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Exhibit 10.1
RECAPITALIZATION AGREEMENT
DATED AS OF NOVEMBER 25, 0000
XXXXXXX
XXXXX XXXXXXX CORPORATION,
XXX X. XXXXXXX,
XXXX X. XXXXXXX 1995 IRREVOCABLE TRUST,
XXXXXXX XXXXXXXX XXXXXXX 1995 IRREVOCABLE TRUST,
XXXX X. XXXXXXX 1997 IRREVOCABLE TRUST,
XXXXXXX XxXXXXXX XXXXXXX 1997 IRREVOCABLE TRUST,
XXX X. XXXXXXX 1997 IRREVOCABLE ANNUITY TRUST
AND
BT CAPITAL PARTNERS, INC.
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RECAPITALIZATION AGREEMENT
THIS RECAPITALIZATION AGREEMENT dated as of this 25th day of November,
1997 (the "Agreement"), between Young America Corporation, a Minnesota
corporation (the "Company"), the selling stockholders named herein
(collectively, the "Selling Stockholders"), and BT Capital Partners, Inc., a
Delaware corporation ("Investor").
WHEREAS, the Selling Stockholders own all of the issued and outstanding
shares of common stock, par value $1.00 per share ("Common Stock") of the
Company;
WHEREAS, upon the terms and conditions hereinafter set forth, the parties
desire to consummate the following transactions simultaneously on the Closing
Date (except as otherwise noted) as part of an integrated and contractually
interdependent plan (hereinafter, such transactions shall be referred to
collectively as the "Recapitalization") (capitalized terms shall have the
meaning given to them hereinafter in this Agreement):
1. Equity Financing. Investor, Ontario Teachers and Senior Management
shall complete the Equity Financing in accordance with the terms of (a) that
certain Stock Purchase Agreement dated as of the Closing Date between the
Company and Investor, (b) that certain Stock Purchase Agreement dated as of the
Closing Date between the Company and Ontario Teachers, and (c) those certain
separate Subscription Agreements dated as of the Closing Date between the
Company and each member of Senior Management (collectively, the "Company
Subscription Agreements").
2. Debt Financing. The Company shall complete the Bridge Financing.
3. Redemption of Stock. Each Selling Stockholder shall sell, assign,
transfer and deliver to the Company, and the Company shall purchase and redeem
from each Selling Stockholder, the Redeemed Stock, in the number of shares of
Common Stock and for the cash consideration set forth opposite each of the
Selling Stockholders' names on Schedule 2.4.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
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ARTICLE 1
DEFINITIONS
1.1 Defined Terms. The following terms shall have the meanings set forth
below:
"Affiliate" shall mean a Person that directly or indirectly through one or
more intermediaries controls, is controlled by or is under common control with
the Person specified. For purposes of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to (i) vote 50% or
more of the voting securities of such Person or (ii) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Amended Articles of Incorporation" shall mean the Amendment and
Restatement of Articles of Incorporation of the Company, substantially identical
to Exhibit E.
"Antitrust Laws" shall mean all Applicable Laws that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or the restraint of trade including, without limitation, the
Xxxxxxx Act, as amended, the Xxxxxxx Act, as amended, the HSR Act, and the
Federal Trade Commission Act, as amended.
"Applicable Laws " shall mean all federal, state, local and foreign
statutes, laws, ordinances, regulations, rules, permits, orders, judgments,
decrees, injunctions, and writs of any Governmental Entity having jurisdiction
over the parties, as may be in effect on or prior to the Closing.
"Closing Balance Sheet Principles" shall mean the accounting principles
and procedures set forth in Schedule 3.3(a).
"Closing Incentive Payments" shall mean the payment obligations of the
Company arising solely in connection with the Closing (but not including the
other payment obligations of the Company thereunder) under the agreements set
forth on Scheduleu8.12, in the amounts set forth thereon, net of all applicable
federal and state income, social security, medicare, payroll and other amounts
required to be withheld.
"Damages" shall mean any liabilities or Expenses, judgments, fines,
losses, claims, damages and amounts paid in settlement; provided, however,
"Damages" shall not include any special, incidental and punitive damages unless
such special, incidental or punitive damages are payable by the Aggrieved Party
to a third party who is not an Affiliate of the Aggrieved Party, exclusive of
the lender for the Bridge Financing and the subsequent financing thereof.
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"Encumbrance" shall mean any lien, encumbrance, security interest, charge,
mortgage, option, pledge or restriction on transfer of any nature whatsoever.
"Environmental Claim" shall mean any claim, action, cause of action,
investigation or written notice by any Person alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from the presence or Release of any Hazardous Material at any location, whether
or not owned or operated by the Company.
"Environmental Laws" shall mean all Applicable Laws relating to pollution
or protection of human health or the environment or to Releases or threatened
Releases of Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, transport, or handling of
Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Resource
Conservation and Recovery Act, the Clean Air Act and the Clean Water Act.
"Equipment" shall mean any and all machinery, equipment, tools, computers,
furniture and all other personal property (other than the supplies described in
Section 6.2(q)) owned or leased by the Company and used in the Company's
business and operations.
"Escrow Agreement" shall mean that certain Escrow Agreement between the
Selling Stockholders, the Company and the Escrow Agent dated as of the Closing
Date, substantially identical to Exhibit A attached hereto.
"Excess Cash" means $6,960,000.
"Expenses" shall mean all reasonable attorneys' fees and all other costs,
charges and expenses paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in any Indemnifiable Claim.
"GAAP" shall mean United States generally accepted accounting principles,
as in effect on the date or for the period with respect to which such principles
are applied, consistently applied.
"Governmental Entity" shall mean any government, executive official
thereof, governmental or regulatory authority, agency, bureau or commission,
including courts of competent jurisdiction, domestic or foreign.
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"Hazardous Material" shall mean all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. ss.300.5, or defined as such
by, or regulated as such under, any Environmental Law.
"Indemnifiable Claim" shall mean any threatened, pending or completed
claim, action, suit or proceeding, whether criminal, civil, administrative or
investigative based on or arising out of acts or omissions occurring (a) on or
prior to the Closing Date in the case of claims for indemnification brought by
Investor hereunder, or (b) after the Closing Date in the case of claims for
indemnification brought by the Selling Stockholders hereunder.
"Material Adverse Effect" shall mean any events, changes or effects which,
individually or in the aggregate, would reasonably be expected to have a
material adverse effect on the business, assets, prospects, financial condition
or results of operations of the Company taken as a whole with any events,
changes or effects which have an adverse effect on the expected earnings of the
Company measured in the context of the effect on the Company's enterprise value
and with materiality measured in relation to the Total Consideration, but in any
case excluding any events, changes or effects resulting from general economic
conditions.
"Noncompetition Agreement" shall mean that certain Noncompetition
Agreement dated as of the Closing Date between the Company and the Selling
Stockholders, substantially identical to Exhibit B attached hereto.
"Ontario Teachers" means Ontario Teachers' Pension Plan Board, a non-share
capital corporation organized under laws of the Province of Ontario.
"Permitted Encumbrances" means any Encumbrance (i) specifically disclosed
in Schedule 6.2(h), item (G), the Audited Financial Statements or the Unaudited
Financial Statements, (ii) liens for Taxes not yet due and payable, (iii)
mechanics', xxxxxxx'x, repairman's, warehouseman's, carriers' or other like
liens arising or incurred in the ordinary course of business, (iv) with respect
to real property (A) easements, quasi-easements, licenses, rights-of-way and
other similar restrictions, including, without limitation, any other agreements,
conditions or restrictions, in each case which are a matter of public record,
(B) any conditions that are shown by any survey which has been made available
for Investor's review prior to the date hereof, and (C) zoning, building, or
similar restrictions pursuant to Applicable Laws, and (v) other Encumbrances,
which, in each case, individually and in the aggregate, are not material in
amount, do not interfere with, and are not violated by the consummation of the
transactions contemplated by this Agreement and do not materially impair the
existing use or value of the property affected by such Encumbrances.
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"Person" shall mean an individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization,
government or any department or agency thereof or any other entity.
"Principal Stockholder" shall mean Xxx X. Xxxxxxx, an individual resident
of the State of Florida.
"Registration Rights Agreement" shall mean that certain Registration
Rights Agreement between the Company, the Principal Stockholder, Investor and
Ontario Teachers, a copy of which is attached hereto as Exhibit D.
"Release" shall mean any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration into the
environment (including, without limitation, ambient air, surface water,
groundwater and surface or subsurface strata) or into or out of any property,
including the movement of Hazardous Materials through or into the air, soil,
surface water, groundwater or property.
"SBA Sideletter" shall mean that certain sideletter dated as of the
Closing Date, between Investor and the Company regarding matters related to the
status of Investor as a federally licensed small business investment company.
"Solvent" shall mean, with respect to any Person, that (a) the fair
saleable value of the property of such Person is, on the date of determination,
greater than the total amount of liabilities (including contingent and
unliquidated liabilities) of such Person as of such date, (b) as of such date,
such Person is able to pay all of its liabilities as such liabilities mature,
(c) such Person does not have unreasonably small capital for conducting the
business theretofore or proposed to be conducted by such Person and its
subsidiaries, and (d) such Person has not incurred debts beyond its ability to
pay as they mature. The amount of any contingent or unliquidated liability at
any time will be computed as the amount which, in light of all the facts and
circumstances existing at such time, can reasonably be expected to become an
actual or matured liability.
