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EXHIBIT 2.1
AGREEMENT OF PURCHASE AND SALE OF STOCK
This AGREEMENT OF PURCHASE AND SALE OF STOCK ("Agreement") is made this
5th day of August, 1999, by and among PETQUARTERS, INC., an Arkansas corporation
("PetQuarters"), PQ Acquisition Company, Inc., an Arkansas corporation to be
formed by and as a wholly-owned subsidiary of PetQuarters (the "Purchaser"),
HUMBOLDT INDUSTRIES, INC., a Pennsylvania business corporation ("Humboldt"),
Maplewood Industries, Inc., a Pennsylvania business corporation ("Maplewood")
(collectively, Humboldt and Maplewood shall be referred to as the "Companies"),
and XXXX XXXXXXXXXX and XXXXXX XXXXXXXXXX, each an individual resident of
Pennsylvania (collectively, the "Shareholders"). The Companies and the
Shareholders are collectively referred to as the "Selling Parties."
RECITALS
WHEREAS, the Shareholders have represented that they own all of the
outstanding stock of the Companies;
WHEREAS, PetQuarters desires to purchase from the Shareholders, and the
Shareholders desire to sell to PetQuarters, all of the outstanding stock of the
Companies (the "Shares");
WHEREAS, the Companies desire that the Transaction be consummated.;
WHEREAS, PetQuarters and the Shareholders have determined that the most
advantageous method for PetQuarters to acquire all of the Shares is by use of a
subsidiary wholly-owned by PetQuarters so that the Transaction is treated as a
statutory merger under Section 368 of the Code;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms identified below in this Article I
shall have the meanings indicated, unless a different and common meaning of the
term is clearly indicated by the context.
AFFILIATE. With respect to any person, Entity or Party, (i) any person,
Entity or Party controlling, controlled by or under common control with any such
person, Entity or Party or (ii) any director or executive officer of any such
person, Entity or Party or of any person, Entity or Party referred to in clause
(i) of this definition.
AGREEMENT. This Agreement of Purchase and Sale of Stock, including all
of its Schedules and Exhibits, and including all duly adopted amendments,
modifications, and supplements.
CERCLA. Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C.A. xx.xx. 9601 et seq.
CLOSING. The completion of the Transaction, to take place as described
in Article IX hereof.
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CLOSING DATE. The date on which the Closing actually occurs, which
shall not be later than July 31, 1999, unless otherwise agreed by the parties,
but shall not in any event be prior to satisfaction or waiver of the conditions
to Closing set forth in Article VIII hereof.
CODE. The Internal Revenue Code of 1986, as amended and in effect at
the time of execution of the Agreement.
COMPANIES. Humboldt Industries, Inc., a Pennsylvania business
corporation, and Maplewood Industries, Inc, a Pennsylvania business corporation.
CONTROL. The possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a person, Entity or
Party, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
COMPANY BALANCE SHEETS. The most recent balance sheets of Humboldt and
Maplewood included in the Financial Statements.
CONFIDENTIAL INFORMATION. As defined in Section 5.2.
CUSTOMER. Any person or Entity for whom the Companies provided services
on or within the two years immediately prior to the Closing Date or to whom the
Companies provided a product on or within the two years immediately prior to the
Closing Date.
DEFECT NOTICE. As defined in Section 4.14.
ENTITY. A corporation, partnership, sole proprietorship, trust, joint
venture, limited liability company or other form of organization formed for the
conduct of a business whether active or passive.
ENVIRONMENTAL CONDITION. As defined in Section 7.2.
ENVIRONMENTAL LAWS. All federal, state and local requirements,
including statutes, regulations, ordinances, orders, common law, and judicial
and regulatory interpretations thereof, relating to protection of the
environment and the public health, safety and welfare, including without
limitation those requirements relating to manufacture, generation, distribution,
transport, handling, use, processing, treatment, storage, disposal or other
management of Hazardous Materials, those relating to investigation or
remediation of the Release of Hazardous Materials, and those relating to
protection of animal and plant species, environmentally sensitive areas, and
natural resources, including without limitation CERCLA.
ENVIRONMENTAL PERMITS. All interim and final permits, licenses,
registrations, certificates, approvals, and other authorizations issued,
obtained or conferred pursuant to Environmental Laws.
EPA. As defined in Section 4.27.
ERISA. The Employee Retirement Income Security Act of 1974, as amended
and in effect at the time of execution of the Agreement.
EQUITY. The sum of account numbers 3000 through 3599 on the applicable
Company Balance Sheets.
FINANCIAL STATEMENTS. The Companies' balance sheets and income
statements, as of December 31, 1998, and for the year previously ended.
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GAAP. Generally accepted accounting principles consistently applied, as
in effect on the date of any statement, report or determination that purports to
be, or is required to be, prepared or made in accordance with generally accepted
accounting principles.
HAZARDOUS MATERIAL. Any "hazardous substance" or "pollutant or
contaminant" as those terms are defined in Section 101 of CERCLA and all
implementing federal regulations; any natural gas, natural gas liquids,
liquefied natural gas, synthetic gas, or petroleum substance, including crude
oil or any fraction thereof; and any radioactive substance, asbestos,
polychlorinated biphenyls, urea formaldehyde, lead based paint, or other
substance subject to federal, state or local Environmental Laws.
IMPROVEMENTS. As defined in Section 4.14.
INDEMNIFIED PARTY. As defined in Section 7.4.
INDEMNIFYING PARTY. As defined in Section 7.4.
INTERIM FINANCIAL STATEMENTS. The unaudited balance sheets and income
statements of the Companies, as of March 31, 1999, and for the three months then
ended.
INVENTORIES. All inventories of raw materials and supplies,
manufactured and purchased parts, work in process and finished goods customarily
reflected as assets in balance sheets of Entities prepared in accordance with
GAAP.
LEASES. As defined in Section 4.14.
LIABILITIES. At any point in time (the "Determination Time"), the
obligations of the Companies, whether known or unknown, contingent or absolute,
recorded on its books or not, arising or resulting in any way from facts,
events, agreements, obligations or occurrences that existed or transpired at a
prior point in time, or resulted from the passage of time to the Determination
Time.
LOSSES. With respect to any person, Entity or Party, any payment, loss,
liability, obligation, damage (including, without limitation, consequential,
punitive, special or otherwise), deficiency, lien, judgment, cost or expense
(including, without limitation, reasonable attorneys' and accountants' fees and
expenses and court costs) of any kind, nature or description.
OWNED REAL PROPERTY. As defined in Section 4.14.
PARTIES. The Purchaser, PetQuarters and the Selling Parties.
PAYABLES. Liabilities of the Companies arising from the borrowing of
money or the incurring of obligations for merchandise or goods purchased. All
amounts owed to Shareholders shall be contributed to Shareholders' equity prior
to Closing.
PENSION PLAN. A "pension plan" or "employee pension benefit plan" as
defined in Section 3(2) of ERISA.
POLICIES. As defined in Section 4.14.
PROPERTIES. The real properties owned by the Companies, as described in
Schedule 4.14A hereof.
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PROPRIETARY RIGHTS. Trade secrets, copyrights, patents, trademarks,
service marks, and all similar types of intangible property developed, created,
or owned by the Companies, or used by the Companies in connection with its
business, whether or not the same are entitled to legal protection.
PURCHASE PRICE. As defined in Section 2.2.1.
PURCHASER. PQ Acquisition Company, Inc., an Arkansas corporation.
PURCHASER INDEMNITEE. The Purchaser, any affiliate of the Purchaser,
any person or Entity with whom the Purchaser is affiliated or with whom the
Purchaser has a partnership or joint venture relationship (a "Purchaser
Partner"), and any officer, director, shareholder, employee, agent, attorney,
joint venturer, partner (limited or general), servant, representative, trustee,
successor or assign of the Purchaser or of any Purchaser Partner or of any
affiliate of the Purchaser or any Purchaser Partner.
REAL PROPERTY. The real property described in Schedule 4.14B hereof,
which PetQuarters shall have the option to purchase in accordance with the terms
of this Agreement.
RECEIVABLES. Accounts receivable, notes receivable, and other
obligations appearing as assets on the books of the Companies, and customarily
reflected as assets in balance sheets of Entities prepared in accordance with
GAAP, indicating moneys owed to the Entity.
RELEASE OR RELEASED. Any past or present spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping, depositing, conducting, draining, throwing, running, seeping,
disposing, or otherwise releasing into a workplace or the environment (including
the abandonment or discarding of barrels, containers and other open or closed
receptacles), or causing, suffering, allowing any of these acts or omissions.
SHARES. The 1,000 shares of Humboldt's common stock, owned by the
Shareholders and representing all of the outstanding shares of Humboldt's common
stock and the 20 shares of Maplewood's common stock, owned by the Shareholders
and representing all of the outstanding shares of Maplewood's common stock.
SHAREHOLDERS. Xxxx Xxxxxxxxxx and Xxxxxx Xxxxxxxxxx.
SHAREHOLDER INDEMNIFIABLE CLAIMS. As defined in Section 7.2.
SELLING PARTIES. The Companies and the Shareholders.
TAX OR TAXES. (i) All federal, foreign, state, county or local net or
gross income, gross receipts, sales, use, ad valorem, value-added, franchise,
production, severance, windfall profit, withholding, payroll, employment, excise
or similar taxes, assessments, duties, fees, levies, penalties, financial
assurance or other governmental charges (together with any interest thereon, any
penalties, additions to tax or additional amounts with respect thereto, and any
interest in respect of such penalties, additions or additional amounts), and
(ii) liability for the payment of any consolidated tax (together with any
interest thereon, any penalties, additions to tax or additional amounts with
respect thereto, and any interest in respect of such penalties, additions or
additional amounts) of the type described in clause (i) of this paragraph.
THIRD PARTY. As defined in Section 6.8.
THIRD PARTY CLAIM. As defined in Section 7.5.
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THRESHOLD. As defined in Section 7.4.
TRANSACTION. The purchase and sale of the Shares as contemplated by
this Agreement and all incidental actions or related transactions contemplated
hereby.
UTILIZED REAL PROPERTY. As defined in Section 4.14.
VENDOR. Any third party selling or licensing a product or service to a
Customer or to the Company on or prior to the Closing Date.
WELFARE PLAN. A "welfare plan" or an "employee welfare benefit plan" as
defined in Section 3(1) of ERISA.
ARTICLE II
THE TRANSACTION
2.1 THE TRANSACTION. Upon the terms and subject to the conditions set
forth in this Agreement, on the Closing Date, the Shareholders shall sell,
grant, convey, assign, transfer and deliver to the Purchaser, and the Purchaser
shall purchase and acquire from the Shareholders all of the Shares. The exact
number of Shares to be sold by the Shareholders hereunder is 1,000 shares of
Humboldt common stock, $1.00 par value, and 20 shares of Maplewood common stock,
$1.00 par value.
2.2 PURCHASE PRICE.
2.2.1 PURCHASE PRICE. The purchase price for the Shares shall be
$9,200,000 (such price, as paid in accordance of Sections 2.2.2 and 2.2.3 below,
being herein referred to as the "Purchase Price").
2.2.2 CASH PAYMENT. At the Closing, the Purchaser shall deliver to
the Shareholders $4,600,000 to be paid by wire transfer of immediately available
funds prior to 2:00 p.m. EDST on the Closing Date.
2.2.3 STOCK PAYMENT. Subject to adjustment as provided in this
Section, the balance of the Purchase Price ($4,600,000) shall be paid by
2,044,444 shares of the common stock of PetQuarters (the "Purchase Shares"),
which closed, on the Quotron System, at $2.25 on May 6, 1999 (the "Initial
Closing Price").
