business relationships with it;
(g) Seller will not permit the Company or any Subsidiary to, or to
obligate itself to, sell or otherwise dispose of or pledge or otherwise
encumber, any of its properties or Assets except in the Ordinary Course of
Business and Seller will cause each of the Company and each Subsidiary to
maintain its Assets, facilities, machinery and equipment, taken as a whole, in
reasonably good operating condition and repair, subject only to ordinary wear
and tear;
(h) Seller will not permit the Company to make any change in the
accounting methods or practices used by the Company; or make or change any Tax
election, enter into any closing agreement, settle or compromise any material
claim or assessment in respect of Taxes or consent to any extension or waiver of
any limitation period with respect to any claim or assessment for Taxes, nor
shall Seller make any such elections or enter into or consent to any such
agreements, settlement, or compromises in respect of the Company or any
Subsidiary;
26
(i) Except as to capital expenditures permitted under Section
4.03(b), Seller shall not permit the Company to enter into any Contract relating
to the purchase of Assets other than in the Ordinary Course of Business;
(j) Seller shall not permit the Company or any Subsidiary to amend
its Constituent Documents;
(k) Other than the matters that are the subject of but are permitted
by other provisions of this Section 4.03, Seller will not permit the Company or
any Subsidiary to engage in any activity or transaction other than in the
Ordinary Course of its Business;
(l) Without limiting the foregoing, Seller will consult with
Purchaser regarding all material developments, transactions and proposals
relating to the business or operations or any of the Assets or liabilities of
the Company or any Subsidiary;
(m) Seller shall not permit the Company or any Subsidiary, at any
time within the 90-day period before the Closing Date, without complying fully
with the notice and other requirements of the WARN Act, to effectuate (A) a
"plant closing" (as defined in the WARN Act) affecting any single site of
employment or one or more facilities or operating units within any single site
of employment of the Company or any Subsidiary; or (B) a "mass layoff" (as
defined in the WARN Act) at any single site of employment or one or more
facilities or operating units within any single site of employment of the
Company or any Subsidiary. Nor shall the Seller permit the Company or any
Subsidiary otherwise to terminate or lay off employees in such numbers as to
give rise to liability under any Laws or Orders respecting the payment of
severance pay, separation pay, termination pay, pay in lieu of notice of
termination, redundancy pay, or the payment of any other compensation, premium
or penalty upon termination of employment, reduction of hours, or temporary or
permanent layoffs. For purposes of the WARN Act and this Agreement, the Closing
Date is and shall be the same as the "effective date" within the meaning of the
WARN Act.
(n) Seller shall not, and shall not permit the Company or any
Subsidiary to, enter into any Contract to do any of the foregoing, or authorize
or announce an intention to do any of the foregoing.
Provided that, the Company and Subsidiaries may complete the Restructuring and
may use all available Cash (other than System Cash) to repay any Intercompany
Debt and/or pay dividends to Seller prior to the Closing.
4.04 Access. Upon reasonable prior notification and subject to Purchaser's
execution of, and compliance with the terms of, the Data Room Access Agreement
and Confidentiality Agreement, Seller shall cause the Company and the
Subsidiaries to permit Representatives of Purchaser to have access at all
reasonable times and in a manner so as not to interfere with the normal business
operations of the Company and the Subsidiaries, to all premises, properties,
personnel, customers, suppliers (subject to Section 4.10), franchisee
representatives, books, records, correct and complete copies of all Contracts,
Constituent Documents, collective bargaining agreements, employment documents
and records, correspondence, files and any and all other materials and documents
of or pertaining to the Company and the Subsidiaries,
27
including, without limitation, all Tax filings, audited and unaudited financial
statements for the past three (3) years, and all documents reasonably requested
by Purchaser as pertaining to the business, except for materials subject to the
attorney-client privilege; provided that Seller shall provide to Purchaser
copies of all privilege logs prepared or used in connection with any litigation,
proceeding or other inquiry. At all reasonable times during the period
commencing on the date hereof (the "Execution Date") and ending on the Closing
Date or the earlier termination of this Agreement, Purchaser and its
Representatives shall be entitled to: (a) enter onto Company property at all
reasonable times so long as reasonable advance notice has been given to Seller
and Purchaser does not unduly disrupt the business of the Company and the
Subsidiaries, to perform any inspections, investigations, studies and tests of
any Company property, including, without limitation, physical, structural,
mechanical, architectural, engineering, soils and geotechnical tests, that
Seller deems reasonable; (b) cause an environmental assessment to be performed
on the real property described in Section 4.04 of the Disclosure Schedule, upon
reasonable notice to Seller; (c) review all property documents and examine and
copy any and all books and records maintained by Seller or its agents
(including, without limitation, all documents relating to utilities, zoning and
the access, subdivision and appraisal of, and all legal requirements and Laws
affecting, the property and Assets); and (d) investigate such other matters as
Seller may reasonably desire. Notwithstanding any provision of this Agreement to
the contrary, prior to performing any "Phase II" or other invasive test on any
real property owned or leased by the Company or any Subsidiary, Purchaser shall
provide Seller with a reasonably detailed description of the work to be
performed, shall cause the contractors that will perform such work to provide
Seller with reasonable evidence of their possession of any Permits and insurance
required by applicable Laws and shall obtain the Seller's consent thereto, which
shall not be unreasonably withheld and shall be tendered or withheld within five
Business Days after the request is made. Purchaser shall indemnify Seller, the
Company and the Subsidiaries from and against any Losses resulting from damage
to property or injury or death of persons occurring in connection with any such
inspection. Purchaser shall treat and hold as such any Confidential Information
it receives from any of Seller, the Company or any Subsidiary in the course of
the reviews contemplated by this Section 4.04, shall not use any of the
Confidential Information except in connection with this Agreement (and the
transactions contemplated hereby, including obtaining requisite financing) and
in compliance with the terms of the Confidentiality Agreement and the Data Room
Access Agreement; provided, that Seller acknowledges that Purchaser shall be
permitted to disclose information it deems necessary in connection with
obtaining financing for the transactions contemplated by this Agreement in
accordance with the terms of the Confidentiality Agreement. Seller will provide
to Purchaser true and complete copies of monthly unaudited consolidated balance
sheets, profit and loss statements and a schedule of capital expenditures of the
Company and the Subsidiaries customarily prepared by the Company and the
Subsidiaries and the weekly sales reports of the Company and the Subsidiaries.
If this Agreement is terminated for any reason whatsoever, Purchaser shall, and
shall cause its Representatives to, return to Seller, the Company and the
Subsidiaries or destroy all tangible embodiments (and all copies) of the
Confidential Information which are in its possession, all in accordance with the
terms and conditions of the Confidentiality Agreement.
4.05 Restructuring. Prior to the Closing, Seller shall effect the
Restructuring in all material respects.
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4.06 Notice and Cure. Seller shall notify Purchaser in writing of any
event, transaction or circumstance, as soon as reasonably practicable after it
becomes Known to Seller after the date of this Agreement, (a) that causes or
would cause any covenant or agreement of Seller under this Agreement to be
breached, in which case Seller shall, if such breach is reasonably capable of
being cured, use reasonable best efforts to cure the same within ten (10)
Business Days after Purchaser gives Seller or Seller gives Purchaser written
notice of such breach, or (b) that would render untrue as of the Closing Date
any representation or warranty of Seller contained in Article 2 of this
Agreement. If such event, transaction or circumstance (when taken together with
all other such events, transactions or circumstances) which makes any
representation or warranty untrue is the subject of and permitted by Section
4.03(b) (only with respect to capital expenditures permitted thereunder), (c),
(d), (e), (f), (g), (h), (i) or (j), the proviso to Section 4.03 or Section 6.05
(the "Permitted Developments"), then, in any such case, delivery of such notice
prior to Closing shall preclude Purchaser from seeking indemnity under Article 9
with respect to any matter disclosed in such notice; however, such notice shall
not in any way modify or affect the condition to Closing set forth in Section
7.01 hereof, except as otherwise specifically set forth therein.
4.07 Regulatory Filings. Seller shall make or cause to be made all filings
and submissions under the HSR Act and any other material Laws applicable to
Seller, the Company and the Subsidiaries as may be required for the consummation
of the transactions contemplated herein. Seller shall coordinate and cooperate
with Purchaser in exchanging such information and assistance as Purchaser may
reasonably request in connection with all of the foregoing.
4.08 Shareholders Meeting. The Management and Supervisory Boards of Royal
Numico will, as promptly as practicable following the date hereof, (a) duly
call, give notice of, and convene one or more meetings of its shareholders for
the purpose of approving the terms of this Agreement and the transactions
contemplated hereby (individually and collectively, the "Shareholders Meeting")
which Shareholder Meeting shall be held no later than twenty-five (25) days
after the date hereof (the "Shareholder Determination Date"), and (b) (i)
include in its explanatory notes to the agenda of the Shareholders Meeting the
unanimous recommendation of the Management Board and the Supervisory Board that
the shareholders of Royal Numico vote in favor of the approval of the terms of
this Agreement and the transactions contemplated hereby and (ii) each of the
Management Board and Supervisory Board of Royal Numico shall use its reasonable
best efforts to obtain the necessary approval of the terms of this Agreement and
the transactions contemplated hereby by its shareholders. Neither the Management
Board or the Supervisory Board shall withdraw, amend or modify in a manner
adverse to Purchaser its recommendation referred to in clause (b)(i) of the
preceding sentence (or announce publicly or communicate in any manner to its
shareholders its intention to do so). Notwithstanding any provision in this
Agreement to the contrary, Royal Numico and its Management Board and Supervisory
Board shall have the right to (A) publicly disclose the existence and terms of a
Superior Proposal to the extent required by applicable law or corporate
governance principles, and (B) inform Royal Numico's shareholders of a Superior
Proposal at or prior to the Stockholder's Meeting if the failure to take such
action would, in the good faith judgment of the Management Board or the
Supervisory Board of Royal Numico, taking into consideration the advice of
corporate counsel of Royal Numico, violate the fiduciary duties of the
Management Board or the Supervisory Board of Royal Numico to Royal Numico's
shareholders under applicable law. If the Requisite Shareholder Approval is not
obtained by the Shareholder
29
Determination Date, within three (3) days thereafter Purchaser may elect, by
written notice to Seller: (i) to terminate this Agreement pursuant to Section
12.01(d); or (ii) to extend the Shareholder Determination Date for twenty-one
(21) days (or, if sooner, November 30, 2003) and to extend the Termination Date
to no later than March 31, 2004; provided, that Purchaser shall be obligated to
close as soon as the conditions to Closing under Article 7 are satisfied,
including without limitation, Section 7.17. "Superior Proposal" means a
Transaction Proposal which the Supervisory Board in its good faith judgment
(after consultation with its independent financial advisor) determines if
consummated would be more favorable to Royal Numico's shareholders than the
transactions contemplated by this Agreement and with respect to which the
Supervisory Board receives advice of its legal counsel that the Supervisory
Board would breach its fiduciary duties if it did not inform Royal Numico's
shareholders of the Superior Proposal prior to the Shareholders meeting;
provided, however, that no Transaction Proposal shall be deemed a Superior
Proposal unless it involves, at a minimum, (x) 90% in value of the Interests or
(y) all or substantially all of the Company's Assets, and, in either event,
includes financing terms at least as favorable to Royal Numico as that proposed
by Purchaser and provides for consideration that contains at least as much cash
as that proposed by Purchaser.
4.09 No Solicitation.
(a) Except for (i) the Restructuring, (ii) the transaction described
in Section 4.09 of the Disclosure Schedule or (iii) any proposal concerning a
business combination involving Royal Numico and substantially all of its
subsidiaries taken as a whole (the "Excluded Transactions"); provided that said
later-mentioned transaction would not reasonably be expected to impede,
interfere with, prevent or delay the transactions contemplated hereby, none of
Royal Numico, the Seller or any of the Subsidiaries shall (whether directly or
indirectly through advisors, agents or other intermediaries), and none of Royal
Numico, the Seller or any of the Subsidiaries shall authorize or permit any of
its or their officers, directors, agents, Representatives, advisors or
subsidiaries to, solicit, initiate, encourage (including by way of furnishing
information) or take any action knowingly to facilitate the submission of any
inquiries, proposals or offers relating to, other than the transactions
contemplated by this Agreement (A) any acquisition or purchase of 10% or more of
the consolidated assets of the Company and the Subsidiaries or of 10% or more of
any class of equity securities of the Company or the Subsidiaries, (B) any
tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Person beneficially owning 10% or more of any
class of equity securities of the Company or any of the Subsidiaries, (C) any
merger, consolidation, business combination, sale of substantially all of the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of the Subsidiaries whose assets, individually or
in the aggregate, constitute 10% or more of the consolidated assets of the
Company and the Subsidiaries, or (D) any other transaction the consummation of
which would or would reasonably be expected to impede, interfere with, prevent
or delay the execution of this Agreement (collectively, "Transaction
Proposals"), or agree to or endorse any Transaction Proposal, or (b) enter into
or participate in any discussions or negotiations regarding any of the
foregoing, or furnish to any other Person any information with respect to the
Company's and the Subsidiaries' business, properties or assets in connection
with the foregoing, or otherwise cooperate in any way with, or knowingly assist
or participate in, facilitate or encourage, any effort or attempt by any other
Person (other than Purchaser) to do or seek any of the foregoing except as
otherwise specifically set forth in Section 4.08.
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(b) Except for any Excluded Transaction referred to in clause (iii)
of its definition, if the Supervisory Board or the Management Board of Royal
Numico or the Board of Directors of the Seller, the Company or any of their
respective Representatives or Affiliates receives a Transaction Proposal, then
Royal Numico or the Seller, as the case may be, shall promptly inform Purchaser
of the terms and conditions of such proposal and the identity of the Person
making it. Except with respect to the Excluded Transactions, Royal Numico and
the Seller shall immediately cease and cause its advisors, agents and other
intermediaries to cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Transaction Proposal, and shall use their reasonable best efforts to cause any
such parties in possession of confidential information about the Company that
was furnished by or on behalf of the Company to return or destroy all such
information in the possession of any such party or in the possession of any
agent or advisor of any such party. Except with respect to the Excluded
Transactions, Royal Numico and the Seller agree not to release any third party
from, or waive any provisions of, any confidentiality or standstill agreement to
which Royal Numico, the Seller or the Company is a party.
4.10 Financing. Seller agrees to cooperate in any reasonable manner with
Purchaser, at Purchaser's expense in connection with the obtaining of the
financing referred to in Section 3.08 (subject to the Confidentiality Agreement)
and, in connection therewith, at the request of Purchaser, will (a) make
requested members of its management team reasonably available to Purchaser to
provide Purchaser with any information useful for the obtaining of the financing
referred to in Section 3.08 and to participate in road shows and presentations
in connection therewith so long as the same does not unduly interfere with the
conduct of the business of the Company and the Subsidiaries and (b) cause the
Company and the Subsidiaries to execute and deliver loan and/or security
agreements which at the Closing will obligate the full credit of the Company and
the Subsidiaries and which may be secured by all of the assets of the Company
and the Subsidiaries, provided that Seller is reasonably assured that such
agreements will be fully discharged without liability or expense of any kind to
Seller, the Company and any Subsidiary in the event the Closing is not
consummated and that, notwithstanding any provision of this Agreement to the
contrary, no action taken by the Seller, the Company or any Subsidiary pursuant
to this Section 4.10 and at the request of Purchaser shall be deemed a breach of
any representation, warranty or covenant of the Seller hereunder.
4.11 September Interim Financial Statements. Promptly when available, but
no later than November 7, 2003, Seller shall deliver to Purchaser (a) the
unaudited, consolidated balance sheet of the Company and its consolidated
subsidiaries as of September 30, 2003, and the related unaudited consolidated
statements of operations, stockholders' equity and cash flows for the nine-month
periods ended September 30, 2003 and 2002 reviewed by PricewaterhouseCoopers,
LLP (the "September Interim Financial Statements"), and (b) a certificate of
Seller to the effect that, except as disclosed in Section 2.09 of the Disclosure
Schedule (which exceptions shall be deemed to apply to the September Interim
Financial Statements to the same extent that they apply to the Audited Financial
Statements) and except for the absence of footnotes and subject to year end
adjustments, including without limitation, the type of adjustments excluded from
EBITDA under clause (d) of Exhibit I, the September Interim Financial Statements
(i) were compiled from the books and records of the Company and the Subsidiaries
regularly maintained by management and used to prepare the financial statements
of the Company and the Subsidiaries in accordance with the principles stated
therein, (ii) were prepared in accordance
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with GAAP in all material respects, (iii) were prepared in a manner consistent
with the Company Accounting Policies in all material respects, and (iv) had the
Known Loss policy under the Company Accounting Policies applied thereto.