"Stockholders' Agreement" means that certain Stockholders' Agreement among
the Company, the Principal Stockholder, Investor, Ontario Teachers and Senior
Management, as it may be amended, supplemented or restated from time to time.
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including, without limitation, all net income, gross receipts, sales, use, ad
valorem, transfer, profits, license, withholding, payroll, employment, social
security, unemployment, excise, estimated, severance, property or other taxes,
fees, assessments or charges of any kind whatsoever, including, without
limitation, all interest and penalties thereon, and additions to tax or
additional amounts imposed by any Governmental Entity.
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"Transaction Documents" shall mean this Agreement, the Stockholders'
Agreement, the Registration Rights Agreement, the Noncompetition Agreement, the
Employment Agreement, the Escrow Agreement, the SBA Sideletter, the Company
Subscription Agreements, the Amended Articles of Incorporation and all other
documents and agreements executed in connection with the Closing.
"Transfer" shall mean any sale, transfer, offer for sale, exchange,
pledge, mortgage, assignment or other disposition or conveyance.
"Trust Stockholders" shall mean the Xxxx X. Xxxxxxx 1995 Irrevocable
Trust, the Xxxxxxx XxXxxxxx Xxxxxxx 1995 Irrevocable Trust, the Xxxx X. Xxxxxxx
1997 Irrevocable Trust, the Xxxxxxx XxXxxxxx Xxxxxxx 1997 Irrevocable Trust and
the Xxx X. Xxxxxxx 1997 Irrevocable Annuity Trust.
1.2 Other Defined Terms. The following terms shall have the meanings set
forth in the sections referred to below:
DEFINED TERM SECTION
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"AAA" 15.14(a)
"Aggrieved Party" 14.6(a)
"Agreement" Recitals
"Annual Excess Free Cash Flow" 3.1(b)
"Audited Financial Statements" 6.2(c)
"Bridge Financing" 12.6
"Investor" Recitals
"Closing" 5.1
"Closing Cash Payments" 3.2(b)
"Closing Date" 5.1
"Code" 6.2(g)
"COBRA" 6.2(l)
"Common Stock" Recitals
"Commitments" 6.2(h)
"Company" Recitals
"Company Basket" 14.5
"Company Business" 3.1(b)
"Company Subscription Agreements" Recitals
"Company's Plans" 6.2(l)
"Confidential Information" 9.1
"Confidentiality Agreement" 8.1
"Courts" 15.7
"Cumulative Excess Free Cash Flow" 3.1(b)
"Cumulative Targeted Excess
Free Cash Flow" 3.1(b)
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"Determination Date" 3.1(b)
"Earn-Out" 3.1(b)
"Earn-Out Period" 3.1(b)
"Earn-Out Recipients" 3.1(b)
"Earn-Out Statement" 3.1(b)
"Employment Agreement" 5.2(l)
"Equity Financing" 12.6
"ERISA" 6.2(l)
"Escrow Agent" 4.1
"Escrow Deposit" 4.1
"Estimated Closing Balance Sheet" 3.3(a)
"Estimated Closing Stockholders Equity" 3.3(a)
"Final Closing Adjustment" 3.4(d)
"Final Closing Balance Sheet" 3.4(c)
"Final Stockholder Equity" 3.4(a)
"Fiscal Year" 3.1(b)
"HIPAA" 6.2(l)
"HSR Act" 10.1
"Indemnifying Party" 14.6(a)
"Independent Accounting Firm" 3.4(c)
"Intellectual Property" 6.2(j)
"Legal Representatives" 15.13
"Life Insurance Policies" 8.2(d)
"November P&L" 3.4(a)
"Objection Notice" 3.1(b)
"Permits" 6.2(k)
"Phantom Stock Agreements" 3.3(z)(II)
"Preliminary Closing Balance Sheet" 3.4(a)
"Recapitalization" Recitals
"Recapitalization Financing" 12.6
"Redeemed Stock" 2.4
"Sale of the Business" 3.1(b)
"Selling Stockholders" Recitals
"Selling Stockholders' Basket" 4.3(a)
"Senior Management" 2.2
"Stipulation Agreement" 6.2(o)
"Tax Returns" 6.2(g)
"Total Consideration" 3.1
"Unaudited Financial Statements" 6.2(c)
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ARTICLE 2
RECAPITALIZATION TRANSACTION
Upon the terms and conditions hereinafter set forth, the parties desire to
consummate the Recapitalization, consisting of the following transactions,
simultaneously on the Closing Date (except as otherwise noted) as part of an
integrated and contractually interdependent plan:
2.1 [Left blank intentionally]
2.2 Equity Financing. Investor, Ontario Teachers and each member of the
senior management of the Company set forth on Schedule 2.2 ("Senior Management")
shall purchase from the Company additional shares of Common Stock in the number
of shares of Common Stock and for the cash consideration set forth opposite its,
his or her name on Schedule 2.2, payable on the Closing Date, in accordance with
the terms of the Company Subscription Agreements.
2.3 Debt Financing. The Company shall (a) execute and deliver that certain
Senior Credit Agreement dated as of the Closing Date between the Company and
Bankers Trust Company, as agent, and all other agreements and documents
necessary or desirable in connection with the Bridge Financing, and (b) take any
and all other commercially reasonable actions to consummate the Bridge
Financing.
2.4 Redemption of Shares. Each of the Trust Stockholders hereby agrees,
severally but not jointly, as to the number of shares of Redeemed Stock set
forth opposite such Trust Stockholder's name on Schedule 2.4, and the Principal
Stockholder hereby agrees jointly and severally as to all of the Redeemed Stock,
to sell, assign, transfer and deliver to the Company, and to cause the Company
to purchase, redeem and acquire from each of the Selling Stockholders, on the
Closing Date, all of such Selling Stockholder's right, title and interest in and
to the number of shares of the Company's Common Stock set forth opposite such
Selling Stockholder's name on Schedule 2.4 (hereinafter, all of such shares
shall be referred to collectively as the "Redeemed Stock"), free and clear of
all Encumbrances, other than restrictions on Transfer pursuant to the Securities
Act of 1933, as amended, and any applicable state securities laws (none of which
apply to the redemption of the Redeemed Stock pursuant to this Agreement). The
purchase price payable by the Company to each of the Selling Stockholders for
the Redeemed Stock and the manner of payment is set forth in Article 3.
2.5 Treatment of Recapitalization. The transactions contemplated by this
Article 2 are intended to qualify as a recapitalization of the Company for
financial accounting purposes and as a substantially disproportionate redemption
of stock under Section 302(b)(2) of the Code for federal and state income tax
purposes. The parties
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hereby agree to report the transaction for financial accounting and income tax
purposes in a manner consistent therewith.
ARTICLE 3
TOTAL CONSIDERATION; ADJUSTMENTS
3.1 Total Consideration. The total consideration payable by the Company
for the Redeemed Stock, as such amount shall be adjusted pursuant to Section 3.3
and Section 3.4 ("Total Consideration"), shall consist of the following:
(a) On the Closing Date, the Company shall make total payments in cash on
the Closing Date of $86,160,721 with the $6,000,000 Escrow Deposit paid in
accordance with Section 3.2(a) and the remaining $80,160,721 paid to each of the
Selling Stockholders in the amounts set forth opposite their names on
Scheduleu2.4.
(b) Within thirty (30) days of the Determination Date, the Company shall
pay, in cash, an earn-out ("Earn-Out") to each of the Persons listed on
Scheduleu3.1(b) ("Earn-Out Recipients") in proportion to their percentage
interest set forth thereon, determined as follows:
(i) The following terms used in this Section 3.1(b) shall have the
meanings set forth below:
(A) "Annual Excess Free Cash Flow" shall mean, with respect to the Company
Business for any Fiscal Year during the Earn-Out Period, an amount equal to the
gross revenues in the ordinary course of business (including slippage income and
postal savings) minus (i) the refund items, postage and freight, minus (ii) the
cost of revenues (but excluding, in all events, all depreciation and
amortization expense), minus (iii) the selling and general and administrative
expenses, minus (or plus) (iv) the other expenses (or income) (but excluding in
all events, all interest expense and income), and minus (v) the capital
expenditures of the Company incurred in good faith, all of which shall be
determined based on the books and records of the Company maintained in a manner
consistent with past accounting methods and practices and in accordance with
GAAP. Notwithstanding any provision herein to the contrary, Annual Excess Free
Cash Flow shall not include:
(w) any deduction or expense attributable to any stock option or other
non-cash bonus or non-cash benefit plan of the Company including, without
limitation, that certain stock option plan to be adopted by the Company after
the Closing (but shall include all such bonuses or benefits paid in cash),
(x) net receipts (or net losses) (after expenses and taxes applicable
thereto) resulting from the sale, conversion, condemnation or other disposition
of capital assets,
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(y) federal or state income taxes, prior-year adjustments, adjustments
arising from major changes in accounting methods, fire, flood and extraordinary
gains or losses, and gains or losses on foreign exchange, or
(z) any management fees, service fees, overhead allocations, or other
similar arrangements payable by the Company Business to Investor or any of its
Affiliates, notwithstanding any provision herein to the contrary, the
calculation of Annual Excess Free Cash Flow shall include credit for the full
commercial value (as represented by standard sales prices) of any product or
service of the Company Business provided by the Company to Investor or any of
its Affiliates, or to the customers of Investor or any of its Affiliates at a
discount to induce the purchase of products or services of Investor or its
Affiliates.