If the average closing price (as disclosed on the Quotron System)
of the common stock of PetQuarters for the five trading days
immediately preceding the Closing of the Transaction is less than the
Initial Closing Price, then the number of Purchase Shares shall be
adjusted upward by multiplying the 2,044,444 Purchase Shares by a
fraction, the numerator of which is the Initial Closing Price and the
denominator of which is the 5-day average closing price. As an
alternative to such upward adjustment, Purchaser shall have the option
to make a cash payment to Shareholders that together with the Purchase
Shares at the 5-day average closing price equals the value of the
Purchase Shares at the Initial Closing Price value.
If the average closing price (as disclosed on the Quotron System)
of the common stock of PetQuarters for the five trading days
immediately preceding the Closing of the Transaction is more than the
Initial Closing Price, then the number of Purchase Shares shall be
adjusted
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downward by multiplying the 2.044,444 Purchase Shares by a fraction,
the numerator of which is the Initial Closing Price and the denominator
of which is the 5-day average closing price. In no event, however,
shall Shareholders collectively receive fewer than 1,000,000 Purchase
Shares.
2.2.4 ALLOCATION OF PURCHASE PRICE The Purchase Price shall be
allocated to each of the Shareholders in proportion to his, her or its pro rata
ownership of all Shares, except the Shareholders may, at their sole option and
discretion, allocate up to five percent (5%) of the Purchase Price to Xxxxxx
Xxxxxxxxx, employee of the pet care products division of Humboldt.
2.3 PARTIES TO THE AGREEMENT AND TRANSACTION. To the extent that any
provision of this Agreement calls for agreement by the Companies as a party
hereto, such provision shall mean the Companies as they exist prior to
consummation of the Transaction. If, after such consummation, any provision
hereof requires amendment, modification, interpretation, etc., the same may be
accomplished by the Shareholders and the Purchaser, without the participation of
the Companies.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PETQUARTERS AND THE PURCHASER
PetQuarters and the Purchaser hereby represent and warrant to the
Selling Parties:
3.1 ORGANIZATION AND QUALIFICATION. PetQuarters is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arkansas. Prior to Closing, the Purchaser shall be a corporation duly organized,
validly existing and in good standing under the laws of the State of Arkansas.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution and delivery of
this Agreement and the consummation of the Transaction have been duly authorized
and approved by the Board of Directors of PetQuarters and no other corporate
proceedings on the part of PetQuarters are necessary to approve and adopt this
Agreement or to approve the consummation of the Transaction. This Agreement has
been duly and validly executed and delivered by PetQuarters and constitutes a
valid and binding Agreement of PetQuarters, enforceable against PetQuarters in
accordance with its terms.
3.3 BROKERS. PetQuarters acknowledges that Fincom, Inc., and/or Pine
Tree Management Corporation (collectively, the "Brokerage Companies") may be
entitled to a brokerage or finder's fee or commission and PetQuarters assumes
full responsibility to satisfy all claims of the Brokerage Companies to such
fees prior to the Closing, if possible, and to obtain releases from the
Brokerage Companies for any future claims against PetQuarters, the Purchasers,
the Companies or the Shareholders. No other agent, broker, finder, investment
banker, person, Entity or firm acting on behalf of the Purchaser or under its
authority is entitled to any brokerage, finder's or other fee or commission in
connection with this Agreement or the Transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLING PARTIES
Each of the Selling Parties, jointly and severally, represents and
warrants to PetQuarters and the Purchaser as follows:
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4.1 ORGANIZATION AND QUALIFICATION. The Companies are business
corporations duly organized, validly existing and in good standing under the
laws of the State of Pennsylvania and have the requisite corporate power and
authority to own their properties and carry on their businesses as they are now
being conducted. The Companies are duly licensed or qualified to do business as
foreign corporations, and are in good standing, in each jurisdiction where the
character of the properties owned or leased by them, or the nature of their
activities, are such that qualification as a foreign corporation in that
jurisdiction is required by law, except in any such case where the failure to be
so qualified would not have a material adverse effect on the assets, business,
condition (financial or otherwise), operations or prospects of the Companies.
4.2 CAPITALIZATION; OWNERSHIP OF SHARES. The authorized capital stock
of the Humboldt consists of 100,000 shares of common stock, $1.00 par value, of
which 1,000 shares and no more are issued and outstanding. The authorized
capital stock of Maplewood consists of 10,000 shares of common stock, $1.00 par
value, of which 20 shares and no more are issued and outstanding. The Shares are
duly authorized, validly issued, fully paid and nonassessable, and have been
issued in compliance with federal and state securities laws. There are no
outstanding subscriptions, options, warrants, convertible instruments or other
rights, agreements or commitments obligating the Companies to sell or issue, or
to require the Shareholders to sell or otherwise transfer, any capital stock or
other securities of the Companies. All of the issued and outstanding Shares are
owned of record and beneficially by the Shareholders, free and clear of any
liens, encumbrances, security interests, options, pledges, agreements, claims,
charges or restrictions of any nature whatsoever. The Shareholders have full
power to transfer the Shares to the Purchaser without obtaining the consent or
approval of any other person, Entity or governmental authority.
4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement has been duly
and validly executed and delivered by the Selling Parties and constitutes a
valid and binding Agreement of each of the Selling Parties enforceable in
accordance with its terms. The Companies have all requisite corporate power and
authority to enter into this Agreement and to carry out the Transaction, and
their doing so has been duly and sufficiently authorized by the Board of
Directors of the Companies and the Shareholders.
4.4 ABSENCE OF BREACH; NO CONSENTS. The execution, delivery, and
performance of this Agreement, and the performance by the Companies and the
Shareholders of their respective obligations hereunder will not (i) violate or
conflict with any of the provisions of the Articles of Incorporation or Bylaws
of the Companies as amended to the date hereof; (ii) contravene any law,
ordinance, rule, or regulation of any State or political subdivision thereof or
of the United States or of any applicable foreign jurisdiction, or contravene
any order, writ, judgment, injunction, decree, determination, or award of any
court or other authority having jurisdiction, or cause the suspension or
revocation of any authorization, consent, approval, or license, presently in
effect, which affects or binds the Companies or any of their material
properties; (iii) result in a breach of any term or provision of, or constitute
a default under, or result in the acceleration of or entitle any party to
accelerate (whether after the giving of notice or the lapse of time or both) any
obligation under, or result in the creation or imposition of any lien, charge,
pledge, security interest or other encumbrance of all or any part of the
property of the Companies pursuant to any provision of, any order, judgment,
arbitration award, injunction, decree, indenture, mortgage, lease, license, lien
or other agreement or instrument to which the Companies or the any of the
Shareholders are a party or by which any of them is bound; (iv) require the
authorization, consent, approval of, or license, declaration, filing or
registration with, any governmental or regulatory authority or any third party;
or (v) constitute grounds for the loss or suspension of any permits, licenses,
or other authorizations used in the business of the Companies.
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4.5 BROKERS. Except as set forth in Section 3.3 hereof, no agent,
broker, finder, investment banker, person, Entity or firm acting on behalf of
the Selling Parties or under their authority is entitled to any brokerage,
finder's, or other fee or commission in connection with this Agreement or the
Transaction.
4.6 FINANCIAL STATEMENTS. Correct copies of the Financial Statements
and the Interim Financial Statements have been provided to PetQuarters, together
with financial statements for each of the four years in the period beginning
January 1, 1994 and ending December 31, 1997. The Financial Statements (i)
fairly and accurately present the financial position and condition of the
Companies as at the dates thereof and for the periods then ended, in accordance
with GAAP (except as otherwise stated therein), (ii) are complete, correct and
in accordance with the books of account and records of the Companies and (iii)
can be legitimately reconciled with the financial records maintained and the
accounting methods applied by it for federal income tax purposes. The Interim
Financial Statements were prepared in a manner consistent with the basis of
presentation used in the Financial Statements, and fairly and accurately present
the financial position and condition of the Companies as at and for the periods
indicated, in accordance with GAAP, subject to normal year-end adjustments. From
the date hereof through the Closing Date, the Company will continue to prepare
financial statements on the same basis that it has done so in the past, will
promptly deliver the same to PetQuarters, and each Selling Party agrees that
from and after such delivery the foregoing representations will be applicable to
each financial statement so prepared and delivered.
4.7 NO UNDISCLOSED LIABILITIES. To the knowledge of the Companies and
the Shareholders, the Companies do not have any Liabilities which are not
adequately reflected or reserved against on the face of the Company Balance
Sheets, except Liabilities reflected in the Interim Financial Statements or
incurred since the date of the Company Balance Sheet in the ordinary course of
business and consistent with past practice, in each case in normal amounts and
none of which is materially adverse, or except as otherwise disclosed herein.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS SINCE MAY 6, 1999. Since May
6, 1999, the Companies have not, except as set forth on Schedule 4.8 hereof:
(i) experienced any material adverse change in the assets,
business, condition (financial or otherwise), operations, or prospects
of the Companies;
(ii) suffered any damage, destruction, or loss, whether covered by
insurance or not, having a material adverse effect on the assets,
business, condition (financial or otherwise), operations, or prospects
of the Companies;
(iii) entered into, amended or terminated any material commitment,
contract, agreement, or transaction (including, without limitation, any
material borrowing or capital expenditure or sale or other disposition
of any material asset or assets) of or involving the Companies other
than this Agreement and agreements executed in the ordinary course of
business;
(iv) redeemed, repurchased or otherwise acquired for value its
capital stock, or issued any of its capital stock or securities
convertible into or rights to acquire any such capital stock, or
declared, set aside or paid any dividend or distribution on its capital
stock;
(v) transferred or granted any rights under any of its material
leases, licenses, agreements, patents, trademarks, trade names, or
copyrights;
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(vi) transferred, leased or otherwise disposed of any its assets or
properties other than in the ordinary course of business and consistent
with past practice or, except in the ordinary course of business and
consistent with past practice, acquired any assets or properties, or
entered into any agreement relating to the foregoing;
(vii) mortgaged, pledged, or subjected to any lien or other
encumbrance any of its assets or properties, other than in the ordinary
course of business, or entered into any agreement relating to the
foregoing;
(viii) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction with, any officer or employee, or changed the
nature of any supplemental benefits provided to any such executives or
other employees; or
(ix) modified inventory levels in relation to sales levels, other
than in the ordinary course of business and consistent with past
practice.
4.9 TAXES. The Companies have duly and timely filed or caused to be
filed all federal, state, local and foreign Tax returns (including, without
limitation, consolidated and/or combined Tax returns), reports, and declarations
that are required by applicable law to be filed by it, and has paid, or made
full and adequate provision for the payment of, all federal, state and local
income and other Taxes shown to be due for the periods covered by such returns,
reports, and declarations, except such taxes, if any, as are adequately reserved
against in the Company Balance Sheet. Except as set forth on Schedule 4.9
hereof, no deficiency in payment of Taxes for any period has been asserted by
any taxing body and remains unsettled at the date hereof. Copies of all federal
and state tax returns of the Companies for the last five years have been made
available for inspection by PetQuarters.
4.10 NO BREACH OR DEFAULT. The Companies are not in breach, violation
or default under any contract to which they are a party or by which they are
bound, nor has any event occurred which, after the giving of notice or the
passage of time or both, would constitute a breach, violation or default under
any such contract, and the Companies have not received notice of any claim or
assertion that they are or may be in any such breach, violation or default. The
Selling Parties have no reason to believe that the parties to such contracts
will not fulfill their obligations under such contracts in all material respects
or are threatened with insolvency.