4.12 Audit. Seller shall cause PricewaterhouseCoopers, LLP to conduct an
audit of the September Interim Financial Statements of the Company and its
consolidated subsidiaries (except that the statements of operations,
stockholders' equity and cash flows for the nine-month period ended September
30, 2002 shall not be audited) (the "Audit") in accordance with GAAP applied in
a manner consistent with the manner in which GAAP was applied to the Audited
Financial Statements and to issue an audit report with respect thereto (said
September Interim Financial Statements (with said exception) as so audited are
referred to herein as the "Audited Interim Financials"). Promptly following
completion of the Audit, Seller shall deliver to Purchaser a copy of such
Audited Interim Financials, together with a manually executed copy of the audit
report with respect thereto. The cost of such Audit shall be borne equally by
Purchaser and Seller. The Company's EBITDA shall be defined in and recalculated
from the Audited Interim Financials in the same manner set forth on Exhibit I
hereto. If the Audit is completed prior to the Closing Date and the amount of
such recalculated EBITDA of the Company is less than the amount of the EBITDA
Target as shown on Exhibit I hereto, the Purchase Price shall be adjusted
downward by an amount equal to the difference, multiplied by 4.75. If the Audit
is completed after the Closing Date and the amount of such recalculated EBITDA
of the Company is less than the amount of the EBITDA Target as shown on Exhibit
I hereto, Seller shall promptly pay to Purchaser an amount equal to such
difference, multiplied by 4.75.
4.13 Contact with Customers and Suppliers. Prior to the Closing, Seller
shall provide Purchaser and Purchaser's Representatives with access to the
employees, customers and suppliers of the Company and the Subsidiaries as
reasonably requested by Purchaser in connection with the transactions
contemplated hereby; provided that Purchaser shall not meet or communicate with
any customer or supplier outside of Seller's presence without giving Seller
reasonable prior notice thereof.
ARTICLE 5
PURCHASER'S PRE-CLOSING COVENANTS
5.01 General. Purchaser shall use its reasonable best efforts to take all
action and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Sections 7.17 and 8.07 and the other provisions of Article 8 below).
5.02 Regulatory Filings. Purchaser shall make or cause to be made all
filings and submissions under the HSR Act and any other Laws applicable to
Purchaser as may be required of Purchaser for the consummation of the
transactions contemplated herein and Purchaser shall be responsible for all
filing fees under the HSR Act. Purchaser shall coordinate and cooperate with
Seller in exchanging such information and assistance as Seller may reasonably
request in connection with all of the foregoing provided that this Agreement
will not require Purchaser to
32
dispose of or make any change in any portion of its business subsequent to the
Closing or to incur any other material burden to obtain a Governmental
Authorization.
5.03 Contact with Customers and Suppliers. Prior to the Closing, Purchaser
and Purchaser's Representatives shall contact and communicate with the
employees, customers and suppliers of the Company and the Subsidiaries in
connection with the transactions contemplated hereby only with the prior written
consent of Seller, which shall not be unreasonably withheld.
5.04 Purchaser's Solvency. Purchaser shall furnish or cause to be
furnished to Seller copies of any solvency opinions or similar materials, if
any, obtained by Purchaser from third parties in connection with the financing
of the transactions contemplated by this Agreement, to the extent contractually
permitted by the issuer of such opinion. Purchaser shall use commercially
reasonable efforts to cause the firms issuing any such solvency opinions to
allow Seller to rely thereon; provided that, Purchaser shall have no obligation
to do so if any material fee or expense is associated with obtaining such
reliance.
5.05 Acknowledgment by Purchaser. THE REPRESENTATIONS AND WARRANTIES BY
SELLER IN THIS AGREEMENT AND THE OTHER DOCUMENTS DELIVERED AT CLOSING BY SELLER
OR ITS OFFICERS CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES
OF SELLER TO PURCHASER IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY,
AND PURCHASER UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT ALL OTHER
REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESS OR IMPLIED
(INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN THE OFFERING MEMORANDUM DATED
MAY, 2003, AND ANY SUPPLEMENTS THERETO, THE COMPANY'S MANAGEMENT PRESENTATION,
AND ANY RELATING TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION, RESULTS OF
OPERATIONS, ASSETS OR LIABILITIES OF THE COMPANY AND THE SUBSIDIARIES, INCLUDING
IN ANY INFORMATION PROVIDED UNDER SECTION 4.10) THAT ARE NOT SET FORTH IN THIS
AGREEMENT OR THE OTHER DOCUMENTS DELIVERED AT CLOSING BY SELLER OR ITS OFFICERS
ARE SPECIFICALLY DISCLAIMED BY SELLER.
5.06 Notification. From the date hereof until the Closing Date, (a)
Purchaser shall disclose to Seller in writing any material variances from
Purchaser's representations and warranties contained in Article 3 hereof
promptly upon discovery thereof, and (b) Purchaser shall promptly upon the
occurrence of such event inform Seller if Purchaser determines or is informed by
the issuer of any commitment letter referred to in Section 3.08 that Purchaser
will be unable to obtain the financing contemplated by Section 3.08.
5.07 Completion of IRS Form 8023. Purchaser will provide Seller with all
information necessary to allow Seller to duly and accurately complete an IRS
Form 8023 with respect to the purchase and sale of the Interests and any deemed
sale of Interests or Stock of any Subsidiary hereunder (the "IRS Form 8023"),
reasonably cooperate with Seller to complete the IRS Form 8023, and provide
Seller with such other documents and information as necessary to make an
effective 338(h)(10) Election.
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ARTICLE 6
POST-CLOSING COVENANTS.
The parties agree as follows with respect to the period following the
Closing.
6.01 General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other party reasonably may request for such
purpose, all at the sole cost and expense of the requesting party (unless the
requesting party is entitled to indemnification therefor under Article 9 below).
6.02 Covenant Not to Compete. Seller agrees that, after the Closing,
Purchaser and any designated Affiliate will be entitled to the goodwill and
going concern value of the Business and to protect and preserve the same to the
maximum extent permitted by law. For these and other reasons and as an
inducement to Purchaser to enter into this Agreement, Seller and Royal Numico
agree that for a period of three years after the Closing Date, Seller and Royal
Numico and their respective current Affiliates (other than the Company and the
Subsidiaries), will not, directly or indirectly, for their own benefit or as
agent for another, own, manage, control, carry on, develop or assist another
Person in the development of, or participate in the ownership, management or
control of, or allow their name or reputation to be used in or by any other
present or future business enterprise that competes with the Company or the
Subsidiaries in (a) the selling of vitamins, minerals, herbals, supplements,
diet or sport nutrition products through owned or franchised retail stores,
Internet, direct mail, catalog or other direct to consumer sales channels
anywhere in the world in which the Company currently does business, or (b) the
manufacturing of any vitamin, mineral, herbals, supplements, diet or sport
nutrition products ((a) and (b) collectively, the "Protected Business");
provided, however, that the foregoing prohibitions shall not prohibit:
(i) Royal Numico or any of its Affiliates from continuing the
Vitamex business of manufacturing, distributing and selling vitamins,
herbals, supplements, diet and sport nutrition products, and the
manufacture, distribution and sale of bars for third parties substantially
similar to those currently sold under the "Dr. Kouaza" tradename or
trademark or any other tradename or trademark used as of the Execution
Date, or any replacement tradename or trademark (other than any Company
Intellectual Property) in any country (other than in the United States),
in each case, in which such businesses are being conducted as of the
Execution Date;
(ii) Nutraco or any of Royal Numico's other Affiliates from
continuing to supply the products and services currently supplied to
Rexall or Unicity and their respective subsidiaries and set forth on
Section 6.02(b) of the Disclosure Schedule or endorsing or providing any
similar service for any Unicity product, service or Unicity sponsored
event pursuant to any Contract in effect as of the Execution Date;
(iii) Royal Numico or any of its Affiliates from owning less
than five percent (5%) of the outstanding stock of any publicly-traded
corporation that is engaged in any aspect of the Protected Business;
34
(iv) Royal Numico or any of its Affiliates from acquiring any
business if (A) the activities of the business acquired do not violate
Section 6.02(a) and (B) any activities of the business to be acquired that
would violate Section 6.02(b) do not comprise more than 20% of the
revenues or ebitda of the business acquired during its most recent fiscal
year prior to such acquisition, in which event, for greater clarity,
Seller and its Affiliates shall have the right to engage in the wholesale
distribution and sale of products manufactured by such acquired business;
or
(v) any Person that acquires all or substantially all of the
stock or assets of Royal Numico (through purchase, merger or other
business combination) in a transaction that is not undertaken for the
purpose of circumventing the provisions of this Section 6.02 from
conducting a business that competes with the Protected Business;
provided, further, that nothing in this Section 6.02 shall prohibit Royal Numico
or any of its Affiliates from engaging anywhere in the world in the infant
formula, baby food or toddler food (including specialty formulas) businesses or
the Clinical Nutrition Businesses. Seller agrees that Seller and Seller's
Affiliates will not, for a period of one year after the Closing Date, solicit
any person now employed by the Company or any Subsidiary for employment by the
Seller (other than pursuant to this Agreement and the transactions contemplated
hereby) if such person is then employed by Purchaser or any Affiliate of
Purchaser. Purchaser agrees that the restrictions set forth in this Section 6.02
shall not apply to any solicitation by the Seller directed at the public in
general in publications available to the public in general or any contact which
the Seller can demonstrate through written records was initiated by such
employee. If the final judgment of a court of competent jurisdiction or an
arbitration award declares that any term or provision of this Section 6.02 is
invalid or unenforceable, the parties agree that the court or arbitrators making
the determination of invalidity or unenforceability shall have the power to
reduce the scope, duration or area of the term or provision, to delete specific
words or phrases or to replace any invalid or unenforceable term or provision
with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment or award may be appealed.
6.03 Purchaser Payment Obligations. Subsequent to the Closing, Purchaser
shall cause the Company and the Subsidiaries to pay all trade accounts payable
due Seller, Nutraco or any other Affiliate of Seller that are disclosed or
referred to in Section 6.03 of the Disclosure Schedule and any trade accounts
payable that arise in the Ordinary Course of Business and in compliance with the
terms of this Agreement between the date hereof and the Closing Date, in
accordance with applicable terms of payment, but in no event later than sixty
(60) days after the Closing. Any such amounts not paid when due by the Company
or any Subsidiary shall bear interest at the Interest Rate from the date due
until paid, which interest shall be payable upon demand by Seller.
6.04 Purchaser Insurance. At Closing, Purchaser agrees to, and agrees to
cause the Company and the Subsidiaries to, add Royal Numico, Seller and each
Transferee as additional insureds on all product liability insurance policies
maintained by or for the benefit of the Company and the Subsidiaries (and their
respective successors-in-interest) and thereafter maintain Royal Numico, Seller
and each Transferee as additional insureds thereunder for a
35
period of five years after the Closing Date; provided, that Seller reimburses
Purchaser for the cost, if any, of adding such additional insureds and Seller
agrees not to file any claim thereunder with respect to any Excluded Litigation.
Upon request from time to time by Seller, Purchaser shall furnish Seller with
reasonable evidence of Purchaser's compliance with this Section 6.04.
6.05 Excluded Proceeds. Notwithstanding any provision of this Agreement to
the contrary, Seller shall have the right to cause the Company and the
Subsidiaries to transfer to Seller, all right, title and interest in, to and
under all Excluded Proceeds to which the Company or any of the Subsidiaries are
entitled or to which they may become entitled in the future. In the event any
such Excluded Proceeds are paid to the Company or any Subsidiary, Purchaser
shall cause the recipient thereof to pay such Excluded Proceed to Seller within
three (3) Business Days after the receipt thereof without any right of set-off
against any amount that may be due and payable after the Closing by Royal
Numico, Seller, Nutraco or any other Affiliate of Seller to Purchaser, the
Company or the Subsidiaries. Any Excluded Proceeds not paid when due by the
Purchaser, the Company or any Subsidiary shall bear interest at the Interest
Rate from the date due until paid, which interest shall be payable upon demand.
Upon request from time to time by Seller, Purchaser shall, and shall cause the
Company and the Subsidiaries to, cooperate reasonably with Seller, at the
expense of Seller, to enforce the Settlement and collect any remaining Excluded
Proceeds due thereunder, including without limitation by (a) empowering Seller
and its counsel through appropriate documentation to institute any action Seller
deems necessary or desirable to enforce the Settlement and to represent the
Company and the Subsidiaries therein before any court or arbitration tribunal of
appropriate jurisdiction, and (b) permitting the current in-house counsel and
other Representatives of the Company and the Subsidiaries who are currently
monitoring the Settlement and collecting the Excluded Proceeds to continue (so
long as they remain employed by them) to monitor the Settlement and collect the
Excluded Proceeds on behalf of Seller and to keep Seller advised of any material
developments in respect thereto to the extent reasonably requested by Seller and
always as reasonably directed by Seller.
6.06 Seller Insurance. Effective as of the Closing, and to the extent, if
any, necessary to ensure that the Company and the Subsidiaries continue to have
the same rights under the general and product liability Policies which they
currently have with respect to liabilities or losses arising out of occurrences
that take place prior to the Closing (the "Liability Policies"), Seller hereby
conveys to the Company and the Subsidiaries to the full extent permissible under
the law and under the relevant Liability Policies any claim, chose in action or
other right Seller may have to the insurance coverage and/or insurance proceeds
under its past and present Liability Policies with respect to any liabilities or
losses of the Company or any of the Subsidiaries to the extent that such
liabilities or losses arise out of occurrences which took place prior to the
Closing, within the meaning of the applicable Liability Policies, except any
claim, chose in action or other right Seller may have with respect to the
Excluded Litigation, any Purchaser Losses or coverage for the benefit of itself,
Royal Numico and any other Affiliate of Royal Numico (other than the Company and
the Subsidiaries). Further, in response to any reasonable request for
cooperation, Seller agrees to cooperate reasonably with Company and the
Subsidiaries, at their expense, in any attempts by the Company or any of the
Subsidiaries to pursue such claim, chose in action or right against Seller's
insurers, including, if necessary, bringing suit with the Company or any of the
Subsidiaries against the insurers in Seller's name but at the expense of the
Company or Subsidiaries. Finally, Seller shall not take any action to
36
materially limit, interfere with or impair in any way such coverage and shall,
at Purchaser's request, take all reasonable steps necessary to assist Purchaser,
at Purchaser's expense, in the presentment of all such claims for insurance,
including, without limitation, the production of necessary records and
documentation in Seller's possession and the giving of testimony, if necessary;
provided, however, that nothing in this Agreement shall require Seller to take
any action or refrain from taking any action that would be contrary to the terms
of any such Liability Policy or that would adversely affect the rights of Seller
or Royal Numico thereunder.
6.07 Name Change. Within sixty (60) days following Closing, Purchaser
shall cause Nutricia USA, Inc. to change its name so that it does not contain
the words "Nutricia" or "Numico" or any confusingly similar word and shall not
use any such words in its business or the business of the Company and the
Subsidiaries; provided, however, that if such change could result in a default
under any material Contract to which Nutricia USA, Inc. is a party, Purchaser
shall be deemed to have fulfilled its obligations under this Section 6.07 if it
uses its reasonable best efforts to obtain the necessary waivers or consents as
soon as possible. The parties hereto acknowledge and agree that any remedy at
Law for any breach of the provisions of this Section is inadequate, and
Purchaser hereby consents to the granting by any court of appropriate
jurisdiction or arbitrator award of an injunction or other equitable relief,
without the necessity of actual monetary loss being proved, in order that the
breach or threatened breach of such provisions may be effectively restrained.
ARTICLE 7
CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE.
The obligation of Purchaser to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
7.01 Representations and Warranties. After taking into account all
disclosures of Permitted Developments, each of the representations and
warranties set forth in Article 2 of this Agreement that are qualified as to
materiality or Material Adverse Effect shall be true and correct in all respects
and each representation or warranty that is not so qualified shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date, except to the extent that such representations and warranties by
their terms speak as of an earlier date, in which case they shall be true and
correct as of such earlier date and Seller shall have delivered to Purchaser a
certificate of Seller, dated as of the Closing Date, as to the foregoing.
7.02 Performance. The Restructuring shall have occurred in accordance with
Section 4.05 of the Disclosure Schedule in all material respects. Seller shall
have performed and complied with, in all material respects, each agreement,
covenant and obligation required by this Agreement to be so performed or
complied with by Seller at or before Closing (except for such agreements,
covenants and obligations that are qualified by their terms by reference to
"materiality" or "Material Adverse Effect," which agreements, covenants and
obligations as so qualified shall be performed and complied with in all
respects).