(B) "Company Business" shall mean the business of providing the services
and/or products currently provided by the Company, or under research and/or
development by the Company as of the Closing Date, and any natural extensions
thereof, whether by the Company, Investor or any of their respective Affiliates;
in all events, Company Business shall not include any business acquired by the
Company after the date hereof.
(C) "Cumulative Excess Free Cash Flow" shall mean the sum of the Annual
Excess Free Cash Flow for each of the Fiscal Years during the Earn-Out Period
(except as provided in subsection (iv) below).
(D) "Earn-Out Period" shall mean the four Fiscal Year periods commencing
January 1, 1998 and ending December 31, 2001. "Fiscal Year" shall refer to the
fiscal year as maintained by the Company immediately preceding the Closing Date,
such period being January 1 through December 31.
(E) "Earn-Out Statement" shall mean a statement, certified as being true
and correct in all material respects by an officer of Investor and reviewed by
the Company's independent accountants, that shall identify the Annual Excess
Free Cash Flow for the applicable Fiscal Year, with reasonable detail and
accompanied by reasonable supporting documentation to demonstrate the basis for
calculating Annual Excess Free Cash Flow based upon the Company's audited
financial statements.
(ii) Except as provided in subsection (iv) below, the Earn-Out shall
equal twenty percent (20%) of the excess (if any) of (A) the Cumulative Excess
Free Cash Flow, over (B) Ninety-Three Million Dollars ($93,000,000); provided,
however, that the Earn-Out shall not, in any event, exceed Fifteen Million
Dollars ($15,000,000). The Earn-Out shall be paid to the Earn-Out Recipients
within thirty (30) days of the Determination Date proportionately based on their
percentage interest set forth on Schedule 3.1(b).
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(iii) (A) Within ninety (90) days after the end of each Fiscal Year
during the Earn-Out Period, the Company shall prepare and deliver to the Selling
Stockholders (I) a copy of the Company's audited financial statement for such
Fiscal Year, together with the independent auditor's report thereon, and (II) an
Earn-Out Statement.
(B) The Earn-Out Statement shall be subject to review by the Selling
Stockholders or, at their option and expense, by an independent public
accounting firm of their choice. The Company shall permit the Selling
Stockholders and their representatives to have reasonable access during normal
business hours to the data and information on which the Earn-Out Statement was
prepared and to the Company's employees and/or representatives who assisted in
its preparation; provided that to gain access to the accountant's work papers,
the Selling Stockholders shall execute requisite indemnity agreements to the
accountants.
(C) The Selling Stockholders shall be deemed to have accepted an Earn-Out
Statement and the Annual Excess Free Cash Flow indicated therein unless, within
thirty (30) days after the date of delivery of the Earn-Out Statement, the
Selling Stockholders give written notice (the "Objection Notice") to the Company
of objection to any item thereon, which notice shall specify in reasonable
detail the basis for such objection. If the Selling Stockholders give an
Objection Notice, the Company and the Selling Stockholders shall attempt in good
faith to resolve the dispute as promptly as possible.
(D) If the Company and the Selling Stockholders have not been able to
agree upon a resolution of the dispute within thirty (30) days after the date of
the Objection Notice (which thirty (30) day period may be extended by written
agreement of the parties), such dispute shall be resolved fully, finally and
exclusively through use of an Independent Accounting Firm, in accordance with
the dispute resolution provisions of Section 3.4(c). The costs of arbitration
shall be apportioned between the Selling Stockholders and the Company as
determined by the arbitrator in such manner as the arbitrator deems reasonable
taking into account the circumstances of the case, the conduct of the parties
during the proceeding, and the result of the arbitration. Any arbitration
proceeding shall be concluded in a maximum of six (6) months from the date of
the Objection Notice. All negotiations pursuant to this Section shall be treated
as compromise and settlement negotiations for purposes of Rule 408 of the
Federal Rules of Evidence and comparable state Rules, and arbitration
proceedings under this section shall be treated as confidential information in
accordance with the provisions of the Confidentiality Agreement. Any arbitrator
shall be bound by an agreement containing confidentiality provisions at least as
restrictive as those contained in the Confidentiality Agreement. The procedures
of this Section are exclusive and shall be fully exhausted prior to the
initiation of any litigation. Either party may seek specific
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enforcement of any arbitrator's decision under this Section. The other party's
only defense to such a request for specific enforcement shall be fraud by or on
the arbitrator.
(E) The "Determination Date" shall be the date on which the final Earn-Out
Statement following the expiration of the Earn-Out Period is mutually agreed to
by the Selling Stockholders and Investor.
(F) Notwithstanding any of the foregoing, any amount which is due and
payable and not in dispute shall immediately be paid to the Earn-Out Recipients
and nothing contained herein shall act to prevent the Earn-Out Recipients from
commencing litigation to compel payment of any due and payable amounts not in
dispute hereunder; provided, however, that the Company shall not be obligated to
pay any such amount to the extent the Company is then in default of a payment
obligation under any indebtedness for borrowed money ("Debt"), or such payment
would constitute a default under the Debt, but the Company shall pay the
Earn-Out Recipients interest at the default rate provided under the Debt from
the date such payment is due hereunder until such payment is made and the
Company shall make such payment as soon as is permitted under the Debt.
(iv) Notwithstanding any provision herein to the contrary, in the
event of a Sale of the Business during the Earn-Out Period, Cumulative Excess
Free Cash Flow and Cumulative Targeted Excess Free Cash Flow shall be calculated
as of the end of the month first preceding such sale (but excluding, in all
events, any expenses incurred in connection with such Sale of the Business) and
the Earn-Out shall equal twenty percent (20%) of the excess (if any) of (A) the
Cumulative Excess Free Cash Flow for the period ending on the date of the Sale
of the Business, over (B) the Cumulative Targeted Excess Free Cash Flow for such
period. For purposes of this subsection (iv), the following terms shall have the
following meanings:
(A) "Sale of the Business" shall mean a sale of all or substantially all
of the assets of the Company Business, a sale of more than fifty percent (50%)
of the outstanding capital stock of the Company to any person or group of
persons acting in concert (other than any Affiliate of the seller thereof), or a
reorganization of the Company wherein the holders of stock receive stock in any
other company, or a merger of Company with another company, in each case where
such holders of stock and such holders' Affiliates own, directly or indirectly
fifty percent (50%) or less of the outstanding capital stock of the Company or
the entity surviving such reorganization or merger.
(B) "Cumulative Targeted Excess Free Cash Flow" shall mean the sum of the
following amounts with respect to each of the following Fiscal Years:
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Fiscal Targeted Excess
Year Free Cash Flow
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1998 $20,525,000
1999 22,075,000
2000 25,200,000
2001 25,200,000
with Targeted Excess Free Cash Flow for the Fiscal Year in which the Sale of the
Business occurs determined proportionately as of the end of the month first
preceding such sale.
(v) The Earn-Out is personal to each of the Earn-Out Recipients, in
proportion to their percentage interest set forth on Scheduleu3.1(b), and may
not be Transferred without the prior written consent of the Company and for any
reason other than by operation of law or by will or the laws of descent and
distribution. Any attempted Transfer of the Earn-Out right by any holder thereof
(other than as set forth in the preceding sentence) shall be null and void.
(vi) The Earn-Out shall represent only a right to receive cash from
the Company subject to the terms set forth herein, payable no later than thirty
(30) days after the Determination Date. The Earn-Out shall not possess any
attributes of Common Stock and shall not entitle the Selling Stockholders to any
rights of any kind other than as specifically set forth herein.
(c) On the Closing Date, the Company shall pay the liabilities of the
Company for transaction costs set forth on Schedule 3.1(c).
3.2 Manner of Payment. Subject to Section 3.4, the Total Consideration
shall be payable as follows:
(a) At Closing, the Company shall deliver the Escrow Deposit to the Escrow
Agent pursuant to Section 4.1.
(b) At Closing, the Company shall make the cash payment described in
Section 3.1(a), as the same may be adjusted pursuant to Section 3.3 (as so
adjusted, the "Closing Cash Payments"), less the Escrow Deposit, payable by wire
transfer in immediately available funds in accordance with written instructions
provided by the Selling Stockholders' Representative at least one (1) business
day before the Closing Date.
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3.3 Pre-Closing Adjustment.
(a) Not later than two (2) nor earlier than five (5) business days prior
to the Closing Date, the Company shall prepare, in consultation with Investor
and in accordance with the Closing Balance Sheet Principles and otherwise in
conformity with GAAP, applied on a basis consistent with the Audited Financial
Statements, and deliver to Investor, an estimated balance sheet of the Company
as of the close of business on October 31, 1997 (the "Estimated Closing Balance
Sheet"), a copy of which is attached hereto as Schedule 3.3(b). In addition, the
Company shall prepare, in consultation with Investor, and deliver to Investor
not later than two (2) business days prior to the Closing Date, a report,
setting forth (i) its good faith determination of the total stockholders equity
as of the close of business on Octoberu31, 1997 (the "Estimated Closing
Stockholders Equity"), based upon the Estimated Closing Balance Sheet, and (ii)
its good faith determination of the amount of the Closing Cash Payments,
determined in accordance with clauses (b) and (c) below. Notwithstanding any
provision herein to the contrary:
(x)u the Estimated Closing Stockholders Equity and the Final Stockholder
Equity shall not include an accrued liability or other adjustment that relates
to:
(I) the Closing Incentive Payments (other than as provided in clause
(y)(III) below);
(II) any Minnesota Nonresident Shareholder State Tax Withholding;
(III) any deferred income tax liability associated with the book/tax
difference in slippage income (which was not reflected on the Company's interim
July 31, 1997 financial statements and will not be reflected on the Estimated
Closing Balance Sheet or the Final Closing Balance Sheet);
(IV) any cost, expense or other obligations of the Recapitalization (other
than those costs specifically provided herein as being borne by the Selling
Stockholders), and
(y) the Estimated Closing Stockholders Equity and the Final Stockholders
Equity shall include:
(I) a reduction of cash and equity resulting from the distribution made
pursuant to Sections 8.2(d)(i), 8.2(d)(ii) and 8.2(d)(iii).
