EXHIBIT 10.2
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STOCK PURCHASE AGREEMENT
FOR
COMMON STOCK
OF
SWEET SHOP CANDIES, INC.,
a Texas corporation
BY AND BETWEEN
DIVERSIFIED FOOD GROUP, L.L.C.,
SWEET SHOP CANDIES, INC.
and
XXXXX X. XXXX
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TABLE OF CONTENTS
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PAGE
ARTICLE I PURCHASE AND SALE OF PURCHASED SECURITIES 1
1.1 Purchase and Sale of Stock............................ 1
1.2 Purchase Price........................................ 1
1.3 Adjustment to Purchase Price.......................... 2
1.4 Earn-Out Interests.................................... 2
1.5 The Closing........................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............. 6
2.1 Status................................................ 6
2.2 Power and Authority................................... 6
2.3 Enforceability........................................ 6
2.4 No Commissions........................................ 7
2.5 Records............................................... 7
2.6 Financial Statements.................................. 7
2.7 Capitalization........................................ 7
2.8 Subsidiaries.......................................... 8
2.9 No Violation.......................................... 8
2.10 Changes Since the Current Balance Sheet Date.......... 8
2.11 Accuracy of Information Furnished by DFG.............. 9
2.12 Restrictions.......................................... 9
2.13 Litigation............................................ 9
2.14 Compliance with Laws.................................. 9
2.15 Tax Matters........................................... 10
2.16 Environmental and Safety Matters...................... 10
2.17 Investor Status....................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
AND THE COMPANY.............................................. 12
3.1 Class I Representations............................... 12
3.2 Class II Representations.............................. 16
3.3 Class III Representations............................. 18
3.4 Class IV Representations.............................. 23
3.5 Class V Representations............................... 26
ARTICLE IV CONDUCT OF BUSINESS PENDING THE CLOSING...................... 30
4.1 Conduct of Company Business Pending the Closing....... 30
ARTICLE V ADDITIONAL AGREEMENTS........................................ 32
5.1 Further Assurances.................................... 32
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5.2 Compliance with Covenants............................. 32
5.3 Cooperation........................................... 32
5.4 Access to Information................................. 33
5.5 Notification of Certain Matters....................... 33
5.6 Tax Treatment......................................... 33
5.7 Confidentiality; Publicity............................ 33
5.8 No Other Discussions.................................. 33
5.9 Environmental Assessment.............................. 34
5.10 Other Agreements...................................... 34
5.11 Necessary Authority................................... 34
5.12 Certification of Tax Status........................... 34
5.13 Put Right............................................. 34
5.14 Reinvestment Right.................................... 35
5.15 Building Lease........................................ 36
5.16 Assignment............................................ 37
5.17 Waiver of Preemptive Rights........................... 37
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER............... 37
6.1 Accuracy of Representations and Compliance with
Obligations........................................... 37
6.2 No Material Adverse Change or Destruction of
Property.............................................. 38
6.3 Corporate Certificate................................. 38
6.4 Opinion of Counsel.................................... 38
6.5 Consents.............................................. 38
6.6 Governmental Approvals................................ 38
6.7 Securities Laws....................................... 39
6.8 Company Stock......................................... 39
6.9 No Adverse Litigation................................. 39
6.10 Purchase Review....................................... 39
6.11 The Purchaser's Approvals............................. 39
6.12 Due Diligence......................................... 39
6.13 Employment and Consulting Agreements.................. 39
6.14 Other Closing Deliveries.............................. 40
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDER.......................................... 40
7.1 Accuracy of Representations and Warranties and
Compliance with Obligations........................... 40
7.2 Delivery of the Purchase Price........................ 40
7.3 No Adverse Litigation................................. 41
7.4 Opinion of Counsel.................................... 41
7.5 Other Closing Deliveries.............................. 41
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ARTICLE VIII INDEMNIFICATION.............................................. 41
8.1 Agreement by the Shareholder to Indemnify............. 41
8.2 Agreement by the Purchaser to Indemnify............... 44
8.3 Conditions of Indemnification......................... 46
8.4 Escrowed Interests and Rights of Setoff to Secure
the Shareholder's Indemnification Obligation.......... 46
ARTICLE IX SECURITIES LAW MATTERS....................................... 48
9.1 Disposition of the Purchaser Securities............... 48
9.2 Legend................................................ 48
ARTICLE X DEFINITIONS.................................................. 49
10.1 Defined Terms......................................... 49
10.2 Other Definitional Provisions......................... 57
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER............................ 57
11.1 Termination........................................... 57
11.2 Effect of Termination................................. 58
11.3 Confidentiality....................................... 58
ARTICLE XII GENERAL PROVISIONS........................................... 58
12.1 Notices............................................... 58
12.2 Entire Agreement...................................... 60
12.3 Expenses.............................................. 60
12.4 Amendment; Waiver..................................... 60
12.5 Binding Effect; Assignment............................ 60
12.6 Counterparts.......................................... 60
12.7 Interpretation........................................ 60
12.8 Governing Law; Interpretation......................... 61
12.9 Arm's Length Negotiations............................. 61
12.10 Arbitration Procedures................................ 61
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INDEX OF SCHEDULES
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Schedule 2.6 - DFG Financial Statements
Schedule 2.7(a) - DFG Capitalization Table, including options
Schedule 2.8 - List of DFG Subsidiaries
Schedule 2.9 - Violations
Schedule 2.10 - Changes Since Current Balance Sheet Date
Schedule 2.12(a) - Restrictions on DFG Doing Business
Schedule 2.13(a) - Litigation
Schedule 2.14 - Compliance with Laws
Schedule 2.15 - Tax Matters
Schedule 2.16 - Environmental and Safety Matters
Schedule 2.18 - Prior History
Schedule 3.1(b) - Shareholder Power and Authority
Schedule 3.1(d)(i) - Capitalization Table
Schedule 3.1(d)(ii) - Violations of Capital Structure
Schedule 3.1(e) - Shareholders
Schedule 3.1(f) - No Violations
Schedule 3.1(g) - Company Records
Schedule 3.1(h) - Subsidiaries
Schedule 3.1(i) - Litigation
Schedule 3.1(j)(i) - Compliance with the Laws
Schedule 3.1(j)(iv) - Limitations on Company's ability to carry on business
Schedule 3.1(k) - Intellectual Property
Schedule 3.1(l) - Names Prior/Acquisitions
Schedule 3.1(m) - Restrictions
Schedule 3.2(a) - Financial Statements
Schedule 3.2(b) - Changes since Current Balance Sheet Date
Schedule 3.2(c) - Liabilities
Schedule 3.2(d) - Receivables
Schedule 3.2(e) - Customer List and recurring revenue
Schedule 3.2(f) - Inventory
Schedule 3.3(a) - Labor and Employment Matters
Schedule 3.3(b) - Employee Benefit Plans and Arrangements
Schedule 3.3(c) - Tax Xxxxxx
Schedule 3.4(a) - Owned Properties
Schedule 3.4(a)(ii) - Leases
Schedule 3.4(b)(i) - Indefeasible Title and Condition of Assets
Schedule 3.4(b)(ii) - Fixed Assets
Schedule 3.4(b)(iii) - Vehicles
Schedule 3.4(c) - Adequacy of Assets
Schedule 3.5(a) - Environmental and Safety Matters
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Schedule 3.5(a)(vii) - Company Health Concerns
Schedule 3.5(a)(x) - Underground Storage Tanks
Schedule 3.5(b) - Insurance
Schedule 3.5(c) - License and Permits
Schedule 3.5(d) - Contracts
Schedule 3.5(h) - Update Schedules
Schedule 4.1 - Conduct of Company business pending closing
Schedule 4.2 - Conduct of DFG business pending closing
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STOCK PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT (the "Agreement") is entered into and effective as
of February ___, 1998, by and among DIVERSIFIED FOOD GROUP, L.L.C., a Delaware
limited liability company ("DFG"), an assignee (if any) that is controlled by
DFG (together with DFG, the "Purchaser"), SWEET SHOP CANDIES, INC., a Texas
corporation ( the "Company") and XXXXX X. XXXX, the sole shareholder of the
Company (the "Shareholder"). Certain other capitalized terms used herein are
defined in Article X or elsewhere throughout this Agreement.
RECITALS
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A. Subject to certain shares held in escrow which will be released at
Closing, the Shareholder owns, and until the Closing (as defined herein) will
own, all of the issued and outstanding capital stock and equity securities of
the Company (the "Stock").
B. The Purchaser desires to purchase and the Shareholder desires to sell
the Stock upon the terms and subject to the conditions set forth in this
Agreement.
TERMS OF AGREEMENT
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In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PURCHASED SECURITIES
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1.1 Purchase and Sale of Stock. Subject to the terms and conditions of this
Agreement, at the Closing Date, the Purchaser agrees to purchase from the
Shareholder and the Shareholder agrees to sell, transfer and convey to the
Purchaser, the Stock free of all Liens and encumbrances thereon.
1.2 Purchase Price. The aggregate purchase price for the Stock (the
"Purchase Price") shall be payable as follows:
(a) SIX MILLION TWO HUNDRED TWENTY-FOUR THOUSAND TWO HUNDRED EIGHTY-
SIX DOLLARS ($6,224,286), subject to reduction under Section 1.3 hereof
(the "Cash Portion");
(b) 38,617 Interests (the "Put Interests"), which the parties have
agreed have a fair market value of ONE MILLION EIGHT HUNDRED FIFTEEN
THOUSAND DOLLARS ($1,815,000); and
(c) The Earn-Out Interests, as issued pursuant to Section 1.4 hereof.
1.3 Adjustment to Purchase Price. On the Closing Date, the difference
between the Total Assets and Total Liabilities for the Company ("Company Net
Worth") shall not be less then Eight Hundred Eighty Thousand Nine Hundred Fifty-
One Dollars ($880,951). If Company Net Worth is less than Eight Hundred Eighty
Thousand Nine Hundred Fifty-One Dollars ($880,951), the Purchaser shall notify
the Shareholder of the shortfall and submit a proposal for an adjustment to the
Purchase Price. If the Shareholder and the Purchase cannot agree on the amount
of such adjustment, the Purchaser may terminate this Agreement under Section
11.1(b).
1.4 Earn-Out Interests.
(a) As part of the Purchase Price described in Section 1.2 hereof, the
Shareholder shall receive an amount (the "Earn-Out Amount") equal to the
amount by which EBITDA for the Company for the fiscal year from July 1,
1998 through June 30, 1999 exceeds $950,000.00. The Earn-Out Amount shall
be paid in the form of additional Interests (the "Earn-Out Interests") and
the number of Earn-Out Interests shall be equal to the result determined by
dividing the Earn-Out Amount by $47.00 per Interest, which shall be
proportionately adjusted to reflect the effect of any Interest split,
dividend, or other similar adjustment by the Company to the number of
Interests owned by each Member.
(b) The Purchaser shall cause the Company to compute EBITDA under the
Company's method of accounting in accordance with the example on Exhibit
"A", using the information the Company shall submit to its independent
auditors in connection with the preparation of its financial statements.
The Company shall use accounting procedures which are consistent with those
it has used since its stock was acquired by the Purchaser and which are in
accordance with GAAP, consistently applied. The Purchaser shall submit the
result of its computation of EBITDA to the Shareholder, along with the work
papers and other information used in making this calculation.
(c) In the event the Shareholder does not agree with the Company's
calculation of EBITDA, he shall deliver a written notice to the Company
within twenty-one (21) days after delivery of the EBITDA calculation, which
notice shall state the reason for such disagreement. If the Shareholder
does not provide such written notice, he shall be deemed to have agreed to
the EBITDA calculation. If the Shareholder and the Company fail to resolve
the dispute within twenty-one (21) days after receipt of the written
notice, the Company shall have its auditors review the Company's books and
records to compute the Company's EBITDA. The Company shall deliver the
auditor's determination of EBITDA, and the Shareholder and his advisors
shall have reasonable access to the working papers of the Company's
auditors for purpose of confirming the accuracy of the calculation of
EBITDA. If the Shareholder does not agree with this calculation of EBITDA
he shall deliver a written notice to the Company within 21 days after
delivery of the auditor's determination of EBITDA, which notice shall state
the reason for such disagreement. If the Shareholder
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does not provide such written notice, he shall be deemed to have agreed to
the auditor's EBITDA determination. If the Shareholder and the Company are
still unable to resolve any disputes regarding the EBITDA calculation
following the auditor's determination thereof, the dispute shall be
resolved through binding arbitration. The dispute shall be submitted for
binding arbitration pursuant to the Arbitration Procedures set forth in
Section 12.10 hereof.
(d) The Shareholder's right to receive the Earn-Out Interests does not
impose an absolute obligation on the Purchaser or the Company to maximize
the sales of the Company during the period in which the Earn-Out Amount
shall be determined, but does obligate the Purchaser to operate the Company
in a good faith manner consistent with prior operating policies and
practices and to not shift sales away from the Company to a Subsidiary or
Affiliate that would normally have been made by the Company based on past
practices of the Company prior to closing.
1.5 The Closing.
(a) Closing Date. The closing of the purchase and sale of the Stock
(the "Closing") shall take place on or before March 5, 1998 or as promptly
as practicable (and in any event within five business days) after
satisfaction or waiver of the conditions set forth in Articles VI and VII
(the "Closing Date"), at the offices of Xxxxxxxx & Xxxxxxxx in Fort Worth,
Texas or such other place as the parties may otherwise agree.
(b) Payments and Deliveries. The Purchaser shall make the following
payments and deliveries:
(i) on the date this Agreement is executed, DFG shall deposit
$500,000 (the "Deposit") with the Deposit Escrow Agent in accordance
with the Deposit Escrow Agreement which shall represent a deposit to
be applied against the Cash Portion and which shall be non-refundable
and shall be transferred by the Deposit Escrow Agent to the
Shareholder as liquidated damages in the event the Purchaser wrongly
fails to timely perform on its obligations hereunder; provided,
however, if the Shareholder or the Company fail to make all Closing
Deliveries in Section 1.5(d) or otherwise wrongly fail to comply with
his or its obligations hereunder, the Deposit Escrow Agent will
transfer the Deposit to the Purchaser;
(ii) subject to fulfillment or waiver of the conditions set forth
in Article VI, at Closing, Purchaser shall pay by wire transfer of
immediately available funds to an account designated by Shareholder in
writing prior to the Closing Date the Cash Portion reduced by the
amount of the Deposit;
(iii) deliver to Shareholder certificates evidencing the Put
Interests; and
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(iv) contribute the amount, if any, needed to allow the Company
to pay in full and retire the Shareholder Note, which amount shall be
paid in full directly to the Shareholder at the direction of the
Company upon the Closing.
(c) Purchaser's Additional Deliveries. Subject to fulfillment or
waiver of the conditions set forth in Article VII, at Closing, the
Purchaser shall deliver to Seller all the following:
(i) A certificate of good standing for Purchaser, issued as of
a recent date in 1998 by the Secretary of State of the State of
Delaware;
(ii) The certificate contemplated by Section 7.1, duly executed
by the chief executive officer of Purchaser;
(iii) The Employment and Consulting Agreements contemplated in
Section 6.13 duly executed by Purchaser;
(iv) The Building Lease, the form of which is attached hereto
as Exhibit "B", duly executed by the Purchaser on behalf of the
Company;
(v) The Escrow Agreement duly executed by Purchaser; and
(vi) Any Purchaser Ancillary Agreement duly executed by
Purchaser.
(d) Shareholder's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article VII, at Closing the Company and the
Shareholder shall deliver to Purchaser all the following:
(i) The stock certificates representing the Stock endorsed in
blank;
(ii) A certificate of good standing of the Company issued as of
a recent date in 1998 by the Office of the Controller of the State of
Texas;
(iii) Such Uniform Commercial Code, federal tax lien, judgment
and other searches as may be reasonably requested by Purchaser,
including but not limited to Form UCC-3s described in Section
1.5(d)(xv) below;
(iv) A certificate of the Secretary of the Company, dated the
Closing Date, in form and substance reasonably satisfactory to
Purchaser, as to (A) no amendments to the Articles of Incorporation of
the Company since February 10, 1998; (B) the By-laws of the Company;
(C) the resolutions of the Board of Directors of the Company
authorizing the execution and performance and delivery of this
Agreement and the
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contemplated transactions; and (D) incumbency and signatures of the
officers of the Company executing this Agreement and any Company
Ancillary Agreement;
(v) The certificate contemplated by Section 6.1, duly executed
by the Shareholder and an authorized officer of the Company and all
documents set forth in Section 6.13 hereof;
(vi) The Employment and/or Consulting Agreements contemplated
in Section 6.3 duly executed by the appropriate parties;
(vii) The Building Lease, the form of which is attached hereto
as Exhibit "B", duly executed by the landlord thereunder;
(viii) The Escrow Agreement duly executed by the Company and the
Shareholder;
(ix) (INTENTIONALLY OMITTED)
(x) a current title policy insuring title to the real property
owned by the Company as set forth on Schedule 3.4 (a) and insuring
leasehold estates to the Leased Properties as set forth on Schedule
3.4(a)(ii) which shows no Liens other than Liens disclosed on such
Schedules 3.4(a) and 3.4(a)(ii);
(xi) each Other Agreements executed by the Company and/or the
Shareholder, as the case may be, who is a party thereto;
(xii) resignations effective as of the Closing Date from all
officers and directors of the Company;
(xiii) the stock books, stock ledgers, minute books, corporate
seal and other books and records of the Company;
(xiv) evidence satisfactory to Purchaser that all exceptions
described on Scheduled 6.8 have been eliminated, including but not
limited to, "pay-off letters" from Xxxxxxx X. Xxxxxxx and Xxxxx X.