7.03 Third Party Consents. The Company and the Subsidiaries shall have
procured all of the third party consents set forth in item 1 of Section 4.02 of
the Disclosure Schedule. The
37
Company and the Subsidiaries shall also have procured commercially reasonable
estoppel certificates in favor of Purchaser relating to the leases described in
items 1, 2, 4, 8 and 9 of Section 2.14(a)(ii) of the Disclosure Schedule and
relating to the Gustine limited partnership and mortgage encumbering the
Pittsburgh, Pennsylvania property.
7.04 Payment Obligations. Prior to the Closing Date, Seller shall have
caused all Intercompany Debt among the Company and the Subsidiaries, on the one
hand, and any other Affiliates of Royal Numico (other than Nutraco or any
employee of the Company or any Subsidiary and as set forth in the immediately
succeeding sentence) to have been settled in full by means of set-off against
such Intercompany Debt or in cash. Except for (a) the guarantees, indemnity and
other agreements listed in Section 8.07 of the Disclosure Schedule which shall
remain, subject to Sections 8.07 and 9.02 hereof, (b) the Contracts to which
Nutraco is a party, (c) the intercompany arrangements referred to in item
37(iii)b of Attachment 2.17(k) and 4.05 of the Disclosure Schedule and item 38
of Attachments 2.17(k) and 2.25(b) to the Disclosure Schedule and (d) the
Ancillary Agreements which shall be executed at or prior to Closing, Seller
shall have caused all intercompany arrangements in effect on the Closing Date
between the Company and any Subsidiary, on the one had, and Seller and any of
its Affiliates (other than the Company, the Subsidiaries, Nutraco and any
employee of the Company or any Subsidiary), on the other hand, to be terminated
as of Closing with respect to the Company and the Subsidiaries.
7.05 Shareholder Approval. The terms of this Agreement and the
transactions contemplated hereby shall have been approved by a majority of the
shareholders of Royal Numico present and voting at the Shareholders Meeting (the
"Requisite Shareholder Approval").
7.06 No Litigation. No statute, rule or regulation shall have been enacted
or promulgated by any Governmental Authority which prohibits the consummation of
the transactions contemplated by this Agreement; and there shall be no order or
injunction of a court of competent jurisdiction in effect precluding
consummation of the transactions contemplated by this Agreement; and as of the
Closing Date, there must not be pending or, to Purchaser's Knowledge, overtly
threatened against the Purchaser, or against any Person affiliated with
Purchaser, or against any of its property or Assets, or to Seller's Knowledge,
overtly threatened against the Company or Seller, or against any Person
affiliated with the Company or Seller, or against any of their property or
Assets, any proceeding: (a) wherein an unfavorable Order would prevent
consummation of, or result in damages payable by Purchaser, any Person
affiliated with Purchaser, the Company or any of the Subsidiaries or other
relief adverse to Purchaser, any Person affiliated with Purchaser, the Company
or any of the Subsidiaries in connection with, the transactions contemplated by
this Agreement, or (b) that, if successful, would prevent, materially delay,
make illegal, or materially interfere with any of the transactions contemplated
by this Agreement.
7.07 Seller's Officer's Certificate. Seller shall have delivered to
Purchaser an officer's certificate signed by the chief executive officer and
chief financial officer of Seller to the effect that each of the conditions
specified above in Section 7.01-7.06 (other than matters related to Purchaser in
Section 7.06) is satisfied in all respects.
38
7.08 Royal Numico Officer's Certificate. Royal Numico shall have delivered
to Purchaser an officer's certificate signed by the chief executive officer of
Royal Numico to the effect that the condition specified above in Section 7.05 is
satisfied in all respects.
7.09 Governmental Consents. The applicable waiting periods under the HSR
Act shall have expired or been terminated, and Purchaser and Seller shall have
received all other authorizations, consents and approvals of Governmental
Authorities referred to in Section 3.04 above, if any.
7.10 Opinion of Counsel. Purchaser shall have received the opinion of
Vedder, Price, Xxxxxxx & Kammholz, P.C., special counsel to Royal Numico and
Seller, Xxxxxxxx, Xxxxxx & Finger, P.A., Delaware counsel to the Company and
certain Subsidiaries, and Xxxxx Xxxx, Xxxxxxxx and General Counsel of Royal
Numico, each dated as of the Closing Date, substantially in the form and to the
effect of Exhibits B 1-3 hereto, respectively.
7.11 Resignations of Directors and Officers. Such managers and members of
the boards of directors and such officers of the Company and the Subsidiaries as
are designated in a written notice delivered at least five (5) Business Days
prior to the Closing Date by Purchaser to Seller shall have tendered, effective
at the Closing, their resignations as such managers, directors and officers.
7.12 Ancillary Agreements. Seller shall have caused the Company, the
Subsidiaries and Seller's other Affiliates to have, executed and shall have
delivered to Purchaser the Ancillary Agreements to which Seller, the Company,
any Subsidiary or any of Seller's other Affiliates is a party.
7.13 GNC Franchising Canada. Seller shall have caused to be delivered to
Purchaser one or more stock certificates evidencing all of the issued and
outstanding shares of capital stock of GNC Franchising, Canada Ltd. duly
endorsed for transfer, or accompanied by appropriate stock powers duly executed
on behalf of the registered owner thereof to transfer said certificates, to
Purchaser.
7.14 Non-Foreign Status. Seller shall have provided a certification of
non-foreign status in the form and manner which complies with the requirements
of section 1445 of the Code and the regulations promulgated thereunder.
7.15 Material Adverse Change. There shall not have occurred after the date
hereof any Material Adverse Change.
7.16 Employment Agreements. Purchaser shall have entered into employment
agreements reasonably acceptable to Purchaser with the individuals set forth on
Exhibit H hereto.
7.17 Financing. Purchaser shall have obtained debt financing in the
amounts and in accordance with the other material terms set forth in the term
sheets attached to the Commitment Letters as in effect on the date hereof.
7.18 Completion of IRS Form 8023. Seller shall have delivered to Purchaser
at or before the Closing the duly executed and accurately completed IRS Form
8023 in a form
39
sufficient, when executed by Purchaser, to constitute a valid election under
Section 338(h)(10) of the Code.
7.19 Other Actions. All actions to be taken by Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
Purchaser.
Purchaser may waive any condition specified in this Article 7 if it executes a
writing so stating at or prior to the Closing.
ARTICLE 8
CONDITIONS TO SELLER'S OBLIGATION
Seller's obligation to consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions:
8.01 Representations and Warranties. Each of the representations and
warranties set forth in Article 3 of this Agreement that are qualified as to
materiality or material adverse effect shall be true and correct in all respects
and each representation or warranty that is not so qualified shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date except to the extent that such representations and warranties by
their terms speak as of an earlier date, in which case they shall be true and
correct as of such earlier date and Purchaser shall have delivered to Seller a
certificate of Purchaser, dated as of the Closing Date, as to the foregoing.
8.02 Performance. Purchaser shall have performed and complied with, in all
material respects, each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by Purchaser at or before the
Closing (except for such agreements, covenants and obligations that are
qualified by their terms by reference to "materiality" or "material adverse
effect," which agreements, covenants and obligations as so qualified shall be
performed and complied with in all respects).
40
8.03 Litigation. No statute, rule or regulation shall have been enacted or
promulgated by any Governmental Authority which prohibits the consummation of
the transactions contemplated by this Agreement; and there shall be no order or
injunction of a court of competent jurisdiction in effect precluding
consummation of the transactions contemplated by this Agreement; and as of the
Closing Date, there must not be pending or, to Purchaser's Knowledge, overtly
threatened against Purchaser, or against any Person affiliated with Purchaser,
or against any of its property or Assets, or, to Seller's Knowledge, the
Company, any Subsidiaries or Seller, or against any Person affiliated with the
Company or Seller, or against any of its property or Assets, any proceeding: (a)
wherein an unfavorable Order would prevent consummation of, or result in damages
payable by Seller or the Company, any Subsidiary, or any Person affiliated with
the Company, any Subsidiary or Seller or other relief adverse to Seller, the
Company, any Subsidiary, or any Person affiliated with the Company, any
Subsidiary or Seller in connection with, the transactions contemplated by this
Agreement, or (b) that, if successful, would prevent, materially delay, make
illegal, or materially interfere with any of the transactions contemplated by
this Agreement.
8.04 Other Certificate. Purchaser shall have delivered to Seller an
executive officer's certificate to the effect that each of the conditions
specified above in Sections 8.01-8.03 is satisfied in all respects.
8.05 Governmental Consents. The applicable waiting periods under the HSR
Act shall have expired or been terminated, and Seller and Purchaser shall have
received all other authorizations, consents and approvals of Governmental
Authorities referred to in Sections 2.06 and 3.04.
8.06 Legal Opinion. Seller shall have received from counsel to Purchaser
an opinion in form and substance as set forth in Exhibit C attached hereto,
addressed to Royal Numico and Seller and dated as of the Closing Date.
8.07 Guarantees. Seller, Royal Numico, Nutraco and their Affiliates shall
have been released from any guarantee, indemnity or other agreement pursuant to
which Seller, Royal Numico, Nutraco or any of their Affiliates (except for the
payments referred to in Section 14.04) has guaranteed any obligation or has
agreed to indemnify or otherwise compensate any third party (including without
limitation any Governmental Authority with respect to any workers' compensation
law) on behalf of the Company or any Subsidiary or any of their franchisees, or
is liable for early termination or inventory purchase obligation under any
Contract for the benefit of the Company or any Subsidiary, or any of their
franchisees (other than with respect to any Store Lease for which guarantees,
indemnities and similar agreements need not be released), in each case, to the
extent identified on Section 8.07 of the Disclosure Schedule or Purchaser shall
indemnify Seller, Royal Numico, Nutraco and their Affiliates against any Losses
that any of them may suffer or incur by reason of recourse being had or sought
against any of them under any such guarantee, indemnity or other agreement
(including, without limitation, with respect to any Store Lease), in each case
pursuant to Section 9.02(a)(v) for matters arising from and after the Closing.
41
8.08 Other Actions. All certificates, opinions, instruments and other
documents required of Purchaser to effect the transactions contemplated hereby
will be reasonably satisfactory in form and substance to Seller.
8.09 Shareholder Approval. The terms of this Agreement and the
transactions contemplated hereby shall have received the Requisite Shareholder
Approval.
8.10 Completion of IRS Form 8023. Purchaser shall have delivered to Seller
at or before the Closing the duly executed and accurately completed IRS Form
8023 in a form sufficient, when executed by Seller, to constitute a valid
election under Section 338(h)(10) of the Code.
Seller may waive any condition specified in this Article 8 if it executes
a writing so stating at or prior to the Closing.
ARTICLE 9
INDEMNIFICATION
9.01 Indemnification by Seller.
(a) Seller agrees to and shall indemnify in full Purchaser and its
Affiliates (and each of their officers, directors, employees, consultants,
agents, partners, fiduciaries and shareholders) (collectively, the "Purchaser
Indemnified Parties") and shall defend and hold the Purchaser Indemnified
Parties harmless against any Losses that the Purchaser Indemnified Parties
suffer, sustain or become subject to as a result of, whether or not involving a
Third-Party Claim, arising, directly or indirectly, from or in connection with:
(i) any misrepresentation in any of the representations or warranties or any
breach of any of representations or warranties of Seller contained in this
Agreement, (other than the representations contained in Section 2.13), or the
other documents entered into by Seller or Royal Numico in connection with this
Agreement, or in any certificate or document delivered by Seller or Royal Numico
pursuant to this Agreement (other than the representations contained in Section
2.13), (ii) any breach of, or failure to perform, any agreement or covenant of
Seller or Royal Numico contained in this Agreement or the other documents
entered into by Seller or Royal Numico in connection with this Agreement (other
than those contained in Articles 10 and 11), (iii) all Losses payable by the
Company in the Excluded Litigation to settle or discharge any Order in any such
Excluded Litigation, together with any reasonable attorneys' fees and costs of
litigation incurred by the Purchaser Indemnified Parties if Seller fails to
adequately defend them against any Excluded Litigation, and (iv) the matters set
forth in Section 9.01(a)(iv) of the Disclosure Schedule (collectively,
"Purchaser Losses").
(b) The indemnification obligations of Seller under Section
9.01(a)(i) and (ii) shall be limited as follows:
(i) Seller shall not be required to indemnify the Purchaser
Indemnified Parties thereunder unless and until the amount of Purchaser
Losses for which the Purchaser Indemnified Parties are otherwise entitled
to indemnification thereunder exceeds Three Million Dollars ($3,000,000)
in the aggregate (the "Seller Basket"),
42
whereupon the Purchaser Indemnified Parties shall be entitled to
indemnification for all Purchaser Losses in excess of the Seller Basket
and up to the Seller Cap; provided, that the Seller Basket shall not apply
to any breaches of the representations and warranties contained in Section
2.13 or Purchaser Losses described in Section 9.01(a)(iii) and (iv).
(ii) Purchaser Losses shall be reduced by the aggregate amount
of (A) any insurance proceeds actually recovered by the Purchaser
Indemnified Parties under any Liability Policies provided by Seller or
Royal Numico for the benefit of the Company or any of the Subsidiaries,
with respect to such Purchaser Losses and Purchaser hereby agrees to file
appropriate claims in a timely manner and to take all other commercially
reasonable actions, at Seller's request and expense, to recover such
proceeds, (B) the aggregate amount recovered under any indemnity
agreement, contribution agreement or other Contract between Purchaser,
Company or any Subsidiary, on the one hand, and any third party, on the
other hand (including without limitation under any insurance policy
provided by a vendor or other third party wherein the Company or any
Subsidiary is named as an additional insured; provided, however, that
Seller and Royal Numico shall not make any claim against any of the
policies set forth on Section 2.20 of the Disclosure Schedule (other than
any such policy provided by Royal Numico or Seller and, for greater
clarity, any vendor's or other third party's insurance policy) to cover
any Losses that result from Excluded Litigation and the Purchaser hereby
agrees to file appropriate claims in a timely manner and to take all other
commercially reasonable actions to recover such proceeds under such
insurance policies provided by vendors and other third parties and to
enforce such indemnity agreements, contribution agreements and Contracts,
all at Seller's request and expense, and (C) the aggregate amount of any
income tax benefit when and actually realized by the Purchaser Indemnified
Parties with respect to such Purchaser Losses, as determined after taking
into account the income tax detriment of any indemnification payment made
or to be made in connection with such Purchaser Losses ("Purchaser Net Tax
Effect"). As used herein, the amount of any "Purchaser Net Tax Effect"
means the decrease in liability for Taxes of the Company or any Subsidiary
resulting solely from Purchaser Losses and Seller's obligation to provide
indemnification under this Section 9.01, determined by comparing (i) the
liability of the Company or any Subsidiary, as the case may be, in respect
of Taxes without taking into account Purchaser Losses and Seller's
obligation to provide indemnification under this Section 9.01 with (ii)
the liability of the Company or any Subsidiary, as the case may be, in
respect of Taxes taking into account Purchaser Losses and Seller's
obligation to provide indemnification under this Section 9.01. The amount
of any Purchaser Net Tax Effect actually realized by Purchaser shall be
paid by Purchaser to Seller 30 days after the filing of any Tax Return
which shows that Purchaser has in fact actually realized such amount of
Purchaser Net Tax Effect, which payment shall represent, notwithstanding
any other provision of this Agreement, the sole means by which the
Purchaser Losses shall be reduced by virtue of a Purchaser Net Tax Effect.
If the amount of any Purchaser Net Tax Effect is subsequently successfully
challenged, Seller shall promptly remit to Purchaser the amount of any
Purchaser Net Tax Effect previously paid to Seller.
(iii) All representations and warranties of Seller in this
Agreement shall survive the Closing and any investigation at any time made
by or on behalf of any
43
Purchaser Indemnified Party, but shall expire, and Seller shall have no
liability for any Purchaser Losses for breach thereof unless a written
claim for indemnification is given by a Purchaser Indemnified Party with
respect thereto prior to (a) the expiration of applicable statutes of
limitation with respect to the underlying matters referenced in the
representations and warranties set forth in Section 2.23 (Employee
Benefits), (b) the fifth (5th) anniversary of the Closing Date with
respect to the representations and warranties set forth in Section 2.24
(Environmental Laws), (c) the seventh (7th) anniversary of the Closing
Date with respect to the representations and warranties in Section 2.07
(Title to Assets) and Section 2.15 (Intellectual Property) and (d) the
second (2nd) anniversary of the Closing Date with respect to all other
representations and warranties, except that the representations and
warranties in Section 2.02 (Authority) shall survive indefinitely. Each
covenant or agreement of Seller or Royal Numico contained herein shall
survive the Closing until thirty (30) days following the last date on
which such covenant or agreement is to be performed or, if no such date is
specified, until the expiration of all applicable statutes of limitations.