(II) a reduction to zero (0) in the accrued compensation liability for the
phantom stockholders (after giving effect to the adjustments pursuant to Section
3.3(a)(y)(I)),
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(III) an accrued liability for the bonuses and other liabilities set forth
on Scheduleu9.5, which are already reflected on the Estimated Closing Balance
Sheet,
(IV) an accrual for the employer's portion of the FICA and Medicare taxes
payable in connection with the Closing Incentive Payments, and
(V) an accrual liability for the Company's $101,450 severance obligation
to Xxxx X. Xxxxxxx.
(z) the Final Stockholders Equity shall include (in addition to amounts
included on the Estimated Closing Balance Sheet):
(I) in the event the Company makes payments under the Company's 1997
Management Recognitition, Transition and Equity Bonus Plan which are less than
$2,650,000, an additional asset in an aggregate amount equal to such deficiency.
(II) an accrued liability for (i) the $500,000 due under paragraph 2 of
that certain letter agreement dated as of the Closing Date between the Company
and Xxxxxxx X. Xxxx, (ii) any additional payment due to Mr.uWeil under paragraph
3 of such letter agreement and (iii) any additional payment due to Xx.
Xxxxxxxxxxx and Xx. Xxxxxxxx under their separate letter agreements dated as of
the Closing Date regarding their separate Phantom Stock Agreements dated
December 31, 1991 (collectively, the "Phantom Stock Agreements").
(b) The Closing Cash Payments shall be equal to the amounts set forth on
Schedule 2.4, plus the amount, if any, by which the Estimated Closing
Stockholders Equity exceeds Fifteen Million Eight Hundred Eighty-Eight Thousand
Four Hundred Seventy-Eight Dollars ($15,888,478) (or minus the amount, if any,
by which Fifteen Million Eight Hundred Eighty-Eight Thousand Four Hundred
Seventy-Eight Dollars ($15,888,478) exceeds the Estimated Closing Stockholders
Equity, as the case may be).
(c) Any adjustment in the Closing Cash Payments made by virtue of clause
(b) above shall be made in proportion to the percentage interest of Redeemed
Stock set forth on Schedule 2.4.
3.4 Post Closing Adjustments.
(a) As promptly as practicable after the Closing, the Company shall
prepare, in consultation with the Selling Stockholders and their representatives
and in accordance with the Closing Balance Sheet Principles and otherwise in
conformity with GAAP, applied on a basis consistent with the Audited Financial
Statements, and deliver to the Selling Stockholders, (A) a balance sheet of the
Company as of the close of business on October 31, 1997 (the "Preliminary
Closing Balance Sheet") and its
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calculation of the total stockholders equity as of the close of business on
October 31, 1997 ("Final Stockholder Equity"), substantially in the form of
Schedule 3.4(a)(i), and (B) the monthly profit and loss statement of the Company
for the period ending on November 30, 1997 ("November P&L"), with a calculation
of the profit (or loss) for the period from November 1, 1997 to and including
the Closing Date equal to the profit or loss for the period ending on November
30, 1997 times a fraction in which the number of business days in November prior
to and including the Closing Date is the numerator, and twenty (20) is the
denominator; provided, however, that any extraordinary event occurring during
November shall be allocated fully and completely to the period in which any such
extraordinary event occurred (and correspondingly to the Selling Stockholders if
occurring on or before the Closing Date, or to the Buyer if occurring after the
Closing Date) and will not be subject to proration under this Section 3.4(a)
(without limiting the generality of the foregoing, any expenses incurred by the
Company in connection with the Recapitalization following the Closing (including
those set forth in Section 15.2(a)) which are not specifically provided herein
as being borne by the Selling Stockholders shall be allocated to the period
after the Closing Date), and (ii) the Company shall cause Xxxxxx Xxxxxxxx LLP to
examine the Preliminary Closing Balance Sheet and the calculation of Final
Stockholder Equity and deliver its report, substantially in the form of Schedule
3.4(a)(ii) to the Selling Stockholders as soon after the Closing Date as
possible, but in no event later than ninety (90) days after the Closing Date.
The costs and expenses of preparing the Preliminary Closing Balance Sheet and
the examination thereof and the report thereon by Xxxxxx Xxxxxxxx LLP shall be
borne by the Company, and the costs and expenses of reviewing the Preliminary
Closing Balance Sheet incurred by McGladrey & Xxxxxx, LLP shall be borne by the
Selling Stockholders.
(b) The Selling Stockholders shall have thirty (30) days following
delivery of the Preliminary Closing Balance Sheet and the November P&L during
which to notify the Company of any dispute of any item contained therein, which
notice shall set forth in reasonable detail the basis for such dispute and shall
be accompanied by a certificate of the Selling Stockholders' independent auditor
that they concur with each of the positions taken by the Selling Stockholders in
such notice that the Preliminary Closing Balance Sheet or the November P&L, as
the case may be, was not prepared in accordance with the Closing Balance Sheet
Principles, and otherwise in accordance with GAAP, applied on a basis consistent
with the Audited Financial Statements. During such 30-day period, and during the
pendency of any dispute regarding the Preliminary Closing Balance Sheet or the
November P&L, the Company shall grant the Selling Stockholders and their
representatives reasonable access to the books and records of the Company and
the accounting personnel of the Company. If the Selling Stockholders fail to
notify the Company of any dispute within such 30-day period, the Preliminary
Closing Balance Sheet or the November P&L, as the case may be, shall be the
Final Closing Balance Sheet and the final November P&L, and shall be final and
binding on the parties. In the event that the Selling Stockholders shall so
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notify the Company of any dispute, the Selling Stockholders and Investor shall
cooperate in good faith to resolve such dispute as promptly as possible.
(c) If Investor and Selling Stockholders are unable to resolve any such
dispute within fifteen (15) days (or such longer period as the Company and the
Selling Stockholders shall mutually agree in writing) of the Selling
Stockholders' delivery of such notice, such dispute shall be resolved by a
mutually agreeable nationally recognized, independent accounting firm
("Independent Accounting Firm"), and such determination shall be final and
binding on the parties. If the Selling Stockholders and the Company cannot
mutually agree on the identity of the Independent Accounting Firm, then the
Selling Stockholders and the Company shall each submit to the other party's
independent auditor the name of a national accounting firm (other than
McGladreyu& Xxxxxx, LLP and Xxxxxx Xxxxxxxx & Co.), and the Independent
Accounting Firm shall be selected by lot from those two firms by the independent
auditors of the two parties. (If no national accounting firm shall be willing to
serve as the Independent Accounting Firm, then an arbitrator shall be selected
to serve as such, such selection to be according to the above procedures.) Any
expenses relating to the engagement of the Independent Accounting Firm shall be
shared equally by the Company and the Selling Stockholders. The Independent
Accounting Firm shall be instructed to use every reasonable effort to perform
its services within fifteen (15) days of submission of the Preliminary Closing
Balance Sheet or the November P&L to it and, in any case, as promptly as
practicable after such submission. The Final Closing Balance Sheet and the
calculation of Final Stockholder Equity, or the November P&L, shall then be
prepared by the Company and the Selling Stockholders based on the determination
of the Independent Accounting Firm. The Final Closing Balance Sheet shall be the
Preliminary Closing Balance Sheet deemed to be final pursuant to clause (b)
above or as finally determined by the Independent Accounting Firm pursuant to
this clause (c).
(d) The Total Consideration shall be increased (or decreased) by (i)xxxx
amount by which the Final Stockholders Equity exceeds (or is less than) the
Estimated Stockholders Equity, and (ii)xxxx prorated portion of November, 1997
profit (or loss) determined in accordance with Section 3.4(a) (such amount, the
"Final Closing Adjustment"). The Company or the Selling Stockholders, as the
case may be, shall, within ten (10) days after the final determination pursuant
to Section 3.4(c) or 3.4(d), make payment to the other by wire transfer in
immediately available funds of the Final Closing Adjustment, together with
interest thereon at the reference rate per annum quoted from time to time by
Norwest Bank, Minnesota from the Closing Date to the date of payment.
ARTICLE 4
ESCROW
4.1 Escrow. The Company shall deposit in escrow with Norwest Bank,
Minnesota (the "Escrow Agent") Six Million Dollars ($6,000,000) cash ("Escrow
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Deposit") to be held and disbursed by the Escrow Agent in accordance with the
terms and provisions of the Escrow Agreement.
ARTICLE 5
CLOSING
5.1 Closing Date. The closing of the Recapitalization (the "Closing")
shall take place at the office of Xxxxxx & Whitney LLP, Pillsbury Center South,
000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, XX 00000 (or at such other place as the
parties may mutually agree) at 10:00 o'clock a.m., local time, as soon as
practicable after the satisfaction of the conditions set forth in Articles 11
and 12 (or such other time and date by mutual agreement of the parties) (the
"Closing Date").
