FIRST AMENDMENT TO
ASSET PURCHASE AGREEMENT
This FIRST AMENDMENT, dated as of March 17, 1998 (the "AMENDMENT"),
by and between (a) S. D. Xxxxxx Company, a Pennsylvania corporation (the
"SELLER"), and (b) Spinnaker Industries, Inc., a Delaware corporation (the
"BUYER").
WHEREAS, the Buyer and the Seller are parties to that certain Asset
Purchase Agreement, dated as of November 18, 1997 (the "ASSET PURCHASE
AGREEMENT"); and
WHEREAS, the parties have agreed to amend the Asset Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Buyer and the Seller hereby agree as follows:
SECTION 1. DEFINED TERMS. Capitalized terms which are used herein
without definition and which are defined in the Asset Purchase Agreement
shall have the same meanings herein as in the Asset Purchase Agreement.
SECTION 2. AMENDMENTS TO THE ASSET PURCHASE AGREEMENT.
2.1. AMENDMENT TO PURCHASE PRICE. The first sentence of Section
3.1 is hereby amended and restated in its entirety to read as follows:
"At the Closing, the Buyer shall pay Fifty-One Million
Seven Hundred Seventy Thousand Dollars ($51,770,000) to the
Seller, as the aggregate purchase price for the Acquired Assets,
subject to adjustment as provided in Section 3.2 hereof (the
"PURCHASE PRICE"), by wire transfer of $44,770,000 to the Buyer
in cash and delivery of a promissory note to the Buyer in the
original principal amount of $7,000,000, such promissory note to
be in the form of EXHIBIT E hereto (the "SUBORDINATED NOTE").
2.2 PURCHASE PRICE ADJUSTMENTS. Section 3.2 is hereby amended
and restated in its entirety to read as follows:
"3.2. PURCHASE PRICE ADJUSTMENTS.
(a) Included as EXHIBIT A is a statement showing the net
value of the Accounts Receivable, Prepaid Expenses and
Inventories (collectively, the "CURRENT ASSETS") and all trade
payables (excluding intercompany payables) and accrued
liabilities of the Pressure Sensitive Business, but excluding
all payables and expenses of the types set forth in clauses (i)
to (ix) of Article 2 (collectively, the "CURRENT LIABILITIES").
The Current Assets and Current Liabilities are collectively
referred to as the "NET WORKING CAPITAL". Except as noted on
Exhibit A, this statement (the "TARGET STATEMENT") has been
derived from the internal unaudited financial records for the
Pressure Sensitive Business and has been prepared on a basis
consistent with management's past practice. This statement also
shows that as of the applicable dates the net value of the Net
Working Capital was $14,608,000.
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(b) Within sixty (60) days after the Closing Date, the
Seller shall prepare and deliver to the Buyer an unaudited
statement as of the close of business on the day immediately
preceding the Closing Date of the Net Working Capital (the
"Closing Statement"). The Closing Statement (i) shall be
prepared on the same basis as the Target Statement, except that
the book value of the Inventories (other than those identified
in clause (ii)) shall be established conclusively for purposes
of this Section 3.2 by the Seller taking a physical inventory of
the Inventories as of the close of business on the day
immediately preceding the Closing Date and reducing the final
balance by such amount, if any, as would reduce the value of the
Inventories to a value equal to the lower of cost or market,
calculated in accordance with generally accepted accounting
principles and otherwise applying the valuation methodology used
in preparing the Target Statement to the results of this
physical inventory and (ii) that portion of the Inventory,
primarily instrument and electrical inventory, that relates
primarily to the Pressure Sensitive Business but was
inadvertently omitted from the Target Statement (the "Designated
Inventory") will not be included on the Closing Statement. The
Designated Inventory will be designated as provided in Section
8.11.
(c) When the Seller delivers the Closing Statement, the
Seller shall also deliver a certificate of its Chief Financial
Officer (i) certifying that the Closing Statement was prepared
in accordance with paragraph (b) above, and (ii) containing the
Seller's calculations, based on the Closing Statement (the
"Seller's Proposed Calculations"), of the Net Working Capital as
of the Closing Date.