Xxxx indicating satisfaction of all terms of the certain escrow
related to the sale of their shares to the Company or evidence that
the notes evidencing amounts owed to them by the Shareholder have been
paid-in-full, retired and canceled;
(xv) a "pay-off letter" from Xxxxxxx Bank and Trust National
Association and appropriate Form UCC-3s evidencing release of all
security interests it has in the assets of the Company;
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(xvi) all documents reasonably requested by the Purchaser's
lender;
(xvii) evidence satisfactory to Purchaser of transfers to the
Company of all trademarks, tradenames, secret recipes and formulae and
all other Intellectual Property used or contemplated to be used in the
Company's business;
(xviii) The Shareholder Note, a copy of which is attached hereto
as Exhibit "C", marked "paid in full"; and
(xix) All other previously undelivered agreements,
certificates, documents, instruments or writings required to be
delivered by the Company and/or the Shareholder at or prior to the
Closing pursuant to this Agreement or otherwise in connection
herewith, duly executed by the Company and/or the Shareholder, as the
case may be, who is a party thereto, as reasonably requested by DFG's
Lenders.
In addition to the above deliveries, the Company shall take all steps and
actions as Purchaser may reasonably request or as may otherwise be reasonably
necessary to put Purchaser in actual possession or control of the Company and
its assets and operation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
----------------
As a material inducement to the Shareholder to enter into this Agreement
and to consummate the transactions contemplated hereby, the Purchaser makes the
following representations and warranties to the Shareholder.
2.1 Status. The Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware.
2.2 Power and Authority. The Purchaser has the power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The Purchaser has, or will have
at the time of Closing, taken all action necessary to authorize its execution
and delivery of this Agreement, the performance of its obligations hereunder and
the consummation of the transactions contemplated hereby.
2.3 Enforceability. This Agreement has been, or will have been at the time
of Closing, duly executed and delivered by the Purchaser and constitutes a
legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
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affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.4 No Commissions. Except for amounts payable to X.X. Xxxxxxx pursuant to
that certain agreement dated May 30, 1997, the Purchaser has incurred no
obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
2.5 Records. The copies of the Operating Agreement and certificate of
formation for the Purchaser which were provided to the Shareholder are true,
accurate and complete and reflect all amendments made through the date of this
Agreement. All material "actions" taken by the Purchaser have been duly
authorized or ratified. All accounts, books, ledgers and official and other
records of the Purchaser have been fully, properly and accurately kept and
completed in all material respects, and there are no material inaccuracies or
discrepancies of any kind contained therein. The books and records of the
Purchaser, as previously provided to the Seller, contain accurate and complete
records of all issuances, transfers and cancellations of Interest.
2.6 Financial Statements. The Purchaser has delivered to the Seller: (i)
the consolidated financial statements of DFG as of January 3, 1997, including
the notes thereto, audited by Xxxxxxxxx Melvoin & Xxxxxxx; and (ii) the
unaudited consolidated financial statement of DFG as of November 30, 1997 ("DFG
Current Balance Sheet" and together with the statements in (i) above,
collectively the "DFG Financial Statements"), copies of which are attached to
Schedule 2.6. To the best of the Purchaser's knowledge, after reasonable
investigation: (i) The DFG Financial Statements fairly present the combined and
consolidated financial position of DFG at each of the balance sheet dates and
the results of operations for the periods covered thereby, and have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated; (ii) the books and records of the Purchaser and DFG fully and fairly
reflect the transactions, properties, assets and liabilities of the Purchaser
and DFG; (iii) there are no material special or non-recurring items of income or
expense during the periods covered by the DFG Financial Statements, and the
balance sheets included in the DFG Financial Statements do not reflect any
write-up or revaluation increasing the book value of any assets, except as
specifically disclosed in the notes thereto; and (iv) the DFG Financial
Statements reflect all adjustments necessary for a fair presentation of the
financial information contained therein.
2.7 Capitalization. Schedule 2.7(a) sets forth the capitalization chart
for DFG showing all owners of interests and options to acquire Interests
existing as of the date hereof. As of the date hereof, DFG has outstanding only
one class of membership interests, but is authorized to issue classes with
different rights. Except as set forth on Schedule 2.7(a), the Company has no
current obligation to issue additional Interests, but does intend to issue
Interests in the future. Except as set forth on Schedule 2.7(a), all of the
issued and outstanding membership interests of the Company: (i) have been duly
authorized and validly issued and are fully paid and non- assessable; (ii) were
issued in compliance with all applicable state and federal securities laws; and
(iii) were not issued in violation of any preemptive rights or rights of first
refusal.
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2.8 Subsidiaries. Schedule 2.8 sets forth all entities (the "Subsidiaries"
and together with DFG, the "DFG Group") in which DFG currently owns equity
securities, along with the percentage it owns. DFG does not own, directly or
indirectly, any outstanding voting securities of or other interests in, or
control, any other corporation, partnership, joint venture or other business
entity other than the Subsidiaries, and does not have any liabilities or
obligations, whether accrued, absolute, contingent or otherwise, arising from
its interest in any such entities.
2.9 No Violation. Except as set forth on Schedule 2.9, to the best of
DFG's knowledge after reasonable investigation, the execution and delivery of
this Agreement by DFG, the performance of its obligation hereunder and the
consummation by it of the transactions contemplated by this Agreement will not:
(i) contravene any provision of the DFG Operating Agreement; (ii) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against DFG; (iii) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any Contract which is
applicable to, binding upon or enforceable against DFG or any Subsidiary; (iv)
result in or require the creation or imposition of any Lien upon or with respect
to any of the property or assets of DFG or any Subsidiary; or (v) require the
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, any court or tribunal or any other Person.
2.10 Changes Since the Current Balance Sheet Date. Except as disclosed in
Schedule 2.10, to the best of DFG's knowledge after reasonable investigation,
since the date of the DFG Current Balance Sheet, to the best of DFG's knowledge
after reasonable investigation, neither DFG nor any of the Subsidiaries has: (i)
issued any capital stock or other securities; (ii) made any distribution of or
with respect to its Interests or purchased or redeemed any of its Interests
other than distributions designed to enable the members of DFG to pay tax on
their share of DFG's income; (iii) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business consistent
with past practice; (iv) made or obligated itself to make capital expenditures
out of the ordinary course of business consistent with past practice; (v) made
any payment in respect of its liabilities other than in the ordinary course of
business consistent with past practice; (vi) incurred any obligations or
liabilities (including any indebtedness) or entered into any transaction or
series of transactions involving in excess of $500,000 in the aggregate out of
the ordinary course of business, except for this Agreement and the transactions
contemplated hereby; (vii) suffered any theft, damage, destruction or casualty
loss, not covered by insurance and for which a timely claim was filed, in excess
of $100,000 in the aggregate; (viii) suffered any extraordinary losses (whether
or not covered by insurance); (ix) waived, canceled, compromised or released any
rights having a value in excess of $100,000 in the aggregate; (x) made or
adopted any change in its accounting practice or policies; (xi) made any
adjustment to its books and records other than in respect of the conduct of its
business activities in the ordinary course consistent with past practice; (xii)
entered into any transaction with any Affiliate other than intercompany
transactions in the ordinary course of business
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consistent with past practice; (xiii) terminated, amended or modified any
agreement involving an amount in excess of $100,000; (xiv) imposed any security
interest or other Lien on any of its assets other than in the ordinary course of
business consistent with past practice; (xv) delayed paying any accounts payable
which is due and payable except to the extent being contested in good faith and
except in the ordinary course of its business; or (xvi) entered into any other
transaction or been subject to any event which has or may have a Material
Adverse Effect on DFG or any Subsidiary.
2.11 Accuracy of Information Furnished by DFG. To the best of DFG's
knowledge after reasonable investigation, no representation, statement or
information made or furnished by DFG to the Shareholder or any of the
Shareholder's representatives, including those contained in this Agreement and
the various Schedules attached hereto and the other information and statements
referred to herein and previously furnished by DFG, contains or shall contain
any untrue statement of a material fact or omits or shall omit any material fact
necessary to make the information contained therein not misleading. DFG has
provided the Shareholder with true, accurate and complete copies of all
documents listed or described in the various Schedules attached hereto.
2.12 Restrictions.
(a) Except as set forth on Schedule 2.12(a), to the best of DFG's
knowledge after reasonable investigation, there are no contracts or other
conditions, circumstances, events or agreements which would in any way
limit or restrict the rights of the DFG Group or the Company after the
consummation of this transaction from engaging in any business anywhere in
the world;
(b) Except as fully described on Schedule 2.12(a), to the best of
DFG's knowledge after reasonable investigation, DFG is not subject to any
Contract, decree or injunction which restricts the continued operation of
any business or the expansion thereof to other geographical areas,
customers and suppliers or lines of business.
2.13 Litigation. To the best of DFG's knowledge, after reasonable
investigation, except as set forth on Schedule 2.13, there is no action, suit,
or other legal or administrative proceeding or governmental investigation,
pending or threatened, anticipated or contemplated against, by or affecting DFG
or any Subsidiary or any of their properties or which question the validity or
enforceability of this Agreement or the transactions contemplated hereby, and
there is no basis for any of the foregoing. There are no outstanding orders,
decrees or stipulations issued by any Governmental Authority in any proceeding
to which DFG or any Subsidiary is or was a party which have not been complied
with in full or which continue to impose any material obligations on DFG or any
Subsidiary .
2.14 Compliance with Laws. To the best of DFG's knowledge, after reasonable
investigation:
9
(a) DFG and the Subsidiaries are in material compliance with all
laws, regulations and orders applicable to it, its respective business and
operations (as conducted by it now and in the past), and any other
properties and assets (in each case owned or used by it now or in the
past), including but not limited to, all requirements imposed by the USDA,
the FDA or any comparable agencies established by state or local
governments. Except as set forth on Schedule 2.14, neither DFG nor any
Subsidiary has since the formation of DFG or the acquisition or formation
of the Subsidiary been cited, fined or otherwise notified of any asserted
past or present material failure to comply with any laws, regulations or
orders and no proceeding with respect to any such material violation is
pending or threatened.
(b) Neither DFG nor any Subsidiary has made any payment of funds in
connection with their business which is prohibited by law, and no funds
have been set aside to be used in connection with its business for any
payment prohibited by law.
2.15 Tax Matters. To the best of DFG's knowledge, after reasonable
investigation, except as set forth in Schedule 2.15 hereto, all Tax Returns
required to be filed prior to the date hereof with respect to DFG, or any of its
income, properties, franchises or operations have been filed, each such Tax
Return has been prepared in compliance with all applicable laws and regulations,
and all such Tax Returns are true, complete and accurate in all respects. Except
as set forth in Schedule 2.5 hereto: (i) with respect to each taxable period of
DFG, no taxable period has been audited by the relevant taxing authority; (ii)
no deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Taxes has been asserted or assessed by any taxing
authority; (iii) DFG has not consented to extend the time in which any Taxes may
be assessed or collected by any taxing authority; (iv) there is no action, suit,
taxing authority proceeding, or audit or claim for refund now in progress,
pending or threatened against or with respect to DFG regarding Taxes; (v) there
are no Liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of DFG; (vi) there is no basis for any assessment, deficiency
notice, 30-day letter or similar notice with respect to any Tax to be issued to
DFG with respect to any period on or before the Closing Date; (vii) no claim has
ever been made by a taxing authority in a jurisdiction where DFG does not file
Tax Returns that is or may be subject to Taxes assessed by such jurisdiction;
(viii) DFG has no permanent establishments in any foreign country, as defined in
the relevant tax treaty between the United States of America and such foreign
country; and (ix) DFG has collected and remitted to the appropriate governmental
authority all taxes related to employees, including FICA and federal and state
wage withholding.
2.16 Environmental and Safety Matters. To the best of DFG's knowledge,
after reasonable investigation, except as set forth on Schedule 2.16:
(i) The operations of DFG and each Subsidiary is and has at all
times since the acquisition or formation of each Subsidiary been in
compliance in all material respects with all applicable Environmental
Health and Safety Laws;
10
(ii) DFG and each Subsidiary at all times since the acquisition
or formation of each Subsidiary has in all material respects obtained,
maintained and complied with all Governmental Permits required by
Environmental Laws and necessary for the operation of its business;
(iii) Except for cleaning and janitorial supplies, no Hazardous
Substances are located on, contained in or otherwise form a part of
the property of DFG or any Subsidiary;
(iv) Except as set forth on Schedule 2.16, there is no
information indicating that any Person may have impaired health as a
result of the operation of DFG's business or the ownership or use of
any property associated with the operation of DFG's business or as the
result of the Release from such properties;
(v) Neither DFG nor any Subsidiary has received any notice
from any governmental body or other person advising that any of them
is potentially responsible for remedial action with respect to a
release or threatened release or with regard to DFG's treatment of its
cleaning and janitorial supplies;
(vi) No order, litigation, settlement or citation with respect
to Hazardous Substances exists with respect to or in connection with
the operation of the business of DFG or any Subsidiary;
(vii) There has been no environmental investigation conducted by
any governmental body with respect to the operation of the business of
DFG or any Subsidiary;
2.17 Investor Status. DFG has such knowledge and experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in the Stock and is capable of bearing the economic risks of the
purchase of the Stock and is able to bear a complete loss of its purchase price.
DFG acknowledges that the Stock has not been registered under the Securities Act
and understands that the Stock it receives must be held indefinitely unless it
is subsequently registered under the Securities Act or such sale is permitted
pursuant to an available exemption from such registration requirement.
2.18 Prior History. Schedule 2.18 sets forth an accurate description of the
history of DFG since its formation in 1995 and its acquisitions through the date
hereof.
11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER AND THE COMPANY
-------------------------------
3.1 Class I Representations. As a material inducement to the Purchaser
to enter into this Agreement and to consummate the transactions contemplated
hereby, the Shareholder hereby makes the following representations and
warranties to the Purchaser for matters and claims that arose or occurred before
January 1, 1993, which representations and warranties shall be limited to the
Shareholder's knowledge after reasonable investigation:
(a) Corporate Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of Texas. The Company
has the requisite power and authority to own or lease its property and to
carry on its business as now being conducted. The Company is legally
qualified to transact business in interstate commerce as a foreign
corporation in all jurisdictions where it conducts its business and is in
good standing in the State of Texas but does not have a permit or other
evidence of qualification to do business in any other jurisdiction and does
not believe that any such qualifications are necessary. In addition, the
Company has no tangible assets, employees or ownership of real estate other
than in the State of Texas sufficient to require it to obtain a permit or
other form of qualification to do business in any other state, conducts
operations outside of the State of Texas only through independent
contractors and does not otherwise actively carry on a trade or business in
any other state except through non-employee salesmen and brokers and
distributors or employee salesmen based in Texas. There is no pending or
threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of the Company.
(b) Power and Authority. Except as set forth on Schedule 3.1(b),
which exceptions will be eliminated prior to the closing, the Company and
the Shareholder each have the power and authority to execute and deliver
this Agreement, to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby. The Company has taken all
action necessary to authorize the execution and delivery of this Agreement,
the performance of its respective obligations hereunder and the
consummation of the transactions contemplated hereby. The Shareholder is a
resident of the State of Texas and has the requisite competence to execute
and deliver this Agreement and to perform his obligations hereunder and to
consummate the transactions contemplated hereby.
(c) Enforceability. This Agreement has been duly executed and
delivered by the Company and the Shareholder and constitutes the legal,
valid and binding obligation of each of them, enforceable against them in
accordance with its terms, except as the same may be limited by the
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
12
(d) Capitalization.
(i) Schedule 3.1(d)(i) sets forth, with respect to the Company:
(1) the number of authorized shares of each class of its capital
stock; (2) the number of issued and outstanding shares of each class
of its capital stock; and (3) the number of shares of each class of
its capital stock which are held in treasury. All of the issued and
outstanding shares of capital stock of the Company: (1) have been duly
authorized and validly issued and are fully paid and non-assessable;
(2) were issued in compliance with all applicable state and federal
securities laws; and (3) were not issued in violation of any
preemptive rights or rights of first refusal.
(ii) Except as set forth in Schedule 3(d)(ii), there are no: (1)
preemptive rights or rights of first refusal with respect to the
shares of capital stock of the Company, and no such rights arise by
virtue of or in connection with the transactions contemplated hereby;
(2) outstanding or authorized rights, options, warrants, convertible
securities, subscription rights, conversion rights, exchange rights or
other agreements or commitments of any kind that could require the
Company to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital
stock); (3) outstanding stock appreciation, phantom stock, profit
participation or other similar rights with respect to the Company; (4)
proxies, voting rights or other agreements or understandings with
respect to the voting or transfer of the capital stock of the Company;
or (5) obligations of the Company to redeem or otherwise acquire any
of its outstanding shares of capital stock.