5.2 Documents To Be Delivered by Selling Stockholders. At the Closing, the
Selling Stockholders will deliver or cause to be delivered to Investor (unless
otherwise indicated):
(a) to the Company, stock certificates for the Redeemed Stock, free and
clear of Encumbrances other than restrictions on Transfer pursuant to the
Securities Act of 1933, as amended, and any applicable state securities laws
(none of which apply to the redemption of the Redeemed Stock), which
certificates shall be duly endorsed to the Company or accompanied by duly
executed stock powers in form reasonably satisfactory to the Company;
(b) a certificate of the Selling Stockholders, in form reasonably
satisfactory to Investor, certifying (i)uthat all representations and warranties
by the Selling Stockholders contained in the Agreement are true and correct in
all respects at and as of the Closing Date as though such representations and
warranties were made at and as of the Closing Date (unless limited by their term
to a prior date), other than breaches of such representations and warranties
which would not reasonably be expected to result in a Material Adverse Effect;
provided, however, the aforementioned shall be determined without regard to any
materiality qualifications set forth in the representations and warranties, (ii)
that the Selling Stockholders have performed and complied with, in all material
respects, all covenants, obligations and agreements to be performed and complied
with by the Selling Stockholders at or before the Closing, and (iii) that the
conditions precedent set forth in Article 11 have been satisfied or waived;
(c) resignations (effective as of the Closing Date) of (i) the members of
the board of directors of the Company and (ii) the officers of the Company as
directed by Investor;
(d) the stock books, stock ledgers and minute books of the Company;
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(e) an executed copy of each of the Transaction Documents to which any
Selling Stockholder is a party;
(f) a copy of the Articles of Incorporation of the Company, certified by
the Secretary of State of Minnesota, and a Certificate of Good Standing from the
Secretary of State of Minnesota evidencing the good standing of the Company,
each dated within ten (10) days of the Closing Date;
(g) a copy of each of (i) the text of the resolutions adopted by the Board
of Directors and Stockholders of the Company authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents and the
consummation of all of the transactions contemplated by this Agreement and the
other Transaction Documents, and (ii) the bylaws of the Company, without giving
effect to the amendment thereto to be caused by Investor in connection with the
Closing; along with certificates executed on behalf of the Company by its
corporate secretary certifying to Investor that such copies are true, correct
and complete copies of such resolutions and bylaws, respectively, and that such
resolutions and bylaws were duly adopted and have not been amended or rescinded,
and indicating the incumbency of all officers of the Company executing any of
the Transaction Documents;
(h) a certificate of the Trust Stockholders, in form reasonably
satisfactory to Investor, certifying that any necessary actions have been taken
by the Trust Stockholders to authorize the execution, delivery and performance
of this Agreement and the other Transaction Documents of which the Trust
Stockholders are a party;
(i) evidence reasonably satisfactory to Investor that the Shareholder
Agreement dated September 21, 1987 between the Selling Stockholders has been
terminated;
(j) a customary legal opinion of counsel for the Company and the Selling
Stockholders, dated as of the Closing Date, in form identical to Exhibit 5.2(j);
(k) a title insurance policy issued for the Company's Young America,
Minnesota facility;
(l) employment and noncompetition agreement with Xxxxxxx X. Xxxx, in form
identical to Exhibit 5.2(l) ("Employment Agreement");
(m) evidence reasonably satisfactory to Investor indicating the approval
by the Selling Stockholders of the Closing Incentive Payments under Code Section
280G(b)(5)(B); and
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(n) evidence reasonably satisfactory to Investor that (i)uCharles X. Xxxx
has released the Company from all obligations under that certain Employment
Agreement dated Januaryu1, 1997, (ii)uDavid Xxxxxxxx and Xxxxxxxxx X.
Xxxxxxxxxxx have released the Company from all obligations under the Phantom
Stock Agreements, and (iii) Xxxxx Xxxxx has released the Company from all
obligations under that certain Sale of the Company Incentive Agreement
(undated);
(o) a FIRPTA certificate; and
(p) such other documents, in form and substance reasonably satisfactory to
Investor, as may be reasonably necessary to effect the Closing.
5.3 Documents To Be Delivered by Investor. Unless otherwise indicated, at
the Closing, Investor will deliver or cause to be delivered to the Selling
Stockholders:
(a) the Company shall deliver the Closing Cash Payments to be paid to the
Selling Stockholders in accordance with Section 3.2(b) and the Escrow Deposit to
be made with the Escrow Agent in accordance with Section 4.1;
(b) a certificate of Investor, in form reasonably satisfactory to the
Selling Stockholders, certifying (i)uthat all representations and warranties by
Investor contained in this Agreement shall be true and correct in all respects
at and as of the Closing Date of the Agreement, as though such representations
and warranties were made at and as of the Closing Date (unless limited by their
term to a prior date), other than breaches of such representations and
warranties which would not reasonably be expected to prevent consummation of the
transactions contemplated by this Agreement, (ii)uthat Investor has performed
and complied with, in all material respects, all of the covenants, obligations
and agreements to be performed and complied with by such parties at or before
the Closing, and (iii)uthat the conditions precedent set forth in Articleu12
have been satisfied or waived;
(c) an executed copy of each of the Transaction Documents to which
Investor is a party;
(d) certificate executed on behalf of Investor by its corporate secretary
certifying to the Selling Stockholders as to the incumbency of the officers of
Investor executing any of the Transaction Documents.
(e) Certificate of Good Standing of Investor dated no earlier than ten
(10) days prior to the Closing Date;
(f) evidence reasonably satisfactory to the Selling Stockholders that the
Equity Financing has been completed in accordance with Section 2.2; and
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(g) such other documents, in form and substance reasonably satisfactory to
the Selling Stockholders, as may be reasonably necessary to effect the Closing.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Representations by Each of the Selling Stockholders. The Selling
Stockholders, jointly and severally, hereby represent and warrant to Investor
that:
(a) Authority. The Selling Stockholders have all requisite authority and
power to execute and deliver this Agreement and the other Transaction Documents
to which they are a party and to consummate the transaction contemplated hereby
and thereby. With respect to any Selling Stockholder which is a trust, such
Selling Stockholder has taken all necessary trust action to authorize the
execution and delivery of this Agreement and the other Transaction Documents to
which it is a party and the consummation of the transactions contemplated hereby
and thereby and no other trust action is necessary in connection therewith. This
Agreement and such other Transaction Documents have been or will be duly and
validly executed and delivered by the Selling Stockholders and, assuming this
Agreement and such other Transaction Documents have been duly authorized,
executed and delivered by each of the other parties hereto, this Agreement and
such other Transaction Documents constitute a valid and binding agreement of the
Selling Stockholders, enforceable against the Selling Stockholders in accordance
with its terms, except as such enforceability may be limited or affected by (i)
bankruptcy, insolvency, reorganization, moratorium, liquidation, arrangement,
fraudulent transfer, fraudulent conveyance and other similar laws (including,
without limitation, court decisions) now or hereafter in effect and affecting
the rights and remedies of creditors generally or providing for the relief of
debtors, (ii) the refusal of a particular court to grant equitable remedies,
including, without limitation, specific performance and injunctive relief, and
(iii) general principles of equity (regardless of whether such remedies are
sought in a proceeding in equity or at law).
(b) Ownership of Redeemed Stock. The Selling Stockholders own,
beneficially and of record, the Redeemed Stock set forth opposite their names on
Scheduleu2.4, free and clear of all Encumbrances other than restrictions on
Transfer pursuant to applicable securities laws, and have, subject to compliance
with such securities laws, full power and legal right to sell, assign, transfer
and deliver the same to the Company. The delivery of the Redeemed Stock pursuant
to the provisions of this Agreement will transfer to the Company good and valid
title to the Redeemed Stock, free and clear of all Encumbrances, other than any
Encumbrances created by the Company after the Closing.
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(c) No Violation; No Consent. The execution and delivery of this Agreement
and the other Transaction Documents to which they are a party by the Selling
Stockholders and the Company does not, and the performance of this Agreement and
other Transaction Documents to which they are a party by the Selling
Stockholders or the Company will not, (i) to the extent that a Selling
Stockholder is a trust, violate any provision of the trust agreement under which
such trust was created, (ii) conflict with or violate any Applicable Laws, (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the Company's
rights or alter the rights or obligations of any other person under, or give to
any other person any right of termination, amendment, acceleration or
cancellation of, or result in the creation of any Encumbrance on any of the
properties or assets of the Company pursuant to, any contract, agreement or
arrangement of any kind to which the Company is a party or by which the Company
or any of its properties are bound or affected. The execution, delivery and
performance by the Selling Stockholders and the Company of this Agreement and
the other Transaction Documents to which they are a party will not require any
notice to, filing with, or the consent, approval or authorization of any Person
or Governmental Entity, except as contemplated in Section 10.1(b); provided that
the Selling Stockholders make no representation or warranty under this Section
6.1(c) with respect to the transactions contemplated by the Company Subscription
Agreement between the Company and Senior Management or the Company Subscription
Agreement between the Company and Ontario Teachers.