(iv) the aggregate maximum liability of Seller for Purchaser
Losses (excluding Purchaser Losses under Section 9.01(a)(iii) and (iv) or
relating to Sections 2.02, 2.04, 2.05, 2.07, 2.13, 2.15 (with respect to
clauses (a)(i) and (b) thereof only), 2.24 or 14.04) shall not exceed ten
percent (10%) of the Purchase Price set forth in Section 1.02 ("Seller
Cap").
(v) Purchaser shall have no recourse against Seller for (A)
any alleged breach of Section 2.18(c) or 2.26 to the extent any Losses
arising from such breach shall have been taken into account (with or
without knowledge of such breach) in the determination and payment of the
Adjustment Amount Due, if any, under Section 1.04, and (B) any alleged
breach of any representation or warranty in Article 2 or Section 4.11 to
the extent any Losses arising from such breach shall have been taken into
account (with or without knowledge of such breach) in the determination
and payment of any amount payable under Section 4.12.
9.02 Indemnification by Purchaser.
(a) Purchaser agrees to indemnify in full Royal Numico, Seller, and
Royal Numico's other Affiliates (and their respective officers, directors,
employees, consultants, fiduciaries, agents and stockholders) (collectively, the
"Seller Indemnified Parties") and shall defend and hold the Seller Indemnified
Parties harmless against any Losses which any of the Seller Indemnified Parties
suffer, sustain or become subject to as a result of, whether or not involving a
Third Party Claim, arising directly or indirectly from or in connection with:
(i) any misrepresentation in any of the representations or warranties or any
breach of any of the representations or warranties of Purchaser contained in
this Agreement or the other documents entered into by Purchaser in connection
with this Agreement, (ii) any breach of, or failure to perform, any agreement or
covenant of Purchaser contained in this Agreement or the other documents entered
into by Purchaser in connection with this Agreement, (iii) any claim for any
Liabilities arising out of the Business as it is conducted on or after the
Closing Date, (iv) the Retained Litigation and (v) any guaranty, indemnity or
other agreement listed in Section 8.07 of the Disclosure Schedule pursuant to
which Seller, Royal Numico, Nutraco or any of their
44
Affiliates (except for the payments referred to in Section 14.04) has guaranteed
any obligation or has agreed to indemnify or otherwise compensate any third
party (including without limitation, any Governmental Authority with respect to
any workers' compensation law) on behalf of the Company or any Subsidiary or any
of their franchisees, or is liable for any Store Lease (other than pursuant to
Section 14.04) or early termination or inventory purchase obligation under any
Contract for the benefit of the Company or any Subsidiary, or any of their
franchisees, in the event such guaranty, indemnity or other agreement is not
released pursuant to Section 8.07 as of Closing (collectively, "Seller Losses").
(b) All representations and warranties of Purchaser in this Agreement shall
survive the Closing and any investigation at any time made by or on behalf of
any Seller Indemnified Party, but shall expire, and Purchaser shall have no
liability for any Seller Losses for breach thereof unless a written claim for
indemnification is given by a Seller Indemnified Party with respect thereto
prior to the second (2nd) anniversary of the Closing Date, except the
representations and warranties in Section 3.02 (Authority), 3.06 (Broker's
Fees), 3.07 (Investment Representation) and 3.10 (Solvency) shall survive
indefinitely. Each covenant or agreement of Purchaser contained herein shall
survive the Closing until thirty (30) days following the last date on which such
covenant or agreement is to be performed or, if no such date is specified, until
the expiration of all applicable statutes of limitation.
9.03 Method of Asserting Claims. As used herein, an "Indemnified Party"
shall refer to a "Purchaser Indemnified Party" or "Seller Indemnified Party," as
applicable and shall be the party hereto whose Indemnified Parties are entitled
to indemnification hereunder, and the "Indemnifying Party" shall refer to the
party hereto obligated to indemnify such Indemnified Parties.
(a) Third Party Claims.
(i) In the event that any of the Indemnified Parties is made a
defendant in or party to any action or proceeding, judicial or
administrative, instituted by any third party and the Losses arising
therefrom may constitute Seller Losses or Purchaser Losses, as the case
may be (any such third party action or proceeding being referred to as a
"Third Party Claim"), for which such Indemnified Party intends to seek
indemnity hereunder, the Indemnified Party shall give the Indemnifying
Party prompt notice thereof. The failure to give such notice shall affect
the Indemnified Party's ability to seek reimbursement only to the extent
that such failure has adversely affected the Indemnifying Party's ability
to defend successfully such Third Party Claim. The Indemnifying Party
shall be entitled to contest and defend such Third Party Claim; provided,
that the Indemnifying Party (a) consults with the Indemnified Party with
respect to the handling of such Third Party Claim, and (b) diligently
contests and defends such Third Party Claim. Notice of the intention so to
contest and defend shall be given by the Indemnifying Party to the
Indemnified Party within twenty (20) Business Days after the Indemnified
Party gives notice of such Third Party Claim (but, in all events, at least
five (5) Business Days prior to the date that an answer to such Third
Party Claim is due to be filed). Each Indemnified Party shall have the
right to employ separate counsel in such claim and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of each Indemnified Party unless: (x) the Indemnifying
45
Party has agreed to pay such expenses; or (y) the Indemnifying Party has
failed promptly to assume the defense and employ counsel reasonably
satisfactory to such Indemnified Party; or (z) the named parties to any
such action, claim or proceeding (including any impleaded parties) include
any Indemnified Party and the Indemnifying Party or an Affiliate of the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that either (I) there may be one or more legal defenses available
to it which are different from or in addition to those available to the
Indemnifying Party or such Affiliate or (II) a conflict of interest may
exist under applicable rules of professional conduct for attorneys if such
counsel represents both such Indemnified Party and the Indemnifying Party
or its Affiliate; provided that, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel in
the circumstances described in clause (z) above, the Indemnifying Party
shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party; provided, however, that
the Indemnifying Party shall not, in connection with any one such action
or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be responsible hereunder for the fees and
expenses of more than one such firm of separate counsel (in addition to
any local counsel), which counsel shall be designated by such Indemnified
Party. If the Indemnified Party elects to participate in such defense, the
Indemnified Party shall cooperate with the Indemnifying Party in the
conduct of such defense. Neither the Indemnified Party nor the
Indemnifying Party may concede, settle or compromise any Third Party Claim
without the consent of the other Party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, in the
event the Indemnifying Party fails or is not entitled to contest and
defend a Third Party Claim, the Indemnified Party shall be entitled to
contest and defend such Third Party Claim and settle the same with the
consent of the Indemnifying Party, which will not be unreasonably withheld
or delayed, and pursue the Indemnified Party's indemnification rights
hereunder and whatever other legal remedies may be available to enforce
its rights under this Article 9.
(ii) Settlement. If there shall be a settlement to which the
Indemnifying Party consents or a final judgment for the plaintiff in any
Third Party Claim, the Indemnifying Party shall indemnify the Indemnified
Party with respect to such settlement or judgment.
(b) In the event any Indemnified Party should have a claim for
Losses ("Direct Claim") against any Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party (the "Notifying Party") shall deliver a
notice of such Direct Claim to the Indemnifying Party with reasonable promptness
after the Indemnified Party obtains knowledge thereof. Said notice shall
indicate the nature of such Direct Claim with reasonable specificity. If the
Indemnifying Party notifies the Notifying Party that it does not dispute the
Direct Claim described in such notice, the Loss in the amount specified in the
Notifying Party's notice shall be conclusively deemed a liability of the
Indemnifying Party and the Indemnifying Party shall pay the amount of such Loss
to the Notifying Party on demand in accordance with the terms hereof. If the
Indemnifying Party gives notice to the Notifying Party that it disputes the
Direct Claim or fails to respond within twenty (20) Business Days of receiving
such notice to the Notifying Party whether the Indemnifying Party disputes such
Direct Claim, the Indemnified Party may pursue
46
its indemnification rights hereunder and whatever other legal remedies may be
available to enforce its rights under this Article 9.
9.04 Adjustments. Any indemnification payments paid under this Article 9,
10 or 11 will be considered an adjustment to the Purchase Price.
9.05 Dispute Resolution.
(a) Subject to Section 9.05(e), each of the parties agree that the
negotiation and arbitration procedures set forth below shall be the sole and
exclusive method for resolving and remedying claims for Losses arising out of,
or in connection with the provisions of Articles 9 and 10, including any claim
for fraud or fraudulent misrepresentation (the "Disputes"). In the event that
any party asserts that there exists a Dispute, such party shall deliver a
written notice to each other party involved therein specifying the nature of the
asserted Dispute and requesting a meeting to attempt to resolve the same. If no
such resolution is reached within thirty (30) days after the delivery of such
notice, upon the written request of any party to the Agreement ("Request") made
no later than five (5) days after the end of the above thirty (30) day period,
the matter shall immediately be referred to one or more senior officers of each
party to the Dispute for resolution. The senior officers shall meet promptly and
attempt to negotiate a resolution of the Dispute. If the parties are unable to
resolve the Dispute within twenty (20) days after receipt by a party of a
Request, then any party to the Dispute may submit the Dispute to arbitration as
the exclusive means of resolving it in accordance with the procedures set forth
in Section 9.05(b) of this Agreement.
(b) Any arbitration hereunder shall be conducted in accordance with
the Commercial Arbitration Rules ("AAA Rules") of the American Arbitration
Association ("AAA") then in effect, except as modified herein. Any arbitration
proceedings and any award rendered hereunder shall be governed by the Federal
Arbitration Act, 9 U.S.C. secs. 1 et seq. There shall be three independent and
impartial arbitrators of whom Seller and Royal Numico shall jointly select one
and Purchaser shall select one within twenty (20) days after delivery of the
Demand for Arbitration. The two arbitrators so appointed shall select the chair
of the arbitral tribunal within twenty (20) days of the appointment of the
second arbitrator. If any party fails to appoint an arbitrator within the time
limit provided herein, such arbitrator shall be appointed by the AAA in
accordance with the listing, striking and ranking procedures in the AAA Rules or
by such other method as the parties agree.
(c) The arbitrators selected pursuant to Section 9.05(b) shall
allocate the costs and expenses of arbitration to the party whose calculation of
the Losses in dispute differs the most from the determination of such Losses by
the arbitrators.
(d) The arbitrators shall determine the arbitrability of any matter
submitted to them and shall be bound by and shall enforce the terms of this
Agreement, applying the law specified in Section 15.08. Absent written agreement
of the parties, the arbitrators shall have no power to (i) modify or disregard
any provision of this Agreement, including the provisions of this Section 9.05,
or (ii) address or resolve any issue not submitted by the parties. In the event
of any conflict between the AAA Rules and the provisions of this Agreement, the
provisions of this Agreement shall prevail and be controlling. The arbitration
shall be conducted in English
47
in New York, New York. The hearing on the merits shall commence as expeditiously
as possible and if possible no later than ninety (90) days after the appointment
of the three arbitrators. Except to the extent prohibited by applicable law, the
arbitrators shall have the power to award specific performance, a declaratory
judgment and/or injunctive and other equitable relief. The award shall be
rendered, if possible, within not later than ten (10) days following the close
of the hearing. The award shall be final and binding on all parties. Judgment on
the award may be entered in any court having jurisdiction, including courts of
the United States or The Netherlands, provided that the arbitrators shall have
no power or authority (1) to award damages in excess of Losses or (2) to award
any consequential, punitive, indirect, exemplary or other similar damages that
do not constitute Losses.
(e) Any party may, without inconsistency with this Agreement, seek
from any court of competent jurisdiction any interim or provisional relief,
including an injunction, that may be necessary to protect the rights or property
of that party, pending the establishment of the arbitral tribunal or pending the
arbitral tribunal's determination of the merits of the controversy.
9.06 Remedies. The foregoing indemnification provisions shall be the sole
and exclusive remedy for the matters set forth in Article 9 and no party shall
have any cause of action or remedy at law or in equity for breach of contract,
rescission, tort or otherwise against any other party arising under or in
connection with this Agreement, except that the foregoing shall not limit any
remedy of any party at law or in equity for fraud or fraudulent
misrepresentation, including without limitation any right to specific
performance and/or injunctive or other equitable relief.
9.07 Joint and Several Liability. Royal Numico hereby agrees to be jointly
and severally liable with Seller for all obligations of Seller under this
Agreement, except that Royal Numico shall have no obligation to sell the
Interests under Section 1.01 but agrees to cause Seller to do so in accordance
with the terms of this Agreement. For avoidance of doubt, the Seller Basket, the
Seller Cap and all other provisions hereunder that limit, qualify or condition
Seller's liability hereunder shall apply in the same manner (without
duplication) to Royal Numico hereunder. In the event Seller is liquidated or
dissolved, Royal Numico shall remain liable for all obligations of Seller
hereunder and shall be entitled to all rights of Seller hereunder.
ARTICLE 10
TAX MATTERS
10.01 Tax Indemnity.
(a) (i) Notwithstanding any matter listed on the Disclosure
Schedule, Seller shall be responsible for and indemnify and hold harmless the
Purchaser Indemnified Parties from and against all Losses that the Purchaser
Indemnified Parties (including the Company and the Subsidiaries), suffer,
sustain or become subject to, directly or indirectly, from or in connection with
any and all Taxes imposed upon the Company or any Subsidiary with respect to (i)
subject to Taxes attributable to a Section 338(h)(10) election as and to the
extent set forth in Article 11, any taxable year or period (or portion thereof)
ending on or before the Closing Date, (ii) any and all Taxes imposed upon the
Company or any Subsidiary arising from
48
the Restructuring, (iii) Treasury Regulation Section 1.1502-6 (or any comparable
provision under state, local or foreign law or regulation imposing several
liability upon members of a consolidated, combined, affiliated or unitary group)
for any taxable year or period (or portion thereof) ending on or before the
Closing Date, (iv) a breach or inaccuracy in any representation contained in
Section 2.13 of this Agreement or (v) a breach of any covenant of Seller set
forth in this Article 10 or 11. Purchaser shall be responsible for all Taxes
with respect to any taxable year or period (or portion thereof beginning after
the Closing Date) that ends after the Closing Date. The parties hereto shall, to
the extent permitted under applicable law, elect with the relevant Tax Authority
to treat for all Tax purposes the Closing Date as the last day of the taxable
year or period of the Company or any Subsidiary. For purposes of Articles 10 and
11, neither Seller nor Purchaser shall take any action the purpose or intent of
which is to prejudice the defense of any claim subject to indemnification
hereunder or to induce a third party to assert a claim subject to
indemnification hereunder.
(ii) For purposes of this Section 10.01(a), whenever it is
necessary to determine the liability for Taxes of the Company and the
Subsidiaries for a portion of a taxable year or period that begins before
and ends after the Closing Date (a "Straddle Period"), the determination
of such Taxes for the portion of the year or period ending on, and the
portion of the year or period beginning after, the Closing Date shall be
determined (x) in the case of Income Taxes and any other Taxes not
addressed in clause (y) below, based upon an interim closing of the books
of the Company or the relevant Subsidiary as of the close of business on
the Closing Date and (y) in the case of real and personal property Taxes
based upon the relative number of days in the portion of the taxable
period up to and including the Closing Date and the portion of the taxable
period subsequent to the Closing Date.
(b) (i) Seller shall timely prepare (or cause to be prepared) and
timely file (or cause to be timely filed) (including permissible extensions) all
Tax Returns of the Company and the Subsidiaries for any taxable year or period
ending on or before the Closing Date. At least thirty (30) days prior to the due
date (including permissible extensions) for filing each such Tax Return, Seller
shall provide Purchaser with a copy of such Tax Return for Purchaser's review
and consent, which shall not be unreasonably withheld or delayed. Prior to the
due date for filing any such Tax Return, Seller shall file such Tax Return and
pay the amount of Taxes shown as due thereon.
(ii) Purchaser shall prepare (or cause to be prepared)
(including permissible extensions) and timely file (or cause to be timely
filed) (including permissible extensions) all Tax Returns of the Company
and the Subsidiaries for any Straddle Period. Purchaser shall provide
Seller with a copy of each such Tax Return for Seller's review and comment
at least thirty (30) days prior to the due date (including permissible
extensions) for filing such Tax Return. Seller shall, at least five (5)
Business Days prior to the due date (including permissible extensions) for
filing any such Tax Return, remit to Purchaser the amount allocated to it
with respect to such period pursuant to Section 10.01(a).
(iii) The Tax Returns referred to in Sections 10.01(b)(i) and
(b)(ii) shall, to the extent not otherwise required by Law, be prepared in
a manner consistent
49
with the Company's or relevant Subsidiary's past practice (including any
Tax elections and methods of accounting).