(e) Shareholders of the Company. Except as set forth on Schedule
3.1(e), the Shareholder is the sole legal, record and beneficial owner of
all Stock and the Shareholder owns such shares free and clear of all Liens,
restrictions and claims of any kind. Such Stock is not subject to any
voting trust agreement, proxy or other Contract. At or before Closing, the
Shareholder will eliminate all exceptions described on Schedule 3.1(e) so
as to own all of the Stock, and at Closing, the Shareholder will sell,
convey and transfer to Purchaser good and marketable title to the Stock,
free and clear of all Liens and encumbrances.
(f) No Violation. Except as set forth on Schedule 3.1(f), the
execution and delivery of this Agreement by the Company and the
Shareholder, the performance by each of them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated by this Agreement will not: (i) contravene any provision of
the articles of incorporation or bylaws of the Company; (ii) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or
enforceable against the Company or the Shareholder; (iii) conflict with,
result in any breach of, or constitute a default (or an event which would,
with the passage of time or the giving of notice or both, constitute a
default) under, or give rise to a right to terminate, amend, modify,
abandon or accelerate, any Contract which is applicable to, binding upon or
13
enforceable against the Company or the Shareholder; (iv) result in or
require the creation or imposition of any Lien upon or with respect to any
of the property or assets of the Company; or (v) require the consent,
approval, authorization or permit of, or filing with or notification to,
any Governmental Authority, any court or tribunal or any other Person.
(g) Records. The copies of the articles of incorporation and bylaws
of the Company which were or will be provided to the Purchaser are true,
accurate and complete and reflect all amendments made through the date of
this Agreement. The minute books for the Company provided to the Purchaser
for review were correct and complete as of the date of such review except
as set forth on Schedule 3.1(g), no further entries have been made through
the date of this Agreement, such minute books contain the true signatures
of the persons purporting to have signed them, and such minute books
contain an accurate record of all corporate actions of the shareholders and
directors (and any committees thereof) of the Company taken by written
consent or at a meeting since incorporation. All material corporate actions
taken by the Company have been duly authorized or ratified. All accounts,
books, ledgers and official and other records of the Company have been
fully, properly and accurately kept and completed in all material respects,
and there are no material inaccuracies or discrepancies of any kind
contained therein. The stock ledgers of the Company, as provided to the
Purchaser, contain accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of the Company.
(h) Subsidiaries. Except as set forth on Schedule 3.1(h), the Company
does not own, directly or indirectly, any outstanding voting securities of
or other interests in, or control, any other corporation, partnership,
joint venture or other business entity, and to the best of the
Shareholder's knowledge, none of the items reflected on Schedule 3.1(h)
constitute more than 10% of the outstanding voting securities of, or equity
interests in, such entities.
(i) Litigation. Except as set forth on Schedule 3.1(i), there is no
action, suit, or other legal or administrative proceeding or governmental
investigation, pending or threatened, anticipated or contemplated against,
by or affecting the Company or any of its properties or assets, or the
Shareholder, or which question the validity or enforceability of this
Agreement or the transactions contemplated hereby, and there is no basis
for any of the foregoing. There are no outstanding orders, decrees or
stipulations issued by any Governmental Authority in any proceeding to
which the Company is or was a party which have not been complied with in
full or which continue to impose any material obligations on any Company.
(j) Compliance with Laws.
(i) The Company is in material compliance with all laws,
regulations and orders applicable to it, its respective business and
operations (as conducted by it now and in the past), the Assets and
the Leased Premises and any other properties and
14
assets (in each case owned or used by it now or in the past),
including but not limited to, all requirements imposed by the USDA,
the FDA or any comparable agencies established by state or local
governments. Except as set forth on Schedule 3.1(j)(i), the Company
has not been cited, fined or otherwise notified of any asserted past
or present material failure to comply with any laws, regulations or
orders and no proceeding with respect to any such material violation
is pending or threatened.
(ii) The Company has not made any payment of funds in connection
with its business which is prohibited by law, and no funds have been
set aside to be used in connection with its business for any payment
prohibited by law.
(iii) The Company is in full compliance with the terms and
provisions of the Immigration Reform and Control Act of 1986, as
amended (the "Immigration Act"). With respect to each "employee" (as
defined in 8 C.F.R. 274a.1(f)) of the Company for whom compliance with
the Immigration Act as employer is required, the Company has on file a
true, accurate and complete copy of: (1) each employee's Form I-9
(Employment Eligibility Verification Form); and (2) all other records,
documents or other papers prepared, procured and/or retained by such
Company pursuant to the Immigration Act. The Company has not been
cited, fined, served with a Notice of Intent to Fine or with a Cease
and Desist Order (as such terms are defined as applied under the
Immigration Act), nor has any action or administrative proceeding been
initiated or threatened against it, by the Immigration and
Naturalization Service by reason of any actual or alleged failure to
comply with the Immigration Act.
(iv) Except as fully described on Schedule 3.1(j)(iv), the
Company is not subject to any Contract, decree or injunction which
restricts the continued operation of any business or the expansion
thereof to other geographical areas, customers and suppliers or lines
of business.
(k) Intellectual Property. Except as set forth on Schedule 3.1(k), the
Company has full legal right, title and interest in and to all trademarks,
servicemarks, tradenames, copyrights, know-how, recipes, formulae, patents,
trade secrets, licenses (including licenses for the use of computer
software programs), and other intellectual property used or contemplated to
be used in the conduct of its business (the "Intellectual Property"),
including but not limited to trademarks for the following names, "Cocoa
Factory", "Sweet Shop", "Highland Fling", "1919", "The Sweet Shop USA",
"Texas Brags", and "Fudge Love" (in the case of "Fudge Love" as applied
for). The conduct of the business of the Company as presently conducted or
contemplated, and the unrestricted conduct and the unrestricted use and
exploitation of the Intellectual Property, does not infringe or
misappropriate any rights held or asserted by any Person, and no Person is
infringing on the Intellectual Property. Except as set forth on Schedule
3.1(k), no payments are required for the continued use of the Intellectual
Property. Except as set forth on Schedule 3.1(k), none of the Intellectual
15
Property has ever been declared invalid or unenforceable, or is the subject
of any pending or threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or
misappropriation or like claim, action or proceeding.
(l) Names; Prior Acquisitions. All names under which the Company does
business as of the date hereof are specified on Schedule 3.1(l). Except as
set forth on Schedule 3.1(l), the Company has not changed its name or used
any assumed or fictitious name, or been the surviving entity in a merger,
acquired any business or changed its principal place of business or chief
executive office, within the past 10 years. The Company has all rights to
use such names and has filed all documents to protect the use of such
names.
(m) Restrictions. Schedule 3.1(m) sets forth a list of all non-
competition, non-solicitation, confidentiality and other restrictive
covenants to which the Company and/or the Shareholder is a party or
otherwise bound. Except as set forth on Schedule 3.1(m), there are no
contracts or other conditions, circumstances, events or agreements which
would in any way limit or restrict the rights of the Purchaser, or any
Company from engaging in any business anywhere in the world.
3.2 Class II Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Financial Statements. The Shareholder has delivered to the
Purchaser: (i) the financial statements of the Company as of June 30, 1997
and 1996, including the notes thereto, audited by Xxxxxx & Xxxxxxx; and
(ii) the January 23, 1998 unaudited financial statements of the Company
(collectively, the "Financial Statements"), copies of which are attached as
Schedule 3.2(a) hereto. The balance sheet dated as of January 23, 1998
included in the Financial Statements is referred to herein as the "Current
Balance Sheet." The Financial Statements fairly present the financial
position of the Company at each of the balance sheet dates and the results
of operations for the periods covered thereby, and have been prepared in
accordance with GAAP consistently applied throughout the periods indicated.
The books and records of the Company fully and fairly reflect the
transactions, properties, assets and liabilities of the Company. There are
no material special or non-recurring items of income or expense during the
periods covered by the Financial Statements, and the balance sheets
included in the Financial Statements do not reflect any writeup or
revaluation increasing the book value of any assets, except as specifically
disclosed in the notes thereto. The Financial Statements reflect all
adjustments necessary for a fair presentation of the financial information
contained therein.
(b) Changes Since the Current Balance Sheet Date. Except as disclosed
in Schedule 3.2(b), since the date of the Current Balance Sheet, the
Company has not: (i) issued any capital stock or other securities; (ii)
made any distribution of or with respect to
16
its capital stock or other securities or purchased or redeemed any of its
securities; (iii) paid any bonus to or increased the rate of compensation
of any of its officers or salaried employees or amended any other terms of
employment of such persons; (iv) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business
consistent with past practice; (v) made or obligated itself to make capital
expenditures out of the ordinary course of business consistent with past
practice; (vi) made any payment in respect of its liabilities other than in
the ordinary course of business consistent with past practice; (vii)
incurred any obligations or liabilities (including any indebtedness) or
entered into any transaction or series of transactions involving in excess
of $10,000 in the aggregate out of the ordinary course of business, except
for this Agreement and the transactions contemplated hereby; (viii)
suffered any theft, damage, destruction or casualty loss, not covered by
insurance and for which a timely claim was filed, in excess of $10,000 in
the aggregate; (ix) suffered any extraordinary losses (whether or not
covered by insurance); (x) waived, canceled, compromised or released any
rights having a value in excess of $10,000 in the aggregate; (xi) made or
adopted any change in its accounting practice or policies; (xii) made any
adjustment to its books and records other than in respect of the conduct of
its business activities in the ordinary course consistent with past
practice; (xiii) entered into any transaction with any Affiliate other than
intercompany transactions in the ordinary course of business consistent
with past practice; (xiv) entered into any employment agreement calling for
annual salary payments in excess of $25,000; (xv) terminated, amended or
modified any agreement involving an amount in excess of $10,000; (xvi)
imposed any security interest or other Lien on any of its assets other than
in the ordinary course of business consistent with past practice; (xvii)
delayed paying any accounts payable which is due and payable except to the
extent being contested in good faith and except in the ordinary course of
its business; (xviii) made or pledged to make any charitable contribution
other than in the ordinary course of business consistent with past
practice; (xix) entered into any other transaction or been subject to any
event which has or may have a Material Adverse Effect on the Company; or
(xx) agreed to do or authorized any of the foregoing.
(c) Liabilities. Except as set forth on Schedule 3.2(c), the Company
has no liabilities or obligations, whether accrued, absolute, contingent or
otherwise, except: (i) to the extent reflected or taken into account in the
Current Balance Sheet and not heretofore paid or discharged; (ii) to the
extent specifically set forth in or incorporated by express reference in
any of the Schedules attached hereto; (iii) liabilities incurred in the
ordinary course of business consistent with past practice since the date of
the Current Balance Sheet (none of which relates to breach of contract,
breach of warranty, tort, infringement or violation of law, or which arose
out of any action, suit, claim, governmental investigation or arbitration
proceeding); (iv) normal accruals, reclassifications, and audit adjustments
which would be reflected on an audited financial statement and which would
not be material in the aggregate; and (v) liabilities incurred in the
ordinary course of business prior to the date of the Current Balance Sheet
which, in accordance with GAAP consistently applied, were not recorded
thereon.
17
(d) Receivables. Except as set forth on Schedule 3.2(d): (i) all of
the Receivables (as hereinafter defined) are valid and legally binding,
represent bona fide transactions and arose in the ordinary course of
business of the Company; and (ii) all of the Receivables are good
receivables, and are reasonably expected (based on currently available
information) to be collected in full in accordance with the terms of such
receivables without material set off or counterclaims, subject to the
allowance for doubtful accounts, if any, set forth on the Current Balance
Sheet as reasonably adjusted since the date of the Current Balance Sheet in
the ordinary course of business consistent with past practice. For purposes
of this Agreement, the term "Receivables" means all receivables of the
Company, including all trade account receivables arising from the sale of
inventory to wholesalers, retailers or retail customers.
(e) Customer Lists and Recurring Revenue. The Company has prepared and
made available to the Purchaser a true, correct and complete list of the
Company's 20 largest customers ("Material Customers") and suppliers
together with the applicable percentage of total sales or purchases, as
applicable. True, correct and complete copies of any agreements with such
customers or suppliers which are anticipated to endure beyond the Closing
have been furnished by the Shareholder to the Purchaser, and are attached
hereto as Schedule 3.2(e). Other than Material Customers, no customer of
the Company as of the date of this Agreement accounts for more than one
percent (1%) of its combined annual revenue. Subject to Section 11.3
hereof, the Company has made available to the Purchaser each Material
Customer's name, address, account number, term of franchise or agreement,
billing cycle, type of service and rates charged and percentage of the
Company's annual revenue.
(f) Inventory. Except as set forth on Schedule 3.2(f), all Assets that
consist of inventory (including raw materials and work-in-progress): (i)
were acquired in the ordinary course of business consistent with past
practice; (ii) are of a quality, quantity, and condition useable or
saleable in the ordinary course of business within the Company's normal
inventory turnover experience; and (iii) are valued at the lower of cost or
net realizable market value. The Company does not have any material
liability with respect to the return or repurchase of any goods in the
possession of any customer, except for amounts set forth on the Current
Balance Sheet to reflect obsolescence. All inventory is stored at the
Company's principal location at 000 Xxxxxxx Xxxxxx, Xxxx Xxxxx, Xxxxx, with
the exception of inventory stored at the kiosk at the Trade Center and
which has a value of less than $5,000.
3.3 Class III Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Labor and Employment Matters. Schedule 3.3(a) sets forth the name,
address, social security number and current rate of compensation of each of
the employees of the Company. The Company is not a party to or bound by any
collective bargaining agreement
18
or any other agreement with a labor union, and there have been no efforts
by any labor union during the thirty-six (36) months prior to the date
hereof to organize any employees of the Company into one or more collective
bargaining units. There is no pending or threatened labor dispute, strike
or work stoppage which affects or which may affect the business of the
Company which may interfere with its continued operations. The Company has
not committed any unfair labor practice as defined in the National Labor
Relations Act, as amended, and there is no pending or threatened charge or
complaint against the Company by or with the National Labor Relations Board
or any representative thereof. There has been never been a strike, walkout
or work stoppage involving any of the employees of the Company which had a
material adverse effect on the Company. No executive or key employee or
group of employees has any plans to terminate his, her or their employment
with the Company as a result of this Agreement or otherwise. Schedule
3.3(a) contains detailed information about each contract, agreement or plan
of the following nature, whether formal or informal, and whether or not in
writing, to which the Company is a party or under which it has an
obligation: (i) employment agreements, (ii) employee handbooks, policy
statements and similar plans, (iii) noncompetition agreements, and (iv)
consulting agreements. The Company has complied with applicable laws, rules
and regulations relating to employment, civil rights and equal employment
opportunities, including but not limited to, the Civil Rights Act of 1964,
the Fair Labor Standards Act and the Worker Adjustment and Retraining
Notification Act of 1988.
(b) Employee Benefit Plans.
(i) Employee Benefit Plans. Schedule 3.3(b) contains a list
setting forth each employee benefit plan or arrangement of the
Company, including but not limited to employee pension benefit plans,
as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in
Section 3(37) of ERISA, employee welfare benefit plans, as defined in
Section 3(1) of ERISA, deferred compensation plans, stock option
plans, bonus plans, stock purchase plans, hospitalization, disability
and other insurance plans, severance or termination pay plans and
policies, whether or not described in Section 3(3) of ERISA, in which
employees, their spouses or dependents, of the Company participate
("Employee Benefit Plans") (true and accurate copies of which,
together with the three (3) most recent annual reports on Form 5500
and summary plan descriptions with respect thereto, were furnished to
the Purchaser).
(ii) Compliance with Law. With respect to each Employee Benefit
Plan: (1) each has been administered in all material respects in
compliance with its terms and with all applicable laws, including, but
not limited to, ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"); (2) no actions, suits, claims or disputes are
pending, or threatened; (3) no audits, inquiries, reviews,
proceedings, claims, or demands are pending with any governmental or
regulatory agency; (4)
19
there are no facts which could give rise to any material liability in
the event of any such investigation, claim, action, suit, audit,
review, or other proceeding; (5) all material reports, returns, and
similar documents required to be filed with any governmental agency or
distributed to any plan participant have been duly or timely filed or
distributed; and (6) no "prohibited transaction" has occurred within
the meaning of the applicable provisions of ERISA or the Code.