6.2 Representations by the Principal Stockholder. The Principal
Stockholder hereby represents and warrants to Investor that:
(a) Corporate Organization. The Company is a corporation validly existing
and in good standing under the laws of Minnesota. The Company has the corporate
power and authority to carry on its business as now being conducted, to own and
operate the properties and assets now owned and being operated by it and to
enter into and perform this Agreement and the other Transaction Documents. The
Selling Stockholders have delivered or caused to be delivered to Investor
complete and correct copies of the Company's articles of incorporation and
bylaws as in effect on the date hereof (without giving effect to the amendment
thereof caused by Investor in connection with the Closing). The Company is duly
qualified or licensed to do business as a foreign corporation in each of the
jurisdictions set forth in Schedule 6.2(a). Except as set forth on Schedule
6.2(a), the Company is not required to be qualified or licensed to do business
as a foreign corporation in any other jurisdiction, except such jurisdictions,
if any, in which the failure to be so qualified or licensed would not reasonably
be expected to result in a Material Adverse Effect. Schedule 6.2(a) sets forth a
true and complete list of the names and titles of the directors and executive
officers of the Company. Since January 1, 1990, the Company has not owned any
interest in any corporation, partnership, limited liability company, joint
venture, trust or other entity.
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(b) Capitalization; Stock Ownership. Without giving effect to the
amendment to the Company's articles of incorporation in connection with the
Closing, the authorized capital stock of the Company consists of twenty thousand
(20,000) shares of Common Stock, of which one thousand nine hundred twenty
(1,920) shares are issued and outstanding. Any outstanding Common Stock which is
not Redeemed Stock is owned by the Persons and in the amounts set forth in
Schedule 2.4. Except for the Redeemed Stock and the retained stock set forth in
Schedule 2.4, there is no other outstanding Common Stock of the Company. All of
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. Except for this Agreement,
neither the Selling Stockholders nor the Company are a party to or bound by any
contract, agreement or arrangement to issue, sell or otherwise dispose of or
redeem, purchase or otherwise acquire any capital stock or any other security of
the Company or any other security exercisable or exchangeable for or convertible
into any capital stock or any other security of the Company, and there is no
outstanding option, warrant or other right to subscribe for or purchase, or
contract, agreement or arrangement with respect to, any capital stock or any
other security of the Company or any other security exercisable or exchangeable
for or convertible into any capital stock or any other security of the Company.
(c) Financial Statements.
(i) Schedule 6.2(c)(i) contains true and complete copies of the
audited balance sheets of the Company as of December 31, 1994, 1995 and 1996 and
related statements of income, retained earnings and cash flows for the fiscal
year ended on those dates, together with the notes thereto and the report
thereon of McGladrey & Xxxxxx, LLP (collectively, the "Audited Financial
Statements"). Except as set forth in the notes thereto, the Audited Financial
Statements were prepared from the books and records of the Company and present
fairly, in all material respects, the financial position of the Company as of
the respective dates of said balance sheets and the results of its operations
and its cash flows for the respective periods then ended in conformity with
GAAP.
(ii) The Company has also made available to Investor an unaudited
balance sheet of the Company as of Octoberu31, 1997 and the related statement of
income and cash flows for the period then ended (the "Unaudited Financial
Statements"). The Unaudited Financial Statements were prepared from the books
and records of the Company and present fairly, in all material respects, the
financial position of the Company as of the date thereof and the results of its
operations for the period indicated in conformity with GAAP applied on a basis
consistent with the Audited Financial Statements (subject to the normal year-end
adjustments set forth on Schedule 6.2(c)(ii) and the absence of footnotes).
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(d) No Undisclosed Liabilities. The Company has no liabilities, except
liabilities (i) in the aggregate adequately set forth in the Audited Financial
Statements, (ii) incurred in the ordinary course of business after December 31,
1996 and reflected in the Final Closing Balance Sheet, or (iii) set forth on
Schedule 6.2(d).
(e) Absence of Certain Changes. Except as set forth on Schedule 6.2(e),
since December 31, 1996, the Company, taken as a whole, has conducted business
in the ordinary course consistent with past practices and there has not occurred
(i) any Material Adverse Effect or (ii) any sale, disposition or creation of an
Encumbrance upon any assets of the Company (other than (A) the sale of any asset
with a book value of less than $100,000 and creations of Encumbrances in the
ordinary course of business of less than $100,000 and (B) dispositions of any
obsolete or worthless asset with a book value of less than $100,000.)
(f) Properties and Assets.
(i) Except as set forth on Schedule 6.2(f)(i), the Company has good
and marketable title to, or a valid and binding leasehold or licensed interest
in, all of the properties and assets of the Company (including all Intellectual
Property), free and clear of all Encumbrances (except Permitted Encumbrances).
(ii) All Equipment reflected in the Financial Statements is in good
operating condition and repair and there is no extraordinary wear and tear to
such property.
(iii) Schedule 6.2(f)(iii) sets forth a list of all owned real
property, leased real property and leased personal property. None of the owned
real property is subject to any lease. The Company has made available to
Investor or its representatives, copies of all leases for such leased property.
Except as set forth on Schedule 6.2(f)(iii), all such leases are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default).
(g) Tax Matters.
(i) Except as set forth on Schedule 6.2(g), each of the Company and
the Company's Plans has: (A) properly and timely filed, or has had properly and
timely filed on its behalf, or will properly and timely file all federal, state,
local and foreign tax returns, reports, statements and other similar filings
("Tax Returns") required to be filed by the Company with the appropriate
Governmental Entity in all jurisdictions in which such Tax Returns are required
to be filed for all periods ending on or before the Closing Date, and has timely
paid all Taxes shown thereon to be due; (B) timely and properly paid, or has had
paid on its behalf, or will timely and properly
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pay, all Taxes due and payable on or prior to the Closing Date; and (C) complied
with all applicable laws, rules and regulations relating to the withholding of
Taxes and the payment thereof (including, without limitation, withholding of
Taxes under Sections 1441 and 1442 of the Internal Revenue Code of 1986, as
amended ("Code")), and timely and properly withheld from individual employee
wages and paid over to the proper Governmental Entities all amounts required to
be so withheld and paid over under all applicable laws; provided, however, that
the Principal Stockholder makes no representation or warranty with respect to
the payment to the proper Governmental Entity of the payroll withholding Taxes
required in connection with the Closing Incentive Payments.
(ii) The Company has made available to Investor true, correct and
complete copies of all Tax Returns made to all Governmental Entities with
respect to Taxes during the calendar years 1992 through 1996 and for any interim
period in 1997 ending prior to the Closing Date.
(iii) No Governmental Entity is now asserting or, to the best
knowledge of the Principal Stockholder, threatened to assert against the Company
any deficiency or claim for additional Taxes.
(iv) Except as set forth on Schedule 6.2(g), there has been no Tax
Audit or other administrative proceeding or court proceeding with regarding to
any Taxes or Tax Returns, nor is any such Tax Audit or other proceeding pending
or, to the best knowledge of the Principal Stockholder, threatened with regard
to any such Tax Audit or other proceeding.
(v) The Company (A) is not, and has not made an election to be,
treated as a "consenting corporation" under Section 341(f) of the Code and (B)
is not, and has not been, a "personal holding company" within the meaning of
Section 542 of the Code.
(vi) No claim has been made by any taxing authority in a
jurisdiction in which the Company does not file Tax Returns that the Company is
or may be subject to taxation by that jurisdiction.
(vii) The Company has continuously been a "small business
corporation" (within the meaning of Section 1361 of the Code) for all taxable
years beginning January 1, 1987 and ending on the Closing Date, and has duly
elected under Section 1362(a) of the Code to be taxed as an "S corporation" (and
has been so treated) for Federal income tax purposes. No corresponding election
is required under the tax laws of the state of Minnesota for each of such
taxable years. The Company has not received any correspondence from any Taxing
Authority questioning its ability to be taxed as an S corporation (or the
corresponding provision under state and local law).
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(viii) The Company has not incurred any liability to make or
possibly make any payment either alone or in conjunction with any other payments
that shall be non-deductible under, or would otherwise constitute a "parachute
payment" within the meaning of Section 280G of the Code (or any corresponding
provision of state or local law).
(ix) The Company will not incur any corporate-level Tax liability
pursuant to Section 1374 of the Code, or other applicable law, with respect to
the transactions contemplated herein.
(x) The accrued Taxes payable set forth on the Final Closing Balance
Sheet shall be adequate to cover all liabilities of the Company for Taxes with
respect to all periods (or portions thereof) ending on or prior to the Closing
Date.
(h) Contracts. Except as set forth on Schedule 6.2(h) and delivered to or
made available to Investor or its counsel, there are no (a) notes, bonds,
mortgages, indentures, material leases, or material Permits, or (b) other
contracts, agreements or other instruments or obligations or any amendments,
supplements or restatements of any of the foregoing: to which the Company is a
party or by which it or any of its properties or assets are bound ((a) and (b),
collectively, "Commitments") that (i) relate to real property, (ii) restrict the
Company from competing in any line of business, (iii) except for this Agreement,
relate to any proposal to acquire the Company or all or substantially all of its
assets or properties, or (iv) are otherwise material to the business, financial
condition or results of operations of the Company, taken as a whole; provided,
however, that except for any contracts involving indebtedness for borrowed
money, the Company is not obligated to disclose in Schedule 6.2(h) or deliver or
make available to Investor or its counsel any written contract where the annual
financial payment obligation of either party is less than $250,000 or where the
contract may be terminated without penalty on thirty (30) days or less written
notice. The Company is not and, to the knowledge of the Principal Stockholder
and the Company, no other party is, in violation of or in default under (nor
does there exist any condition which upon the passage of time or the giving of
notice or both would reasonably be expected to cause such a violation of or
default under) any material provision of any material Commitment. Each
Commitment constitutes a valid and binding obligation on the Company and, to the
knowledge of the Principal Stockholder and the Company, each other party
thereto, enforceable against such other party in accordance with its terms.