(d) Within thirty (30) days after receipt of the Closing
Statement and the accompanying certificate, the Buyer shall
notify the Seller of its agreement or disagreement with the
Closing Statement and the accuracy of any of the Seller's
Proposed Calculations; PROVIDED, that the Buyer may only dispute
the Closing Statement and the Seller's Proposed Calculations to
the extent that they deviate from the requirements of
paragraphs (b) and (c) above. If the Buyer disputes any such
aspect of the Closing Statement or the amount of any of the
Seller's Proposed Calculations, then the Buyer shall have the
right to direct its independent accountants, at the Buyer's
expense, to review and test the Closing Statement. The Buyer's
accountants shall complete their review and test within thirty
(30) days after the date the Buyer disputes the Seller's
Proposed Calculations. If the Buyer and its independent
accountants, after such review and test, still disagree with the
Seller's Proposed Calculations, and the Seller does not accept
the Buyer's proposed alternative calculations (the "Buyer's
Proposed Calculations"), then, within thirty (30) days after the
date of the Seller's rejection of the Buyer's Proposed
Calculations, the Seller and the Buyer shall select a third
nationally recognized independent accounting firm (the
"Independent Accounting Firm") to resolve the remaining disputed
items (the "Remaining Disputed Items") by conducting its own
review and test of the Closing Statement and thereafter
selecting either the Buyer's Proposed Calculation of the
Remaining Disputed Items or the Seller's Proposed Calculation of
the Remaining Disputed Items or an amount in between the two.
The Independent Accounting Firm shall be instructed (i) that the
scope of its review shall be limited solely to the Remaining
Disputed Items, (ii) that it shall accept the Closing Statement
and the Seller's Proposed Calculations except to the extent that
they deviate from the requirements of paragraphs (b) and (c)
above, and (iii) that it is to use every reasonable effort to
complete such assignment and deliver copies of such opinion and,
if required, a revised Closing Statement to the Buyer and the
Seller within thirty (30) days following the date such Remaining
Disputed Items are referred to it. The Buyer and the Seller
agree that they shall be bound by the determination of the
Remaining Disputed Items by the Independent Accounting Firm.
The fees and expenses of the Independent Accounting Firm shall
be paid jointly by the Buyer and the Seller.
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(e) Upon the determination pursuant to paragraph (d) of
this Section 3.2 of the definitive Closing Statement and the Net
Working Capital as of the Closing Date, the Purchase Price shall
be either (i) increased by the amount, if any, by which the
amount of Net Working Capital is greater than $13,065,000 or
(ii) decreased by the amount, if any, by which the amount of Net
Working Capital is less than $13,065,000 (the "Adjustment").
The Seller and the Buyer acknowledge that the target number for
the Adjustment set forth in the preceding sentence is different
than the net value of the Net Working Capital reflected on the
Target Statement. If the Purchase Price is increased, the Buyer
shall pay such amount to the Seller, and if the Purchase Price
is decreased, the Seller shall pay such amount to the Buyer.
Any such payment shall be made in cash or same day funds within
ten (10) days after the determination of the Adjustment pursuant
to paragraph (d)."
2.3. TRANSACTIONS AT CLOSING. Section 4.2(b) is hereby amended
and restated in its entirety to read as follows:
"(b) The Buyer shall deliver the Subordinated Note to the
Seller and shall deliver the remainder of the Purchase Price to
the Seller by wire transfer."
2.4. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. A new
Section 9.10 is hereby added to the Asset Purchase Agreement, which
Section 9.10 shall read as follows:
"9.10. REGISTRATION RIGHTS/SUBSIDIARY GUARANTIES. The
Buyer shall have entered into a Registration Rights Agreement
with the Seller in the form of Exhibit F hereto (the
"Registration Rights Agreement") and the Buyer shall have caused
each of its Subsidiaries to have entered into a Guaranty in
favor of the Seller in the form of Exhibit G hereto
(collectively, the "Subsidiary Guaranties"), and each of the
Registration Rights Agreement and the Subsidiary Guaranties
shall be in full force and effect."