(c) After the Closing, Purchaser shall not amend or restate any Tax
Return for the Company or any Subsidiary that includes any period prior to or
including the Closing Date, without Seller's written consent.
(d) Anything in this Agreement to the contrary notwithstanding
(other than Section 9.07), the rights and obligations of the parties with
respect to indemnification for any and all Taxes (other than Taxes to which
Article 11 applies) shall be governed exclusively by this Article 10.
10.02 Tax Contests.
(a) After the Closing, Purchaser shall promptly (within twenty (20)
days) notify Seller in writing of the commencement of any Tax audit or
administrative or judicial proceeding or of any written demand or claim on
Purchaser which, if determined adversely to the taxpayer or after the lapse of
time would be grounds for indemnification under Section 10.01(a). Such notice
shall contain factual information (to the extent known to Purchaser) describing
the asserted Tax liability in reasonable detail and shall include copies of any
notice or other document received from any Governmental Authority in respect of
any such asserted Tax liability. If Purchaser fails to give Seller prompt notice
of an asserted Tax liability as required by this Section 10.02(a), then if such
failure to give prompt notice results in a detriment to Seller, then any amount
which Seller is otherwise required to pay Purchaser, the Company or any
Subsidiary pursuant to Section 10.01 with respect to such liability shall be
reduced by the amount caused by such detriment.
(b) Except for Straddle Periods, Seller may elect to direct, through
counsel chosen by Seller and at its own expense, any audit, claim for refund and
administrative or judicial proceeding involving any asserted liability with
respect to which indemnity may be sought under Section 10.01(a) but only to the
extent that such audit, claim for refund, or proceeding directly involves an
asserted Tax Liability for which Seller would have an indemnification obligation
under this Article 10 (any such audit, claim for refund or proceeding relating
to an asserted Tax liability are referred to herein collectively as a
"Contest"). If Seller elects to direct the Contest of an asserted Tax liability,
Seller shall within forty (40) calendar days after receipt of written notice of
the asserted Tax liability notify Purchaser of its intent to do so, and
Purchaser, the Company and each affected Subsidiary shall fully cooperate in
each phase of such Contest. If Seller elects not to direct the Contest or Seller
fails to notify Purchaser of its election as herein provided, Purchaser, the
Company and each affected Subsidiary may pay, compromise or contest, such
asserted liability and seek indemnification therefor pursuant to Section
10.01(a). However, in such case, Purchaser, the Company and each affected
Subsidiary may not settle or compromise any asserted Tax liability without first
giving written notice to Seller of the terms of such settlement or compromise
and receiving the written consent of Seller to such settlement or compromise;
provided, however, that consent to such settlement or compromise shall not be
unreasonably withheld by Seller. With respect to any Straddle Period, Purchaser
shall control, manage and solely be responsible for any audit, contest, claim,
proceeding or inquiry with respect to Taxes for any Straddle Period, and shall
have the exclusive
50
right to settle or contest any such audit, contest, claim, proceeding or inquiry
without the consent of any other party and each of Seller and Purchaser shall be
responsible for all Taxes and expenses of such contest payable for any such
period in the same manner as the Taxes for any such Straddle Period were
allocated under Section 10.01(a)(ii); provided, however, that in the event that
any such adjustment could have an adverse effect on Seller, Purchaser (i) shall
give Seller written notice of any such adjustment, (ii) shall permit Seller to
participate, at the Seller's expense, in the proceeding to the extent of such
adjustment, and (iii) shall not settle or otherwise compromise such proceeding
without the prior written consent of Seller, which consent shall not be
unreasonably withheld. In any event, each of Purchaser and Seller shall have the
right to attend and participate, at their own expense, in the Contest. If Seller
chooses to direct the Contest, Purchaser, the Company and each affected
Subsidiary shall promptly empower (by power of attorney and such other
documentation as may be appropriate) such representatives of Seller as Seller
may designate to represent the relevant entity or any successor thereto in the
Contest insofar as the Contest involves an asserted Tax liability for which
Seller would be liable under Section 10.01(a).
(c) Except for the proceedings the control of which is determined
pursuant to Section 10.02(b), Purchaser shall, at its own expense, control,
manage and solely be responsible for any audit, contest, claim, proceeding or
inquiry with respect to Taxes for any taxable year or period ending after the
Closing Date, and shall have the exclusive right to settle or contest any such
audit, contest, claim, proceeding or inquiry without the consent of any other
party and shall be responsible for all Taxes payable for any such year or
period.
10.03 Payments for Certain Adjustments. If an audit adjustment, claim for
refund or amended Tax Return ("Adjustment") after the date hereof shall both
increase a Tax liability for which Seller would be liable under Section 10.01(a)
(or reduce losses or credits otherwise available to Seller) and decrease a Tax
liability of Purchaser or any of its subsidiaries or their successors for a
period (or portion thereof) ending after the Closing Date, then, when and to the
extent that Purchaser or any of its subsidiaries actually derives a benefit from
such decrease (through a reduction of Taxes, refund of Taxes paid or credit
against Taxes due), Purchaser shall promptly pay to Seller, an amount equal to
the amount of such refund, reduction or credit. Similarly, if an Adjustment
shall both decrease a Tax liability which is allocated to Seller under Section
10.01(a) and increase the Tax liability of Purchaser, the Company or any of the
Subsidiaries or their successors (or reduce losses or credits otherwise
available to any such corporation) for a period ending after the Closing Date,
then, when and to the extent that Seller actually derives a benefit from such
decrease (through a refund or reduction of Taxes paid or credit against Taxes
due), Seller shall promptly pay to Purchaser an amount equal to the amount of
such refund, reduction or credit.
10.04 Refunds. Any refunds or overpayment credits received by Purchaser,
the Company or the Subsidiaries or their successors of Taxes relating to taxable
periods or portions thereof ending on or before the Closing Date shall be for
the account of Seller; provided, however, that Purchaser may waive any carryback
to a prior tax year or period of any net operating loss or other tax attribute
arising in a period beginning after the Closing Date, as provided in Code
Section 172 or any similar provision of state, local or foreign Tax law.
Purchaser promptly shall notify Seller of Purchaser's, the Company's or any
Subsidiary's or their successors' receipt of such refund or over payment credits
and Purchaser shall or shall cause the
51
relevant entity to pay over to Seller any such refund within five (5) Business
Days after the earlier of receipt or entitlement thereto. Purchaser shall, if
Seller so requests and at Seller's expense, cause the relevant entity to file
for and obtain any refunds or equivalent amounts to which Seller is entitled
under this Section 10.04. Purchaser shall permit Seller to control (at Seller's
expense) the prosecution of any such refund claimed, and shall cause the
relevant entity to authorize by power of attorney and such other documentation
as may be appropriate such persons as Seller shall designate to represent such
entity with respect to such refund claimed.
10.05 Cooperation and Exchange of Information. Seller and Purchaser shall
provide the other with such cooperation and information as either of them
reasonably may request of the other in filing any Tax Return, amended Tax Return
or claim for refund, determining a liability for Taxes or a right to a refund of
Taxes or participating in or conducting any Contest in respect of Taxes. Such
cooperation and information shall include providing copies of relevant Tax
Returns or portions thereof, together with accompanying schedules and related
work papers and documents relating to rulings or other determinations by any
Governmental Authority. Each party shall, and shall cause its Affiliates to,
make its employees, agents or other Representatives available on a mutually
convenient basis to provide explanations of any documents or information
provided hereunder. Each party shall, and shall cause its Affiliates to, retain
all Tax Returns, schedules and work papers and all material records or other
documents relating to Tax matters of the Company and the Subsidiaries for the
taxable period first ending after the Closing Date and for all prior taxable
periods until the later of (i) the expiration of the statute of limitations of
the taxable periods to which such Tax Returns and other documents relate,
without regard to extensions, except to the extent notified by the other party
in writing of such extensions for the respective Tax periods, or (ii) six years
following the due date (without extension) for such Tax Returns. Any information
obtained under this Section 10.05 shall be kept confidential, except as may be
otherwise necessary in connection with the filing of Tax Returns or claims for
refund or in conducting an audit or other proceeding.
10.06 Transfer Taxes. All transfer, stamp, documentary, sales, use and
similar Taxes and any sales, use or other taxes ("Transfer Taxes") imposed by
reason of the transactions contemplated by this Agreement shall be the
obligation of the party which has primary legal responsibility for the payment
of any particular Transfer Tax. The parties hereto shall reasonably cooperate
with each other to mitigate any Transfer Taxes imposed by reason of the
transactions contemplated by this Agreement by taking any action necessary to
reduce such Taxes. The party requesting such cooperation shall reimburse the
other party for its out-of-pocket expenses in connection with such request.
10.07 Tax Sharing Agreements; Powers of Attorney. All (i) Tax sharing
agreements or similar agreements, written or unwritten (other than those
provided by this Agreement), with respect to or involving the Company or the
Subsidiaries and (ii) powers of attorney granted by or on behalf of the Company
or the Subsidiaries with respect to any matter relating to Taxes shall be
terminated as of the Closing Date and, after the Closing Date, the Company or
the Subsidiaries shall not be bound thereby or have any liability thereunder.
10.08 Foreign Subsidiaries. Notwithstanding any other provision of this
Agreement, Seller shall cause each Foreign Subsidiary to be operated such that
no more than $50,000 in the aggregate of "Subpart F income" as defined in
Section 952 of the Code is earned by all Foreign
52
Subsidiaries for which Purchaser or any subsidiary of Purchaser may have any
direct or indirect Tax liability in respect thereof.
10.09 Survival of Tax Claims and Section 2.13 Representations.
Notwithstanding any other provision of this Agreement to the contrary, any
obligations of the parties pursuant to this Article 10 and all representations
and warranties contained in Section 2.13 of this Agreement shall be
unconditional and absolute and shall survive until sixty (60) days after the
expiration of the applicable statute of limitations (taking into account any
applicable extensions or tollings thereof) relating to the Taxes at issue.
ARTICLE 11
SECTION 338(H)(10) ELECTION
11.01 Section 338(h)(10) Election. At the Closing, Seller and Purchaser
shall be obligated to join in making an election under Code Section 338(h)(10)
(and any corresponding election under state, local, and foreign Income Tax law)
with respect to the purchase and sale of Interests and any deemed sale of
Interests or Stock of any Subsidiary hereunder (collectively, a "338(h)(10)
Election"). In connection therewith, Purchaser shall pay Seller an amount equal
to the sum of (a) the lesser of (i) $3 million and (ii) 2.83% multiplied by the
positive difference, if any, between (x) the Purchase Price plus the liabilities
as of the Closing that are required to be taken into account in the
determination of aggregate deemed sale price under Treasury Regulation Section
1.338-4 (the "338(h)(10) Purchase Price"), and (y) the actual tax basis of the
assets deemed to be sold as a result of the 338(h)(10) Election, plus (b) 35%
multiplied by the positive difference between (i) any recapture of section 197
amortization deductions resulting from the 338(h)(10) Election (the "Section 197
Recapture Amount"), but not in an amount exceeding $55 million, and (ii) the
greater of $45 million, or Seller's net operating loss as of the end of the
taxable year in which the Closing occurs (after utilization of such losses in
the taxable year that includes the Closing Date against operating taxable
income, before taking into account any gain resulting from the 338(h)(10)
Election, and any potential carryback of such net operating losses to prior
taxable years, such carryback potential to be computed without taking into
account any gain resulting from the 338(h)(10) Election in the taxable year in
which the Closing occurs), plus (c) 35% multiplied by the lesser of (i) any
ordinary income resulting from the deemed asset sale pursuant to the 338(h)(10)
Election, other than the Section 197 Recapture Amount, and (ii) $10 million
(such sum is referred to as the "338(h)(10) Tax Payment").
11.02 Calculation and Payment of 338(h)(10) Tax Payment.
(a) As soon as reasonably practicable after the Closing Date,
Seller shall calculate and deliver to Purchaser a schedule (the "338(h)(10)
Schedule") that is consistent with the 338(h)(10) Allocation described in
Section 11.03 setting forth the amount of the 338(h)(10) Tax Payment. Purchaser
shall cooperate reasonably with Seller and its Representatives in order to
facilitate preparation of the 338(h)(10) Schedule and determination of the
amount of the 338(h)(10) Tax Payment.
(b) At any time and from time to time after receipt of the
338(h)(10) Schedule, Purchaser may request, and Seller shall provide upon
reasonable notice, reasonable
53
access during normal business hours to the information, data and work papers
used to prepare the 338(h)(10) Schedule and to calculate the amount of the
338(h)(10) Tax Payment, and Seller will make its personnel and accountants
available to explain any information, data or work papers used to prepare the
338(h)(10) Schedule and to calculate the amount of the 338(h)(10) Tax Payment.
Purchaser may notify Seller in writing within twenty (20) Business Days
following delivery of the 338(h)(10) Schedule (the "338(h)(10) Dispute Period")
that (i) Purchaser agrees with the 338(h)(10) Schedule and the amount of the
338(h)(10) Tax Payment (a "338(h)(10) Approval Notice") or (ii) Purchaser
disagrees with such calculation, identifying with reasonable specificity the
items with which Purchaser disagrees (a "338(h)(10) Dispute Notice"). Upon
receipt by Seller of a 338(h)(10) Dispute Notice, Seller and Seller's
accountants, on the one hand, and Purchaser and Purchaser's accountants, on the
other hand, will use good faith efforts during the ten (10) Business Day period
following the date of Seller's receipt of a 338(h)(10) Dispute Notice (the
"338(h)(10) Resolution Period") to resolve any differences they may have as to
the calculations of the 338(h)(10) Schedule and/or the amount of the 338(h)(10)
Tax Payment. If Purchaser and Seller cannot reach written agreement during the
338(h)(10) Resolution Period, within five (5) Business Days thereafter, their
disagreements, limited to only those issues still in dispute ("338(h)(10)
Remaining Disputes"), shall be promptly submitted to the Independent Accountant,
which firm shall conduct such additional review as is necessary to resolve the
specific 338(h)(10) Remaining Disputes referred to it. Seller and Purchaser will
cooperate fully with the Independent Accountant to facilitate its resolution of
the 338(h)(10) Remaining Disputes, including by providing the information, data
and work papers used by each party to calculate the amount of the 338(h)(10) Tax
Payment and the 338(h)(10) Remaining Disputes, and making its personnel and
accountants available to explain any such information, data or work papers.
Based upon such review and other information, the Independent Accountant shall
determine the amount of the 338(h)(10) Tax Payment strictly in accordance with
the terms of Sections 11.01 and 11.02 (the "Independent Accountant 338(h)(10)
Determination"). Such determination shall be completed as promptly as
practicable but in no event later than thirty (30) days following the submission
of the 338(h)(10) Remaining Disputes to the Independent Accountant and shall be
explained in reasonable detail and confirmed by the Independent Accountant in
writing to, and shall be final and binding on, Seller and Purchaser for purposes
of this Section 11.02, except to correct manifest clerical or mathematical
errors. The process for dispute resolution set forth in this paragraph shall be
referred to herein as the "Tax Dispute Resolution Mechanism".
(c) The fees and expenses of the Independent Accountant shall be
paid by the party whose calculation of the amount of the 338(h)(10) Tax Payment
as submitted to the Independent Accountant differs most from the Independent
Accountant 338(h)(10) Determination.
(d) On the fifth (5th) Business Day after the earliest of (i) the
receipt by Seller of a 338(h)(10) Approval Notice, (ii) the expiration of the
338(h)(10) Dispute Period if Seller has not received a 338(h)(10) Approval
Notice or a 338(h)(10) Dispute Notice within such period, (iii) the resolution
by Seller and Purchaser of all differences regarding the 338(h)(10) Schedule and
the amount of the 338(h)(10) Tax Payment within the 338(h)(10) Resolution Period
and (iv) the receipt of the Independent Accountant 338(h)(10) Determination,
Purchaser shall pay the amount of the 338(h)(10) Tax Payment by wire transfer of
immediately available United States funds to such account as Seller or Royal
Numico shall direct, without set-off or deduction of any
54
kind, provided, however, in no event shall Purchaser be required to pay the
338(h)(10) Tax Payment earlier than five (5) days prior to (i) with respect to
amounts arising pursuant to Section 11.01(a), the 15th day of the third calendar
month after the end of the calendar month in which the Closing occurs, and (ii)
with respect to amounts arising pursuant to Section 11.01(b), the 15th day of
the third calendar month after the end of Seller's taxable year, for federal
income tax purposes, in which the Closing occurs. If Purchaser fails to pay the
338(h)(10) Tax Payment when due, such payment shall bear interest calculated
from the due date hereunder through, but not including, the date of such
payment, at the Interest Rate, which interest shall be payable upon demand.