(i) Litigation. Except as set forth in Schedule 6.2(i), there is no suit,
action, proceeding or investigation, either at law or in equity, or before any
Governmental Entity now pending or, to the knowledge of the Principal
Stockholder and the Company, threatened against the Company, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company.
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(j) Intellectual Property. Schedule 6.2(j) sets forth a list of all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, and licenses obtained by the Company, that are material
to the business of the Company, taken as a whole, as such business is now being
conducted. The assets referred to in the preceding sentence, together with all
such assets not required to be listed thereon due to the materiality
qualification, and all processes, plans, ideas, concepts, technical information,
data, research records, proprietary computer software, promotional literature,
customer and supplier lists and similar data and information and all other
confidential or proprietary or technical and business information shall be
referred to collectively as the "Intellectual Property". There are no actions or
proceedings pending or, to the knowledge of Principal Stockholder, threatened,
challenging the rights of the Company to use the Intellectual Property. To the
knowledge of the Principal Stockholder and the Company,uno person or entity is
infringing the Intellectual Property. The Company is not infringing any rights
of any third party under any patent, trademark, trade name, service xxxx or
copyright, and the Company either has all right, title and interest in, or a
valid and binding license to use, all Intellectual Property.
(k) Compliance with Laws; Permits. Except for matters relating to Taxes
which are addressed solely in Section 6.2(g), for matters relating to
Environmental Laws which are addressed solely in Section 6.2(n), and for matters
set forth in Schedule 6.2(k), the Company is in compliance, in all material
respects, with all Applicable Laws relating to it or its properties, assets,
operations and businesses including, without limitation, the Fair Labor
Standards Act and the Minnesota Uniform Disposition of Unit Unclaimed Property
Act. To the knowledge of the Principal Stockholder and the Company, there is no
proposed or threatened change in Applicable Law that reasonably could be
expected to have a Material Adverse Effect. The Company holds all permits,
licenses, easements, variances, exemptions, consents, certificates, orders and
approvals from Governmental Entities which are material to the business of the
Company, taken as a whole, as such business is now being conducted
(collectively, the "Permits"). The Company is in compliance with the terms of
the Permits applicable to it.
(l) Employee Matters. Schedule 6.2(l) sets forth all management,
employment and other contracts providing for the employment or retention of
employees with annual compensation in excess of $100,000. The Company is not a
party to or bound by any collective bargaining agreement. Schedule 6.2(l) lists
all pension and employee benefit plans, profit sharing plans, bonus, deferred
compensation, supplemental executive retirement plans, excess benefit plans,
phantom stock, stock options, stock appreciation or other forms of incentive or
other compensation plans or arrangements including, without limitation, all
"employee pension benefit plans" as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all welfare,
severance, vacation and other employee fringe benefit plans including, without
limitation, all "employee
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welfare benefit plans" as defined in Section 3(1) of ERISA, as amended,
maintained by the Company relating to the employees or former employees of the
Company (collectively, the "Company's Plans"). The Company has made available to
Investor copies of each of the Company's Plans as in effect on the date hereof.
The Company's Plans have been maintained, in all material respects, in
accordance with their respective terms and conditions and Applicable Laws. All
contributions to the Company's Plans that have been required to be made in
accordance with Section 302 of ERISA or Section 412 of the Code have been made.
No non-exempt "prohibited transaction" (as defined in Section 4975 of the Code
or Section 406 of ERISA) has occurred which could subject the Company to a Tax.
At no time during the five-year period preceding the Closing Date has the
Company been required to contribute to any "multi-employer plan" (as defined in
Section 4001(a)(3) of ERISA) for the benefit of the employees of the Company.
Each of the Company's Plans which is intended to be "qualified" within the
meaning of Section 401(a) of the Code is the subject of a favorable
determination letter from the Internal Revenue Service stating that it is so
qualified. The Company has made available to Investor copies of the most recent
Internal Revenue Service determination letters with respect to each such plan.
Neither the Company nor any Affiliate is or ever has been obligated to
contribute to any "defined benefit plan" (within the meaning of Section 3(35) of
ERISA). Each Company Plan which is subject to the requirements of the
Consolidated Omnibus Budget Reconciliation of 1985 ("COBRA") and the Health
Insurance Portability and Accountability Act ("HIPAA") has been maintained, in
all material respects, in compliance with COBRA and HIPAA, including all notice
requirements, and no tax payable on account of Section 4980B or any other
section of the Code has been or is expected to be incurred. All reporting and
disclosure obligations imposed under ERISA and the Code have been satisfied in
all material respects with respect to each Company Plan.
(m) Insurance. The Company maintains insurance policies which are in
amount and character, including with respect to the perils or hazards covered
thereby, substantially similar to that carried by entities engaged in similar
businesses. Schedule 6.2(m) sets forth a summary of the insurance policies
maintained by the Company from January 1, 1995 to the Closing Date.
(n) Environmental Matters.
(i) The Company is in substantial compliance with all Environmental
Laws with respect to its properties, assets, operations and business.
(ii) The Company has obtained and adhered, in all material respects,
to all necessary Permits and other approvals, necessary to store, dispose of and
otherwise handle Hazardous Material and has reported, to the extent required by
Environmental Laws, all past and present sites owned and operated by the Company
where Hazardous Material has been treated, stored or disposed of.
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(iii) No Hazardous Material has been Released at or on any of the
property owned, leased or operated by the Company or any of its predecessors.
(iv) The Company has not received any written notice, claim or
request for information relating to any on-site or off-site locations to which
the Company has transported Hazardous Material or arranged for the
transportation of Hazardous Material, alleging that the Company is or reasonably
may be expected to be liable for any clean-up cost, remedial work, damage to
natural resources or personal injury.
(v) There is no Environmental Claim pending or threatened against
the Company which would have a Material Adverse Effect.
(vi) The real property owned by the Company does not contain any
underground storage tanks.
The representations and warranties contained in this Section 6.2(n) are the
exclusive representations and warranties of the Principal Stockholder with
respect to compliance with and liability under Environmental Laws.
(o) Labor Matters. The Company is not and, within the past five years, has
not been, a party to any collective bargaining or other labor union contracts.
As of the date of this Agreement, there is no material labor dispute, grievance,
strike or work stoppage pending, or to the knowledge of the Principal
Stockholder, threatened against the Company. The Company has made available to
Investor that certain Stipulation Agreement ("Stipulation Agreement") between
the Company and the Department of Labor dated August 9, 1996, which is attached
to Schedule 6.2(o) of the Disclosure Schedule. The Company is in compliance, in
all material respects, with the Stipulation Agreement, and there is no suit,
action, proceeding or further investigation pending or, to the knowledge of the
Principal Stockholder, threatened against the Company by the Department of
Labor.
(p) Accounts Receivable. All accounts receivable reflected on the
Unaudited Financial Statements, and all such receivables from third parties
arising after the date thereof, constitute bona fide receivables from third
parties resulting from the sale of goods and services in the ordinary course of
business.
(q) Supplies. The packaging supplies of the Company are undamaged, not
obsolete and consist of items of a quality and quantity readily useable in the
ordinary course of business. The value at which such supplies are carried on the
Company's financial statements is in accordance with GAAP.
(r) Customers. Schedule 6.2(r) sets forth a list of the fifteen largest
customers of the Company during the fiscal year ended December 31, 1996 and
during
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the nine month period ended Septemberu30, 1997. Except as set forth in Schedule
6.2(r), as of the date hereof, (a) none of the customers listed in Schedule
6.2(r) has given the Company written notice or, to the knowledge of the Company,
oral notice of its intention to terminate or materially reduce its business
relationship with the Company, it being understood that the Principal
Stockholder gives no assurance that any such termination, material reduction or
decrease will not occur, and (b) neither the Principal Stockholder nor the
Company has any reason to believe that any of such customers intend to terminate
or materially reduce its business relationship with the Company or take any such
action.
(s) Related Party Transactions. Schedule 6.2(s) sets forth (i) a list of
all officers and employees of the Company as of the date hereof and the
aggregate salary, bonus and other cash compensation paid to each such person in
the most recently completed fiscal year and (ii) a list of all directors,
officers and employees of the Company as of the date hereof and the aggregate
salary, bonus and other cash compensation paid to each such person from the
beginning of the current fiscal year to November 7, 1997. Except for any bonuses
or distributions contemplated to be made pursuant to this Agreement or the
Transaction Documents, the Company has not made, nor will make, any
distributions to directors, officers or employees, other than ordinary
compensation in the ordinary course of business, between November 7, 1997 and
the Closing Date. Except as set forth on Schedule 6.2(s), there are no
agreements or arrangements between the Company, on the one hand, and any of its
directors, officers, employees or consultants, on the other hand. No affiliate,
director, officer, employee or consultant of the Company owns any interest in
any material asset or property (real or personal, tangible or intangible),
business or contract used or intended for use or otherwise relating to the
business currently conducted or proposed to be conducted by the Company.
Schedule 6.2(s) sets forth the cash or cash equivalents, assets and properties,
if any, contributed or loaned by the Selling Stockholders into the Company from
January 1, 1995 to the Closing Date; provided, contributions made by the Selling
Stockholders in repayment of advances, loans and the like made to the Selling
Stockholders will not be included. As of the Closing Date, none of the Selling
Stockholders have any loans outstanding with the Company.