4.11 LITIGATION.
4.11.1 Schedule 4.11 hereof sets forth a list and a summary
description of all pending or, to the knowledge of the Companies or any of the
Shareholders, threatened actions, suits, proceedings, disputes or investigations
by or against the any of the Shareholders, the Companies or any of their
respective officers, directors, employees, agents or affiliates involving,
affecting or relating to any assets, properties or operations of the Companies
or the transactions contemplated by this Agreement, setting forth, with respect
to each action, suit, proceeding, dispute or investigation, (i) any reserves
reflected in the Interim Financial Statements and (ii) the existence and extent
of insurance coverage.
4.11.2 Except as set forth on Schedule 4.11 hereof, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Companies or any of the Shareholders, threatened before any
federal, state or local court or governmental or regulatory authority, domestic
or foreign, or before any arbitrator of any nature, brought by or against any of
the Shareholders, the Companies or any of their respective officers, directors,
employees, agents or affiliates involving, affecting or relating to any assets,
properties or operations of the Companies or the transactions
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contemplated by this Agreement, nor does there exist any fact which might
reasonably be expected to give rise to any such suit, proceeding, dispute or
investigation.
4.11.3 Except as set forth on Schedule 4.11 hereof, neither the
Companies nor any of their assets or properties is subject to any order, writ,
judgment, award, injunction or decree of any federal, state or local court or
governmental or regulatory authority or arbitrator, which adversely affects or
might reasonably be expected to affect the assets, properties, business
operations, prospects, net income or financial condition of the Companies or
which would or might reasonably be expected to interfere with the transactions
contemplated hereby.
4.12 EMPLOYEES, ETC. Except as disclosed in Schedule 4.12 hereof, there
are no collective bargaining, bonus, profit sharing, compensation, or other
plans, agreements, trusts, funds, or arrangements maintained by the Companies
for the benefit of their directors, officers, or employees, and there are no
employment, consulting, severance, or indemnification arrangements, agreements
or understandings between the Companies, on the one hand, and any current or
former directors, officers, or other employees (or affiliates thereof) of the
Companies, on the other hand. Schedule 4.12 hereof identifies each person of the
eleven persons whose income from the Companies in the fiscal year ended on the
date of the Company Balance Sheets exceeded, or whose income from the Companies
in the fiscal year begun immediately thereafter is at a rate exceeding,
$25,000.00 per annum, and describes any contractual arrangement for the
employment or compensation of each such person. The Companies are not, and
following the Closing will not be, bound by any express or implied contract or
agreement to employ, directly or as a consultant or otherwise, any person for
any specific period of time or until any specific age except as specified in
agreements in writing identified on Schedule 4.12 hereof.
4.13 COMPLIANCE WITH LAWS. Except as set forth on Schedule 4.13 hereof,
the Companies are not in default with respect to any order of any court,
governmental authority or arbitration board or tribunal to which the Companies
are a party or are subject. Except as set forth on Schedule 4.13 hereof, to the
knowledge of the Companies and the Shareholders, the Companies are in compliance
with all, and have received no notice of any violation of any laws, ordinances,
governmental rules or regulations applicable to their operations, including
without limitation the use of premises occupied by them, or with respect to
which compliance is a condition of engaging in any aspect of the business of the
Companies and have all authority permits, licenses, zoning rights, and other
governmental authorizations necessary to conduct their businesses as presently
conducted.
4.14 REAL PROPERTY.
4.14.1 Schedule 4.14A hereof provides a legal description of all
real property owned, either in whole or in part, by the Companies (the "Owned
Real Property"). Schedule 4.14B hereof provides a legal description of the Real
Property owned by the Shareholders and currently leased to and used by the
Companies. Copies of all title insurance policies, surveys, title reports, deeds
or other documents relating to the Owned Real Property or vesting title to such
Owned Real Property in the Companies have been provided to PetQuarters or its
representatives. The Owned Real Property and the Real Property are herein
referred to collectively as the "Utilized Real Property". With respect to each
property included in the Utilized Real Property, except as set forth on Schedule
4.14C hereof:
(i) the Companies or the Shareholders, as the case may be,
currently have in place commercial general liability insurance with
respect to damage or injury to person, Entity or property occurring in
the Utilized Real Property and fire and extended coverage property
insurance policies (collectively "Policies") as represented to
PetQuarters by the presentation of certificates of insurance; the
Policies are in full force and effect and all premiums due thereunder
have been paid; and neither of the Companies nor any Shareholder has
received any notice from
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any insurance company or the insurance companies which issued the
Policies, stating (or indicating) that any of the Policies will not be
renewed or will be renewed at a substantially higher premium than is
presently payable therefor;
(ii) neither of the Companies nor any Shareholder has received any
notice from any insurance company which has issued a policy with
respect to the Utilized Real Property or from any board of fire
underwriters (or other body exercising similar functions) claiming any
defects or deficiencies in the Utilized Real Property or suggesting or
requesting the performance of any repairs, alterations, or other work
to the Utilized Real Property ("Defect Notice");
(iii) to the best knowledge of the Shareholders: all roads, parking
areas, curbs, sidewalks, sewers and other utilities and improvements
included within the Utilized Real Property (collectively, the
"Improvements"), have been completed, constructed, and installed
substantially in accordance with the plans and specifications therefor
approved by the governmental authorities having jurisdiction, and all
permanent certificates of occupancy and all other licenses, permits,
authorizations, consents, certificates and approvals required by all
governmental authorities having jurisdiction and the requisite
certificates of the local board of fire insurance underwriters (or
other body exercising similar functions) have been issued for the
Utilized Real Property (and all individual items constituting the
Utilized Real Property), have been paid for, and are in full force and
effect, and none of them will be invalidated, violated, or otherwise
adversely affected by the transfer of the Shares to the Purchaser;
(iv) to the best knowledge of the Shareholders: the Improvements
have been constructed in accordance with all applicable laws, rules,
regulations, ordinances and codes and are being maintained and operated
in compliance with all applicable laws, regulations, insurance
requirements, contracts, leases, permits, licenses, ordinances,
restrictions, and easements, and neither of the Companies nor any
Shareholder has received any notice, written or verbal, claiming any
violation of any of the same;
(v) to the best knowledge of the Shareholders: the construction and
current operation and use of the Improvements do not violate any
zoning, subdivision, building or similar law, ordinance, order or
regulation or any certificate of occupancy issued for, or any
restrictive covenant or other restriction, whether a real or personal
covenant or equitable servitude, which may be applicable to the
Utilized Real Property existing as of the making of this representation
and warranty;
(vi) to the best knowledge of the Shareholders: the location,
construction, occupancy, operation, and use of the Utilized Real
Property do not violate any applicable law, statute, ordinance, rule,
regulation, order, or determination of any governmental authority or
any board of fire underwriters (or other body exercising similar
functions), or any restrictive covenant or deed restriction (recorded
or otherwise) affecting the Utilized Real Property, including without
limitation all applicable zoning ordinances and building codes, flood
disaster laws, Americans with Disabilities Act, and health and
environmental laws and regulations;
(vii) to the best knowledge of the Shareholders: no portion of the
Utilized Real Property and no method of operation of the Utilized Real
Property (whether now used or contemplated) is now in violation or, to
the extent any such provisions are implemented as contemplated, will be
in violation of any law, ordinance, code, rule, order, regulation or
requirement of any governmental authority or of any local board of fire
underwriters (or other body exercising similar functions), or agreement
to which either of the Companies or any
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Shareholder is a party existing as of the making of this representation
and warranty, and there are no presently outstanding and uncured
notices of such violations;
(viii) to the best knowledge of the Shareholders: water, sanitary
sewer, storm sewer, drainage, electric, telephone, gas and other public
utility systems and lines serve the Utilized Real Property and are
directly connected to the lines and/or other facilities of the
respective public authorities or utility companies providing such
services or accepting such discharge, either adjacent to the Utilized
Real Property or through easements or rights of way appurtenant to and
forming a part of the Utilized Real Property; and any such easements or
rights-of-way have been fully granted, and all charges therefor have
been fully paid by the Companies, and all charges for the aforesaid
utility systems and the connection of the Utilized Real Property
thereto, including without limitation connection fees, "tie-in" charges
and other charges now or hereafter to become due and payable, have been
fully paid by the Companies;
(ix) to the best knowledge of the Shareholders: all contractors,
subcontractors, and other persons or Entities furnishing work, labor,
materials or supplies to the Companies, or their predecessors in
interest for the development and construction of the Utilized Real
Property have been paid in full for all work performed to date except
for retainage in customary amounts in accordance with the construction
contracts for the Utilized Real Property, and there are no claims
against the Companies, any Shareholder or any Utilized Real Property in
connection therewith;
(x) to the best knowledge of the Shareholders: no zoning variances,
special exceptions or other special relief from applicable governmental
requirements have been issued for construction on the Utilized Real
Property or for its present or intended use, except for certain signage
requirements for which a variance has been issued to permit a larger
sign than normally allowed;
(xi) to the actual knowledge of the Shareholders: the existing
Improvements located upon the Utilized Real Property do not encroach
upon existing utility company easements, and no existing restrictions
are or will be violated by the Improvements located on the Utilized
Real Property;
(xii) neither of the Companies nor any Shareholder has received any
notice of, nor to the best of Shareholders' knowledge, is there any
governmental regulation, order or requirement restricting the operation
of the Utilized Real Property in the manner in which the Utilized Real
Property is being operated on the date hereof;
(xiii) neither of the Companies nor any Shareholder has received
any written notice of, nor to the best of Shareholders' knowledge, is
there any proceeding pending for the increase or decrease of the
assessed valuation of all or any portion of the Utilized Real Property;
(xiv) neither the Company nor any Shareholder has received any
notice of, nor to the best of Shareholders' knowledge, is there any
condemnation proceeding or other proceedings in the nature of eminent
domain in connection with the Utilized Real Property;
(xv) to the best knowledge of the Shareholders: no portion of the
Utilized Real Property is located within an area designated as a flood
hazard area or an area which will require the purchase of flood
insurance for the obtaining of any federally insured or federally
related loan; and no portion of the Utilized Real Property is located
in any conservation or historic district;
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(xvi) to the best knowledge of the Shareholders: no assessments for
public improvements have been made against the Utilized Real Property
which remain unpaid and all such assessments which have been or could
be levied for public improvements ordered, commenced or completed prior
to the Closing Date have been paid for in full by the Companies;
(xvii) to the best knowledge of the Shareholders: there are no
special assessments respecting the Utilized Real Property which will
result from work, activities or improvements done to the Utilized Real
Property by the Companies, in the course of construction, alteration or
repair of the Utilized Real Property; and
(xviii) to the best knowledge of the Shareholders: there are no
unpaid bills or claims in connection with any repair of the
Improvements or other work performed or material purchased in
connection with the Utilized Real Property.
(xix) to the best knowledge of the Shareholders: the Companies are
not in default with respect to any lease or agreement between the
Companies and the Shareholders concerning the Real Property (the
"Shareholder Lease"). Specifically, the Companies have performed all
obligations required to be performed by them to date under, and are not
in default in respect of, the Shareholder Lease, and no event has
occurred which, with due notice or lapse of time or both, would
constitute such a default.
(xx) PetQuarters, the Purchaser and the Companies shall have the
right to lease the Real Property from the Shareholders for a period of
five (5) years from the 1st day of the month following the Closing
Date, pursuant to the terms and in accordance with the lease attached
hereto as Exhibit A, for $20,000 per month. Rental payments from the
Closing Date to the 1st date of the month following the Closing Date
shall be prorated on a daily basis utilizing the actual days of the
month and a $20,000 per month rental rate.
(xxi) PetQuarters, the Purchaser and the Companies shall have the
option to purchase the Real Property and all Improvements contained
thereon from the Shareholders for a period of five (5) years from the
Closing Date for a purchase price of $2,500,000, in accordance with the
terms set forth in the Option to Purchase Agreement attached hereto as
Exhibit B.