(iii) Qualified Plans. With respect to each Employee Benefit Plan
intended to qualify under Code Section 401(a) or 403(a): (1) the
Internal Revenue Service has issued a favorable determination letter,
true and correct copies of which have been furnished to the Purchaser,
that such plans are qualified and exempt from federal income taxes;
(2) no such determination letter has been revoked nor has revocation
been threatened, nor has any amendment or other action or omission
occurred with respect to any such plan since the date of its most
recent determination letter or application therefor in any respect
which would adversely affect its qualification or materially increase
its costs; (3) no such plan has been amended in a manner that would
require security to be provided in accordance with Section 401(a)(29)
of the Code; (4) no reportable event (within the meaning of Section
4043 of ERISA) has occurred, other than one for which the 30-day
notice requirement has been waived; and (5) as of the Effective Date,
the present value of all liabilities that would be "benefit
liabilities" under Section 4001(a)(16) of ERISA if benefits described
in Code Section 411(d)(6)(B) were included will not exceed the then
current fair market value of the assets of such plan (determined using
the actuarial assumptions used for the most recent actuarial valuation
for such plan); (6) except as disclosed on Schedule 3.3(b), all
contributions to, and payments from and with respect to such plans,
which may have been required to be made in accordance with such plans
and, when applicable, Section 302 of ERISA or Section 412 of the Code,
have been timely made; (7) all such contributions to the plans, and
all payments under the plans (except those to be made from a trust
qualified under Section 401(a) of the Code) and all payments with
respect to the plans (including, without limitation, PBGC and
insurance premiums) for any period ending before the Closing Date that
are not yet, but will be, required to be made are properly accrued and
reflected on the Current Balance Sheet or are disclosed on Schedule
3.3(b).
(iv) Multiemployer Plans. With respect to any multiemployer plan,
as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (1) all
contributions required to be made with respect to employees of the
Company have been timely paid; (2) the Company has neither incurred
nor is it expected to incur, directly or indirectly, any withdrawal
liability under ERISA with respect to any such plan (whether by reason
of the transactions contemplated by the Agreement or otherwise); (3)
Schedule 3.3(b) sets forth (A) the withdrawal liability under ERISA to
each MPPA Plan, (B) the date as of which such amount was calculated,
and (C) the method for determining the withdrawal liability; and (4)
no such plan is (or is
20
expected to be) insolvent or in reorganization and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412
of the Code), whether or not waived, exists or is expected to exist
with respect to any such plan.
(v) Welfare Plans. Other than as disclosed in Schedule 3.3(b):
(1) the Company is not obligated under any employee welfare benefit
plan as described in Section 3(1) of ERISA ("Welfare Plan"), whether
or not disclosed in Schedule 3.3(b), to provide medical or death
benefits with respect to any employee or former employee of any
Company, or their predecessors after termination of employment except
with respect to coverage under federal or state continuation coverage
laws including, but not limited to, Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended; (2) the Company has complied
with the notice and continuation coverage requirements of Section
4980B of the Code and the regulations thereunder with respect to each
Welfare Plan that is, or was during any taxable year for which the
statute of limitations on the assessment of federal income taxes
remains, open, by consent or otherwise, a group health plan within the
meaning of Section 5000(b)(1) of the Code, and (3) there are no
reserves, assets, surplus or prepaid premiums under any Welfare Plan
which is an Employee Benefit Plan. The consummation of the
transactions contemplated by this Agreement will not entitle any
individual to severance pay, and, will not accelerate the time of
payment or vesting, or increase the amount of compensation, due to any
individual.
(vi) Controlled Group Liability. Neither the Company, nor any
entity that would be aggregated with them under Code Section 414(b),
(c), (m) or (o): (1) has ever terminated or withdrawn from an employee
benefit plan under circumstances resulting (or expected to result) in
liability to the Pension Benefit Guaranty Corporation ("PBGC"), the
fund by which the employee benefit plan is funded, or any employee or
beneficiary for whose benefit the plan is or was maintained (other
than routine claims for benefits); (2) has any assets subject to (or
expected to be subject to) a lien for unpaid contributions to any
employee benefit plan; (3) has failed to pay premiums to the PBGC when
due; (4) is subject to (or expected to be subject to) an excise tax
under Code Section 4971; (5) has engaged in any transaction which
would give rise to liability under Section 4069 or Section 4212(c) of
ERISA; or (6) has violated Code Section 4980B or Section 601 through
608 of ERISA.
(vii) Other Liabilities. Except as set forth on Schedule 3.3(b):
(1) none of the Employee Benefit Plans obligates the Company to pay
separation, severance, termination or similar benefits solely as a
result of any transaction contemplated by this Agreement or solely as
a result of a "change of control" (as such term is defined in Section
280G of the Code); (2) all required or discretionary (in accordance
with historical practices) payments, premiums, contributions,
reimbursements, or accruals for all periods ending prior to or as of
the Effective Date shall have been made or properly accrued on the
Current Balance Sheet or will be properly accrued on the
21
books and records of the Company as of the Effective Date; and (3)
none of the Employee Benefit Plans has any unfunded liabilities which
are not reflected on the Current Balance Sheet or the books and
records of the Company.
(c) Tax Matters. Except as set forth in Schedule 3.3(c) hereto, all
Tax Returns required to be filed prior to the date hereof with respect to
the Company, or any of its income, properties, franchises or operations
have been filed, each such Tax Return has been prepared in compliance with
all applicable laws and regulations, and all such Tax Returns are true,
complete and accurate in all respects. All Taxes due and payable by or with
respect to the Company have been paid or accrued on the Current Balance
Sheet or will be accrued on its books and records as of the Closing. Except
as set forth in Schedule 3.3(c) hereto: (i) with respect to each taxable
period of the Company, no taxable period has been audited by the relevant
taxing authority; (ii) no deficiency or proposed adjustment which has not
been settled or otherwise resolved for any amount of Taxes has been
asserted or assessed by any taxing authority; (iii) the Company has not
consented to extend the time in which any Taxes may be assessed or
collected by any taxing authority; (iv) the Company has not requested or
been granted an extension of the time for filing any Tax Return to a date
later than the Closing Date; (v) there is no action, suit, taxing authority
proceeding, or audit or claim for refund now in progress, pending or
threatened against or with respect to the Company regarding Taxes; (vi) the
Company has not made an election or filed a consent under Section 341(f) of
the Code (or any corresponding provision of state, local or foreign law) on
or prior to the Closing Date; (vii) there are no Liens for Taxes (other
than for current Taxes not yet due and payable) upon the assets of the
Company; (viii) the Company will not be required (A) as a result of a
change in method of accounting for a taxable period ending on or prior to
the Closing Date, to include any adjustment under Section 481(c) of the
Code (or any corresponding provision of state, local or foreign law) in
taxable income for any taxable period (or portion thereof) beginning after
the Closing Date or (B) as a result of any "closing agreement," as
described in Section 7121 of the Code (or any corresponding provision of
state, local or foreign law), to include any item of income or exclude any
item of deduction from any taxable period (or portion thereof) beginning
after the Closing Date; (ix) the Company is not a party to or bound by any
tax allocation or tax sharing agreement or has any current or potential
contractual obligation to indemnify any other Person with respect to Taxes;
(x) there is no basis for any assessment, deficiency notice, 30-day letter
or similar notice with respect to any Tax to be issued to the Company with
respect to any period on or before the Closing Date; (xi) the Company has
not made any payments, and is or will not become obligated (under any
contract entered into on or before the Closing Date) to make any payments,
that will be non-deductible under Section 280G of the Code (or any
corresponding provision of state, local or foreign law); (xii) the Company
is not and has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code (or any corresponding
provision of state, local or foreign law) during the applicable period
specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding
provision of state, local or foreign law); (xiii) no claim has ever been
made by a taxing authority in a jurisdiction where the Company does not
file Tax Returns that is or may be
22
subject to Taxes assessed by such jurisdiction; and (xiv) the Company has
no permanent establishments in any foreign country, as defined in the
relevant tax treaty between the United States of America and such foreign
country; (xv) true, correct and complete copies of all income and sales Tax
Returns filed by or with respect to the Company for the past two years has
been furnished or made available to the Purchaser; (xvi) the Company will
not be subject to any Taxes for the period ending at the Closing Date for
any period for which a Tax Return has not been filed imposed pursuant to
Section 1374 or Section 1375 of the Code (or any corresponding provision of
state, local or foreign law); (xvii) no sales or use tax or property
transfer tax (other than sales tax on aircraft, boats, mobile homes and
motor vehicles), non-recurring intangibles tax, documentary stamp tax or
other excise tax (or comparable tax imposed by any Governmental Authority)
will be payable by the Company or the Purchaser by virtue of the
transactions completed in this Agreement; (xviii) the Company has collected
and remitted to the appropriate governmental authority all taxes related to
employees, including FICA and federal and state wage withholding.
3.4 Class IV Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Real Estate.
(i) The Company does not own any real property or any interest
therein except as set forth on Schedule 3.4(a)(i) (the "Owned
Properties"), which Schedule sets forth the location and size of, and
principal improvements and buildings on, the Owned Properties.
(ii) Schedule 3.4(a)(ii) sets forth a list of all leases,
licenses or similar agreements ("Leases") to which the Company is a
party (copies of which have previously been furnished to the
Purchaser), in each case, setting forth (1) the lessor and lessee
thereof and the date and term of each of the Leases, (2) the legal
description or street address of each property covered thereby, and
(3) a brief description (including size and function) of the principal
improvements and buildings thereon (the "Leased Premises"), all of
which are within the property set-back and building lines of the
respective property. The Leases are in full force and effect and have
not been amended except as set forth on Schedule 3.4(a)(ii), and no
party thereto is in default or breach under any such Lease. No event
has occurred which, with the passage of time or the giving of notice
or both, would cause a material breach of or default under any of such
Leases. There is no breach or anticipated breach by any other party to
such Leases. Except as set forth on Schedule 3.4(a)(ii), with respect
to each such Leased Premises:
23
(iii) the Company has valid leasehold interests in the Leased
Premises leased by it, which leasehold interests are free and clear of
any Liens, covenants and easements or title defects of any nature
whatsoever;
(iv) the portions of the buildings located on the Leased Premises
that are used in the business of the Company are in functional repair
and condition, normal wear and tear excepted, and are sufficient to
satisfy the Company's current and reasonably anticipated normal
business activities as conducted thereat;
(v) the Leased Premises: (a) have direct access to public roads
or access to public roads by means of a perpetual access easement,
such access being sufficient to satisfy the current and reasonably
anticipated normal transportation requirements of the Company's
respective business as presently conducted at such parcel; and (b) are
served by all utilities in such quantity and quality as are sufficient
to satisfy the current normal business activities as conducted at such
parcel;
(vi) neither the Company nor the Shareholder has received notice
of: (a) any condemnation proceeding with respect to any portion of the
Leased Premises or any access thereto, and no such proceeding is
contemplated by any Governmental Authority; or (b) any special
assessment which may affect any of the Leased Premises and no such
special assessment is contemplated by any Governmental Authority;
(vii) the legal descriptions for the parcels of Leased Properties
describe such parcels fully and adequately; the buildings and
improvements are located within the boundary lines of the described
parcels of land, are not in violation of applicable setback
requirements, local comprehensive plan provisions, zoning laws and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), building code
requirements, permits, licenses or other forms of approval by any
Governmental Authority, and do not encroach on any easement which may
burden the land; the land does not serve any adjoining property for
any purpose inconsistent with the use of the land; and the Leased
Properties are not located within any flood plain (such that a
mortgagee would require a mortgagor to obtain flood insurance) or
subject to any similar type restriction for which any permits or
licenses necessary to the use thereof have not been obtained; and
(viii) all facilities have received all approvals of Governmental
Authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in material compliance with applicable laws, ordinances,
rules and regulations.
24
(b) Indefeasible Title to and Condition of Assets.
(i) Except as set forth on Schedule 3.4(b)(i), the Company has
good and indefeasible title to all of its respective Assets (as
hereinafter defined), free and clear of any Liens or restrictions on
use. For purposes of this Agreement, the term "Assets" means all of
the properties and assets of the Company, other than the Owned
Properties and the Leased Premises, whether personal or mixed,
tangible or intangible, wherever located.
(ii) Except as set forth on Schedule 3.4(b)(ii), the Fixed Assets
(as hereinafter defined) currently in use or necessary for the
business and operations of the Company are in functional operating
condition, normal wear and tear excepted and have been maintained in
accordance with sound industry practices. For purposes of this
Agreement, the term "Fixed Assets" means all vehicles, machinery,
equipment, tools, supplies, leasehold improvements, furniture and
fixtures used by or located on the premises of the Company or set
forth on the Current Balance Sheet or acquired by the Company since
the date of the Current Balance Sheet. Schedule 3.4(b)(iii) lists the
vehicles owned, leased or used by the Company, setting forth the make,
model, description of body and chassis, vehicle identification number,
and year of manufacture, and for each vehicle, whether it is owned or
leased, and if owned, the name of any lienholder and the amount of the
lien, and if leased, the name of the lessor and the general terms of
the lease, and, whether owned or leased, if it is used to transport,
transfer, handle, dispose or haul Waste materials.
(c) Adequacy of the Assets; Relationships with Customers and
Suppliers; Affiliated Transactions. The Assets and Leased Premises
constitute, in the aggregate, all of the assets and properties necessary
for the conduct of the business of the Company in the manner in which and
to the extent to which such business is currently being conducted. No
current supplier to the Company of items essential to the conduct of its
business will or has threatened to terminate its respective business
relationship with it for any reason. Except as set forth on Schedule
3.4(c), neither the Shareholder nor the Company has any direct or indirect
interest in any customer, supplier or competitor of the Company, or in any
person from whom or to whom such Company leases real or personal property.
Except as set forth on Schedule 3.4(c), no officer, director or shareholder
of the Company, nor any person related by blood or marriage to any such
person, nor any entity in which any such person owns any beneficial
interest, is a party to any Contract or transaction with the Company or has
any interest in any property used by the Company.
(d) Accuracy of Information Furnished by the Shareholder. No
representation, statement or information made or furnished by the
Shareholder to the Purchaser or any of the Purchaser's representatives,
including those contained in this Agreement and the various Schedules
attached hereto and the other information and statements referred to herein
and previously furnished by the Company and the Shareholder, contains or
shall contain any
25
untrue statement of a material fact or omits or shall omit any material
fact necessary to make the information contained therein not misleading.
The Shareholder has provided the Purchaser with true, accurate and complete
copies of all documents listed or described in the various Schedules
attached hereto.
3.5 Class V Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Environmental and Safety Matters. Except as set forth on Schedule
3.5(a):
(i) The operations of the Company is and has at all times been in
compliance in all material respects with all applicable Environmental
Health and Safety Laws;
(ii) The Company has in all material respects obtained,
maintained and complied with all Governmental Permits required by
Environmental Laws and necessary for the operation of its business,
and such Governmental Permits are transferable to the Purchaser
without any change to their respective terms and conditions;
(iii) No Hazardous Substances have been generated, transported,
stored, treated, recycled or otherwise handled in any way in the
operation of Company's business, except for inventories of raw
materials and cleaning and janitorial supplies used or to be used in
the ordinary and normal course of operating the business (all of which
were or are stored in all material respects in accordance with
applicable Environmental Health and Safety Laws);
(iv) There are no locations not owned or operated by the Company
where Hazardous Substances associated with the operation of Company's
business have been stored, treated, recycled or disposed of, except
for inventories of raw materials and supplies used or to be used in
the ordinary and normal course of operating Company's business (all of
which were or are stored in all material respects in accordance with
applicable Environmental Health and Safety Laws);
(v) Except for cleaning and janitorial supplies, no Hazardous
Substances are located on, contained in or otherwise form a part of
the property of the Company;
(vi) There is no past or ongoing release (as defined in the
Environmental Health and Safety Laws) from properties associated with
the operation of the Company's business or from other locations where
Hazardous Substances associated
26
with the operation of Company's business have been or are located
except for federally permitted releases;
(vii) Except as set forth on Schedule 3.5(a)(vii), there is no
information indicating that any Person may have impaired health as a
result of the operation of the Company's business or the ownership or
use of any property associated with the operation of the Company's
business or as the result of the Release from such properties;
(viii) Except as allowed by law, the Company has not treated,
stored for more than ninety (90) days, or disposed of any hazardous
waste (as such term is used within the meaning of the RCRA or similar
applicable state or municipal law) associated with the operation of
the Company's business;
(ix) The Company has not received any notice from any
governmental body or other person advising that any of them is
potentially responsible for remedial action with respect to a release
or threatened release or with regard to the Company's treatment of its
cleaning and janitorial supplies;
(x) Except as set forth on Schedule 3.5(a)(x), no underground
storage tanks are or, to the Shareholder's knowledge, ever were
located on any properties owned or leased by the Company;
(xi) No order, litigation, settlement or citation with respect to
Hazardous Substances exists with respect to or in connection with the
operation of the Company's business;
(xii) There has been no environmental investigation conducted by
any governmental body with respect to the operation of the Company's
business;
(xiii) To the best of the Company's knowledge, there are no PCBs
which are located on, contained in or otherwise form a part of any of
the Company's assets or the Leased Property.
(xiv) As used in this Section 3.5(a), the term "Company" is
deemed to refer to the Company or any of their subsidiaries and
predecessors in interest.
(xv) As used in Section 3.5(a), the properties of the Company
(whether owned or leased) are deemed to refer to any properties
previously owned or leased by the Company.