2.5. EXHIBITS TO ASSET PURCHASE AGREEMENT. Exhibits E
(Subordinated Note), F (Registration Rights Agreement) and G (Subsidiary
Guaranty) to the Asset Purchase Agreement are hereby added as new exhibits
to the Asset Purchase Agreement, each to be in the form attached to this
Amendment.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
3.1. AUTHORITY; APPROVALS; BINDING EFFECT. The Buyer has all
requisite corporate power and authority to enter into this Amendment and
the Registration Rights Agreement and to issue the Subordinated Note and
to perform all of its agreements and obligations hereunder and thereunder
in accordance with their respective terms. Each of the Buyer's
Subsidiaries has all requisite corporate power and authority to enter into
its respective Subsidiary Guaranty and to perform all of its agreements
and obligations thereunder in accordance with its terms. This Amendment
has been duly executed and delivered by the Buyer and constitutes, the
Asset Purchase Agreement as amended by this Amendment constitutes, and
when each of the Registration Rights Agreement, the Subordinated Note and
the Subsidiary Guaranties (collectively, with this Amendment, the
"Additional Transaction Documents") has been
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duly executed and delivered by the Buyer or its Subsidiaries, as applicable,
such Additional Transaction Documents will constitute, the legal, valid and
binding obligation of such Person, enforceable against such Person in
accordance with each of their respective terms, except as such validity,
binding effect or enforcement may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally or by equitable principles
relating to the availability of remedies.
3.2. NO DEFAULTS. The entering into by the Buyer and its
Subsidiaries of the Additional Transaction Documents to which any such
Person is a party, the performance and compliance by the Buyer and each
such Subsidiary with the terms hereof and thereof, and the consummation of
the transactions contemplated hereby and thereby, will not either
currently, or after notice or lapse of time or both:
(a) result in a violation of any provision of the charter, by-
laws or other organization documents of the Buyer or such Subsidiary;
(b) result in a violation by the Buyer or such Subsidiary of
any statute, regulation, order, law, ordinance or restriction
applicable to such Person, other than any violation which would not
have a Material Adverse Effect; or
(c) result in a violation by such Person of any judgment, order
or decree of any court or judicial or quasi-judicial tribunal
applicable to such Person, other than any violation which would not
have a Material Adverse Effect.
3.3. SUBORDINATED NOTE; ISSUANCE OF COMMON STOCK UPON
CONVERSION. The issuance of the Subordinated Note by the Buyer to the
Seller is exempt from registration under the Securities Act of 1933, as
amended (the "ACT"). All shares of common stock of the Buyer issued upon
conversion of the Subordinated Note in accordance with the terms thereof
(the "SHARES") have been duly authorized and reserved for issuance, and
upon issuance will be fully-paid and non-assessable shares of Common Stock
of the Buyer, free of any lien, claim or other encumbrance, and no
stockholder of the Buyer will have any preemptive right of subscription or
purchase in respect thereof. Assuming the accuracy of the Seller's
representations and warranties in Section 4.3 hereof, the Shares will,
when issued, be exempt from registration under the Act and any applicable
state securities laws. The Buyer is eligible to file with the Securities
and Exchange Commission (the "SEC") a Registration Statement on Form S-3
with respect to the Shares.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
4.1. AUTHORITY; APPROVALS; BINDING EFFECT. The Seller has all
requisite corporate power and authority to enter into this Amendment and
each of the Additional Transaction Documents to which it is a party, and
to perform all of its agreements and obligations hereunder and thereunder
in accordance with their respective terms. This Amendment has been duly
executed and delivered by the Seller and constitutes, the Asset Purchase
Agreement as amended by this Amendment constitutes, and when each of the
other Additional Transaction Documents to which the Seller is a party has
been duly executed and delivered by the Seller each of such Additional
Transaction Documents will constitute, the legal, valid and binding
obligation of the Seller, enforceable against the Seller in accordance
with each of their respective terms, except as such validity, binding
effect or enforcement may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally or by equitable principles
relating to the availability of remedies.