4.14.2 Schedule 4.14D hereof identifies the real property leased or
subleased by the Companies (the "Leases"). The Companies have not received any
written notification that they are in default with respect to any of the Leases
nor are there any disputes between any landlord and the Companies with respect
to the Leases that would affect the right of the Companies to remain in
possession or otherwise affect the current use of the property leased or the
rental amount then due. Except as set forth in Schedule 4.14D hereof, the
Companies have performed all obligations required to be performed by them to
date under, and are not in default in respect of, any Lease, and no event has
occurred which, with due notice or lapse of time or both, would constitute such
a default. To the best of the Companies' knowledge, no other party to any Lease
is in default in respect thereof, and no event has occurred which, with due
notice or lapse of time or both, would constitute such a default.
4.14.3 True and complete copies of all Leases including the Shareholder
Lease, have been made available to PetQuarters or its representatives.
4.14.4 The consummation of the Transaction will not affect in any way,
or result in the termination of, any of the Companies' Leases, particularly
those necessary to support activities licensed by federal, state or local
regulatory authorities.
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4.15 ASSETS. Schedule 4.15 hereof lists all of the Companies' fixed
assets including, but not limited to, all motor vehicles, machinery, equipment,
furniture, fixtures, inventory and other tangible personal property owned,
leased or used by the Companies.
4.16 TITLE TO PROPERTY; ENCUMBRANCES. The Companies have good, valid
and, in the case of real properties identified in Schedule 4.14A, indefeasible
title to all of their properties and assets (including those assets and
properties shown on the Interim Financial Statements or thereafter acquired)
(except for (i) inventory subsequently sold or otherwise disposed of for fair
value in the ordinary course of business consistent with past practice, (ii)
accounts receivable subsequently collected in the ordinary course of business
consistent with past practice, (iii) immaterial amounts of inventory, machinery
and equipment that have been determined to be obsolete or otherwise not
necessary and have been disposed of in the ordinary course of business
consistent with past practice, and (iv) those assets of the Companies that are
leased), in each case free and clear of all Encumbrances except for any
Encumbrance reflected on Schedule 4.16 hereof. The Companies do not know of any
potential action by any party, governmental or other, and no proceedings with
respect thereto have been instituted of which the Companies have notice, that
would materially affect the Companies' ability to use and to utilize each of
such assets in their businesses. The Companies have received no notices from any
mortgagee regarding any properties leased by the Companies.
4.17 PROPRIETARY RIGHTS. The Companies possess full ownership of, or
adequate and enforceable long-term licenses or other rights to use (without
payment), all Proprietary Rights owned by or registered in the name of the
Companies or used in the businesses of the Companies; the Companies have not
received any notice of conflict which asserts the rights of others with respect
thereto and are not aware of any infringing use of any of their Proprietary
Rights; and the Companies have in all material respects performed all of the
obligations required to be performed by them, and are not in default in any
material respect, under any agreement relating to any Proprietary Right.
4.18 SUBSIDIARIES; AFFILIATED ENTITIES. The Companies have no
subsidiaries. The Companies do not own, directly or indirectly, a majority or
controlling equity or related interest in any partnership, corporation, joint
venture, business association or other Entity. No part of the Companies'
businesses are conducted through Entities other than the Company.
4.19 TRADE NAMES. The Companies do use several fictitious business
names or trade names. The Companies are also known as: The Home Pet Shop,
Maplewood Crafts, Holiday Handicrafts, Humboldt Outlet Store, Master Animal
Care, Discount Master Animal Care and Dog Outfitters. All of the above listed
fictitious business names are trade names, and the business represented thereby
and conducted thereunder, shall be transferred to the Purchaser upon Closing.
The above listed fictitious business names or trade names are the only
fictitious business names or trade names under which either of the Companies
does business.
4.20 EMPLOYEE BENEFIT PLANS. Except as disclosed on Schedule 4.20
hereof, the Companies do not maintain or contribute to any Pension Plan or any
Welfare Plan, nor are the Companies presently, nor have they been within the
last six years, a participating employer in any "multiemployer plan" (as defined
in ERISA Section 3(37) or Section 414(f) of the Code). There has been no
termination of a Pension Plan, whether partial or complete, within the meaning
of Title IV of ERISA, that has occurred during the five-year period ending on
the date hereof. The Companies have no knowledge of any material liability being
incurred under Title IV of ERISA by the Company with respect to any Pension Plan
maintained by a trade or business (whether or not incorporated) which is under
common control with, or part of a controlled group of corporations with, the
Companies, within the meaning of Sections 414(b) or (c) of the Code.
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4.21 ACCOUNTS RECEIVABLE. All Receivables of the Companies, whether or
not reflected in the Company Balance Sheets, represent transactions in the
ordinary course of business, and are current and collectible net of any reserves
shown on such Balance Sheet (which reserves are adequate and were calculated
consistent with past practice). Schedule 4.21 hereof specifically identifies all
Receivables as of the date hereof (subject to posting of sales in accordance
with the Companies' customary practices) and the aging of such Receivables.
4.22 INVENTORIES. The Inventories of the Companies consist of items of
a quality and quantity usable and salable in the ordinary course of business by
the Companies, except for obsolete items and items below standard quality, all
of which have been written down on the books of the Companies to net realizable
market value or have been provided for by adequate reserves. All items included
in the Inventories are the property of the Companies, except for sales made in
the ordinary course of business; for each of those sales, either the purchaser
has made full payment or the purchaser's liability to make payment is reflected
in the Companies' books. No items included in the Inventories have been pledged
as collateral (except as disclosed on Schedule 4.22 hereof) or are held by the
Companies on consignment from others.
4.23 CONTRACTS. Except as identified on Schedule 4.23 hereof, the
Companies have no contracts, agreements, or understandings, whether express or
implied, written or oral; provided, however, that the Companies may have, and
Schedule 4.23 hereof does not identify, any such contracts, agreements, or
understandings that fall into one of the following categories: (a) those that
are terminable on notice of less than thirty-two (32) days and do not involve
payments or obligations of more than $2,000 in any period of thirty-one (31)
days or less (on termination or otherwise); or (b) those that involve aggregate
payments or obligations of less than $15,000. Schedule 4.23 hereof does,
however, identify each contract otherwise exempt from disclosure by (b) above if
the Companies' obligations, in the aggregate, under all such contracts,
agreements or understandings with persons or Entities similarly situated (e.g.,
all nonunion employees, all suppliers, all licensees, or all landlords) exceeds
$10,000 per annum. Schedule 4.23 hereof includes a brief summary of each such
contract, agreement or understanding identified therein, or of the type of such
contracts and the aggregate exposure or commitment under similar contracts in
the case of contracts included by reason of the preceding sentence.
4.24 ACCOUNTS PAYABLE. The accounts payable reflected on the Company
Balance Sheets do, and those reflected in the most recent balance sheet included
in the Interim Financial Statements do, and those reflected on the books of the
Companies at the time of the Closing will, reflect all amounts owed by the
Companies in respect of trade accounts due and other Payables, and the actual
Liability of the Companies in respect of such obligations was not, and will not
be, on any of such dates, in excess of the amounts so reflected on the balance
sheets or the books of the Companies, as the case may be. It is agreed, however,
that all amounts owed to Shareholders shall be contributed to Shareholders'
equity prior to Closing.
4.25 LABOR MATTERS. Except as set forth on Schedule 4.25 hereof, there
are no activities or controversies, including, without limitation, any labor
organizing activities, election petitions or proceedings, proceedings
preparatory thereto, unfair labor practice complaints, labor strikes, disputes,
slowdowns, or work stoppages, pending or, to the best of the knowledge of the
Companies, threatened, between the Companies and any of their employees.
4.26 INSURANCE. The Companies have provided copies of each of the
Companies' insurance policies to PetQuarters. The Companies have not within the
past three (3) years received any notice of cancellation of any insurance
agreement. The Companies do not have any material claims pending under any of
its insurance policies. The Companies will maintain all of the insurance
policies in full force and effect during the period of time between the
execution of this Agreement and the Closing.
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4.27 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 4.27
hereof:
(i) to the best knowledge of the Shareholders: the Companies and
their operations, including as applicable their personnel, equipment,
facilities and owned or leased premises (collectively "the Company
and/or its operations") have obtained and continue to hold all
Environmental Permits which are required under all applicable
Environmental Laws;
(ii) to the best knowledge of the Shareholders: the Companies and
their operations are in substantial compliance with all Environmental
Permits and Environmental Laws and have not received notice from a
federal, state or local authority that the Companies or their
operations have violated any of the foregoing; nor have the Companies
or their operations failed to provide any notification, certification,
report, response, payment or other filing required by a federal, state
or local regulatory agency, Environmental Law, or Environmental Permit;
(iii) to the best knowledge of the Shareholders: neither the
Companies nor their operations are subject to any judicial,
governmental, regulatory, or administrative proceeding alleging the
violation of any Environmental Permit or Environmental Law, or seeking
to suspend, revoke, involuntarily amend or modify, or not renew any
Environmental Permit or activity authorized thereunder;
(iv) to the best knowledge of the Shareholders: none of the
Companies' operations are on the "CERCLIS" list or the "National
Priorities List" of the U.S. Environmental Protection Agency ("EPA"),
or any similar state list, or the subject of any federal, state or
local investigation evaluating whether any remedial action is needed to
respond to a Release of any Hazardous Material;
(v) to the best knowledge of the Shareholders: the Companies and
their operations have not Released any Hazardous Material in quantities
that are reportable under Environmental Laws (other than a Release
authorized by an Environmental Permit); nor are the Companies or their
operations persons who own or operate, or who at the time of disposal
owned or operated, or who accepted Hazardous Material for transport and
selected, a facility at which Hazardous Material is or has been stored,
treated, or disposed of, and which did not or does not have all
necessary Environmental Permits; nor have the Companies or their
operations provided any notification of such a Release or facility to
required federal, state and local regulatory authorities;
(vi) to the best knowledge of the Shareholders: the Companies and
their operations have no contingent or actual liability in connection
with any Release of any Hazardous Material into the workplace or the
environment; nor does any parent, subsidiary, affiliated Entity, or
predecessor have any such liability for which the Companies and their
operations have been or may be held liable;
(vii) to the best knowledge of the Shareholders: the Companies and
their operations have not caused, suffered or allowed the performance
or omission of any act and know of no condition which could give rise
to liability now or in the future to any person or Entity under any
Environmental Laws, nor have the Companies or their operations received
notice of any such liability or any claim therefor, including without
limitation notice of a removal, remedial, or response action, or a
possible cost-recovery or contribution claim, by a federal, state or
local regulatory authority, or by a third person;
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(viii) to the best knowledge of the Shareholders: no Hazardous
Material is present or has been Released on, at, beneath or near any of
the Companies' or their operations' past or present facilities or
properties with the exception of such Hazardous Materials authorized
for receipt and actually managed at those facilities and properties in
accordance with all applicable Environmental Laws and Environmental
Permits; and no Hazardous Material is present or has been Released
beyond the authorized waste management areas, including to any surface
water or groundwater on, at, beneath or, to the Shareholders'
knowledge, near the facilities or properties;
(ix) to the best knowledge of the Shareholders: the Companies and
their operations do not own or operate, nor have they ever owned or
operated, an underground or aboveground storage tank, nor is any such
tank located on or under any of the real properties leased or owned by
the Companies or their operations; and
(x) to the best knowledge of the Shareholders: the Companies have
never sold or manufactured any product containing asbestos or
polychlorinated biphenyls.
4.28 YEAR 2000 COMPLIANCE. To the knowledge of the Shareholders: the
Companies' hardware, software, computer systems, chips and microprocessors have
been modified, or are in the process of being modified, as necessary to ensure
proper execution and accurate processing of all date-related data, whether from
years in the same century or in different centuries.