11.03 Purchase Price Allocation. Purchaser and Seller agree that for
federal Income Tax and applicable state and local Income Tax purposes (a) the
excess of (i) the amount of the 338(h)(10) Purchase Price plus the 338(h)(10)
Tax Payment over (ii) the aggregate tax basis of the assets deemed sold as a
result of the 338(h)(10) Election will be allocated to the Section 197
intangibles (other than any covenant not to compete) of the Company, and its
Subsidiaries the assets of which are deemed sold, and (b) an amount of the
Purchase Price equal to the tax basis of each other asset (and, in the event and
to the extent that the parties in good faith agree, of any existing Section 197
intangible asset) of the Company, and its Subsidiaries the assets of which are
deemed sold, will be allocated to each such asset (and, in the event and to the
extent that the parties in good faith agree, to such Section 197 intangible
assets) (the "338(h)(10) Allocation"). If Purchaser and Seller cannot agree on
the allocation of the amount in clause (a) above among the various components of
the Section 197 intangibles of Company, and its Subsidiaries the assets of which
are deemed sold, such dispute shall be settled under the Tax Dispute Resolution
Mechanism. Each party to this Agreement also agrees that it will (a) be bound by
the 338(h)(10) Allocation for the purposes of determining any federal Income Tax
and applicable state and local Income Tax, (b) report the transactions for
federal Income Tax and applicable state and local Income Tax purposes that are
consummated pursuant to this Agreement in accordance with the 338(h)(10)
Allocation, (c) timely complete and file the IRS Form 8594 consistent with such
338(h)(10) Allocation, and promptly after filing with the IRS, provide a copy of
such form to the other party(ies) hereto and file a copy of such form with its
federal Income Tax Returns for the period that includes the Closing Date, and
(d) not take a position inconsistent with the 338(h)(10) Allocation on any
applicable Tax Return in any proceeding before any Governmental Authority except
with the prior written consent of the other party(ies) hereto. In the event that
the 338(h)(10) Allocation is disputed by any Governmental Authority, the party
receiving notice of such dispute will promptly notify the other party(ies)
hereto and the parties hereto will consult in good faith as to how to resolve
such dispute in a manner consistent with the 338(h)(10) Allocation. The parties
agree and acknowledge that the 338(h)(10) Allocation was determined on an
arm's-length basis upon a good faith determination of the respective fair market
values of the Assets of the Company.
11.04 Tax Liabilities.
(a) Purchaser shall be responsible for and shall indemnify, defend
and hold harmless each member of the consolidated group (or any member thereof)
of which Seller is the parent for federal Income Tax purposes, any common or
affiliated group (or any member thereof) of which Seller is a member for state
or local Income Tax purposes or Subsidiaries that file separate state Income Tax
Returns (collectively, the "Seller Group") and Royal Numico on
55
from and against all Tax Liabilities arising from any redetermination or
adjustment of the components of the 338(h)(10) Tax Payment, but only to the
extent of the increase in the amount of the 338(h)(10) Tax Payment, determined
consistent with the principles and subject to the limitations of Section 11.01,
resulting from such redetermination or adjustment (the "338(h)(10) Additional
Tax"); provided, however, that if such redetermination or adjustment is the
result of any action other than an audit, Tax controversy, litigation, or other
adjustment initiated by a Governmental Authority, Purchaser's obligation
pursuant to this Section 11.04 shall be limited to only the 338(h)(10)
Additional Tax arising pursuant to clause (a) of Section 11.01 (solely for this
purpose reducing the 338(h)(10) Purchase Price by any corresponding tax
deduction actually realized by any member of the Seller Group in connection with
such redetermination or adjustment). Seller shall be responsible for and shall
indemnify, defend and hold harmless Purchaser, Company, and each Subsidiary on
from and against all Tax Liabilities arising from the 338(h)(10) Election to the
extent such liabilities exceed the sum of the 338(h)(10) Tax Payment paid
pursuant to Section 11.02(d), plus any 338(h)(10) Additional Tax.
(b) Within five (5) days after the earliest to occur of a member
of the Seller Group or Royal Numico, as the case may be, giving notice to
Purchaser to the effect that (i) there has been a settlement of a controversy or
dispute in which any 338(h)(10) Additional Tax was asserted to which Purchaser
has consented in writing consistent with the principles of Section 11.04(c),
(ii) there has been a final non-appealable decision by a court of competent
jurisdiction that imposes any 338(h)(10) Additional Tax upon a member of the
Seller Group or Royal Numico, or (iii) any other event has occurred that has
caused an adjustment to the aggregate deemed sale price under Treasury
Regulation Section 1.338-4 that results in a 338(h)(10) Additional Tax and with
respect to which Seller and Purchaser have resolved the amount of such
338(h)(10) Additional Tax through the Tax Dispute Resolution Mechanism,
Purchaser shall pay, by wire transfer of immediately available United States
funds to such account as Seller or Royal Numico shall direct in writing, an
amount equal to the 338(h)(10) Additional Tax assessed or imposed, as the case
may be. If Purchaser fails to pay the 338(h)(10) Additional Tax when due, such
payment shall bear interest calculated from the due date hereunder through, but
not including, the date of such payment, at the Interest Rate, which interest
shall be paid on demand. Each party shall promptly inform the other party of the
receipt by it or its Affiliates of any notice issued by a Governmental Authority
in which any additional tax attributable to the Section 338(h)(10) Election is
asserted. Upon request by the other party, each party shall make available to
the other party and its Representatives the work papers used in preparing its
computation of the 338(h)(10) Additional Tax and such other documents as the
other party may reasonably request in connection with its review thereof.
(c) Seller, on behalf of the Company and the Subsidiaries, or
Seller or Royal Numico, as the case may be, shall have sole discretion and
control over all decisions with regard to any Tax controversy or litigation
(both administrative and judicial) concerning any liability for Taxes relating
to the 338(h)(10) Election asserted against the Company, the Subsidiaries, any
member of the Seller Group or Royal Numico, as the case may be; provided,
however, that Seller shall diligently and reasonably pursue any such Tax
controversy or litigation. Seller, or Royal Numico, as the case may be, shall
keep Purchaser reasonably informed as to the progress of any such Tax
controversy or litigation relating to the 338(h)(10) Election and, if requested
by Purchaser, shall consult with Purchaser's counsel and consider in good faith
any recommendations by Purchaser's counsel concerning the conduct of such
proceedings as it
56
relates to the 338(h)(10) Election. With respect to any such Tax controversy or
litigation, (i) Purchaser shall have the right, at its own expense, with respect
to issues relating to the 338(h)(10) Election, to be present and represented by
counsel at all formal and informal proceedings before any administrative or
judicial forum or with opposing counsel (to the extent permitted by such
administrative or judicial forum, (ii) Purchaser shall have the right to review
and comment in advance on all submissions relating to the 338(h)(10) Election,
(iii) Seller shall take such reasonable action during the course of such
proceedings as counsel for Seller deems advisable after good faith consultation
with Purchaser's counsel to preserve as a basis for appeal any legal issue
relating to the 338(h)(10) Election which Purchaser or Purchaser's counsel has
identified in writing to Seller, and (iv) Seller shall not settle any such
controversy or litigation, as it relates to the 338(h)(10) Election, without the
written consent of Purchaser, which consent shall not be unreasonably withheld;
provided, however, that any failure under clauses (i) through (iii) of this
sentence on the part of Seller shall not relieve Purchaser from its obligations
under this Section 11.04, except to the extent Purchaser suffers a detriment as
a result of such failure, in which case Purchaser's obligations shall be reduced
by the amount caused by such detriment.
(d) Purchaser shall, and shall cause the Company and the
Subsidiaries to, provide appropriate powers of attorney and other consents and
authorizations, as reasonably requested by counsel for Seller and shall
otherwise reasonably cooperate with such counsel, so as to permit such counsel
to represent the Company and the Subsidiaries as set forth in Section 11.04(c)
above.
(e) For purposes of this Article 11 and without limiting the
generality of Section 9.07, in the event that Seller or any other member of the
Seller Group is dissolved, all rights and obligations of Seller or any such
member of the Seller Group under this Article 11 shall be exercisable by Royal
Numico and all payments due Seller or any such member of the Seller Group
pursuant to this Article 11 shall be paid to Royal Numico.
ARTICLE 12
TERMINATION
12.01 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual written consent of Purchaser and Seller;
(b) by Purchaser, if there has been a violation or breach by
Seller of any one or more covenants, representations or warranties contained in
this Agreement which would have prevented the satisfaction of any condition to
the obligations of Purchaser at the Closing and such violation or breach has not
been waived by Purchaser or, with respect to a covenant breach, cured by Seller
pursuant to Section 4.06;
(c) by Seller, if there has been a violation or breach by
Purchaser of any one or more covenants, representations or warranties contained
in this Agreement which would have prevented the satisfaction of any condition
to the obligations of Seller at the Closing and such violation or breach has not
been waived by Seller or, with respect to a covenant breach, cured by Purchaser
within ten (10) Business Days after written notice thereof by Seller (provided
that
57
neither a breach by Purchaser of Section 3.08 or 5.06(b) hereof nor the failure
to deliver the full consideration payable to Seller under this Agreement at the
Closing as required hereunder shall be subject to cure hereunder unless
otherwise agreed to in writing by Seller);
(d) by Seller or Purchaser, if the Requisite Shareholder Approval
is not obtained by the Shareholder Determination Date (including any potential
extension thereof pursuant to Section 4.08) (other than due to the termination
of this Agreement pursuant to Section 12.01(a), (c) or (f) hereof prior
thereto); in which event Seller shall pay Purchaser an amount equal to the sum
of Five Million Dollars ($5,000,000), plus (without duplication of other expense
reimbursement provisions) Purchaser's out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement, including
reasonable legal fees, upon presentation by Purchaser of a reasonably detailed
invoice for such expenses;
(e) by either Purchaser or Seller if the transactions contemplated
hereby have not been consummated by the Termination Date; provided that, neither
Purchaser nor Seller shall be entitled to terminate this Agreement pursuant to
this Section 12.01(e) if such Person's breach of this Agreement has prevented
the consummation of the transactions contemplated hereby;
(f) by Seller, if Purchaser gives the notice to Seller referred to
in Section 5.06(b).
12.02 Effect of Termination. In the event of termination of this Agreement
by either Purchaser or Seller as provided above, the provisions of this
Agreement shall immediately become void and of no further force and effect
(other than this Section 12.02 and Purchaser's obligation to indemnify Seller
under Section 4.04 and Purchaser's obligation to reimburse Seller for one-half
of the costs of Audit under Section 4.12 and the Confidentiality Agreement and
the Data Room Access Agreement all of which shall survive the termination of
this Agreement in accordance with the respective terms thereof), and there shall
be no liability on the part of any party hereto to any other party; provided,
however, that if this Agreement is terminated by a party under Section 12.01(b)
or (c) of this Agreement or Section 12.01(f) of this Agreement due to
Purchaser's breach of Section 3.08 or 5.06(b), the terminating party's right to
pursue all legal remedies will survive such termination unimpaired (for greater
clarity, for purposes of this Article 12.02, the failure of a party's
representations and warranties to be true at any time subsequent to the date of
execution of this Agreement, and prior to the Closing, if the Closing does not
occur, shall not be deemed to constitute a breach by such party of this
Agreement). If this Agreement is terminated pursuant to Section 12.01(d) and the
Seller or any of its Affiliates enters into a definitive agreement with any
Person (other than Purchaser or any of its Affiliates) with respect to a
Transaction Proposal on or before the first anniversary of the termination of
this Agreement and consummates such a Transaction Proposal on or before the
eighteen (18) month anniversary of the termination of this Agreement, Seller
shall pay to Purchaser a fee equal to $25,000,000, less the $5,000,000 paid
pursuant to Section 12.01(d), concurrently with the Seller's consummation of
such Transaction Proposal.
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ARTICLE 13
DEFINITIONS
13.01 Definitions. As used in this Agreement:
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act; provided, however, that no
franchisee shall be deemed to be an Affiliate of Royal Numico, Seller, the
Company, any Subsidiary or Purchaser.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a).
"After-Tax Basis" means, with respect to any payment to be made hereunder
for Tax Liabilities which are specified as being due on an After-Tax Basis, the
amount of such payment supplemented by a further payment so that, after
deducting from such aggregate payment the amount of all Taxes required to be
paid by the recipient of such amount, the balance of such payment shall be equal
to the amount of such Tax Liabilities.
"Ancillary Agreements" means the agreements listed in Item 37 of
Attachment 2.17(k) to Section 2.17 of the Disclosure Schedule.
"Assets" of any Person means all assets and properties of every kind
(whether real, personal or mixed, whether tangible or intangible and wherever
situated), including the goodwill related thereto, operated, owned or leased by
such Person.
"Business" means the business of General Nutrition Companies, Inc. and the
Subsidiaries conducted prior to the date hereof.
"Business Day" means any day other than a Saturday, Sunday or day when
banks are closed or authorized to be closed in the State of New York.
"Cash" means cash and cash equivalents, including without limitation
credit card receipts and System Cash.
"Clinical Nutrition Businesses" means the businesses of developing,
manufacturing, distributing and selling any and all kinds of food and food
products (including food in the form of or prepared from liquids and powders)
with various nutritional qualities, (including, without limitation, preventative
and performance related nutrition), primarily directed at people with illnesses
or other medical conditions (or who are at potential risk therefor) and which
products are intended to replace, in whole or in part, other food and food
products, rather than merely as a supplement to meals in the form of a pill or
tablet.
"Closing" means the closing of the transactions contemplated by Section
1.03.
"Closing Date" means (a) the first Friday that is a Business Day after the
later of (i) the fifth Business Day after, and (ii) the first seven days of the
calendar month in which, the date on which the last of the material consents,
approvals, actions, filings, notices or waiting periods
59
described in or related to the filings described in Sections 7.03 and 7.09, and
Sections 8.05 and 8.08 has been obtained, made or given or has expired, as
applicable, and (b) such other date as Purchaser and Seller mutually agree upon
in writing.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended or now in
effect or as hereafter amended, including but not limited to, any successor or
substitute Federal tax codes or legislation.
"Company Accounting Policies" means the policies and methodologies set
forth on Exhibit D hereto (a) that were applied to certain principles of GAAP in
connection with the preparation of the Audited Financial Statements as of and
for the fiscal year ended December 31, 2002, and (b) that will be applied to
calculate the Closing Date Working Capital Amount in a manner consistent with
the manner in which such policies and methodologies were applied to prepare said
Audited Financial Statements.
"Company Intellectual Property" means the Company Owned Intellectual
Property and the Company Licensed Intellectual Property.
"Company Licensed Intellectual Property" means Intellectual Property owned
by a third party and used in the Business, excluding commercial computer
software with a retail price of less than $5,000.
"Company Owned Intellectual Property" means Intellectual Property owned by
the Seller and used in the Business.
"Confidential Information" means all proprietary information and trade
secrets concerning the businesses and affairs of Company, the Subsidiaries and
their Affiliates received or learned by Purchaser from Seller and the Company or
any Subsidiary except information: (a) already generally available to the
public, (b) already in Purchaser's possession at the time of disclosure to
Purchaser and (c) lawfully obtained by Purchaser from a third person without
restrictions of confidentiality.
"Confidentiality Agreement" means that certain confidentiality agreement
between Royal Numico and Purchaser dated as of May 16, 2003.
"Constituent Documents" means the certificate or articles of incorporation
and by-laws of any corporate Person, the limited liability company agreement of
any Person that is a limited liability company and the partnership agreement of
any Person that is a partnership.
"Contract" means any note, bond, mortgage, indenture, loan, contract,
factoring arrangement, license, agreement, lease, sublease or other instrument
or obligation, to which the party in question is a party or by which it or any
of its assets may be bound.
60
"Copyrights" means all copyrights, including without limitation moral
rights and rights of attribution and integrity, copyrights in the content
contained on any Web site, and registrations and applications for any of the
foregoing, and rights to xxx for past Infringement thereof.
"Data Room Access Agreement" means the Data Room Access Agreement dated as
of June 17, 2003 between Seller and Purchaser pursuant to which Seller has
granted Purchaser access to Seller's virtual data room.
"Disclosure Schedule" means the document delivered to Purchaser by Seller
of even date herewith, that contains the exceptions to Seller's representations
and warranties, and containing other information required by this Agreement.
"Domain Names" means any alphanumeric designations which are registered
with or assigned by any domain name registrar, domain name registry, or other
domain name registration authority as part of an electronic address on the
Internet.
"Employee Benefit Plan" means any "employee benefit plan" (as such term is
defined in ERISA Section 3(3)) and any other employee benefit or pension plan,
program arrangement, agreement or policy of any kind that the Company, any
Subsidiary or any ERISA Affiliate sponsors, maintains or to which the Company,
any Subsidiary, or any ERISA Affiliate contributes or has any obligation to
contribute for the benefit of any current or former employee or director of the
Company, any Subsidiary or any ERISA Affiliate.