(b) Insurance. The Company is covered by valid, outstanding and
enforceable policies of insurance issued to it by insurers it reasonably
believed were reputable covering
27
its properties, assets and businesses against risks of the nature normally
insured against by businesses in the same or similar lines of business and
in coverage amounts typically and reasonably carried by such businesses
(the "Insurance Policies"). Such Insurance Policies are in full force and
effect, and all premiums due thereon have been paid. As of the Closing Date
each of the Insurance Policies will be in full force and effect. None of
the Insurance Policies will lapse or terminate as a result of the
transactions contemplated by this Agreement. The Company has complied with
the provisions of such Insurance Policies. Schedule 3.5(b) contains (i) a
complete and correct list of all Insurance Policies and all amendments and
riders thereto (copies of which have been provided to the Purchaser) and
(ii) a detailed description of each pending claim under any of the
Insurance Policies for an amount in excess of $5,000 that relates to loss
or damage to the properties, assets or businesses of the Company. The
Company has not failed to give, in a timely manner, any notice required
under any of the Insurance Policies to preserve its rights thereunder.
(c) Licenses and Permits. The Company possesses all licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its business and operations, including
the operation of the Owned Properties and Leased Premises, which Permits
are listed on Schedule 3.5(c). All such Permits are valid and in full force
and effect, the Company is in material compliance with the requirements
thereof, and no proceeding is pending or threatened to revoke or amend any
of them. None of such Permits is or will be impaired or in any way affected
by the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(d) Contracts. Schedule 3.5(d) sets forth a list of each Contract to
which the Company is a party or by which its properties and assets are
bound and which is material to its business, assets, properties or
prospects (the "Designated Contracts"), true and correct copies of which
have been provided to the Purchaser. The copy of each Designated Contract
furnished to the Purchaser is a true and complete copy of the document it
purports to represent and reflects all amendments thereto made through the
date of this Agreement. Except as set forth on Schedule 3.5(d), the Company
has not violated any of the material terms or conditions of any Designated
Contract or any term or condition which would permit termination or
material modification of any Designated Contract, and all of the covenants
to be performed by any other party thereto have been fully performed and
there are no claims for breach or indemnification or notice of default or
termination under any Designated Contract. Except as set forth on Schedule
3.5(d), no event has occurred which constitutes, or after notice or the
passage of time, or both, would constitute, a material default by the
Company under any Designated Contract, and no such event has occurred which
constitutes or would constitute a material default by any other party. The
Company is not subject to any material liability or payment resulting from
renegotiation of amounts paid it under any Designated Contract. As used in
this Section, Designated Contracts shall include, without limitation: (i)
loan agreements, indentures, mortgages, pledges, hypothecations, deeds of
trust, conditional sale or title retention agreements, security agreements,
equipment financing obligations or guaranties, or other sources of
contingent liability in respect of any
28
indebtedness or obligations to any other Person, or letters of intent or
commitment letters with respect to same; (ii) contracts obligating the
Company to purchase or sell products or services; (iii) leases of real
property, and leases of personal property not cancelable without penalty on
notice of 60 days or less or calling for payment of an annual gross rental
exceeding $10,000.00; (iv) distribution, sales agency or franchise or
similar agreements, or agreements providing for an independent contractor's
services, or letters of intent with respect to same; (v) employment
agreements, management service agreements, consulting agreements,
confidentiality agreements, noncompetition agreements and any other
agreements relating to any employee, officer or director of the Company;
(vi) licenses, assignments or transfers of trademarks, trade names, service
marks, patents, copyrights, trade secrets or know how, or other agreements
regarding proprietary rights or intellectual property; (vii) any Contract
relating to pending capital expenditures by the Company; and (viii) other
material Contracts or understandings, irrespective of subject matter and
whether or not in writing, not entered into in the ordinary course of
business by the Company and not otherwise disclosed on the Schedules.
(e) Investment Intent; Accredited Investor Status; Securities
Documents. The Shareholder is acquiring the Interests for his own account
for investment and not with a view to, or for the sale in connection with,
any distribution of the Interests, except in compliance with applicable
state and federal securities laws. The Shareholder has been provided, to
his satisfaction, the opportunity to discuss the transactions contemplated
hereby with the Purchaser and has had the opportunity to obtain such
information pertaining to the Purchaser as has been requested. The
Shareholder is an "accredited investor" within the meaning of Regulation D
promulgated under the Securities Act. The Shareholder has such knowledge
and experience in business and financial matters that he is capable of
evaluating the merits and risks of an investment in the Interests and is
capable of bearing the economic risks of such investment and is able to
bear a complete loss of his investment in the Interests. The Shareholder
acknowledges that the Interests have not been registered under the
Securities Act and understands that the Interests he receives, including
but not limited to the Put Interests, the Earn-Out Interests and the
Interests received from the exercise of the Reinvestment Right must be held
indefinitely unless they are subsequently registered under the Securities
Act or such sale is permitted pursuant to an available exemption from such
registration requirement. The Shareholder further acknowledges that the
Operating Agreement imposes limitations on his ability to transfer the
Interests he will receive in connection with the transactions contemplated
hereunder and that he will abide by such restrictions and the other terms
of the Operating Agreement.
(f) Business Locations. As of the date hereof, the Company's only
office or place of business is identified on Schedules 3.4(a)(i) or (ii)
and the Company's principal place of business and chief executive office
(as such terms are used in subsection 9-401 of the Uniform Commercial Code
as enacted in the State of Texas as of the date hereof) are indicated on
Schedule 3.4(a)(i) or (ii), and, all locations where the equipment,
inventory,
29
chattel paper and books and records of the Company are located as of the
date hereof are fully identified on Schedules 3.4(a)(i) or (ii).
(g) No Commissions. Neither the Company nor the Shareholder has
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
(h) Identification, Acquisition and Disposition of Assets and
Liabilities. Schedule 3.5(h) sets forth a listing of substantially all of
the assets and properties (including real, personal and mixed) owned by the
Company as of January 23, 1998. Not more than two (2) business days prior
to the Closing, the Shareholders shall deliver to the Purchaser a schedule
reflecting any additions or deletions to Schedule 3.5(h) as of such date
relating to items which individually have a value (defined as the higher of
book value or fair market value) of $10,000 or more (the "Asset Update
Schedule") other than changes to accounts receivable that occur in the
ordinary course of business. Schedule 3.5(h) sets forth a listing of all of
the liabilities of the Company as of January 23, 1998. Not more than two
(2) business days prior to the Closing, the Shareholders shall deliver to
the Purchaser a schedule reflecting any additions or deletions to Schedule
3.5(h) as of such date relating to items which individually have a value
(defined as the higher of book value or fair market value) of $10,000 or
more (the "Liability Update Schedule") other than changes to accounts
payable that occur in the ordinary course of business. All additions and
deletions reflected in the Asset Update Schedule and the Liability Update
Schedule shall be the result of transactions occurring in the ordinary
course of business and no such additions or deletions will violate the
covenants contained in Section 4.1 nor would such additions or deletions
have violated the covenants contained in Section 4.1 if such addition or
deletion had occurred after the date of this Agreement.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE CLOSING
---------------------------------------
4.1 Conduct of Company Business Pending the Closing . Except as set forth
on Schedule 4.1, the Shareholder and the Company covenant and agree that,
between the date of this Agreement and the Closing Date, the business of the
Company shall be conducted only in, and the Company shall not take any action
except in, the ordinary course of business, consistent with past practice and in
substantial compliance with all rules, regulations and laws. The Company shall
use its best efforts to preserve intact its business organization, to keep
available the services of its respective current officers, employees and
consultants, and to preserve its respective present relationships with
customers, suppliers and other persons with which it has significant business
relations. By way of amplification and not limitation, except as contemplated by
this Agreement, the Company shall not, between the date of this Agreement and
the Closing Date, directly or indirectly, do or propose or agree to do any of
the following without the prior written consent of the Purchaser:
30
(a) amend or otherwise change its articles of incorporation or bylaws;
(b) issue, sell, pledge, dispose of, encumber, or, authorize the
issuance, sale, pledge, disposition, grant or encumbrance of: (i) any
shares of its capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
such capital stock, or any other ownership interest, of it; or (ii) any of
its assets, tangible or intangible, except in the ordinary course of
business consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof or any assets, or make any investment either by purchase
of stock or securities, contributions of capital or property transfer, or,
except in the ordinary course of business, consistent with past practice,
purchase any property or assets of any other Person; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse or otherwise as an accommodation become responsible
for, the obligations of any Person, or make any loans or advances; or (iii)
enter into any Contract other than in the ordinary course of business,
consistent with past practice;
(f) increase the compensation payable or to become payable to its
officers, directors or any person earning compensation in excess of $25,000
(including by declaring or paying any bonus), or, except as presently bound
to do, grant any severance or termination pay to, or enter into any
employment or severance agreement with, any such persons, or establish,
adopt, enter into or amend or take any action to accelerate any rights or
benefits under any collective bargaining, bonus, profit sharing, trust,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) except as previously disclosed to the Purchaser, take any action
other than in the ordinary course of business and in a manner consistent
with past practice with respect to accounting policies or procedures;
(h) except as previously disclosed to the Purchaser, pay, discharge or
satisfy any existing claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary
31
course of business and consistent with past practice of due and payable
liabilities reflected or reserved against in its financial statements, as
appropriate, or liabilities incurred after the date hereof in the ordinary
course of business and consistent with past practice;
(i) except with the written consent of the Purchaser, increase or
decrease prices charged to its customers, except for previously announced
price changes or except in the ordinary course of business, or take any
other action which might reasonably result in any material increase in the
loss of customers through non-renewal or termination of contracts or other
causes; or
(j) agree, in writing or otherwise, to take or authorize any of the
foregoing actions or any action which would make any representation or
warranty in Article III materially untrue or incorrect.
4.2 Conduct of DFG Business Pending the Closing. Except as set forth on
Schedule 4.2, DFG covenants and agrees that between the this Agreement and the
Closing Date, the business of the Company and the Subsidiaries shall be
conducted only in, and DFG shall not take any action except in, the ordinary
course of business, consistent with past practices and in compliance with all
rules, regulations and laws.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 Compliance with Covenants. The Shareholder shall cause the Company to
comply with all of the respective covenants of the Company under this Agreement
through the date of Closing or this Agreement is terminated.
5.3 Cooperation. Each of the parties agrees to cooperate with the other in
the preparation and filing of all forms, notifications, reports and information,
if any, required or reasonably deemed advisable pursuant to any law, rule or
regulation or the rules of any stock exchanges and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions, so long as it does not cause
such party to incur additional costs other than legal fees.
32
5.4 Access to Information.
(a) From the date hereof to the Closing Date, the Company and the
Purchaser shall (and shall cause its respective directors, officers,
employees, auditors, counsel and agents to) afford each other and their
officers, employees, auditors, counsel and agents reasonable access at all
reasonable times to its properties, offices, and other facilities, to its
officers and employees and to all books and records, and shall furnish such
persons with all financial, operating and other data and information as may
be requested.
(b) The Purchaser hereby acknowledges that the Shareholder and the
Company have provided it and its representatives, with substantial
information regarding the Company and its past and present operations,
including, but not limited to, information related to items contained on
the Schedules attached hereto. Based on the information provided to the
Purchaser, including information related to the items on the Schedules, the
Purchaser acknowledges and agrees that it is not aware at this time of any
violations of the Shareholder's representations and warranties set forth in
Article III hereof.
5.5 Notification of Certain Matters. The Shareholder and the Purchaser
shall give prompt notice to the other of the occurrence or non-occurrence of any
event which would likely cause any representation or warranty contained herein
to be materially untrue or inaccurate, or any covenant, condition, or agreement
contained herein not to be complied with or satisfied.
5.6 Tax Treatment. Each party to this Agreement has sought and received its
own advice as to the tax treatment of the transactions covered by this Agreement
and is not relying on any representations of the other parties or their
respective advisers with respect thereto. All parties hereto agree to fully and
completely comply with the reporting requirements of the Internal Revenue
Service.
5.7 Confidentiality; Publicity. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement or the subject matter or terms hereof without the
prior consent of the other parties hereto. No press release or other public
announcement related to this Agreement or the transactions contemplated hereby
shall be issued by any party hereto without the prior approval of the other
parties, except that the Purchaser may make such public disclosure which the
Purchaser believes in good faith is required by law or by the terms of any
listing agreement with or requirements of a securities exchange.
5.8 No Other Discussions. Neither the Company nor the Shareholder, and
their respective Affiliates, employees, agents or representatives shall: (i)
initiate or encourage the initiation by others of discussions or negotiations
with third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of the Company (whether by merger, consolidation, sale of
stock or otherwise); or (ii) enter into any agreement or commitment (whether or
not binding) with respect to any of the foregoing transactions.
33
The Shareholder will immediately notify the Purchaser if any third party
attempts to initiate any solicitation, discussion or negotiation with respect to
any of the foregoing transactions after the date hereof but prior to closing in
the same manner he has done from December 30, 1997 until the date hereof.
5.9 Environmental Assessment. The Purchaser shall be entitled to have
conducted prior to Closing at its sole cost and expense an environmental
assessment and compliance review of the Leased Premises (hereinafter referred to
as the "Environmental Assessment") and their operations. The Environmental
Assessment may include, but not be limited to, a physical examination of the
Owned Property or Leased Premises, and any structures, facilities, or equipment
located thereon, soil samples, ground and surface water samples, storage tank
testing, review of pertinent permits, reports and records, documents, and
Licenses of the Company. The Shareholder shall provide the Purchaser or its
designated agents or consultants with the access to such property and all
permits, records and reports which the Purchaser, its respective agents or
consultants require to conduct the Environmental Assessment. If the
Environmental Assessment identifies any conditions or environmental
contamination which requires remediation or further evaluation under the
Environmental, Health, and Safety Laws or if the results of the Environmental
Assessment are otherwise not reasonably satisfactory to the Purchaser in its
sole discretion, and if the Company elects not to remediate or otherwise satisfy
the Purchaser (in the sole discretion of the Purchaser), then the Purchaser may
elect not to close the transactions contemplated by this Agreement as provided
in Section 11.1. The Purchaser acknowledges receipt of such reports, has
reviewed such reports and will proceed with the transaction.
5.10 Other Agreements. Upon the Closing, each party hereto that is a
signatory to any of Exhibits "B" through "F" (the "Other Agreements") agrees to
execute and deliver such Other Agreements, as appropriate, to the other parties
to such Other Agreements. The parties agree that the non-competition covenants
contained in the employment and consulting agreements are attached as Exhibits
"A" and "H" are an integral part of this Agreement.
5.11 Necessary Authority. The Purchaser, the Company and the Shareholder
agree to use their individual best efforts to obtain the authorizations required
for each to execute and deliver this Agreement and to perform each of their
respective obligations hereunder and to consummate the transactions contemplated
hereby.
5.12 Certification of Tax Status. The Shareholder shall deliver to the
Purchaser either: (i) a Certificate of Nonforeign Status under Treasury
Regulation Section 1.1445-2(b)(1), or (ii) a Certificate meeting the
requirements of Treasury Regulation Sections 1.987-2(g) and 1.897-2(h)(2) that
the Stock does not constitute a U.S. real property interest.
5.13 Put Right.
(a) During the period from January 1, 2001 through the later of April
30, 2001 or thirty (30) days after the Shareholder's receipt of a copy of
DFG's audited financial
34
statement for the year ending December 31, 2000 (the "Put Period"), the
Shareholder shall have the absolute, unconditional and irrevocable right
(the "Put Right") to require DFG to purchase all, but not less than all, of
the Put Interests received at a price equal to ONE MILLION EIGHT HUNDRED
FIFTEEN THOUSAND DOLLARS ($1,815,000).
(b) The Shareholder may exercise the Put Right by providing written
notice to DFG before the end of the Put Period. The closing of the purchase
of the Put Interests by DFG shall take place by mail, or if not practicable
at the offices of counsel for DFG, at a date mutually agreed upon by the
Shareholder and DFG, and if no date can be agreed upon, then thirty (30)
days after the end of the Put Period. At the time of the transfer of the
Put Interest to DFG, the Shareholder shall provide reasonable and customary
representations and warranties, including but not limited to,
representations that the Shareholder has the authority to enter into the
transaction and that there are no liabilities encumbering the Put
Interests.
(c) At the Closing, DFG shall pay and deliver to the Shareholder the
aggregate purchase price for the Put Interests by wire transfer of
immediately available funds; provided, however, if DFG or any Affiliate is
owed money by the Shareholder, DFG may elect to offset the aggregate
purchase price by such amounts owed by the Shareholder to Purchaser or DFG
which exceeds the amount of the amounts held back under Section 8.4, but
not to exceed the maximum liability exposure of the Shareholder under
Section 8.1(d) as to each class or category of Shareholder representations,
and pay the remaining portion of the purchase price to the Shareholder.
(d) Any disputes regarding this provision shall be decided through
binding arbitration pursuant to the Arbitration Procedures in Section 12.10
hereof, and any amounts not subject to the dispute that is the subject of
the Arbitration shall be promptly remitted to the Shareholder.
5.14 Reinvestment Right.
(a) During the three-year (3) period following the Closing Date (the
"Reinvestment Period"), the Shareholder shall have the right (the
"Reinvestment Right") to invest no less than ONE MILLION DOLLARS
($1,000,000) and no more than TWO MILLION TWENTY-FIVE THOUSAND DOLLARS
($2,025,000) in DFG in return for Interests. The Shareholder shall have one
opportunity to exercise the Reinvestment Right.