4.29 CUSTOMERS AND SUPPLIERS. Except as set forth on Schedule 4.29
hereof:
(i) neither the Shareholders nor the Companies has received notice
that, nor do any of them have any knowledge that, any Customer of
either of the Companies who accounted for more than 5% of either of the
Companies' sales in its most recently completed fiscal year has, will
or plans to discontinue doing business with the applicable Company;
(ii) the Companies do not have any outstanding purchase contracts
or commitments or unaccepted purchase orders which are in excess of the
normal, ordinary and usual requirements;
(iii) no supplier or subcontractor to the Companies has reduced
its shipments of orders issued by the Companies, or threatened to
discontinue, supplying such items or services to the Companies on
reasonable terms;
(iv) neither the Shareholders nor the Companies have received
notice that, nor do any of them have any knowledge that, any such
supplier or subcontractor has, will or plans to discontinue doing
business with the Companies on substantially the same terms as are
consistent with its past practices; and
(v) neither the Shareholders nor the Companies have received
notice that, nor do any of them have any knowledge that, any such
supplier or subcontractor has, will or plans to add any additional
distributors of such suppliers' or subcontractors' products or services
within the Companies' marketing areas.
4.30 ACCURACY OF INFORMATION. None of the Companies' or the
Shareholders' representations, warranties or statements contained in this
Agreement, in the Schedules and Exhibits hereto or in any other document
delivered to Purchaser in connection with the transactions contemplated by this
Agreement, contains or will contain any untrue statement of a material fact or
omits to state any
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material fact necessary in order to make any of such representations, warranties
or statements, in light of the circumstances under which they were made, not
misleading.
4.31 JURISDICTIONS. Schedule 4.31 contains a list of all jurisdictions
in which either Company is presently licensed or qualified to do business. The
Companies have complied in all material respects with all applicable laws of
each such jurisdiction and all applicable rules and regulations of each
regulatory agency therein. The Companies (i) have not been denied admission to
conduct any type of business in any jurisdiction in which they are not presently
admitted as set forth in such Schedule 4.31 hereof; (ii) have not had their
license or qualifications to conduct business in any jurisdiction revoked or
suspended; or (iii) have not been involved in any proceeding to revoke or
suspend a license or qualification.
4.32 RECORDS. The Companies and the Shareholders have delivered or made
available to PetQuarters and its counsel true and complete copies of their
articles of incorporation, bylaws, minutes of all meetings of directors and
shareholders and certificates reflecting all actions taken by the directors or
shareholders without a meeting, partnership agreements and certificates, and
other organizational documents of the Companies, and such documents are, except
as stated therein, in full force and effect on the date hereof. After
consummation of the transaction contemplated hereby, all such documents of the
Companies shall remain with the Companies or Purchaser, but the Shareholders may
have access to and make copies of all such documents as necessary for them to
complete any necessary Tax returns or for any other lawful purpose not in
violation of Article VI of this Agreement.
4.33 ACTIONS SINCE BALANCE SHEET DATE. Except as set forth on Schedule
4.33 hereof, since the date of the Company Balance Sheets, the Companies have
taken no actions that would be prohibited under the provisions of this Agreement
(without the prior consent of the Purchaser) after the date of this Agreement.
ARTICLE V
COVENANTS OF THE PURCHASER AND PETQUARTERS
5.1 AFFIRMATIVE COVENANTS. From the date hereof through the Closing
Date, PetQuarters and the Purchaser will take every action reasonably required
of it in order to satisfy the conditions to Closing set forth in this Agreement
and otherwise to ensure the prompt and expedient consummation of the Transaction
substantially as contemplated hereby, and will exert all reasonable efforts to
cause the Transaction to be consummated, provided in all instances that the
representations and warranties of the Selling Parties in this Agreement are and
remain true and accurate and that the covenants and agreements of the Selling
Parties in this Agreement are honored and that the conditions to the obligations
of the Purchaser set forth in this Agreement are not incapable of satisfaction.
5.2 CONFIDENTIALITY OF INFORMATION. Except as and to the extent
required by law, PetQuarters and the Purchaser will not disclose or use, and
will direct their representatives not to disclose or use to the detriment of the
Selling Parties, any Confidential Information (as defined below) with respect to
the Company furnished, or to be furnished, by either the Selling Parties or
their respective representatives to PetQuarters, the Purchaser or their
representatives at any time or in any manner other than in connection with its
evaluation of the Transaction; provided, however, that any disclosure or use
that is deemed necessary by PetQuarters or the Purchaser in their reasonable
discretion to determine the transferability of any and all operating permits
shall not be deemed to be a violation of this Section 5.2. "Confidential
Information" means any information about the Company stamped "confidential" or
identified in writing as such to PetQuarters or the Purchaser by any of the
Selling Parties promptly following its disclosure (and specifically includes any
Company Disclosure Statements delivered to
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PetQuarters or the Purchaser), unless (a) such information is already known to
PetQuarters or the Purchaser or their representatives or to others not bound by
a duty of confidentiality or such information becomes publicly available through
no fault of PetQuarters or the Purchaser or their representatives, (b) the use
of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
Transaction, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings. Upon the written
request of the Company in the event this Agreement is terminated for any reason
prior to Closing, PetQuarters and the Purchaser will promptly return to the
Company or destroy any Confidential Information in their possession and certify
in writing to the Company that they have done so.
5.3 EXPENSES. Whether or not the Transaction is consummated, all costs
and expenses incurred by PetQuarters and the Purchaser in connection with this
Agreement and the Transaction shall be paid by the Purchaser.
5.4 UNREGISTERED SECURITIES. The Purchaser acknowledges that the Shares
are not registered under the Securities Act of 1933 nor under the Arkansas
Securities Act nor under the Pennsylvania Securities Act and represents and
warrants as follows:
(i) The Purchaser is acquiring the Shares for its own account
solely for the investment purposes and not with a view to resell said
Shares.
(ii) The Purchaser has such knowledge and experience in business
and financial matters as to enable it to be capable of evaluating the
risks and merits of this investment.
(iii) The Purchaser is able to bear the economic risks of an
investment in the Shares.
(iv) The Shares will not be resold or otherwise transferred or
assigned without appropriate compliance with the registration
provisions of the Securities Act of 1933 and the applicable state Blue
Sky laws or exemption therefrom.
(v) The Purchaser has been provided with or permitted access to
all information which it deems material to formulating an investment
decision and that such information has been sufficient to make an
informed investment decision.
5.5 PIGGYBACK REGISTRATION. If PetQuarters at any time registers its
shares of common stock for sale or resale under the Securities Act of 1933 or
the Arkansas Securities Act (collectively or individually the "Securities
Act(s)") in connection with an underwritten public offering, PetQuarters will
give prompt written notice thereof to the Shareholders. Upon the written request
of the Shareholders made within thirty (30) days after the receipt of such
notice, PetQuarters shall cause the Purchase Shares to be registered under the
applicable Securities Act as part of such underwritten public offering.
PetQuarters shall be solely responsible for all costs, fees and expenses of such
registration, including, but not limited to, all attorney's fees, accountant's
and financial advisor's fees, fees and commissions of investments bankers,
filing fees and expenses, and printing and engraving costs and expenses.
PetQuarters, at its expenses, will furnish the Shareholders with such number of
prospectuses, offering circulars and documents incident to the registration, as
the Shareholders from time to time may reasonably request. If the managing
underwriter shall advise PetQuarters and the Shareholders in writing that the
inclusion in any registration pursuant hereto of some or all of the shares
sought to be registered creates a substantial risk that the proceeds or price
per unit, which the sellers of securities covered by such registration will
derive from the sale of such securities pursuant to such registration, will be
reduced or that the number of securities to be registered (including those
sought to be registered by PetQuarters and those sought to be registered by the
Shareholders) is too large a number to be reasonably sold, then the
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number of Purchase Shares sought to be registered by the Shareholders and the
number of shares of common stock of PetQuarters sought to be registered by any
other shareholders shall be reduced pro rata to the extent necessary to reduce
the number of securities to be registered to the number recommended by the
managing underwriter. In no instance shall PetQuarters be required to reduce the
number of shares of common stock it seeks to register to enable Purchase Shares
or shares owned by other stockholders to be registered. If the number of
Purchase Shares offered for sale pursuant to the public offering is limited by
the managing underwriter, and if the managing underwriter agrees to purchase its
overallotment from shareholders, rather than PetQuarters, the Shareholders shall
have first right to sell to the underwriters to the extent permitted by law
before any other shareholder. PetQuarters shall indemnify the Shareholders and
their personal representatives, heirs and assigns, against all claims, losses,
damages and liabilities (and actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained or made in or as part of the registration (or in any related
registration statement, notification or the like) or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out or based
on any violation by PetQuarters or any rule or regulation promulgated under the
Securities Acts (or under any state Blue Sky law) applicable to PetQuarters and
relating to any action or inaction required of PetQuarters in connection with
any such registration, and will reimburse the Shareholders and their personal
representatives, heirs and assigns, for any attorney's fees and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action.
ARTICLE VI
COVENANTS OF THE SELLING PARTIES
6.1 RESTRICTIVE COVENANTS.
(a) CUSTOMER RESTRICTION. Each Shareholder covenants and agrees
that he or she shall not, for a period of two (2) years from and after
the Closing Date, working alone or in conjunction with one or more
other persons or Entities, for compensation or not, (i) provide or
offer to provide to any Customer any product or service similar to that
offered by the Companies immediately prior to the Closing, or (ii)
induce or attempt to induce any Customer to withdraw, curtail or cancel
its business with the Companies, PetQuarters, or the Purchaser or in
any manner modify or fail to enter into any actual or potential
business relationship with PetQuarters, the Purchaser or the Companies.
This restriction shall in no way prohibit the Shareholders from
continuing to provide Customers with those services they currently
provide by or through Pet Enterprises Total Services, Inc., d/b/a
Willow Pet Hotel, Animal Travel Agency or All Dog Grooming
(collectively "Pet Enterprises"), but the Shareholders and Pet
Enterprises may not offer services or products through catalog or
internet sales.
(b) NON-RAID. Each Shareholder covenants and agrees that he or she
shall not, for a period of two (2) years from and after the Closing
Date, working alone or in conjunction with one or more other persons or
Entities, for compensation or not, (i) recruit or otherwise solicit or
induce any person or Entity who is, on the Closing Date or thereafter,
an employee or Vendor of the Companies to terminate their employment
with, or otherwise cease their relationship with, the Companies,
PetQuarters or the Purchaser or any of their respective subsidiaries or
affiliates, or (ii) hire, recruit or otherwise solicit any person or
Entity who, within the six months immediately preceding the Closing
Date, had been an employee or Vendor of the Companies; provided,
however, that clause (ii) shall not prohibit any Shareholder from
hiring, recruiting or soliciting any person or Entity (A) on a
part-time basis or (B) with which the Companies have terminated their
relationship after the Closing Date.