"Employee Pension Benefit Plan" means any "employee pension benefit plan"
(as such term is defined in ERISA Section 3(2)) sponsored, maintained or to
which the Company, any Subsidiary, or any ERISA Affiliate contributes or has any
obligation to contribute for the benefit of any current or former employee or
director of the Company, any Subsidiary or any ERISA Affiliate.
"Employee Welfare Benefit Plan" means any "employee welfare benefit plan"
(as such term is defined in ERISA Section 3(1)) sponsored, maintained or to
which the Company or any Subsidiary contributes or has any obligation to
contribute for the benefit of any current or former employee or director of the
Company or any Subsidiary.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person or Governmental
Authority alleging potential liability (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or release into the
environment, of any Material of Environmental Concern at any location, whether
or not owned or operated by the Company or the Subsidiaries or (b) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law.
"Environmental Laws" shall mean all federal, state, local and foreign
laws, statutes, regulations, ordinances and similar provisions having the force
or effect of law, all judicial and administrative orders and determinations and
all common law concerning public health and safety, worker health and safety and
pollution or protection of the environment, including all those relating to the
presence, use, production, generation, handling, transportation, treatment,
61
storage, disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, as such requirements are enacted
and in effect on or prior to the Closing Date.
"Equity Commitment" means a commitment by Apollo, an Affiliate of
Purchaser, in the form delivered to Seller on the date hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business, whether or not
incorporated, that together with the Company or any of the Subsidiaries would be
deemed a "single employer" within the meaning of Section 4001(b)(1) of ERISA.
"Excluded Litigation" means the claims described on Section 9.01(a)(iii)
of the Disclosure Schedule.
"Excluded Proceeds" means all proceeds and rights to payment under those
certain settlement agreements (collectively, the "Settlement") among the Company
and any Subsidiary, certain other plaintiffs, and X. Xxxxxxx-XxXxxxx Ltd. and
certain other defendants related to that certain case captioned In re Vitamin
Antitrust litigation, Misc. No. 99-0197 (TFH), MDL No. 1285 (D.D.C.), and any
other related cases brought on or prior to the Closing Date in any federal or
state court involving claims that such defendants or any of them conspired,
among other things, to fix, raise, maintain or stabilize prices for certain
vitamins.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Foreign Plans" shall mean all pension, welfare, stock, incentive
compensation and other employee benefit plans, arrangements, agreements and
policies, established, sponsored or contributed to by Seller or Parent or any of
their subsidiaries (excluding the Company and the Subsidiaries).
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"GNC" means General Nutrition Companies, Inc., a Delaware corporation.
"Governmental Authority" means any foreign, domestic or local court,
administrative agency, bureau, board, commission, office, authority, department
or other governmental entity.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
"Income Tax" means any federal, state, local or foreign income tax
measured by or imposed on net income, including any interest, penalty or
addition thereto, whether disputed or not.
62
"Income Tax Return" means any return, declaration, report, claim for
refund or information return or statement relating to Income Taxes, including
any schedule or attachment thereto and including any amendment thereof.
"Infringement" means an assertion that a given item infringes,
misappropriates, dilutes (with respect to Trademarks), unfairly competes with,
constitutes unauthorized use of or otherwise violates the rights of any Person.
"Intellectual Property" means all Copyrights; Patents; Trademarks; Domain
Names; Trade Secrets; and other similar intangible assets.
"Intercompany Debt" means any loans, advances, obligations, capital
contributions, commitments, arrangements or indebtedness between the Company or
the Subsidiaries, on the one hand, and Royal Numico or any of its Affiliates
(excluding the Company and the Subsidiaries), on the other hand.
"IRS" means the Internal Revenue Service and any successor thereto.
"Knowledge" "Know" or "Known," a person will be deemed to have
"Knowledge", to "Know" or to have "Known" of a particular fact or other matter
if, in the case of Seller, (a) if any of Xxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxx
Xxxxxxx, Xxx Xxxxxxx, or Xxx Xxxxxx, has actual knowledge of such fact or other
matter, (b) if any of Xxx Xxxxxxx, Xxxxx Xxxxx or Xxxxx Xxxx has actual
knowledge of such fact or other matter, or (c) if any of Xxx Xxxx, Xxx
Xxxxxxxxx, Xxxx Xxxxxxxx, Xxxxxxx Xxxxx, Xxxxxx Xxxxx, Reg Xxxxxx, X.X. Xxxxxxxx
or Xxxxx Xxxxxx has actual knowledge of such fact or other matter, with respect
to those representations and warranties which relate to their respective areas
of expertise, or in the case of Purchaser, if any of Xxxxx Xxxxxx, Xxxxxxx
Xxxxxx or Xxxxxx Xxxxxx has actual knowledge of such fact or other matter.
"Laws" means all laws, statutes, rules, regulations and ordinances of the
United States, any foreign country or any domestic or foreign state or local
jurisdiction.
"Legal Requirement" has the meaning set forth in Section 2.13 of this
Agreement.
"Liabilities" means all indebtedness, obligations and other liabilities of
a Person (whether known or unknown, absolute, accrued, contingent, fixed,
liquidated, unliquidated or otherwise, or whether due or to become due).
"Lien" means any mortgage, pledge, lien, encumbrance, charge, adverse
interest, or other security interest.
"Losses" means any and all damages, claims, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, Liens, losses,
harm, expenses and fees, including costs of investigation and defense, court
costs and reasonable attorneys' fees and expenses, and reasonable consequential
damages; provided, however, that "Losses" shall not include any punitive or
speculative damages.
"Material Adverse Effect" or "Material Adverse Change" means any effect or
change that would, individually or in the aggregate, reasonably be expected to
be materially adverse to the
63
business, Assets, condition (financial or otherwise), operating results or
operations of the Company and the Subsidiaries, taken as a whole, or on the
ability of Seller or Royal Numico to consummate timely the transactions
contemplated hereby; provided that none of the following shall be deemed to
constitute, and none of the following shall be taken into account in determining
whether there has been, a Material Adverse Effect or Material Adverse Change:
any adverse change, event, development or effect to the extent arising from or
relating to (a) national or international political conditions, including the
engagement by the United States or any other country in which the Company or any
of the Subsidiaries has any Stores in hostilities, whether or not pursuant to
the declaration of a national emergency or war or the occurrence of any military
or terrorist attack upon any of the territories, possessions or diplomatic or
consular offices or upon any military installation, equipment or personnel of
the United States or any other country in which the Company or any of the
Subsidiaries has any Stores, (b) any decline in sales or increases in losses
that result from the Company's decision to cease selling products that contain
ephedra, (c) the public announcement of Seller's intent to sell, or of
Purchaser's agreement to acquire, the Company and the Subsidiaries or (d) any
act or omission of Purchaser or any of its Affiliates.
"Materials of Environmental Concern" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products, asbestos or asbestos-containing materials or products,
polychlorinated biphenyls, lead or lead-based paints or materials, radon or
mold.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Nutraco" means collectively, Nutraco S.A., a Swiss corporation, and
Nutraco International SA, a Luxembourg corporation.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to purchase or otherwise be issued any shares of capital stock
of or membership or partnership or economic interests in such Person or any
security of any kind convertible into or exchangeable or exercisable for any
shares of capital stock of or membership or partnership or economic interests in
such Person.
"Order" means any writ, judgment, decree, injunction or similar order of
any Governmental Authority.
"Ordinary Course of Business" means the ordinary course of business of the
Company and the Subsidiaries consistent with prior practice.
"Patents" means all patents and industrial designs, including without
limitation any continuations, divisionals, continuations-in-part, renewals,
reissues and applications for any of the foregoing, and rights to xxx for past
Infringement thereof.
"Permit" has the meaning set forth in Section 2.12 of this Agreement.
"Permitted Liens" means with respect to any Asset: (a) Taxes, assessments
and other governmental levies, fees or charges imposed with respect to such
Asset for which adequate reserves have been established in accordance with GAAP
that (i) are not due and payable as of
64
the Closing Date or (ii) are being contested in good faith; (b) mechanics' liens
and similar liens (excluding any liens arising under ERISA) for labor, materials
or supplies provided with respect to such Asset incurred in the Ordinary Course
of Business for which adequate reserves have been established in accordance with
GAAP for amounts that (i) are not due and payable as of the Closing Date or (ii)
are being contested in good faith and would not, individually or in the
aggregate, materially impair the operation of the business of the Company or any
Subsidiary as currently conducted using such Asset; (c) zoning, building codes
and other land use laws regulating the use or occupancy of such Asset that
constitutes real property or the activities conducted thereon that are imposed
by any Governmental Authority having jurisdiction over such real property and
are not violated by the current use or occupancy of such real property or the
operation of the business of the Company and the Subsidiaries as currently
conducted thereon; (d) easements, covenants, conditions, restrictions and other
similar matters of record affecting title to such real property which do not
materially impair the use or usefulness or value or occupancy of such real
property or the operation of the business of Company and the Subsidiaries as
currently conducted thereon, and (e) statutory and contractual Liens of
landlords and statutory and contractual Liens of banks and other financial
institutions that, in the case of such Liens that secure repayment of
indebtedness, are to be released at or prior to Closing, and their rights of
set-off granted in the Ordinary Course of Business and, in each case,
encumbering personal property.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, any other business entity or a
governmental entity (or any department, agency or political subdivision
thereof).
"Purchaser Losses" has the meaning set forth in Section 9.01 of this
Agreement.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Representatives" of a party means such party's legal counsel, investment
bankers, accountants and other advisors (including any potential financing
sources).
"Restructuring" means the transactions described in Section 4.05 of the
Disclosure Schedule hereto.
"Retained Litigation" means all of the actions and proceedings disclosed
in the Disclosure Schedule, except for the Excluded Litigation.
"Rexall" means Rexall Sundown, Inc., a Delaware corporation.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
65
"Store" means any retail store owned or operated by the Company, any
Subsidiary or any franchisee of the Company or any Subsidiary.
"Store Lease" means any lease or sublease agreement entered into by the
Company or any Subsidiary or any franchisee of either for the lease or sublease
of real property which is occupied by a Store, as such lease or sublease
agreement is in effect as of the Closing.
"Subsidiary" means any corporation, limited partnership, limited liability
company, or other entity (i) listed on Section 2.05 of the Disclosure Schedule
or (ii) with respect to which the Company (directly or indirectly) owns a
majority of the common stock, units or other equity interests or has the power
to vote or direct the voting of sufficient securities to elect a majority of its
board of directors or comparable governing body.
"System Cash" means the amount of Cash customarily maintained on hand in
the Stores owned by the Company and the Subsidiaries to enable such Stores to
make change and otherwise operate in the ordinary course of business, consistent
with their past custom and practice, which amount customarily fluctuates between
approximately $500,000 and $600,000.
"Tax" means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
"Tax Liabilities" means any and all Taxes, fees, levies, duties and other
amounts imposed by any Governmental Authority, together with any related
interest, penalties or other additions to tax, or additional amounts imposed by
any such Governmental Authority.
"Tax Return" means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
"Termination Date" means December 31, 2003; provided, however, in the
event the Shareholder Determination Date is extended pursuant to Section 4.08,
Purchaser shall have the right, exercisable by notice to Seller in accordance
with Section 4.08, to extend said date as provided in Section 4.08.
"Trademarks" means all trademarks, service marks, trade names, designs,
logos, emblems, signs or insignia, slogans, other similar designations of source
or origin and general intangibles of like nature, together with the goodwill of
the Business symbolized by any of the foregoing, registrations and applications
relating to any of the foregoing, any rights to xxx for past Infringement
thereof.
"Trade Secrets" means all forms and types of financial, business,
scientific, technical, economic, or engineering information, including without
limitation patterns, plans, compilations, program devices, formulas, designs,
prototypes, methods, techniques, processes, procedures, programs, or codes,
whether tangible or intangible, and whether or how stored, compiled, or
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memorialized physically, electronically, graphically, photographically, or in
writing if (a) the owner thereof has taken reasonable measures to keep such
information secret; and (b) the information derives independent economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable through proper means by, the public, and rights to xxx for past
Infringement thereof.
"Unicity" means Unicity International, Inc., a Delaware corporation.
13.02 Cross-Reference of Other Definitions. Each capitalized term listed
below is defined in the corresponding Section of this Agreement.
Term Section No.
---- -----------
338(h)(10) Additional Tax 11.04(a)
338(h)(10) Approval Notice 11.02(b)
338(h)(10) Dispute Notice 11.02(b)
338(h)(10) Dispute Period 11.02(b)
338(h)(10) Election 11.01
338(h)(10) Excess Liabilities 11.04(a)
338(h)(10) Payments 11.01
338(h)(10) Remaining Disputes 11.02(b)
338(h)(10) Resolution Period 11.02(b)
338(h)(10) Schedule 11.02(a)
338(h)(10) Tax Liabilities 11.04(a)
338(h)(10) Tax Liabilities Approval Notice 11.04(c)
338(h)(10) Tax Liabilities Dispute Notice 11.04(c)
338(h)(10) Tax Liabilities Dispute Period 11.04(c)
338(h)(10) Tax Liabilities Remaining Disputes 11.04(c)
338(h)(10) Tax Liabilities Resolution Period 11.04(c)
338(h)(10) Tax Liabilities Schedule 11.04(c)
338(h)(10) Tax Payment 11.01
AAA 9.05(c)
AAA Rules 9.05(c)
Adjustment 10.03
Adjustment Schedule 1.04(a)
Agreement Preamble
Apollo 3.12
Approval Notice 1.04(b)(i)
Audit 4.11
Audited Financial Statements 2.09
Audited Interim Financials 4.12
Available Losses 11.02(a)
Closing Date Working Capital Amount 1.04(a)
Commitment Letters 3.08
Company Preamble
Contest 10.02(b)
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Term Section No.
---- -----------
Direct Claim 9.03(b)
Dispute 9.05(a)
Dispute Period 1.04(b)
Dispute Notice 1.04(b)(ii)
DSHEA 2.12
EBITDA 4.12
Excluded Transactions 4.09(a)
Execution Date 4.04
FFDC Act 2.12
Foreign Subsidiary 2.13(k)
Franchise Agreement 2.27(a)
GP Act 2.03
GP Agreement 2.03
Indemnified Party 9.03
Indemnifying Party 9.03
Independent Accountant 1.04(b)
Independent Accountant 338(h)(10) Determination 11.02(b)
Independent Accountant Determination 1.04(b)
Intellectual Property 2.15
Interest Rate 1.04(d)
Interests Preamble
IRS Form 8023 5.07
June Interim Financial Statements 2.09
Large Capital Projects Budget 2.10(i)
Legal Requirements 2.12
LLC Act 2.03
LLC Agreement 2.03
Liability Policy 4.08
Most Recent Balance Sheet 2.09
Newco 1 LLC Preamble
Newco DGP1 Preamble
Notifying Party 9.03(b)
Numico USA Preamble
Permits 2.12
Policies 2.20
Protected Business 6.02
Purchase Price 1.02
Purchaser Preamble
Purchaser Indemnified Parties 9.01(a)
Purchaser Losses 9.01(a)
Purchaser Net Tax Effect 9.01(b)(ii)
Remaining Disputes 1.04(b)
Request 9.05(b)
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Term Section No.
---- -----------
Requisite Shareholder Approval 7.05
Resolution Period 1.04(b)
Royal Numico Preamble
Seller Preamble
Seller Basket 9.01(b)(i)
Seller Cap 9.01(b)(iv)
Seller Group 11.04
Seller Indemnified Parties 9.02(a)
Seller Losses 9.02(a)
September Interim Financial Statements 4.11
Settlement 13.01
Shareholders Meeting 4.08
Straddle Period 10.01(a)(ii)
Superior Proposal 4.08
Third Party Claim 9.03(a)(i)
Transaction Proposals 4.09(a)
Transferee 4.05
Transferees 4.05
Transferred Employees 14.01
Transfer Taxes 10.06
UFOC 2.27(b)
Vendors 14.02(a)
WARN Act 2.10(c)
WC Target 1.04(a)
Working Capital Assets 1.04(d)
Working Capital Liabilities 1.04(d)
ARTICLE 14
ADDITIONAL POST-CLOSING COVENANTS
14.01 Employee Benefit Matters. Following the Closing, Purchaser shall, or
shall cause the Company and each Subsidiary to (a) waive limitations as to
preexisting conditions, exclusions and waiting periods to the extent such
conditions, exclusions and waiting periods have been satisfied under the
Employee Benefit Plans with respect to participation and coverage requirements
applicable to employees employed by the Company or any Subsidiary as of the
Closing Date (the "Transferred Employees") under any welfare plan that the
Transferred Employees may be eligible to participate in after the Closing Date,
(b) provide each Transferred Employee of the Company and the Subsidiaries with
credit for any co-payments and deductibles paid prior to the Closing Date under
any Employee Welfare Benefit Plan in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that the Transferred
Employees are eligible to participate in after the Closing Date, (c) provide
each Transferred Employee with service credit for their service with the Company
and the Subsidiaries for purposes of eligibility and vesting under each employee
benefit plan, program or arrangement of
69
Purchaser, the Company or any Subsidiary in which the Transferred Employees are
eligible to participate in after the Closing; provided, however, that in no
event shall the Transferred Employees be entitled to any credit to the extent
that it would result in a duplication of benefits with respect to the same
period of service and (d) to maintain the General Nutrition Severance Pay Policy
as amended effective March 1, 2002 (i.e., without amending it (or the benefits
payable thereunder) in any manner materially adverse to the Transferred
Employees) for not less than six months after the Closing.