(b) Except for any proposed adjustments which may be required to
reflect the effect of an interest split, dividend or other adjustment to
the capital structure of the Purchaser, upon the price per Interest set
forth below, the number of Interests the Shareholder will receive for his
investment under Section 5.14 hereof shall be equal to the amount of the
investment divided by a price per Interest equal to:
35
(i) for the first year after the Closing Date, Forty Seven
Dollars ($47) per Interest subject to adjustment for any Interest
splits, dividends or any similar changes; and
(ii) after the first anniversary of the Closing Date, the greater
of: (A) Forty Seven Dollars ($47) per Interest subject to adjustment
for any Interest splits, dividends or any similar changes; or (B) the
Fair Market Value per Interest.
(c) For purposes of this Section 5.14, Fair Market Value shall mean
either the price agreed to by the Shareholder and DFG or if no agreement
can be reached, the Appraised Value.
(d) The Shareholder can exercise the Reinvestment Right by giving
written notice to DFG on or before the end of the Reinvestment Period.
Within ten (10) days of receipt of such written notice, DFG shall provide
the Shareholder with its most recent audited and unaudited financial
statements and other information which DFG believes is appropriate for
determining the Fair Market Value for its Interests. Within twenty (20)
days after DFG provides such information, the Shareholder shall provide
written notice of whether it intends to exercise the Reinvestment Right and
the dollar amount of the Shareholder's investment. Within ten (10) days of
receipt of such written notice from the Shareholders, DFG shall provide
written notice to the Shareholder of its determination as to the Fair
Market Value per Interest and within ten (10) days thereafter, the
Shareholder can either in writing to DFG agree to such price or indicate
in writing to DFG that it wishes to use the Appraised Value as Fair Market
Value.
(e) The Shareholder shall make this investment on a date agreed to by
the Shareholder and DFG, and if no date can be agreed upon, then on the
thirtieth (30th) day after notice of an agreement as to price or the
determination of the Appraised Value as applicable. The Shareholder and
DFG shall give customary representations and warranties at the time of the
investment.
(f) Notwithstanding the foregoing and subject to compliance with
federal and state securities laws and the requirements and/or terms
imposed by the underwriter of any, if there is a public offering of equity
or debt in DFG pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act (an "IPO")
during the Reinvestment Period, DFG will give the Shareholder notice of the
IPO within ninety (90) days of the expected date of the IPO or as soon as
practicable if the IPO is expected to occur in fewer than ninety (90) days,
and the Shareholder shall have fifteen (15) days after receipt of such
notice to exercise his Reinvestment Right, or such right shall lapse even
if the IPO is delayed beyond the ninety-day (90) period.
5.15 Building Lease. At the Closing, the Purchaser shall cause the Company
to execute a lease, in a form substantially similar to that attached hereto as
Exhibit "B" (the "Building Lease")
36
for the building and land located at 000 Xxxxxxx Xx., Xxxx Xxxxx, Xxxxx 00000
(the "Building"). The term of the Building Lease shall be from the Closing Date
until February 28, 2003 (the "Initial Term"), with a right to extend the term
for an additional five (5) years thereafter (the "Extension Term") so long as
the Company gives notice of its intention to extend the lease on or before
February 28, 2002. The payments on the Building Lease from March 1, 1998
through February 28, 1999 shall be $9,375 per month and shall thereafter
increase by three percent (3%) from the prior year for each year during the
Initial Term. The rent for the Extension Term shall be set for the first year
thereof at the greater of the average annual rental rate for the Initial Term or
a "market rental rate" and shall then increase by three percent (3%) per year
for each year thereafter. If the Company and the Landlord are unable to agree
upon a market rental rate, then the market rental rate shall be equal to the
average of the rental rates determined by two independent real estate leasing
brokers, each of whom shall work for national leasing companies familiar with
the Dallas/Ft. Worth rental market for industrial properties, with one broker
selected by the Company and one broker selected by the Landlord.
5.16 Assignment. DFG shall have the right to assign its right to purchase
the Stock to an entity that is controlled by DFG. Notwithstanding this
assignment, DFG shall remain obligated to issue Interests to the Shareholder in
compliance with the terms hereof and shall remain liable and bound for breaches
of the representations and warranties and to pay and perform all other
applicable provisions of this Agreement to the extent the assets of such
assignee are not sufficient to fulfill such claims.
5.17 Waiver of Preemptive Rights. The Shareholder agrees that he shall
waive any preemptive rights he will receive by virtue of owning Interests, but
only to the same extent as waived by the managing members of DFG, and shall sign
any documents reasonably requested by DFG to reflect such waiver and shall cause
all transferees to similarly waive such rights.
5.18 Retirement of Note. To the extent the Company does not have available
funds after the Closing, DFG agrees to pay and contribute sufficient funds to
the Company to allow the Company to retire, pay, satisfy and fully discharge the
entire remaining principal balance of the Shareholder Note at the Closing.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
----------------------------------------------
The obligations of the Purchaser hereunder shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, any or
all of which may be waived in whole or in part by the Purchaser.
6.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of the Shareholder contained in
this Agreement shall be true and
37
correct at and as of the Closing Date with the same force and effect as though
made at and as of that time except (i) for changes specifically permitted by or
disclosed pursuant to this Agreement, and (ii) that those representations and
warranties which address matters only as of a particular date shall remain true
and correct as of such date. The Shareholder shall have performed and complied
with all of their respective obligations required by this Agreement to be
performed or complied with at or prior to the Closing Date. The Company and the
Shareholder shall have delivered to the Purchaser a certificate, dated as of the
Closing Date, duly signed, stating that, applying the Knowledge Standards set
forth in Article III, such representations and warranties are true and correct
(subject to qualifications and limitations contained therein) and that all such
obligations have been performed and complied with.
6.2 No Material Adverse Change or Destruction of Property. Between the
date hereof and the Closing Date, applying the knowledge standards set forth in
Article III: (i) there shall have been no Material Adverse Change to the
Company; (ii) there shall have been no adverse federal, state or local
legislative or regulatory change affecting in any material respect the services,
products or business of the Company; and (iii) none of the properties and assets
of the Company shall have been damaged by fire, flood, casualty, act of God or
the public enemy or other cause (regardless of insurance coverage for such
damage) and there shall have been delivered to the Purchaser a certificate to
that effect, dated the Closing Date and signed by or on behalf of the Company,
which as to (ii) will be limited to the best of the Shareholder's knowledge
after reasonable investigation.
6.3 Corporate Certificate. The Shareholder shall have delivered to the
Purchaser: (i) copies of the articles of incorporation and bylaws of the
Company as in effect immediately prior to the Closing Date; (ii) copies of
resolutions adopted by the Board of Directors of the Company and the
Shareholders authorizing the transactions contemplated by this Agreement; (iii)
certificates of good standing of the Company issued by the State of Texas and
each other state in which each of them is qualified to do business as of a date
not more than thirty days prior to the Closing Date, certified in each case as
of the Closing Date by the Secretary as being true, correct and complete; (iv)
all other Shareholder's deliveries in Section 1.5(d).
6.4 Opinion of Counsel. The Purchaser shall have received an opinion
dated as of the Closing Date from counsel for the Company and the Shareholder,
in form and substance reasonably acceptable to the Purchaser.
6.5 Consents. The Purchaser shall have received written consents to the
transactions contemplated hereby and waivers of rights to terminate or modify
any material rights or obligations of the Company from any Person from whom such
consent or waiver is required under any Designated Contract or instrument as of
a date not more than ten days prior to the Closing Date, or who, as a result of
the transactions contemplated hereby, would have such rights to terminate or
modify such Contracts or instruments, either by the terms thereof or as a matter
of law.
6.6 Governmental Approvals. All consents, authorizations and approvals
from, and all declarations, filings and registrations with any governmental
authority required to consummate the
38
transactions contemplated by this Agreement, including those set forth on
Schedule 3.1(f), shall have been obtained or made without the imposition of any
material conditions.
6.7 Securities Laws. The Purchaser shall have received all necessary
consents and otherwise complied with any state Blue Sky or securities laws
applicable to the purchase of the stock and issuance of the Interests, in
connection with the transactions contemplated hereby.
6.8 Company Stock. At the Closing, the Shareholder shall have delivered
all certificates evidencing the Stock held by him, including but not limited to,
the Stock certificates currently held in escrow with Xxxxxxx X. Xxxxxx, Esq. in
connection with the Shareholder's purchase of such Stock from Xxxxxxx Xxxxxxx
and Xxxxx X. Xxxx and with Xxxxxxx X. Xxxxxx, Esq. in connection with the
Shareholder's purchase of such Stock from Xxxxxxx X. Xxxx, together with stock
powers duly executed in blank and otherwise in form acceptable to the Purchaser
for transfer on the books of the Company.
6.9 No Adverse Litigation. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Agreement or any other transaction contemplated hereby, and which, in the
judgment of the Purchaser, makes it inadvisable to proceed with the Agreement
and other transactions contemplated hereby.
6.10 Purchase Review. At least two (2) business days prior to the Closing,
the Purchaser's independent public accountants shall have reviewed the assets,
liabilities, and net worth of the Company and the results of such review shall
be determined to be acceptable in form and content to the Purchaser in its sole
discretion.
6.11 The Purchaser's Approvals. At least two (2) business days prior to
the Closing, the Purchaser shall have complied with all requirements under the
Operating Agreement and its governing documents and received any necessary
consents from its lenders.
6.12 Due Diligence. At least two (2) business days prior to the Closing,
the Purchaser shall have completed its due diligence review of the Company's
assets, liabilities, business, environmental matters, and prospects and the
results of such due diligence review shall have been judged satisfactory in all
respects by the Purchaser, in its sole discretion.
6.13 Employment and Consulting Agreements.
(a) The Shareholder shall have entered into a consulting agreement,
substantially in the form of Exhibit "D" attached hereto;
(b) Xxxx Xxxxxxxx ("Xxxxxxxx"), currently administrative treasurer of
the Company, shall have entered into an employment agreement, substantially
in the form of Exhibit "E" attached hereto provided, however, if Xxxxxxxx
does not execute his
39
Employment Agreement, Xxxx will agree to enter into an employment contract
which will be similar in form to the Consulting Agreement attached hereto
as Exhibit D, with the only fundamental changes being an increase in pay to
$150,000 per annum, and a requirement that Xxxx provide full time
employment to the Company rather than the more limited duties and time
committment required under the Consulting Agreement.
6.14 Other Closing Deliveries. At Closing, the Purchaser and/or the
Company (as appropriate) shall have received each of the Agreements to which
Shareholder is a party, duly executed by the appropriate party or parties,
including those set forth in Section 1.5(c).
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDER
-------------------------------
The obligations of the Company and the Shareholder to effect the
transaction contemplated hereunder shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in whole or in part by the Company and the Shareholder.
7.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of the Purchaser contained in
this Agreement shall be true and correct at and as of the Closing Date with the
same force and effect as though made at and as of that time except (i) for
changes specifically permitted by or disclosed pursuant to this Agreement, and
(ii) that those representations and warranties which address matters only as of
a particular date shall remain true and correct as of such date. The Purchaser
shall have performed and complied with all of its obligations required by this
Agreement to be performed or complied with at or prior to the Closing Date. The
Purchaser shall have delivered to the Shareholder a certificate, dated as of the
Closing Date, and signed by an executive officer, certifying that applying the
Knowledge Standards set forth in Article II, such representations and warranties
(subject to the qualifications and limitations contained therein) are true,
correct and complete and that all such obligations have been performed and
complied with and reaffirming its acknowledgment and agreement under Sections
5.4(b), 6.11 and 6.12 through the Closing Date.
7.2 Delivery of the Purchase Price. At the Closing, the Purchaser shall
have delivered to the Shareholder: (i) the cash required under Section 1.2(a);
(ii) cash sufficient to pay and retire the Shareholder Note under Section
1.5(b)(iv) and the other fees and expenses referred to in Section 5.18, which
payment shall be made directly to the Shareholder and the other providers named
by the Shareholder at the direction of the Company; and (iii) the certificates
for the Put Interests in the name of the Shareholder, which certificate has been
duly signed and sealed by the appropriate officers at DFG.
40
7.3 No Adverse Litigation. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Agreement or any of the transactions contemplated hereby or any other matter
pertaining to the business affairs of DFG or any of the Subsidiaries which in
the judgment of the Shareholder makes it inadvisable to proceed with the
Agreement or any other transaction contemplated hereby.
7.4 Opinion of Counsel. The Shareholder shall have received an opinion
dated as of the Closing Date from counsel for the Purchaser, in form and
substance reasonably acceptable to the Shareholder.
7.5 Other Closing Deliveries. At Closing, the Company and/or the
Shareholder (as appropriate) shall have received each Other Agreement to which
the Purchaser is a party, duly executed by the Purchaser, including those set
forth in Section 1.5(d).
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Agreement by the Shareholder to Indemnify. Subject to the conditions
and limitations contained in this Article VIII, the Shareholder agrees to
indemnify, defend and hold the Purchaser harmless from and against the aggregate
of all Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "Indemnifiable Damages" means,
without duplication, the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation,
reasonable attorney's and paralegal fees and expenses) incurred or suffered
by the Purchaser, on a pre-tax consolidated basis, to the extent: (i)
resulting from any breach of a representation or warranty made by the
Company or the Shareholder in or pursuant to this Agreement; (ii) resulting
from any breach of the covenants or agreements made by the Company or the
Shareholder pursuant to this Agreement; or (iii) resulting from any
inaccuracy in any certificate or environmental report delivered by the
Company or the Shareholder pursuant to this Agreement. The amount of
Indemnifiable Damages shall be reduced to the extent that the Purchaser or
the Company receives proceeds or other payments from any insurance policy
with relation to the actions causing Purchaser to have a right to receive
Indemnifiable Damages hereunder.
(b) Without limiting the generality of the foregoing, with respect to
the measurement of Indemnifiable Damages, the Purchaser shall have the
right to be put in the same pre-tax consolidated financial position as the
Purchaser would have been in had each of the representations and warranties
of the Shareholder hereunder been true and correct and had the covenants
and agreements of the Company and the Shareholder hereunder been performed
in full.
41
(c) The representations and warranties made by the Shareholder in this
Agreement or pursuant hereto shall survive for the following periods: (i)
Class I Representations shall survive until sixty (60) months after the
Closing Date for all Class I Representations other than those under Section
3.1(i), which representations and warranties shall survive until forty
eight (48) months after the Closing Date; (ii) Class II Representations
shall survive until the earlier of: (1) ninety (90) days after the receipt
by the Company of its first annual audited financial statement following
the acquisition of the Stock by the Purchaser to reflect operations from
the period ending December 31, 1998; or (2) June 30, 1999; (iii) Class III
Representations shall survive for twenty-four (24) months with regard to
the representations and warranties in Section 3.3(a) and Section 3.3(b),
and at the time the period of limitations (including any extensions thereof
pursuant to the delivery of waivers of applicable period of limitations)
expires for the assessment by the taxing authorities of additional Taxes
with respect to the representations and warranties contained in Section
3.3(c); and (iv) Class IV and Class V Representations shall survive until
eighteen (18) months after the Closing Date. No claim for the recovery of
Indemnifiable Damages may be asserted by the Purchaser against the
Shareholder after such representations and warranties shall thus expire;
provided, however, that claims for Indemnifiable Damages first asserted
within the applicable period shall not thereafter be barred, so long as the
Purchaser diligently pursues either arbitration or litigation with regard
to this matter within twelve (12) months following the assertion of such
claims, unless filing within such twelve (12) month period would, in the
sole discretion of the Purchaser, cause additional cost or expense that
would arise if such claim were not then asserted. Notwithstanding any
knowledge of facts determined or determinable by any party by
investigation, each party shall have the right to fully rely on the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement or in any other documents or papers delivered
in connection herewith, subject to the terms at Sections 5.4(b) and 7.1.
Each representation, warranty, covenant and agreement of the parties
contained in this Agreement is independent of each other representation,
warranty, covenant and agreement; provided, each representation is subject
to limitation or modification to the extent of the information and
documentation supplied by the Shareholder or the Company to Purchaser in
connection with its due diligence, as well as by the schedules accompanying
and made a part of this Agreement and the documentation to which such
schedules refer.
(d) In the event that the Purchaser believes it is entitled to a claim
for any Indemnifiable Damages hereunder, the Purchaser shall promptly give
written notice to the Shareholder of such claim and the amount or the
estimated amount of such claim, and the basis for such claim. If the
Shareholder does not pay the amount of the claim for Indemnifiable Damages
to the Purchaser within 10 days, then the Purchaser may exercise its
respective rights under Section 8.4 and/or take any action or exercise any
remedy available to them by appropriate legal proceedings to collect the
Indemnifiable Damages, subject to the limitations set forth in Section
8.1(e).