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(c) NONCOMPETITION. Each Shareholder covenants and agrees that
such Shareholder shall not, for a period of two (2) years from and
after the Closing Date, working alone or in conjunction with one or
more other persons or Entities, for compensation or not, permit such
Shareholder's name to be used by or engage in or carry on, directly or
indirectly, either for himself or as a member, stockholder, partner,
investor (other than as an owner of less than 5% of any public traded
Entity), officer or director of an Entity (other than PetQuarters or
the Purchaser or a subsidiary or affiliate of PetQuarters or the
Purchaser) or as an employee, agent, associate or contractor of any
person or Entity (other than PetQuarters or the Purchaser and/or any of
its subsidiaries or affiliates), any business in competition with the
business of the Companies as carried on by the Companies immediately
prior to the Closing, but only for as long as such business is carried
on by (i) the Purchaser and/or any of its subsidiaries or affiliates or
(ii) any person or Entity deriving title from the Purchaser or any of
its subsidiaries or affiliates to the assets and goodwill of the
business being carried on by the Companies immediately prior to the
Closing. The Parties intend that the covenants contained in this
Section 6.1(c) shall be deemed to be a series of separate covenants,
one for each State or country in which the Companies do business
immediately prior to the Closing and, except for geographic coverage,
each such separate covenant shall be identical in terms to the covenant
contained in this Section 6.1(c). This restriction shall in no way
prohibit the Shareholders from continuing to provide Customers with
those services they currently provide by or through Pet Enterprises,
but the Shareholders and Pet Enterprises may not offer services or
products through catalog or internet sales.
(d) REFORMATION. If, in any judicial proceeding, the court shall
refuse to enforce all of the separate covenants contained in Section
6.1(a),6.1(b) or 6.1(c) hereof because the time limit is too long, it
is expressly understood and agreed between the Parties that for
purposes of such proceeding such time limitation shall be deemed
reduced to the extent necessary to permit enforcement of such
covenants. If, in any judicial proceeding, the court shall refuse to
enforce all of the separate covenants contained in Section 6.1(a),
6.1(b) or 6.1(c) hereof because they are more extensive (whether as to
geographic area, scope of business or otherwise) than necessary to
protect the business and goodwill of the Purchaser or any of its
subsidiaries or affiliates, it is expressly understood and agreed
between the Parties that for purposes of such proceeding the geographic
area, scope of business or other aspect shall be deemed reduced to the
extent necessary to permit enforcement of such covenants.
(e) INJUNCTIVE RELIEF. Each Shareholder acknowledges that a breach
of Section 6.1 hereof would cause irreparable damage to PetQuarters and
the Purchaser, and in the event of such Shareholder's actual or
threatened breach of the provisions of Section 6.1 hereof, PetQuarters
and the Purchaser shall be entitled to a temporary restraining order
and an injunction restraining such Shareholder from breaching such
covenants without the necessity of posting bond or proving irreparable
harm, such being conclusively admitted by such Shareholder. Nothing
shall be construed as prohibiting PetQuarters or the Purchaser from
pursuing any other available remedies for such breach or threatened
breach, including the recovery of damages from such Shareholder. Each
Shareholder acknowledges that the restrictions set forth in Section 6.1
hereof are reasonable in scope and duration, given the nature of the
business of PetQuarters and the Purchaser. Each Shareholder agrees that
issuance of an injunction will not pose an unreasonable restriction on
such Shareholder's ability to obtain employment or other work following
the Closing Date.
(f) OTHER AGREEMENTS. The provisions of this Section 6.1 shall be
independent of and in addition to any other agreement between
PetQuarters, the Purchaser or the Companies and any Shareholder
regarding the subject matter of this Section 6.1.
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6.2 AFFIRMATIVE COVENANTS. From the date hereof through the Closing
Date, the Selling Parties will take every action reasonably required of either
of them to satisfy the conditions to Closing set forth in this Agreement and
otherwise to ensure the prompt and expedient consummation of the Transaction
substantially as contemplated hereby, and will exert all reasonable efforts to
cause the Transaction to be consummated, provided in all instances that the
representations and warranties of the Purchaser in this Agreement are and remain
true and accurate and that the covenants and agreements of the Purchaser in this
Agreement are honored and that the conditions to the obligations of the
Companies set forth in this Agreement are not incapable of satisfaction.
6.3 ACCESS AND INFORMATION. The Selling Parties shall afford to
PetQuarters, the Purchaser and to the Purchaser's accountants, counsel and other
representatives reasonable access during normal business hours throughout the
period prior to the Closing to all of the Companies' properties, books,
contracts, commitments, records and personnel, and, during such period, the
Companies shall furnish promptly to the Purchaser (1) all written communications
from the Companies to its directors or to its Shareholders generally, (2) the
Companies' internal monthly financial statements when and as available, and (3)
all other information concerning its business, properties, and personnel as the
Purchaser may reasonably request, but no investigation pursuant to this Section
6.3 shall affect any representations or warranties of the Selling Parties, or
the conditions to the obligations of the Purchaser to consummate the Transaction
contemplated by this Agreement. The Purchaser and its representatives shall
assert their rights hereunder in such manner as to minimize interference with
the business of the Companies.
6.4 NO SOLICITATION. The Selling Parties and those acting on their
behalf will not, and the Companies will use their best efforts to cause their
officers, employees, agents, and representatives (including any investment
banker) not, directly or indirectly, to solicit, encourage, or initiate any
discussions with, or negotiate or otherwise deal with, or provide any
information to, any person or Entity other than the Purchaser and its officers,
employees, and agents, concerning any merger, sale of substantial assets, or
similar transaction involving the Companies or division of the Companies or any
sale of any of their capital stock or of any division. The Companies will notify
the Purchaser immediately upon receipt of any inquiry, offer or proposal
relating to any of the foregoing. None of the foregoing shall prohibit providing
information to others in a manner in keeping with the ordinary conduct of the
Companies' business, or providing information to government authorities.
6.5 CONDUCT OF BUSINESS.
6.5.1 AFFIRMATIVE COVENANTS. The Selling Parties covenant and
agree with the Purchaser that, on and after the date hereof and prior to the
consummation of the Transaction or the termination of this Agreement pursuant to
its terms, the Companies shall, and the Shareholders shall cause the Companies
to:
(i) conduct their business according to the ordinary and
usual course of business consistent with past practice;
(ii) use commercially reasonable efforts to preserve intact
their business organization and goodwill, to keep available the
services of their officers, directors and employees, and maintain
good relationships with suppliers, lenders, creditors,
distributors, employees, customers, licensors, licensees and others
having business or financial relationships with them, and they
shall immediately notify the Purchaser of any event or occurrence
or emergency material to, and not in the ordinary and usual course
of, their business;
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(iii) continue properly and promptly to file when due all
federal, state, local, foreign, and other tax returns, reports, and
declarations required to be filed by them, and will pay, or make
full and adequate provision for the payment of, all taxes and
governmental charges due from or payable by them;
(iv) comply in all material respects with all laws and
regulations applicable to them and their operations;
(v) maintain in full force and effect insurance coverage of a
type and amount customary in their business, but not less than that
presently in effect; and
(vi) maintain their assets and properties in good repair and
in the same condition, reasonable wear and tear excepted, as they
were on the date of this Agreement.
6.5.2 NEGATIVE COVENANTS. Without limiting the generality of the
foregoing, and except for actions listed on Schedule 6.5.2 hereof, without the
Purchaser's prior written consent, the Companies shall not, and the Shareholders
shall cause the Companies not to, on or after the date hereof and prior to the
consummation of the Transaction or the termination of this Agreement pursuant to
its terms:
(i) amend their Articles of Incorporation or Bylaws;
(ii) split, combine, or reclassify any of their outstanding
securities or declare, set aside, or pay any dividend or other
distribution on or make or agree or commit to make any exchange for
or redemption of any such securities payable in cash, stock, or
property;
(iii) issue or agree to issue any additional shares of, or
rights of any kind to acquire any shares of, their capital stock of
any class, enter into any contract, agreement, commitment, or
arrangement with respect to any of the foregoing or otherwise
change their capitalization as it exists on the date hereof;
(iv) create, incur, or assume any long-term or short-term
indebtedness for money borrowed, guarantee the payment of any such
indebtedness, or make any capital expenditures or commitment for
capital expenditures, except in the ordinary course of business and
consistent with past practice;
(v) adopt, enter into, or amend any bonus, profit-sharing,
compensation, stock option, warrant, pension, retirement, deferred
compensation, employment, severance, termination, or other employee
benefit plan, agreement, trust fund, or arrangement for the benefit
or welfare of any officer, director or employee;
(vi) agree to any material (in relation to historical
compensation) increase in the compensation payable or to become
payable to, or any increase in the contractual term of employment
of, any officer, director, or employee except, with respect to
employees who are not officers or directors, in the ordinary course
of business in accordance with past practice.
(vii) sell, lease, mortgage, encumber, or otherwise dispose
of or grant any interest in any of their assets or properties
except for sales, encumbrances, and other dispositions or grants in
the ordinary course of business and consistent with past practice
and except for liens for taxes
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not yet due or liens or encumbrances that are not material in
amount or effect and do not impair the use of the property, or as
specifically provided for or permitted in this Agreement;
(viii) enter into, amend or terminate any material contract,
agreement, commitment, or understanding;
(ix) enter into any agreement, commitment, or understanding,
whether in writing or otherwise, with respect to any of the
foregoing; or
(x) hold any meetings of its board of directors, or any
committee thereof, or of their Shareholders, without inviting a
representative selected by the Purchaser to attend the same
(although the Companies may request that such representative absent
himself or herself during that portion of any such meeting that
pertains to issues arising under this Agreement).
6.6 COOPERATION. The Selling Parties will cooperate with PetQuarters,
the Purchaser and their counsel, accountants and agents in every way in carrying
out the transactions contemplated by this Agreement and in delivering all
documents and instruments deemed reasonably necessary or useful by PetQuarters
and the Purchaser.
6.7 EXPENSES. Whether or not the Transaction is consummated, all costs
and expenses incurred by the Selling Parties in connection with this Agreement
and the Transaction which are ordinarily and customarily incurred and paid by
the Companies in their business operations may be paid by the Companies, but all
costs and expenses incurred by the Selling Parties in connection with this
Agreement and the Transaction which are not ordinarily and customarily incurred
by the Companies in their business operations, specifically including those
expenses which would have to be capitalized by the Purchaser as an expense of
acquiring the Shares or by the Shareholders as an expense of selling the Shares,
shall be paid by the Shareholders from the Purchase Price. In the event the
Transaction is consummated, all additional expenses incurred by PetQuarters for
the creation of the Purchaser and for the estimated costs of the dissolution of
the Purchaser, not to exceed $2,500, shall be paid by the Shareholders at
Closing. Other than the usual and customary quarterly Tax deposit paid by the
Companies for the benefit of the Shareholders, all Tax obligations of the
Shareholders incurred on or after the Closing Date, arising from the operation
of the Companies prior to the Closing Date or the Transaction, including the
filing of a "short-year return" ending on the Closing Date for the Companies,
shall be paid by the Shareholders and not the Companies.
6.8 PUBLICITY. Prior to the Closing, no Party will issue or make any
reports, statements or releases to the public with respect to this Agreement or
the Transaction contemplated hereby without consulting the other as to the
content and wording of such disclosure or release; provided, however, that the
foregoing shall not be deemed to prohibit any disclosure required by applicable
law or by any governmental authority having jurisdiction over such matters, or
by the disclosure obligations of PetQuarters as a public company.
6.9 ENVIRONMENTAL MATTERS. The Selling Parties shall, during the period
between the date of this Agreement and Closing, promptly provide to the
Purchaser any notices or claims received by the Selling Parties that arise under
any Environmental Laws. The Selling Parties shall permit the Purchaser and its
representatives to conduct, at the Purchaser's expense, such other environmental
inspections of the Owned Real Properties as the Purchaser desires to conduct
prior to Closing.
6.10 UPDATING OF EXHIBITS AND DISCLOSURE DOCUMENTS. The Selling Parties
shall notify the Purchaser of any changes, additions, or events which may cause
any change in or addition to any Schedules and Exhibits hereto or any other
schedules or exhibits delivered by the Selling Parties under
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this Agreement promptly after the occurrence of the same and again at the
Closing by delivery of appropriate updates to all such schedules and exhibits.