4.2. NO DEFAULTS. The entering into by the Seller of the
Additional Transaction Documents to which the Seller is a party, the
performance and compliance by the Seller with the terms hereof and
thereof, and the consummation of the transactions contemplated hereby and
thereby, will not either currently, or after notice or lapse of time or
both:
(a) result in a violation of any provision of the charter, by-
laws or other organization documents of the Seller;
(b) result in a violation by the Seller of any statute,
regulation, order, law, ordinance or restriction applicable to the
Seller, other than any violation which would not have a Material
Adverse Effect; or
(c) result in a violation by the Seller of any judgment, order
or decree of any court or judicial or quasi-judicial tribunal
applicable to the Seller, other than any violation which would not
have a Material Adverse Effect.
4.3. INVESTMENT REPRESENTATIONS. (a) The Subordinated Note is
not being and the Shares to be acquired by the Seller upon conversion of
the Subordinated Note will not be acquired with a view to the resale or
distribution of any part thereof except pursuant to the Registration
Rights Agreement and the Seller has no present intention of selling,
granting any participation in, or otherwise distributing the same, except
pursuant to the Registration Rights Agreement.
(b) INVESTMENT EXPERIENCE. The Seller understands that the
Subordinated Note and the Shares have not been, and prior to an
appropriate registration statement's becoming effective will not be,
registered under the Act, by reason of a specific exemption from the
registration provisions of the Act which depends upon, among other things,
the bona fide nature of the investment intent and the accuracy of the
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Seller's representations as expressed herein. The Seller acknowledges
that it is able to fend for itself, can bear the economic risk of its
investment and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
investment in the Subordinated Note and the Shares.
(c) LEGENDS. The Seller understands that the Subordinated Note
and/or the Shares may bear one or all of the following legends:
(i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED."
(ii) Any legend required by the Blue Sky laws of any state to
the extent such laws are applicable to the shares represented by the
certificate so legended.
A certificate shall not bear such legends if in the opinion of counsel
reasonably satisfactory to the Buyer the securities represented thereby
may be publicly sold without registration under the Act and any applicable
state securities laws.
(e) RESTRICTED SECURITIES. The Seller understands that the
Subordinated Note and the Shares are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Buyer in a transaction not involving a public offering
and that under such laws and applicable regulations such Subordinated Note
and Shares may be resold without registration under the Act only in
certain limited circumstances. The Seller acknowledges that the
Subordinated Note and the Shares must be held indefinitely unless
subsequently registered under the Act or an exemption from such
registration is available.
(f) ACCREDITED INVESTOR. The Seller is an accredited investor
as defined in Rule 501(a) of Regulation D promulgated under the Act.
SECTION 5. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective upon the execution of this Amendment by each of the Buyer and
the Seller.
SECTION 6. NO OTHER AMENDMENTS. Except as expressly provided in this
Amendment, all of the terms and conditions of the Asset Purchase Agreement
remain unchanged, and the terms and conditions of the Asset Purchase
Agreement as amended hereby remain in full force and effect. Each of the
Buyer and the Seller agrees that the Additional Transaction Documents
shall, from and after the date hereof, be Transaction Documents for all
purposes of the Asset Purchase Agreement.
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SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, but all
of which together shall constitute one instrument. In proving this
Amendment, it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is
sought.
SECTION 8. MISCELLANEOUS. This Amendment shall be deemed to be a
contract under seal under the laws of the State of Delaware and shall for
all purposes be construed in accordance with and governed by the laws of
the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date first above written.
S.D. XXXXXX COMPANY
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------
Title: Vice President and Chief
Financial Officer
SPINNAKER INDUSTRIES, INC.
By: /s/ X. X. Xxxxxxxx
--------------------------------
Title: Vice President, Corporate
Development