42
(e) Notwithstanding anything to the contrary contained in this Section
8.1, the Shareholder's liability for Indemnifiable Damages shall be limited
as follows:
(i) With regard to all Class I Representations other than those
in Section 3.1(i): (1) the Purchaser shall have no claim for
Indemnifiable Damages unless and until all Indemnifiable Damages with
respect to breaches of the Class I Representations other than those in
Section 3.1(i) incurred by the Purchaser exceed $50,000; and (2) the
total amount of Indemnifiable Damages for which the Shareholder shall
be liable to the Purchaser shall not exceed $1,750,000 reduced by
$50,000;
(ii) With regard to the Class I Representations set forth in
Section 3.1(i): (1) the Purchaser shall have no claim for
Indemnifiable Damages unless and until all Indemnifiable Damages with
respect to breaches of representations and warranties set forth in
Section 3.1(i) exceed $50,000; and (2) the total amount of
Indemnifiable Damages for which the Shareholder shall be liable to the
Purchaser shall not exceed $1,500,000, reduced by $50,000;
(iii) With regard to Class II Representations: (1) the
Purchaser shall have no claim for Indemnifiable Damages unless and
until all Indemnifiable Damages with respect to breaches of Class II
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000 in which event the Shareholder shall be liable for only
such Indemnifiable Damages in excess of $100,000; and (2) The total
amount of Indemnifiable Damages for which the Shareholder shall be
liable to the Purchaser shall not exceed $1,750,000 reduced by
$100,000;
(iv) With regard to Class III Representations: (1) the Purchaser
shall have no claim for Indemnifiable Damages unless and until all
Indemnifiable Damages with respect to breaches of Class III
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000 with regard to Class III Representations set forth in
Section 3.3(a), $50,000 with regard to breaches of representations and
warranties set forth in Section 3.3(b) and $50,000 with regard to
breaches of representations and warranties set forth in Section
3.3(c), which amounts shall not be cumulative; and (2) amount of
Indemnifiable Damages for which the Shareholder shall be liable to the
Purchaser shall not exceed $1,750,000 reduced by $50,000;
(v) With regard to Class IV Representations: (1) the Purchaser
shall have no claim for Indemnifiable Damages unless and until all
Indemnifiable Damages with respect to breaches of Class IV
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000, in which event the Shareholder shall be liable for only
such Indemnifiable Damages in excess of $100,000; and (2) the total
amount of Indemnifiable Damages for which the Shareholder shall be
liable to the
43
Purchaser shall not exceed $1,750,000 reduced by $100,000;
(vi) With regard to Class V Representations, (1) the Purchaser
shall have no claim for Indemnifiable Damages unless and until all
Indemnifiable Damages with respect to breaches of Class V
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000, in which event the Shareholder shall be liable for only
such Indemnifiable Damages in excess of $100,000; and (2) the total
amount of Indemnifiable Damages for which the Shareholder shall be
liable to the Purchaser shall not exceed $500,000 reduced by $100,000.
(f) Notwithstanding anything to the contrary hereinabove set forth, in
no event shall the Shareholder be liable for claims under any and all
classes or categories set forth in Section 8.1(e) which aggregate in excess
of $1,750,000, it being the intent of the parties to unconditionally and
irrevocably restrict and limit the aggregate of Indemnifiable Damages which
the Shareholder may be or become obligated to pay to an aggregate amount
not exceeding $1,750,000.
8.2 Agreement by the Purchaser to Indemnify. Subject to the conditions
and limitations contained in this Article VIII, the Purchaser agrees to
indemnify, defend and hold the Shareholder harmless from and against the
aggregate of all Shareholder Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "Shareholder Indemnifiable
Damages" means, without duplication, the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without
limitation, related counsel and paralegal fees and expenses) incurred or
suffered by the Shareholder with regard to an amount equal to the value of
the Interests he receives under the terms hereof, on a pre-tax consolidated
basis, to the extent: (i) resulting from any breach of a representation or
warranty made by the Purchaser in or pursuant to this Agreement; (ii)
resulting from any breach of the covenants or agreements made by the
Purchaser in or pursuant to this Agreement; or (iii) resulting from any
inaccuracy in any certificate delivered by the Purchaser pursuant to this
Agreement. The amount of Shareholder Indemnifiable Damages shall be
reduced to the extent that the Shareholder receives proceeds or other
payments from any insurance policy with relation to the actions causing the
Shareholder to have a right to receive Shareholder Indemnifiable Damages
hereunder.
(b) Without limiting the generality of the foregoing, with respect to
the measurement of Shareholder's Indemnifiable Damages, the Shareholder has
the right to be put in the same pre-tax consolidated financial position as
he would have been in had each of the representations and warranties of the
Purchaser hereunder been true and correct and had the covenants and
agreements of the Purchaser hereunder been performed in full.
44
(c) Each of the representations and warranties made by the Purchaser
in this Agreement or pursuant hereto shall survive for a period of twenty-
four (24) months after the Closing Date, notwithstanding any investigation
at any time made by or on behalf of the Shareholder, and upon expiration of
such twenty-four month period, such representations and warranties shall
expire, except for the representations contained in Sections 2.1, 2.2, 2.3,
2.4, 2.5, 2.7, 2.8 and 2.9 shall expire sixty (60) months after the Closing
Date. No claim for the recovery of Shareholder Indemnifiable Damages may
be asserted by the Shareholder against the Purchaser after such
representations and warranties shall thus expire; provided, however, that
claims for Indemnifiable Damages first asserted within the applicable
period shall not thereafter be barred. Notwithstanding any knowledge of
facts determined or determinable by any party by investigation, each party
shall have the right to fully rely on the representations, warranties,
covenants and agreements of the other parties contained in this Agreement
or in any other documents or papers delivered in connection herewith. Each
representation, warranty, covenant and agreement of the parties contained
in this Agreement is independent of each other representation, warranty,
covenant and agreement.
(d) In the event that the Shareholder believes he is entitled to a
claim for any Indemnifiable Damages hereunder, the Shareholder shall
promptly give written notice to the Purchaser of such claim and the amount
or the estimated amount of such claim, and the basis for such claim.
(e) Notwithstanding anything to the contrary contained in this Section
8.2, the Purchaser's liability for Indemnifiable Damages shall be limited
as follows:
(i) the Shareholder shall have no claim for Indemnifiable Damages
unless and until all Indemnifiable Damages incurred by the Shareholder
exceed an aggregate of $100,000, in which event, the Purchaser shall
be liable for only such Indemnifiable Damages in excess of $100,000;
and
(ii) the total amount of Indemnifiable Damages for which the
Purchaser shall be liable to the Shareholder shall not exceed
$1,750,000.00;
(f) Notwithstanding anything to the contrary hereinabove set forth, in
no event shall the Purchaser be liable for claims under class or category
set forth in Section 8.1(e) which aggregate in excess of $1,750,000, it
being the intent of the parties to unconditionally and irrevocably restrict
and limit the aggregate of Indemnifiable Damages which the Purchaser may be
or become obligated to pay to an aggregate amount not exceeding $1,750,000.
(g) The limitations set forth in this Section 8.2(e) shall not limit
the liability of the Purchaser to the Shareholder for amounts which are
unrelated to Shareholder Indemnifiable Damages, such as damages related to
failure to pay the full amount of the Purchase Price, any bonuses and
payments under the Consulting Agreement with the
45
Shareholder, amounts owed to the Shareholder in his capacity as the
landlord under the Lease, or failure to distribute the Earn-Out Interests
or fulfill its obligations pursuant to the Put Right.
8.3 Conditions of Indemnification. The obligations and liabilities of the
Shareholder and the Purchaser hereunder with respect to their respective
indemnities pursuant to this Article VIII resulting from any claim or other
assertion of liabilities by third parties (hereinafter called collectively
"Claims"), shall be subject to the following terms and conditions:
(a) the party seeking indemnification (the "Indemnified Party") must
give the other party or parties, as the case may be (the "Indemnifying
Party"), notice of any such Claim 20 days after the Indemnified Party
receives notice thereof;
(b) the Indemnifying Party shall have the right to undertake, by
counsel or other representatives of its own choosing, the defense of such
Claim; provided, however, if a Claim is made against the Purchaser which
exceeds the value of the Indemnification at such time, the Purchaser shall
have the right to control the defense of the Claim;
(c) in the event that the Indemnifying Party shall elect not to
undertake such defense, or within a reasonable time after notice of any
such Claim from the Indemnified Party shall fail to defend, the Indemnified
Party (upon further written notice to the Indemnifying Party) shall have
the right to undertake the defense, compromise or settlement of such Claim,
by counsel or other representatives of its own choosing, on behalf of and
for the account and risk of the Indemnifying Party (subject to the right of
the Indemnifying Party to assume defense of such Claim at any time prior to
settlement, compromise or final determination thereof);
(d) anything in this Section 8.3 to the contrary notwithstanding: (A)
the Indemnified Party shall have the right, at its own cost and expense, to
have its own counsel to protect its own interests and participate in the
defense, compromise or settlement of the Claim; (B) the Indemnifying Party
shall not, without the Indemnified Party's written consent, settle or
compromise any Claim or consent to entry of any judgement which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in
respect of such Claim; and (C) the Indemnified Party, by counsel or other
representatives of its own choosing and at its sole cost and expense, shall
have the right to consult with the Indemnifying Party and its counsel or
other representatives concerning such Claim, and the Indemnifying Party and
the Indemnified Party and their respective counsel shall cooperate with
respect to such Claim.
8.4 Escrowed Interests and Rights of Setoff to Secure the Shareholder's
Indemnification Obligation. As security for the agreement by the Shareholder to
indemnify and hold the Purchaser harmless as described in Section 8.1, at the
Closing, the Purchaser shall transfer to the Escrow Agent
46
the certificates representing the Put Interests (the "Escrowed Interests") in
accordance with the terms of the Escrow Agreement.
(a) The Purchaser may, in its sole discretion, direct the Escrow Agent
to set off against the Escrowed Interests any Indemnification Damages for
which the Shareholder may be responsible pursuant to this Agreement whether
or not indemnified pursuant to Section 8.1 of this Agreement, subject,
however, to the following terms and conditions:
(i) Purchaser shall give written notice to the Shareholder of any
claim for Indemnifiable Damages or any other damages hereunder, which
notice shall set forth (i) the amount of Indemnifiable Damages or
other loss, damage, cost or expense which the Purchaser claims to have
sustained by reason thereof, and (ii) the basis of such claim;
(ii) Such set off shall be effected on the later to occur of the
expiration of twenty (20) days from the date of such notice (the
"Notice of Contest Period") or, if such claim is contested, the date
the dispute is resolved, and such set off shall be charged
proportionally against the shares set aside;
(iii) If, prior to the expiration of the Notice of Contest
Period, the Shareholders shall notify the Purchaser in writing of an
intention to dispute the claim and if such dispute is not resolved
within 30 days after expiration of such period (the "Resolution
Period"), then the dispute shall be resolved through binding
arbitration using the Arbitration Procedures set forth in Section
12.10 hereof;
(iv) For purposes of this Section 8.4, the value for purposes of
set off against the Escrowed Shares shall be equal to the greater of:
(i) $47 per interest (subject to adjustment for Interest splits,
dividends and other similar transactions); or (ii) the per Interests
price used by DFG in any transaction in which it issued Interests in
return for the assets or equity interests of another entity if such
issuance occurred within 90 days of the date of the determination of
value or, if no such determination was made within the 90 day period,
then determined by DFG using its most current and consistently applied
methodology for establishing value.
(v) The Shareholder shall have the right to substitute cash for
all or any portion of the Escrowed Interests at any time prior to the
expiration of any time limits set forth in this Section 8.4(a).
(b) Except with respect to interests transferred pursuant to the
foregoing right of set off (and in the case of such interests, until the
same are transferred), all Escrowed Interests shall be deemed to be owned
by the Shareholder and the Shareholder shall be entitled to vote the same;
provided, however, that there shall also be deposited with the Purchaser
subject to the terms of this Section 8.4, all of the Interests issued to
the
47
Shareholder as a result of any Interest distribution, Interest split or
other similar transaction. All cash distributions paid upon the Escrowed
Interests shall be distributed to the Shareholder at the same time or times
when distributed to the other members of DFG, and he will receive all tax
forms as the owner of the Escrowed Interests.
(c) The Purchaser agrees to deliver to the Shareholder no later than
twenty-four (24) months after the Closing Date any Escrowed Interests then
held by it (or proceeds from the Escrowed Interests) unless there then
remains unresolved any claim for Indemnifiable Damages or other damages
hereunder as to which notice has been given, in which event any Escrowed
Interests remaining on deposit (or proceeds from the sale of Escrowed
Interests) after such claim shall have been satisfied shall be returned to
the Shareholder promptly after the time of settlement.
ARTICLE IX
SECURITIES LAW MATTERS
----------------------
The parties agree as follows with respect to the sale or other disposition
after the Closing Date of the Interests.
9.1 Disposition of the Purchaser Securities. The Shareholder represents
and warrants that each of the Interests being acquired by him hereunder is being
acquired and will be acquired for his own account and will not be sold or
otherwise disposed of, except pursuant to: (i) an exemption from the
registration requirements under the Securities Act, which does not require the
filing by the Purchaser with the SEC of any registration statement, offering
circular or other document, in which case the Shareholder shall first supply to
the Purchaser an opinion of counsel (which counsel and opinions shall be
reasonably satisfactory to the Purchaser) that such exception is available; or
(ii) an effective registration statement filed by the Purchaser with the SEC
under the Securities Act.
9.2 Legend. Each of the Interests shall bear the following legend:
"THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AS TO
SAID INTEREST OR AN OPINION, IN FORM IN SUBSTANCE SATISFACTORY TO THE COMPANY
AND GIVEN BY COUNSEL SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED. THE INTERESTS REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE OPERATING AGREEMENT OF THE
COMPANY, A COPY OF WHICH OPERATING AGREEMENT CAN BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE COMPANY."
48
The Purchaser may, unless a registration statement is in effect covering the
Interests, place stop transfer orders with its transfer agents with respect to
such certificates in accordance with federal securities laws.
ARTICLE X
DEFINITIONS
-----------
10.1 Defined Terms. As used herein, the following terms shall have the
following meanings:
"Aboveground Storage Tanks" "Aboveground Storage Tanks" and
"Underground Storage Tanks" shall have the meanings given them in Section
6901 et seq., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks or Underground Storage Tanks.
"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the
date hereof.
"Appraised Value" shall mean the value of the Interests in DFG
determined as follows:
(i) If the parties needing to determine Appraised Value mutually
select an Appraiser, then the valuation determined by such Appraiser
shall be the Appraised Value;
(ii) If the parties do not agree upon a single Appraiser within
ten (10) business days, then DFG shall have the right to retain an
Appraiser to determine value. The valuation determined by such
Appraiser shall be submitted to the other party within five (5)
business days after the receipt of the appraisal report by DFG. If the
other party agrees to such value, then it shall constitute the
Appraised Value.
(iii) If the other party does not agree to the valuation
determined by the first Appraiser, it shall retain a second Appraiser.
The value determined by the second Appraiser shall be presented to
DFG, and if DFG does not agree to the second valuation, then: (A) if
the first value and the second value are within 10% of each other,
then the Appraised Value shall be equal to the average of the two
values; (B) if the first value and the second value are more than 10%
apart, and DFG and the other party still cannot agree as to the
Appraised Value, then the first Appraiser and the second Appraiser
shall select a third Appraiser within ten (10) days, and the third
Appraiser who shall review the values determined by the first two
Appraisers and
49
select as Appraised Value either one of the values determined by the
first two Appraisers or the average of such two values.
(iv) Each Appraiser selected to provide a net fair market value
of the Interests shall be specifically instructed to value DFG in an
amount equal to the price that would be paid by a sophisticated,
independent third party purchaser for all the Interests of the
Interest Holders and the Company in an arm's-length transaction, with
appropriate reductions for indebtedness of the Company. Any and all
fees and/or costs incurred with respect to determining the Appraised
Value, including but not limited to, any fees paid to the Appraisers
selected and any legal and/or accounting fees incurred in connection
therewith shall be paid by DFG. Any and all controversies, disputes
or claims related to or arising out of the determination of Appraised
Value shall be decided through the binding Arbitration Procedures
described in Section 12.10 hereof.
"Appraiser" means an independent third party who is qualified and
experienced in the appraisal of closely held businesses, and is not
affiliated with the Purchaser, the Shareholder or the Company in any way.
"Arbitration Procedures" defined in Section 12.10.
"Asset Update Schedule" defined in Section 3.5(h).
"Assets" defined in Section 3.4(b)(i).
"Building" defined in Section 5.15.
"Building Lease" defined in Section 5.15.
"Cash Portion" defined in Section 1.2(a).
"CERCLA" defined in the definition of "Hazardous Substances."
"Claims" defined in Section 8.3.
"Class I Representations" means the representations and warranties set
forth in Section 3.1.
"Class II Representations" means the representations and warranties
set forth in Section 3.2.
"Class III Representations" means the representations and warranties
set forth in Section 3.3.
50
"Class IV Representations" means the representations and warranties
set forth in Section 3.4.
"Class V Representations" means the representations and warranties set
forth in Section 3.5.
"Closing" defined in Section 1.5(a).
"Closing Date" defined in Section 1.5(a).
"Code" defined in Section 3.3(b).
"Company" defined in the introductory paragraph of this Agreement.
"Company Net Worth" defined in Section 1.3.
"Contract" means any indenture, lease, sublease, license, loan
agreement, mortgage, note, indenture, restriction, will, trust, commitment,
obligation or other contract, agreement or instrument, whether written or
oral.
"Current Balance Sheet" defined in Section 3.2(a).