No such notification made pursuant to this Section shall be deemed to cure any
breach of any representation or warranty made in this Agreement unless the
Purchaser specifically agrees thereto in writing nor shall any such notification
be considered to constitute or give rise to a waiver by the Purchaser of any
condition set forth in this Agreement.
6.11 EXECUTION OF ADDITIONAL DOCUMENTS. Each Party will at any time,
and from time to time after the Closing Date, upon request of any other Party,
execute, acknowledge and deliver all such further deeds, assignments, transfers,
conveyances, powers of attorney and assurance, and take all such further action,
as may be reasonably required to carry out the intent of this Agreement, and to
transfer and vest title to any Shares being transferred hereunder, and to
protect the right, title and interest in and enjoyment of all of the Shares
sold, granted, assigned, transferred, delivered and conveyed pursuant hereto;
provided, however, that this Agreement shall be effective regardless of whether
any such additional documents are executed.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES/INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties by the Parties in Articles III and IV hereof or in any other Article
or Section hereof, or in any certificate or other document furnished or to be
furnished by the Parties pursuant hereto, shall survive delivery by the Parties
of the consideration to be given by them hereunder, and shall survive the
execution hereof, the Closing hereunder and the Closing Date, all such
representations and warranties to expire on the first anniversary of the Closing
Date.
7.2 INDEMNIFICATION BY SHAREHOLDERS. Upon the terms and subject to the
conditions set forth in Sections 7.4 and 7.5 hereof and this Section 7.2, each
of the Shareholders agrees, severally based upon the pro rata share of the
Purchase Price received by such Shareholder, to indemnify, defend, protect, save
and hold harmless the Purchaser and PetQuarters against, and will reimburse the
Purchaser or PetQuarters on demand for, any and all Losses made or incurred by
or asserted against the Purchaser or PetQuarters, at any time after the Closing
Date, directly or indirectly, arising out of, related to, caused by, or
resulting from any of the following ("Shareholder Indemnifiable Claims"):
(a) any inaccuracy or misrepresentation in, omission from, or
breach or nonfulfillment of representation, warranty, term, provision,
covenant or agreement on the part of any Shareholder contained in this
Agreement or in any certificate or other instrument furnished or to be
furnished by the Company or any Shareholder to the Purchaser pursuant
hereto; provided, however, that no Shareholder shall have any liability
to the Purchaser or PetQuarters for breach of any covenant set forth in
Section 6.1 hereof except for liability arising from such Shareholder's
own conduct; or
(b) any liability or obligation of the Company or any
Shareholder, whether imposed by any law or pursuant to any agreement,
for any Taxes with respect to periods or events or transactions
(including, without limitation, the events or transactions described or
permitted to be taken hereunder) prior to or ending on the Closing
Date, but only to the extent that such Taxes, in the aggregate, exceed
the amount of the aggregate reserves for such Taxes, if any, shown as
liabilities on the Interim Financial Statements.
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The obligation of the Shareholders to indemnify the Purchaser and PetQuarters
with respect to any Shareholder Indemnifiable Claims shall not be affected by
the fact that the Purchaser, PetQuarters or their representatives conducted any
due diligence investigation.
7.3 INDEMNIFICATION BY THE PURCHASER. Upon the terms and subject to the
conditions set forth in Sections 7.4 and 7.5 hereof and this Section 7.3 and in
addition that indemnification contained in Section 5.5, the Purchaser and
PetQuarters, jointly and severally, agree to indemnify, defend, protect, save
and hold harmless each Shareholder against, and will reimburse each Shareholder
on demand for, any and all Losses made or incurred by or asserted against any
Shareholder, at any time after the Closing Date, directly or indirectly, arising
out of, related to, caused by, or resulting from any of the following
("Purchaser Indemnifiable Claims").
(a) Any inaccuracy or misrepresentation in, omission from, or
breach or nonfulfillment of any representation, warranty, term,
provision, covenant or agreement on the part of the Purchaser and/or
PetQuarters contained in this Agreement or in any certificate or other
instrument furnished or to be furnished by the Purchaser and/or
PetQuarters to any Shareholder pursuant hereto; and
(b) Any and all Liabilities, including, but not limited to,
any lawsuit (at law or in equity), administrative or other proceeding
initiated by any person or Entity against any Shareholder to enforce
the payment or performance of any such Liabilities, to the extent not
specifically subject to an indemnity by the Shareholders under the
terms of this Agreement; and
(c) The obligations of PetQuarters and/or the Purchaser
arising at any time (the "Determination Time") from the business
operations of PetQuarters and/or the Purchaser or resulting from
ownership of the Shares, whether known or unknown, contingent or
absolute, recorded on its/their books or not, and arising or resulting
in any way from facts, events, agreements, obligations or occurrences
that existed or transpired at a prior time or resulted from the passage
of time to the Determination Time, including, but not limited to, any
lawsuit (at law or in equity), administrative or other proceeding
initiated by any person or Entity against any Shareholder to enforce
the payment or performance of any such obligation, to the extent not
specifically subject to an indemnity by the Shareholders under the
terms of this Agreement.
7.4 LIMITATIONS ON INDEMNIFICATION. Rights to indemnification under
Section 7.2 or 7.3 hereof are subject to the following limitations:
(a) With respect to any Losses incurred by the Purchaser or
PetQuarters with respect to any Shareholder Indemnifiable Claim
relating to any representation or warranty of Shareholder set forth in
Section 4.2 or 4.9 hereof or any matter referred to in Section 7.2(b)
hereof, the Purchaser and PetQuarters shall be entitled to
indemnification under Section 7.2 hereof for all such Losses incurred
by them with respect to such Shareholder Indemnifiable Claim up to the
amount of the Purchase Price.
(b) Subject to Section 7.4(g) hereof, the obligations of the
Shareholders under Section 7.2 hereof with respect to any Losses
incurred by any Purchaser Indemnitee with respect to any Shareholder
Indemnifiable Claim relating to any representation or warranty of
Shareholder set forth in Section 4.9 hereof or any matters referred to
in Section 7.2(b) hereof shall terminate on the expiration of the
respective statute of limitations applicable to assessment and
collection of Taxes under the laws then applicable to such Taxes.
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(c) The obligations of the Shareholders under Section 7.2
hereof with respect to any Losses incurred by either the Purchaser or
PetQuarters with respect to Shareholder Indemnifiable Claims relating
to any representation or warranty of Shareholder set forth in Section
4.2 hereof shall not expire.
(d) Subject to Section 7.4(g) hereof, the obligations of the
Shareholders under Section 7.2 hereof with respect to any Losses
incurred by either the Purchaser or PetQuarters with respect to any
Shareholder Indemnifiable Claim relating to any representation or
warranty hereunder (other than any representation or warranty of the
Shareholders set forth in Section 4.2 or 4.9 hereof) shall terminate on
the first anniversary of the Closing Date.
(e) Subject to Section 7.4(g) hereof, the obligations of the
Shareholders under Section 7.2 hereof with respect to any Losses
incurred by either the Purchaser or PetQuarters with respect to any
Shareholder Indemnifiable Claim arising out of or relating to any
covenant or agreement of the Shareholders set forth in this Agreement
shall terminate upon expiration, if any, of such covenant or agreement
as provided herein.
(f) Subject to Section 7.4(g) hereof and not including any
indemnity provided by Sections 5.5, 7.3(b) and 7.3(c) hereof, the
obligations of the Purchaser under Section 7.3 hereof with respect to
any Losses incurred by any Shareholder with respect to any Purchaser
Indemnifiable Claim relating to any matter referred to in Section
7.3(a) hereof shall terminate on the first anniversary of the Closing
Date.
(g) The foregoing provisions of this section 7.4
notwithstanding, if, prior to the termination of any obligation to
indemnify, written notice of a Shareholder Indemnifiable Claim or a
Purchaser Indemnifiable Claim, as the case may be, is given by the
Party seeking indemnification (the "Indemnified Party") to the Party
from whom indemnification is sought (the "Indemnifying Party"), or a
suit or action based upon a Shareholder Indemnifiable Claim or a
Purchaser Indemnifiable Claim, as the case may be, is commenced against
the Indemnifying Party, the Indemnified Party shall not be precluded
from pursuing such claim, breach, occurrence, other matter, or suit or
action, or from recovering from the Indemnifying Party (whether through
the courts or otherwise) on the Shareholder Indemnifiable Claim or the
Purchaser Indemnifiable Claim, as the case may be, by any reason of the
termination otherwise provided for above in this Section 7.4, if any.
7.5 CONDITIONS OF INDEMNIFICATION. With respect to any actual or
potential claim, any written demand, the commencement of any action, or the
occurrence of any other event which involves any Shareholder Indemnifiable Claim
or Purchaser Indemnifiable Claim:
(a) Promptly after the Indemnified Party first receives
written documents pertaining to the Claim, or if such Claim does not
involve a third party Claim (a "Third Party Claim"), promptly after the
Indemnified Party first has actual knowledge of such Claim, the
Indemnified Party shall give notice to the Indemnifying Party of such
Claim in reasonable detail and stating the amount involved, if known,
together with copies of any written documents.
(b) The obligation of the Indemnifying Party to indemnify the
Indemnified Party with respect to any Claim shall not be affected by
the failure of the Indemnified Party to give the notice with respect
thereto in accordance with Section 7.5(a) hereof unless the
Indemnifying Party has been materially prejudiced thereby.
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(c) If the Claim involves a Third Party Claim, then the
Indemnifying Party shall have the right, at its sole cost, expense and
ultimate liability regardless of the outcome, and through counsel of
its choice (which counsel shall be reasonably satisfactory to the
Indemnified Party), to litigate, defend, settle or otherwise attempt to
resolve such Third Party Claim; provided, however, that if in the
Indemnified Party's reasonable judgment a conflict of interest may
exist between the Indemnified Party and the Indemnifying Party with
respect to such Third Party Claim, then the Indemnified Party shall be
entitled to select counsel of its own choosing, reasonably satisfactory
to the Indemnifying Party, in which event the Indemnifying Party shall
be obligated to pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, the Indemnified Party may
elect, at any time and at the Indemnified Party's sole cost, expense
and ultimate liability, regardless of the outcome, and through counsel
of its choice, to litigate, defend, settle or otherwise attempt to
resolve such Third Party Claim. If the Indemnified Party so elects (for
reasons other than the Indemnifying Party's failure or refusal to
provide a defense to such Third Party Claim), then the Indemnifying
Party shall have no obligation to indemnify the Indemnified Party with
respect to such Third Party Claim, but such disposition will be without
prejudice to any other right the Indemnified Party may have to
indemnification under Section 7.2 or 7.3 hereof, regardless of the
outcome of such Third Party Claim. If the Indemnifying Party fails or
refuses to provide a defense to any Third Party Claim, then the
Indemnified Party shall have the right to undertake the defense,
compromise or settlement of such Third Party Claim, through counsel of
its choice, on behalf of and for the account and at the risk of the
Indemnifying Party, and the Indemnifying Party shall be obligated to
pay the costs, expenses and attorney's fees incurred by the Indemnified
Party in connection with such Third Party Claim. In any event, the
Purchaser Indemnitees, the Company and the Shareholders shall fully
cooperate with each other and their respective counsel in connection
with any such litigation, defense, settlement or other attempted
resolution.
7.6 PURCHASER'S RIGHT OF WITHHOLDING AND OFFSET.
7.6.1 In addition to any other rights of the Purchaser and
PetQuarters, if any Shareholder Indemnifiable Claim remains unresolved as
between the Purchaser and any Shareholder on any date on which any payment of
any amount is otherwise due and payable hereunder, then the Purchaser shall be
entitled to withhold payment of any such amount that is otherwise due and
payable hereunder up to an aggregate amount equal to the estimated Losses (less
the Threshold, if applicable, and subject to the Indemnification Cap, if
applicable) with respect to all such unresolved Shareholder Indemnifiable Claims
until the earlier of (i) such time as such Shareholder has paid all such
Shareholder Indemnifiable Claims in full or otherwise corrected or remedied all
such Shareholder Indemnifiable Claims to the reasonable satisfaction of the
Purchaser or (ii) final adjudication (including appeals) by a court of competent
jurisdiction.