14.02 Excluded Litigation. (a) As between the Seller and the Purchaser,
Seller, at its expense, shall have the right to and shall defend, with current
counsel or such other counsel as Seller may select from time to time, all
Excluded Litigation by appropriate proceedings, which proceedings shall be
prosecuted by Seller with reasonable diligence to a final conclusion or shall be
settled at the discretion of Seller (but only with the consent of Purchaser,
which consent will not be unreasonably withheld or delayed and which consent
shall not be required in the case of any consent decree or injunctive relief
with respect to any product that the Company and the Subsidiaries ceased or were
required to cease to sell on or prior to Closing or any settlement that provides
for no material relief other than the payment of monetary damages as to which
Purchaser will be indemnified in full, subject to Section 9.01(b)(i) and (ii))
and no admission of fault on behalf of the Company or any predecessor; provided,
however, that the foregoing shall not be interpreted as requiring Seller to
defend any Excluded Litigation which any vendor of products to the Company or
any of the Subsidiaries or such vendor's insurance company has the right to and
does defend (such vendors and their insurance companies are referred to
collectively as the "Vendors"). As between Seller and Purchaser, Seller shall
have full control of such defense and prosecution, including (except as provided
in the immediately preceding sentence) any settlement thereof and the right to
exercise on behalf of the Company or any Subsidiary the right to consent to any
settlement proposed by any such Vendor (except as also provided in the
immediately preceding sentence).
(b) In order to facilitate the defense or settlement of any Excluded
Litigation by Seller or any Vendor and in addition to all other rights of Seller
hereunder, upon request from time to time by Seller after the Closing, Purchaser
shall, and shall cause the Company and the Subsidiaries to, cooperate fully with
Seller and the Vendors in connection therewith, including without limitation by:
(i) empowering Seller and its counsel through appropriate documentation to
control the defense and prosecution of all Excluded Litigation (including the
exercise of all rights of the Company and the Subsidiaries to control any
Excluded Litigation being defended by any Vendor) and represent the Company and
the Subsidiaries therein before any court or arbitration tribunal of appropriate
jurisdiction, (ii) affording Seller and its Representatives reasonable access
during normal business hours to the Assets and books and records of the Company
and the Subsidiaries, (iii) furnishing to Seller and its Representatives such
information regarding the Company and the Subsidiaries, including their Assets
and Liabilities as Seller may request, (iv) permitting the current in-house
counsel and other Representatives of the Company and the Subsidiaries who are
currently managing such Excluded Litigation to continue to manage such Excluded
Litigation to the extent requested by Seller and always as directed, and subject
to control of the defense of such Excluded Litigation, by Seller (including the
exercise of all rights of the Company and the Subsidiaries to control any
Excluded Litigation being defended by any Vendor), (v) making available to
Seller the Representatives of the Company and the Subsidiaries whose assistance,
testimony or presence is necessary or desirable to assist Seller in defending or
70
prosecuting any Excluded Litigation, including the presence of such persons as
witnesses at depositions, hearings or trials for such purposes and (vi)
cooperating with and providing all reasonable assistance requested by any
Vendor. Seller shall reimburse Purchaser for the reasonable costs incurred by
Purchaser in providing such cooperation to Seller (including any expenses
incurred by any director, officer, agent or Representative of Purchaser, but not
including any Vendors) but Seller shall not be charged for the reasonable use of
any facility or equipment of the Company or any Subsidiary or the incidental
time spent by any in house counsel, or by other employees of the Company or any
Subsidiary to provide any such cooperation to Seller or any related general and
administrative expenses. Purchaser agrees to give notice to Seller promptly in
the event the current in-house counsel of the Company and the Subsidiaries
leaves their employ. Notwithstanding any provision of Section 9.03(a) or this
Section 14.02 to the contrary, if any insurer that has issued an insurance
policy to Seller or one of its Affiliates that provides insurance coverage for
any of the Excluded Litigation has asserted or asserts its right to control the
defense and settlement of any Excluded Litigation, none of the terms and
conditions of Section 9.03(a) or this Section 14.02 shall apply to such Excluded
Litigation so long as such insurer continues to defend against such Excluded
Litigation, except that Purchaser shall not concede, settle or compromise such
Excluded Litigation without the consent of such insurer or Seller, and shall
cooperate with such insurer in such defense, at the expense of Seller, to the
same extent that Purchaser would be obligated under such Sections to cooperate
in such defense if Seller were controlling such defense. This Section 14.02
shall supplement and not supersede Section 9.03; provided, however, that in the
event of a conflict between any of the terms of this Section 14.02 and Section
9.03, the terms of this Section 14.02 shall prevail.
14.03 Benefits Relating to Royal Numico General Nutrition Management Stock
Purchase Plan. If after the date hereof, as a result of (a) the voluntary or
involuntary cancellation, forgiveness or satisfaction for less than the full
amount due thereunder of any indebtedness due Royal Numico or its Affiliates
(including, without limitation, Seller) from any current or former employee of
the Company or any Subsidiary that was issued in connection with or relates to
the purchase of shares pursuant to the Royal Numico General Nutrition Management
Stock Purchase Plan, (b) any "gross up" payment made to any such employee by
Royal Numico or its Affiliates (including, without limitation, Seller) in
connection with the Royal Numico General Nutrition Management Stock Purchase
Plan and (c) any cash bonus payment made to any such employee by Royal Numico or
its Affiliates as described in the letter agreements referred to in Section
2.17(f)(iii) of the Disclosure Schedule, Purchaser, the Company, or any other
Affiliate of Purchaser is entitled to a deduction, subtraction or credit for any
federal, state, local or foreign Tax purpose then, when and to the extent that
Purchaser or any of its Affiliates derives a benefit from such deduction,
subtraction or credit (through a reduction of Taxes, refund of Taxes paid or
credit against Taxes due, determined by using such deduction, subtraction or
credit prior to any other deduction, subtraction or credit claimed by Purchaser
or such Affiliate), Purchaser shall promptly pay to Seller in cash an amount
equal to the amount of such refund, reduction or credit. Purchaser shall permit
Seller to control (at Seller's expense, in a reasonable manner) the prosecution
of any such refund claimed, and shall cause the relevant entity to authorize by
appropriate power of attorney such persons as Seller shall designate to
represent such entity with respect to such refund claimed. Without limiting the
generality of the provisions of Section 10.05, such provisions shall be
applicable with respect to the calculation
71
and determination of amounts due under this Section 14.03. Any payments made
pursuant to this Section 14.03 shall be treated as additional Purchase Price.
14.04 Retention and Severance Agreements, and Bonus Plans.
(a) From and after the Closing, when and to the extent advised by
Purchaser or the Company (except for payments due as a result of and payable
upon the consummation of the Closing which shall be paid at Closing), Seller
will pay the employee entitled to such benefit or payment directly or will pay
the Company or a Subsidiary for remittance to such employee (as Seller shall
specify, in which later case the Purchaser shall cause the Company or such
Subsidiary to remit such payment to such employee when due):
(i) for the amounts payable by the Company after the Closing
for the benefits specified under any separation or termination agreements
to which the Company or any Subsidiary is a party which are set forth in
Section 2.17(f)(i) of the Disclosure Schedule and as in effect as of the
Closing;
(ii) all retention amounts referred to in Section 2.17(f)(ii)
of the Disclosure Schedule; and
(iii) all cash bonuses for 2003 and all change of control cash
bonuses (and tax "gross up" payments thereon, if any) referred to, or
otherwise provided in documentation listed, in Section 2.17(f)(iii), (iv)
and (v) of the Disclosure Schedule.
(b) If after the date hereof, as a result of any payment made by
Seller to Purchaser, the Company or any Subsidiary pursuant to Section 14.04(a),
Purchaser, the Company or any other Affiliate of Purchaser is entitled to a
deduction, subtraction or credit for any federal, state, local or foreign Tax
then, when and to the extent that Purchaser or any of its Affiliates actually
derives a benefit from such deduction, subtraction or credit (through a
reduction of Taxes, refund of Taxes paid or credit against Taxes due, determined
by using such deduction, subtraction or credit subsequent to any other
deduction, subtraction or credit claim by Purchaser or such Affiliate),
Purchaser shall promptly pay to Seller in cash an amount equal to the amount of
such refund, reduction or credit net of any reasonable expenses incurred in
connection therewith. Purchaser shall permit Seller to control (at Seller's
expense, in a reasonable manner) the prosecution of any such refund claimed, and
shall cause the relevant entity to authorize by appropriate power of attorney
such Persons as Seller shall designate to represent such entity with respect to
such refund claimed. Without limiting the generality of the provisions of
Section 10.05, such provisions shall be applicable with respect to the
calculation and determination of amounts due under this Section 14.04. Any
payments made pursuant to this Section 14.04 shall be treated as additional
Purchase Price.
ARTICLE 15
MISCELLANEOUS
15.01 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other party(ies) hereto and any attempt to do so
will be void, except:
72
(a) For assignments and transfers by operation of Law;
(b) That Purchaser may assign any or all of its rights, interests
and obligations hereunder (including without limitation its rights under Article
9) to (i) a wholly-owned subsidiary, provided that any such subsidiary agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein, (ii) any post-Closing purchaser of all of the issued and outstanding
Interests in the Company or all or substantially all of its Assets or (iii) any
financial institution providing purchase money or other financing to Purchaser
or the Company from time to time as collateral security for such financing;
(c) That Seller may assign any or all of its rights, interests and
obligations hereunder (including without limitation its rights under Article 9)
to (i) Royal Numico or any wholly-owned subsidiary of Royal Numico, provided
that any such subsidiary agrees in writing to be bound by all of the terms,
conditions and provisions contained herein, or (ii) any post-Closing acquiror of
all of the issued and outstanding shares of capital stock of Seller, whether by
merger, consolidation or otherwise, or any acquiror of all or substantially all
of its assets or other business combination; and
(d) That Royal Numico may assign any or all of its rights,
interests and obligations hereunder (including, without limitation, its rights
under Article 9) to (i) any wholly-owned subsidiary of Royal Numico; provided
that any such subsidiary agrees in writing to be bound by all of the terms,
conditions and provisions contained herein, or (ii) any post-Closing acquiror of
all of the issued and outstanding shares of capital stock of Royal Numico by
merger, consolidation, or otherwise or any acquiror of all or substantially all
of Royal Numico's assets pursuant to any or other business combination;
but no such assignment referred to in clause (a), (b), (c) (unless such
assignment is made in connection with the liquidation and dissolution of Seller)
or (d) shall relieve Purchaser, Seller or Royal Numico of its respective
obligations hereunder. Subject to the preceding sentence, this Agreement is
binding upon, inures to the benefit of and is enforceable by the parties hereto
and their respective successors and permitted assigns.
15.02 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
15.03 Press Releases and Communications. No press release or public
announcement related to this Agreement or the transactions contemplated herein,
or, prior to the Closing, any other announcement or communication to the
employees, customers or suppliers of the Company or any of the Subsidiaries,
shall be issued or made by any party hereto without the joint approval of
Purchaser and Seller, unless required by law (in the reasonable opinion of
counsel) in which case Purchaser and Seller shall have the right to review and
comment upon such press release, announcement or communication prior to its
issuance, distribution or publication.
15.04 No Third Party Beneficiaries. Except as specifically provided in
Sections 9.01 and 9.02, this Agreement shall not confer any rights or remedies
upon any Person other than the parties and their respective successors and
permitted assigns.
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15.05 Entire Agreement. This Agreement (including the Ancillary Agreements
and other documents referred to herein), the Confidentiality Agreement and the
Data Room Access Agreement constitute the entire agreement among the parties and
supersedes any prior understandings, agreements or representations by or among
the parties, written or oral, to the extent they relate in any way to the
subject matter hereof.
15.06 Counterparts. This Agreement may be executed in one or more
counterparts (including by means of facsimile), each of which shall be deemed an
original but all of which together will constitute one and the same instrument.
15.07 Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given (a) when delivered
personally to the recipient, (b) one (1) Business Day after being sent to the
recipient by reputable overnight courier service (charges prepaid), (c) one (1)
Business Day after being sent to the recipient by facsimile transmission or (d)
four (4) Business Days after being mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid and addressed to
the intended recipient as set forth below:
If to Seller: Copy to:
Royal Numico N.V. Xxx X. Xxxxxx, Esq.
Xxxxxxxxxxxxxx 00 Xxxxxx X. Xxxxx, Esq.
NL-2712 PJ Zoetermeer Vedder, Price, Xxxxxxx & Kammholz
Netherlands 000 X. XxXxxxx Xx., Xxxxx 0000
Facsimile No.: 31-79-353-9000 Xxxxxxx, XX 00000
Attn: President Facsimile No.: 000-000-0000
and
Numico USA, Inc.
Facsimile No.: 011-31-79-3539093
Attn: President
If to Purchaser: Copy to:
Xxxxxxx X. Xxxxxx Xxxxxxx X. Xxxxx, Esq.
10250 Constellation Boulevard Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Suite 2900 000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000 Xxx Xxxxxxx, XX 00000
Facsimile No: 000-000-0000 Facsimile No: 213-687-5600
Any party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other parties
notice in the manner herein set forth.
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15.08 Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York. Subject to
Section 9.05, any action or proceeding seeking to enforce any provision of or
based on any right arising out of or otherwise relating to, this Agreement may
be brought against Royal Numico, Seller or Purchaser in the courts of the State
of New York or, if it has or can acquire subject matter jurisdiction, in the
United States District Court for the Southern District of New York and each of
the parties, for itself and its stockholders, hereby submits to the
non-exclusive jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in this Section 15.08
may be served on any party hereto anywhere in the world, whether within or
without the State of New York, by personal service or by overnight delivery
service to the address herein provided for notices in Section 15.07. The
prevailing party(ies) in any such litigation shall be entitled to recover its
(their) reasonable attorneys' fees and costs of litigation from the
nonprevailing party(ies).
15.09 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Purchaser and Seller and Royal Numico. No waiver by any party of any provision
of this Agreement or any default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, shall be valid unless the same
shall be in writing and signed by the party making such waiver nor shall such
waiver be deemed to extend to any prior or subsequent default, misrepresentation
or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
15.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
15.11 Expenses. Purchaser will bear its own costs and expenses (including
legal fees and expenses, and those referred to in Sections 3.06 and 5.02)
incurred in connection with this Agreement and the transactions contemplated
hereby. Except as otherwise specifically set forth herein, Seller shall bear its
and the Company's and the Subsidiaries' costs and expenses (including investment
banking and legal fees and expenses and the costs of obtaining the consents
described in Section 4.02) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however, if this Agreement is
terminated due to Seller's representations and warranties not being true and
correct as of the date hereof, as Purchaser's complete and exclusive remedy and
as liquidated damages therefor, Seller shall promptly reimburse Purchaser
(without duplication of other expense reimbursement provisions) for its costs
and expenses (including reasonable legal fees and expenses but excluding those
referred to in Section 3.06) incurred in connection with this Agreement and the
transactions contemplated hereby within five (5) Business Days after receiving a
reasonably detailed invoice from Purchaser setting forth such costs and
expenses.
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15.12 Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
15.13 Incorporation of Exhibits, Annexes and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
15.14 Governing Language. This Agreement has been negotiated and executed
by the parties in English. In the event any translation of this Agreement is
prepared for convenience or any other purpose, the provisions of the English
version shall prevail.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ROYAL NUMICO N.V.
By: /s/ XXX XXXXXXX
--------------------------------------
Title: Managing Director
-----------------------------------
NUMICO USA, INC.
By: /s/ XXX XXXXXXX
--------------------------------------
Title: President
-----------------------------------
APOLLO GNC HOLDING, INC.
By: /s/ XXXXXX XXXXXX
--------------------------------------
Title: Vice President
-----------------------------------
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