"Designated Contracts" defined in Section 3.5(d).
"Deposit" defined in Section 1.5(b).
"Deposit Escrow Agent" is defined as Michener, Larimore, Swindle,
Whitaker, Flowers, Sawyer, Xxxxxxxx & Chalk, L.L.P., or any successor
designated under the Deposit Escrow Agreement.
"Deposit Escrow Agreement" is defined as that certain escrow agreement
entered into between the parties, a copy of which is attached hereto as
Exhibit "G".
"DFG" means Diversified Food Class, L.L.C., a Delaware limited
liability company.
"DFG Financial Statements" defined in Section 2.6.
"DFG Group" defined in Section 2.8.
"DFG Current Balance Sheet" defined in Section 2.10.
"Discharge" shall have the meanings given them in the Environmental,
Health and Safety Laws.
51
"Earn-Out Amount" defined in Section 1.4(a).
"Earn-Out Interests" defined in Section 1.4(a).
"EBITDA" means earnings before interest, taxes, debt service and
amortization and depreciation, determined for financial accounting purposes
using GAAP.
"Employee Benefit Plans" defined in Section 3.3(b).
"Employment and Consulting Agreements" mean the employment and
consulting agreements described in Section 6.13, and attached hereto as
Exhibits "D" and "B".
"Environmental Assessment" defined in Section 5.9.
"Environmental, Health and Safety Laws" means all federal, state,
regional or local statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings, and changes or ordinances or judicial or
administrative interpretations thereof, whether currently in existence or
hereafter enacted or promulgated, any of which govern (or purport to
govern) or relate to pollution, protection of the environment, public
health and safety, air emissions, water discharges, hazardous or toxic
substances, solid or hazardous waste or occupational health and safety, as
any of these terms are or may be defined in such statutes, laws, rules,
regulations, codes, orders, plans, injunctions, decrees, rulings and
changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation, RCRA, CERCLA, the Hazardous
Materials Transportation Act, the Toxic Substances Control Act, the Clean
Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA.
"EPCRA" defined in the definition of "Hazardous Substances."
"ERISA" defined in Section 3.3(b).
"Escrow Agreement" defined in Section 1.5(b).
"Escrowed Interests" defined in Section 8.4.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extension Term" defined in Section 5.15.
"FDA" shall mean the Food and Drug Administration, an agency of the
United States government or any agency that assumes the duties it carries
out at this time.
"FIFRA" defined in the definition of "Hazardous Substances."
52
"Fair Market Value" defined in Section 5.14.
"Financial Statements" defined in Section 3.2(a).
"Fixed Assets" defined in Section 3.4(b)(i).
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"Governmental Authority" means any nation or government, any state,
regional, local or other political subdivision thereof, and any entity or
official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Substances" shall be defined broadly to include any toxic
or hazardous substance, material, or waste, and any other contaminant,
pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge
and/or gaseous, including without limitation, chemicals, compounds, metals,
by-products, pesticides, asbestos containing materials, petroleum or
petroleum products, and polychlorinated biphenyls, the presence of which
requires investigation or remediation under any Environmental, Health and
Safety Laws or which are or become regulated, listed or controlled by,
under or pursuant to any Environmental Health and Safety Laws, including,
without limitation, the United States Department of Transportation Table
(49 CFR 172, 101) or by the Environmental Protection Agency as hazardous
substances (40 CFR Part 302) and any amendments thereto; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C.
(S)9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste
Disposal Act, as amended by the Resource Conversation and Recovery Act of
1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
(S)6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. (S)1801, et seq.; the Clean Water
Act, as amended, 33 U.S.C. (S)1311, et seq.; the Clean Air Act, as amended
(42 U.S.C. (S)7401-7642); Toxic Substances Control Act, as amended, 15
U.S.C. (S)2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide
Act as amended, 7 U.S.C. (S)136-136y ("FIFRA"); the Emergency Planning and
Community Right-to-Know Act of 1986 as amended, 42 U.S.C. (S)11001, et seq.
(Title III of XXXX) ("EPCRA"); the Occupational Safety and Health Act of
1970, as amended, 29 U.S.C. (S)651, et seq. ("OSHA"); any similar state
statute, or any future amendments to, or regulations implementing such
statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or
decrees, or which has been or shall be determined or interpreted at any
time by any Governmental Authority to be a hazardous or toxic substance
regulated under any other statute, law, regulation, order, code, rule,
order, or decree.
"Held Back Interests" defined in Section 8.4.
53
"Immigration Act" defined in Section 3.1(j)(iii).
"Indemnifiable Damages" defined in Section 8.1 (a).
"Indemnified Party" defined in Section 8.3 (a).
"Initial Term" defined in Section 5.15.
"Insurance Policies" defined in Section 3.5(b).
"Intellectual Property" defined in Section 3.1(k).
"Interest" means limited liability company membership interests in DFG
of the same class and providing the same rights and obligations as all of
the members in DFG have as of the date hereof and any shares of stock,
interests or other similar property into which the Interests are converted,
exchanged or otherwise transferred in the future.
"Landlord" means Xxxxx Xxxx as landlord of the Building.
"Leased Premises" defined in Section 3.4(a)(ii).
"Leases" defined in Section 3.4(a)(ii).
"Liability Update Schedule" defined in Section 3.5(h).
"Licenses" means all licenses, certificates, permits, approvals and
registrations (collectively "Licenses") required by the Environmental,
Health and Safety Laws for the ownership of its properties and assets and
the operation of its business as presently conducted.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, but not limited to, any conditional
sale or other title retention agreement, any lease in the nature thereof,
and the filing of or agreement to give any financing statement under the
Uniform Commercial Code or comparable law or any jurisdiction in connection
with such mortgage, pledge, security interest, encumbrance, lien or
charge).
"Material Adverse Change (or Effect)" means a change (or effect), in
the condition (financial or otherwise), properties, assets, liabilities,
rights, obligations, operations, business or prospects which change (or
effect) individually or in the aggregate, is materially adverse to such
condition, properties, assets, liabilities, rights, obligations,
operations, business or prospects.
54
"Material Customers" defined in Section 3.2(e).
"MPPA Plan" defined in Section 3.3(b)(iv).
"Operating Agreement" means the limited liability operating agreement
of DFG dated as of March 25, 1995 and all amendments thereto entered into
from time to time.
"Other Agreements" defined in Section 5.10.
"OSHA" defined in the definition of "Hazardous Substances."
"Owned Properties" defined in Section 3.4(a)(i).
"Permits" defined in Section 3.5(c).
"Person" means an individual, partnership, corporation, business
trust, joint stock company, estate, trust, unincorporated association,
joint venture, Governmental Authority or other entity, of whatever nature.
"PBGC" defined in Section 3.3(b)(vi).
"Purchaser Ancillary Agreement" means all agreements, instruments and
documents being or to be executed and delivered by Seller under this
Agreement or in connection herewith.
"Purchase Price" defined in Section 1.2.
"Put Interest" defined in Section 1.2(b).
"Put Period" defined in Section 5.13(a).
"Put Right" defined in Section 5.13(a).
"RCRA" defined in Section 3.5(a).
"Receivables" defined in Section 3.2(d).
"Register", "registered" and "registration" refer to a registration of
the offering and sale of securities effected by preparing and filing a
registration statement in compliance with the Securities Act and the
declaration or ordering of the effectiveness of such registration
statement.
"Reinvestment Period" defined in Section 5.14.
55
"Reinvestment Right" defined in Section 5.14.
"Release" shall have the meanings given them in the Environmental,
Health and Safety Laws.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Ancillary Agreements" means all agreements, instruments and
documents being or to be executed by Seller hereunder or in connection
herewith.
"Shareholder" defined in the introductory paragraph of this Agreement
"Shareholder Indemnifiable Damages" defined in Section 8.2 (a).
"Shareholder Note" shall mean that certain promissory note issued on
January 1, 1991, as amended as of April 1, 1992 held by the Shareholder in
the principal amount of $325,714.
"Stock" defined in Recitals.
"Subsidiaries" defined in Section 2.8.
"Tax Return" means any tax return, filing or information statement
required to be filed in connection with or with respect to any Taxes; and
"Taxes" means all taxes, fees or other assessments, including, but not
limited to, income, excise, property, sales, franchise, intangible,
withholding, social security and unemployment taxes imposed by any federal,
state, local or foreign governmental agency, and any interest or penalties
related thereto.
"USDA" means the United States Department of Agriculture or any agency
or instrumentality that assumes the duties it carries out at this time.
"Underground Storage Tanks" defined in Section 3.5(a).
"Waste" shall be defined broadly to include agricultural wastes,
biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes,
liquid wastes, recyclable materials, sludge, solid wastes, special wastes,
used oils, white goods, and yard trash.
"Welfare Plan" defined in Section 3.3(b)(v).
56
10.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise
requires.
(b) Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP applied on a basis consistent with prior periods,
where applicable.
(d) As used herein, the neuter gender shall also denote the masculine
and feminine, and the masculine gender shall also denote the neuter and
feminine, where the context so permits.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) at any time prior to the Closing Date, by mutual written consent
of all of the parties hereto at any time prior to the Closing;
(b) at any time prior to the Closing Date, by the Purchaser in the
event of a material breach by the Company or the Shareholder of any
provision of this Agreement;
(c) at any time prior to the Closing Date by the Shareholder in the
event of a material breach by the Purchaser or DFG of any provision of this
Agreement;
(d) at any time prior to the Closing Date by the Purchaser in the
event: (i) the Purchaser is not satisfied, in its sole discretion, with
the results of the Environmental Assessment; (ii) the Purchaser has not
received authorization and approval of this Agreement and the transactions
contemplated hereby under the Operating Agreement and its other governing
documents; (iii) the Purchaser is not satisfied, in its sole discretion,
with its due diligence review of the Company;
(e) at any time prior to the Closing Date if permitted pursuant to
any other term or provision hereof; or
57
(f) at any time prior to the Closing Date, by any of the Purchaser or
the Shareholders if the Closing shall not have occurred by March 5, 1998;
provided, however, that neither the Purchaser, nor the Shareholders shall
be entitled to terminate this Agreement pursuant to this Section 11.1(c),
if such party's knowing or willful breach of this Agreement has prevented
the consummation of the transactions contemplated hereby.
11.2 Effect of Termination. Except as provided in Article VI, in the event
of termination of this Agreement pursuant to Section 11.1, this Agreement shall
forthwith become void; provided, however, that nothing herein shall relieve any
party from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement, and Section
11.3 shall remain valid and applicable.
11.3 Confidentiality. Purchaser agrees that (except as may be required by
law), it will not disclose or use and it will cause its officers, directors,
employees, representatives, agents, and advisors not to disclose or use any
Confidential Information (as hereinafter defined) with respect to the
Shareholder and/or the Company furnished, or to be furnished, by Shareholder or
the Company to Purchaser in connection herewith at any time or in any manner and
will not use such information other than in connection with its evaluation of
this Agreement. For the purposes of this paragraph "Confidential Information"
means all supplier lists, customer lists, financial statements and tax returns,
formulae, recipes, cooking, manufacturing and production of the Company, and
confectionary products and any other information identified as such in writing
to Purchaser by Shareholder or the Company. If this Agreement is not
consummated, Purchaser will promptly return all documents, contracts, records or
properties to Seller or the Company, including any copies Purchaser made of
documents provided by the Shareholder or the Company. In addition, all
documents received by the Purchaser (including copies thereof) shall be labeled
as trade secrets, and will not be used by the Purchaser or disseminated to any
other person to the detriment of the Company. The Company may recover actual
and consequential damages from the Purchaser for the breach or violation of this
paragraph.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage prepaid), guaranteed overnight delivery,
or facsimile transmission if such transmission is confirmed by delivery by
certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and telecopy numbers (or to such
other addresses or telecopy numbers which such party shall designate in writing
to the other party):
58
(a) if to the Purchaser to:
Diversified Food Group, L.L.C.
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxx
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxxx & Xxxxxxxx Ltd.
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx
Telecopy No.: (000) 000-0000
(b) if to the Company to:
Sweet Shop Candies, Inc.
000 Xxxxxxx Xxxxxx
Xx. Xxxxx, Xxxxx 00000
Attn: President
Telecopy No.: (000) 000-0000
(c) if to the Shareholder to:
Xx. Xxxxx X. Xxxx
0000 Xxxxxx Xxxxxxx
Xx. Xxxxx, Xxxxx 00000
Telecopy No.: (000) 000-0000
with a copy to:
Michener, Larimore, Swindle, Whitaker,
Flowers, Sawyer, Xxxxxxxx & Chalk, L.L.P.
3500 City Center Tower II
000 Xxxxxxxx Xxxxxx
Xx. Xxxxx, Xxxxx 00000-0000
Attn: X.X. Xxxxxx, III
Telecopy No.: (000) 000-0000
59
12.2 Entire Agreement. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Exhibits and Schedules constitute a part hereof as though set forth in full
above.
12.3 Expenses. The Purchaser and the Shareholder shall each pay their own
fees and expenses, including their own counsel fees, incurred in connection with
this Agreement or any transaction contemplated hereby; provided however, the
Company shall pay, after the Closing, legal fees of the Company attributable to
this transaction, in an amount not to exceed the lesser of $12,000 or 25% of the
total legal fees for the law firm that is jointly representing the Company and
the Shareholder.
12.4 Amendment; Waiver. This Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts. The rights and remedies of the parties under this Agreement
are in addition to all other rights and remedies, at law or equity, that they
may have against each other.
12.5 Binding Effect; Assignment. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by any of the Shareholders without the prior
written consent of the Purchaser.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.7 Interpretation. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
60
12.8 Governing Law; Interpretation. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of Texas
applicable to contracts executed and to be wholly performed within such State.
12.9 Arm's Length Negotiations. Each party herein expressly represents and
warrants to all other parties hereto that (a) before executing this Agreement,
said party has fully informed itself of the terms, contents, conditions and
effects of this Agreement; (b) said party has relied solely and completely upon
its own judgment in executing this Agreement; (c) said party has had the
opportunity to seek and has obtained the advice of counsel before executing this
Agreement; (d) said party has acted voluntarily and of its own free will in
executing this Agreement; (e) said party is not acting under duress, whether
economic or physical, in executing this Agreement; and (f) this Agreement is the
result of arm's length negotiations conducted by and among the parties and their
respective counsel.
12.10 Arbitration Procedures. To the extent this Agreement indicates
that any dispute arising between the parties shall be decided by binding
arbitration, such arbitration proceeding will be conducted in Memphis, Tennessee
and except as otherwise provided herein, will be conducted at the offices of
JAMS/ENDISPUTE, in accordance with the then current Commercial Arbitration Rules
of the American Arbitration Association. One arbitrator shall conduct the
proceedings. The arbitrator shall allow such discovery as the arbitrator
determines appropriate under the circumstances. The arbitrator shall determine
which party, if either, prevailed and shall award the prevailing party its costs
and reasonable attorney's fees. The award and decision of the arbitrator shall
be conclusive and binding on all parties to this Agreement and judgment on the
award may be entered in any court of competent jurisdiction. The parties
acknowledge and agree that any arbitration award may be enforced either or both
of them in a court of competent jurisdiction and each waives any right to
contest the validity or enforceability of such award. The parties further agree
to be bound by any statute of limitations which would be applicable in a court
of law to the controversy which is the subject of any arbitration proceeding
initiated under this Agreement. The parties further agree that they are
entitled to any arbitration proceeding to the entry of an order, by a court of
competent jurisdiction pursuant to an opinion of the arbitrator for specific
performance of any of the requirements of this Agreement. The parties further
agree that the arbitrator shall provide a statement of reasons explaining the
basis of the decision rendered. All matters relating to arbitration shall be
governed by the Federal Arbitration Act (9 U.S.C. (S)1, et seq.).
12.11 Conversion of DFG. If DFG decides to convert from a limited
liability company to a corporation, whether through a merger, a contribution of
membership interests, a contribution of properties, or through any other means,
the Shareholder agrees to cooperate with such conversion and to act in concert
with the Managing Members in connection therewith and his rights shall, to the
greatest extent possible, be converted or exchanged into similar rights in the
resulting corporation.
12.12 Post Closing Matters. Following the Closing, the Shareholder
shall obtain for the Company an estoppel certificate (the "Estoppel
Certificate") and a subordination, non-disturbance and attornment agreement (the
"Subordination Agreement"), each dated no earlier than thirty (30)
61
days prior to the Closing Date from the landlord on the Leased Properties. Each
such Estoppel Certificate and Subordination Agreement shall be in a form to be
reasonably agreed upon by the parties and shall contain such provisions
reasonably requested by the Purchaser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
PURCHASER:
---------
DIVERSIFIED FOOD GROUP, L.L.C., a Delaware limited
liability company
By: /s/ Xxxxxx X. Xxxx
--------------------------------
Its: CEO
-----------------------------
SHAREHOLDER:
-----------
/s/ Xxxxx X. Xxxx
-----------------------------------
XXXXX X. XXXX
COMPANY:
SWEET SHOP CANDIES, INC., a Texas
corporation
By: /s/ Xxxxx X. Xxxx
--------------------------------
Its: CEO
-----------------------------
62