7.6.2 Upon a final determination (by a court of competent
jurisdiction or otherwise by agreement of the Purchaser and such Shareholder) of
the value of any Shareholder Indemnifiable Claim, then the Purchaser shall be
entitled to an offset and credit against the unpaid payments hereunder in an
aggregate amount equal to the value of such Shareholder Indemnifiable Claim. Any
such offset and credit shall be retroactive to and effective as of the Closing
Date.
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ARTICLE VIII
CONDITIONS TO CLOSING
8.1 CONDITIONS TO OBLIGATION OF THE PURCHASER. The obligation of the
Purchaser to effect the Transaction shall be subject to the fulfillment at or
prior to the Closing of the following conditions, unless the Purchaser shall
waive such fulfillment:
(i) No injunction, restraining order or other order issued by a
court of competent jurisdiction that prohibits the consummation of the
Transaction shall be in effect and no action, suit or proceeding before
any court or any governmental body or authority pertaining to the
Transaction contemplated by this Agreement or to its consummation shall
have been instituted on or before the Closing Date;
(ii) There shall not have been taken or proposed any action, and no
statute, rule or regulation shall have been promulgated or enacted, by
any local, state, federal or foreign government or governmental agency,
that would render the consummation of the Transaction illegal;
(iii) This Agreement and the transactions contemplated hereby shall
have received all approvals, consents, authorizations, and waivers from
governmental and other regulatory agencies and other third parties
(including lenders, holders of debt securities, and lessors) required
to consummate the Transaction and, if applicable to the Transaction,
the waiting period prescribed by the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act shall have expired or been terminated;
(iv) Each of the Selling Parties shall have performed all
agreements and covenants and satisfied all conditions on their part to
be performed or satisfied on or prior to the Closing, including,
without limitation, the execution of the real estate agreement
described in Section 6.5.2(vii);
(v) No material adverse change shall, in the reasonable judgment of
the Purchaser, have taken place in the assets (including, without
limitation, the Utilized Real Property), business, condition (financial
or otherwise), operations, or prospects of the Companies since the date
of the Company Balance Sheet other than those, if any, that result from
the changes permitted by, and transactions contemplated by, this
Agreement and the Companies shall not have suffered any material loss
(whether or not insured) by reason of physical damage caused by fire,
earthquake, accident or other calamity which substantially affects the
value of its assets, properties or business;
(vi) The representations and warranties of each of the Selling
Parties set forth in this Agreement, the Schedules or Exhibits hereto
or in any written statement that shall be delivered to the Purchaser
shall be true and correct in all material respects on and as of the
Closing Date as if made on and as of such date;
(vii) The Purchaser shall have received from each of the Selling
Parties a certificate, executed by such Selling Party or its authorized
representative, dated as of the Closing Date, as to the satisfaction of
the conditions in paragraphs (iv), (v) and (vi) above;
(viii) The Purchaser shall have received, on and as of the Closing
Date, an opinion of counsel to the Selling Parties in the form attached
hereto as Exhibit B;
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(ix) The Purchaser shall have received, on and as of the Closing
Date, such other closing documents and instruments as the Purchaser
shall reasonably request, in each case reasonably satisfactory in form
and substance to the Purchaser and its counsel; and
(x) The Selling Parties shall have delivered to the Purchaser,
except as otherwise requested by the Purchaser, the written
resignations of all of the officers and directors of the Companies, and
will cause any other action to be taken with respect to those
resignations that the Purchaser may reasonably request.
For purposes of paragraph (v) above but without limiting the scope of such
paragraph, "material adverse change" shall include any reduction of $100,000 or
more in the Equity of the Company as of the Closing Date as compared to the
Equity of the Company shown in the balance sheet included in the Interim
Financial Statements prepared in accordance with generally accepted accounting
principals, it being agreed and understood that it is the intent of the Parties
that the Companies shall continue to operate as they have done in the past until
Closing and that the Selling Parties will continue to operate as they have done
until Closing, and that no extraordinary distributions shall be made to the
Shareholders.
8.2 CONDITIONS TO OBLIGATION OF THE SELLING PARTIES. The obligation of
the Selling Parties to effect the Transaction shall be subject to the
fulfillment at or prior to the Closing of the following conditions, unless the
Selling Parties shall waive such fulfillment:
(i) No injunction, restraining order or other order issued by a
court of competent jurisdiction that prohibits the consummation of the
Transaction shall be in effect and no action, suit or proceeding before
any court or any governmental body or authority pertaining to the
Transaction contemplated by this Agreement or to its consummation shall
have been instituted on or before the Closing Date;
(ii) There shall not have been taken any action, and no statute,
rule or regulation shall have been promulgated or enacted, by any
state, federal or foreign government or governmental agency, that would
render the consummation of the Transaction illegal;
(iii) This Agreement and the transactions contemplated hereby shall
have received all approvals, consents, authorizations, and waivers from
governmental and other regulatory agencies and other third parties
(including lenders, holders of debt securities, and lessors) required
to consummate the Transaction and, if applicable to the Transaction,
the waiting period prescribed by the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act shall have expired or been terminated;
(iv) The Purchaser shall have performed all agreements and
covenants and satisfied all conditions on its part to be satisfied on
or prior to the Closing;
(v) The representations and warranties of the Purchaser set forth
in this Agreement shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date; and
(vi) The Shareholders shall have received, on and as of the Closing
Date, an opinion of counsel to the Purchaser in the form attached
hereto as Exhibit C.
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ARTICLE IX
THE CLOSING
9.1 CLOSING. The Closing hereunder shall take place at the offices of
the Companies in Hazleton, Pennsylvania, or at such other place as the Purchaser
and the Selling Parties may agree upon, on the Closing Date.
9.2 DELIVERY BY THE SELLING PARTIES. At the Closing, the Selling
Parties shall deliver to the Purchaser the following instruments, in form and
substance satisfactory to the Purchaser and its counsel, against delivery of the
items specified in Section 9.3:
(i) Certificates representing all of the Shares, registered in the
names of the Shareholders, duly endorsed by the Shareholders for
transfer and upon which are affixed any documentary stock transfer
stamps required by law (executed in blank or in favor of the
Purchaser), together with all other documents necessary or appropriate
to validly transfer the Shares to the Purchaser free and clear of any
and all encumbrances. On submission of the certificates to the
Companies for transfer, the Companies shall issue to the Purchaser
certificates representing the Shares, registered in the Purchaser's
name;
(ii) The stock books, stock ledgers, minute books and corporate
seals of the Companies;
(iii) The certificates as provided in Section 8.1(vii);
(iv) The opinion of counsel to the Selling Parties as provided in
Section 8.1(viii); and
(v) The written resignations of the Companies' officers and
directors as provided in Section 8.1(x).
9.3 DELIVERY BY THE PURCHASER. At the Closing, the Purchaser shall
deliver to the Shareholders the following instruments, in form and substance
satisfactory to the Shareholders and their counsel, against delivery of the
items specified in Section 9.2:
(i) The Cash Payment as provided in Section 2.2.2;
(ii) The stock certificates for the Purchase Shares as provided in
Section 2.2.3; and
(iii) The opinion of counsel to the Purchaser as provided in
Section 8.2(vi).
ARTICLE X
TERMINATION, AMENDMENT, WAIVER
10.1 TERMINATION. This Agreement and the Transaction may be terminated
at any time prior to the Closing:
10.1.1 By mutual consent of the Purchaser and the Selling Parties;
or
10.1.2 By either the Purchaser or the Selling Parties, upon
written notice to the other, if the conditions to such Party's obligations to
consummate the Transaction, in the case of the Purchaser, as provided in Section
8.1, or, in the case of the Selling Parties, as provided in Section 8.2, were
not, or
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cannot reasonably be, satisfied on or before July 31, 1999, unless the failure
of condition is the result of the material breach of this Agreement by the Party
seeking to terminate; or
10.1.3 By Purchaser upon the payment of a termination fee of
$150,000 (the "Termination Fee") to the Shareholders. Notwithstanding the
preceding sentence, Purchaser shall not be required to pay the Termination Fee
if this Agreement is terminated pursuant to section 10.1.1, the Selling Parties
cannot consummate the Transaction as contemplated herein by the closing Date, or
Purchaser discovers a material negative issue which cannot be resolved by the
Selling Parties prior to the Closing Date.
Sections 5.2, 5.3, and 6.7 of this Agreement shall survive any termination of
this Agreement.
10.2 AMENDMENT. This Agreement may be amended by the Selling Parties
and the Purchaser by action taken at any time prior to the Closing, and by the
Shareholders and the Purchaser at any time subsequent to the Closing. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties required by the preceding sentence.
10.3 WAIVER. At any time prior to the Closing Date, the Purchaser or
the Selling Parties may (1) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (2) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (3) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a Party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such Party.
ARTICLE XI
GENERAL PROVISIONS
11.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) or delivered by an
overnight mail service such as UPS or Federal Express to the parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice given at least five (5) business days prior thereto):
If to the Purchaser:
PetQuarters, Inc.
X.X. Xxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxx
with a copy to:
Xxxxxx, Xxxxxxx & Xxxxxxxx LLP
000 Xxxx Xxxxxxx
Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxx 00000-0000
Attention: C. Xxx Xxxxxxxx
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If to the Selling Parties or any of them:
Humboldt Industries, Inc.
Humboldt Industrial Park
0 Xxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xxxx Xxxxxxxxxx
with a copy to:
Laputka, Bayless, Xxxxx & Xxxx, PC
0 Xxxx Xxxxx Xxxxxx, Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxx or Xxxxxx X. Xxxxxx
11.2 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.3 MISCELLANEOUS. This Agreement (1) constitutes the entire agreement
and supersedes all other prior agreements and understandings, both written and
oral, between the parties, with respect to the subject matter hereof, except as
specifically provided otherwise or referred to herein, so that no such external
or separate agreements relating to the subject matter of this Agreement shall
have any effect or be binding, unless the same is referred to specifically in
this Agreement or is executed by the parties after the date hereof; (2) is not
intended to confer upon any other person or Entity any rights or remedies
hereunder; (3) shall not be assigned by operation of law or otherwise except for
assignment of all or any part of the rights of the Purchaser hereunder, which
may be freely assigned by the Purchaser; and (4) shall be governed in all
respects, including validity, interpretation and effect, by the internal laws of
the State of Pennsylvania, without regard to the principles of conflict of laws
thereof. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
on the date first written above by their respective officers thereunto duly
authorized.
THE PURCHASER:
PETQUARTERS, INC.
By: /s/ Xxxxx Xxxxxxx
----------------------------------
Xxxxx Xxxxxxx, President
THE COMPANIES:
HUMBOLDT INDUSTRIES, INC.
By: /s/ Xxxx Xxxxxxxxxx
----------------------------------
Xxxx Xxxxxxxxxx, President
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THE SHAREHOLDERS: MAPLEWOOD INDUSTRIES, INC.
/s/ Xxxx Xxxxxxxxxx By: /s/ Xxxxxx Xxxxxxxxxx
---------------------------------- ----------------------------------
Xxxx Xxxxxxxxxx, an individual Xxxxxx Xxxxxxxxxx, President
/s/ Xxxxxx Xxxxxxxxxx
----------------------------------
Xxxxxx Xxxxxxxxxx, an individual
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