(t) Brokers. Except as set forth on Schedule 6.2(t), no third party shall
be entitled to receive any brokerage commissions, finder's fees, fees for
financial advisory services or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Selling Stockholders or the Company, other
than the fees and expenses related to the HSR Act which are addressed in Section
15.2. The Selling Stockholders shall remain liable, and neither the Company nor
Investor shall incur any liability for, any fees, commissions or similar
compensation that may be or become due pursuant to the scheduled matters in
Schedule 6.2(t).
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(u) Post-October 31 Actions. Since October 31, 1997, neither the Selling
Stockholders nor the Company have taken any action that would constitute a
breach of the representations and warranties under Article 6 or the covenants
under Section 8.2.
(v) No Other Representations or Warranties. Except for the representations
and warranties contained in this Agreement or any other Transaction Document,
none of the Selling Stockholders nor any other Person makes any other express or
implied representation or warranty on behalf of the Selling Stockholders or
otherwise in respect of the Company or the Redeemed Stock that could give rise
to a claim for indemnification hereunder.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF INVESTOR AND COMPANY
7.1 Investor's Representations. Investor represents and warrants to each
of the Selling Stockholders as follows:
(a) Corporate Organization. Investor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to carry on its business as now being
conducted by it and to carry out the transactions contemplated by this
Agreement.
(b) Authority. The execution and delivery of this Agreement, the purchase
of the newly issued shares of Common Stock pursuant to the Equity Financing and
the consummation of the other transactions provided for hereby have been duly
and validly authorized by all necessary corporate action of Investor. This
Agreement has been duly and validly executed and delivered by Investor and,
assuming the due authorization, execution and delivery by the Selling
Stockholders and the Company, constitutes a legal, valid and binding obligation
of Investor enforceable against Investor in accordance with its terms, except as
such enforceability may be limited or affected by (i) bankruptcy, insolvency,
reorganization, moratorium, liquidation, arrangement, fraudulent transfer,
fraudulent conveyance and other similar laws (including, without limitation,
court decisions) now or hereafter in effect and affecting the rights and
remedies of creditors generally or providing for the relief of debtors, (ii) the
refusal of a particular court to grant equitable remedies, including, without
limitation, specific performance and injunctive relief, and (iii) general
principles of equity (regardless of whether such remedies are sought in a
proceeding in equity or at law).
(c) No Violation; No Consent. The execution and delivery of this Agreement
by Investor does not, and the performance of this Agreement by Investor will
not, (i) violate or conflict with any provision of the certificate of
incorporation or bylaws of Investor, (ii) conflict with or violate any
Applicable Law or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both
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would become a default) under any provision of any contract or agreement of any
kind to which Investor is a party or by which Investor or any of its properties
are bound or affected. The execution, delivery and performance by Investor of
this Agreement and the other Transaction Documents will not require any notice
to, filing with, or the consent, approval or authorization of any Person or
Governmental Entity, except for such consents, approvals or authorizations a
failure of which to obtain or make, individually or in the aggregate would not
materially impair or delay the consummation of the transactions contemplated by
this Agreement.
(d) Litigation. There is no suit, action, proceeding or investigation,
either at law or in equity, or before any Governmental Entity now pending or, to
the knowledge of Investor, threatened against Investor, nor is there any
material judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against Investor, that would, individually or in the
aggregate, materially impair the ability of Investor to effect the Closing.
(e) Brokers. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Investor.
(f) Available Funds. As of the Closing Date, Investor will have sufficient
funds available to complete the portion of the Equity Financing relating to
Investor and Ontario Teachers. As of the Closing Date, assuming consummation of
the Bridge Financing, the Company will have sufficient funds available to
satisfy its obligation to pay the Total Consideration, fund the cash payment of
the Closing Incentive Payments and related withholding taxes immediately after
the Closing pursuant to Section 2.5 and pay all expenses incurred by Investor in
connection with the transactions contemplated hereby.
(g) No Other Representations or Warranties. Except for the representations
and warranties contained in this Article 7, neither Investor nor any other
person makes any other express or implied representation or warranty on behalf
of Investor.
7.2 Company's Representation. The Company represents and warrants to each
of the Selling Stockholders that at and immediately following the Closing
(including the completion of the Recapitalization Financing), the Company will
be Solvent after giving effect to the redemption of the Redeemed Stock, the
Recapitalization Financing and any other transactions contemplated hereby on
such date or which would be otherwise taken into account in determining whether
the redemption of the Redeemed Stock or any of the other transactions
contemplated hereby were a fraudulent transfer or impermissible distribution
under Applicable Law.
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ARTICLE 8
COVENANTS OF SELLING STOCKHOLDERS
8.1 Access to Information and Documents. Prior to the Closing, the Selling
Stockholders will cause the Company to give to Investor and its respective
prospective lenders, and their respective agents and representatives (including,
but not limited to, accountants, lawyers, environmental consultants and
appraisers) access during normal working hours to any and all of the properties,
assets, books, records and other documents of the Company and the Company's
advisors and management as Investor may reasonably request, and the Company will
furnish to Investor such information and copies of such documents and records
pertaining to the Company as Investor shall reasonably request. All such
information and access shall be subject to the terms and conditions of the
letter agreement dated June 17, 1997 between Investor and the Company (the
"Confidentiality Agreement"). In connection with such access, Investor shall,
and shall cause its agents and representatives to, use all commercially
reasonable efforts to minimize any disruption of the Company. The Selling
Stockholders agree to cause the Company to perform under this Section 8.1 as may
be necessary.
8.2 Conduct of Business Pending Closing. From the date hereof until the
Closing, except with the prior written consent of Investor or as otherwise
contemplated by this Agreement, the Selling Stockholders will cause the Company
to:
(a) Use all commercially reasonable efforts to maintain itself at all
times as a corporate entity validly existing under the laws of the State of
Minnesota;
(b) Continue its practice of paying payables and collecting receivables
consistent with past practice;
(c) Use all commercially reasonable efforts to carry on its business and
operations consistent with past practice and will not permit the Company to
engage in any activity or transaction or make any commitment to purchase or
spend money other than in the ordinary course of its business;
(d) Not declare, authorize or pay any distribution or dividend to the
Selling Stockholders (other than (i) the distribution of Excess Cash prior to
the Closing Date, (ii)xxxx related distribution, not to exceed $300,000, payable
to Messrs. Xxxxxxxxxxx and Xxxxxxxx pursuant to the Phantom Stock Agreements in
connection with the Excess Cash distribution referred to in clauseu(i) above,
and (iii) a distribution of the Company's right, title and interest in and to
those certain life insurance policies issued by Phoenix Home Life Mutual, policy
numbers 2585327 and 2243189, and that certain life insurance policy issued by
NALAC, policy number L-1204466, with the Principal Stockholder as the insured
party for each specified policy (collectively the "Life
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Insurance Policies")) and will not redeem, purchase or otherwise acquire, or
agree to redeem, purchase or otherwise acquire, any shares of its stock;
(e) Not materially increase any compensation, commission, bonus or
employee benefit to any director, officer, employee or independent contractor as
such;
(f) Use all commercially reasonable efforts to continue to carry all of
its existing insurance;
(g) Not sell, transfer or otherwise dispose of or pledge or otherwise
encumber, or obligate itself to sell, transfer or otherwise dispose of or pledge
or otherwise encumber, any material portion of its properties or assets;
(h) Not amend its articles of incorporation or bylaws (except as
contemplated by Investor);
(i) (i) file any Tax Returns and elections with respect to any liabilities
for Taxes of the Company or other matters relating to Taxes of the Company which
pursuant to Applicable Laws must be filed prior to the Closing Date; (ii)
promptly upon filing provide copies of any such Tax Returns or elections to
Investor; and (iii) not amend any Tax Return filed prior to the date hereof
without the prior consent of Investor, which consent shall not be unreasonably
withheld or delayed. The Company shall bear all of the expenses associated with
filing the Tax Returns described in this Section 8.2(i) and any Tax liability of
the Company in connection with such Tax Returns shall be accrued as a liability
on the Final Closing Balance Sheet;
(j) Not issue or sell, or authorize or propose the issuance or sale of,
additional shares of capital stock of any class (including Common Stock), or
securities convertible into or exchangeable for any such shares, or any rights,
warrants or options to acquire any such shares or other convertible securities
(other than pursuant to the Company Subscription Agreements);
(k) Not incur any debt, except in the ordinary course of business
consistent with past practice;
(l) Not enter into other material Commitments, or amend, supplement or
restate existing material Commitments; and
(m) Not agree to take any of the actions set forth in Sections 8.2(c)
through 8.2(e), 8.2(g), and 8.2(j) through 8.2(l), or agree not to take any of
the actions set forth in Sections 8.2(a), 8.2(b), 8.2(f), and 8.2(h) through
8.2(k).
8.3 Consents and Approvals. The Selling Stockholders and the Company,
respectively, shall use all commercially reasonable efforts to obtain prior to
the Closing all consents, authorizations and approvals of any Person required to
be
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obtained by the Selling Stockholders or the Company in connection with the
execution, delivery and performance of this Agreement and the consummation of
the transactions provided for hereby.
8.4 Resignation of Officers and Directors. Prior to or at the Closing, the
Selling Stockholders will cause each officer and director of the Company (other
than those set forth on Schedule 8.4) to resign as an officer or director of the
Company effective at the Closing.
8.5 Conditions. The Selling Stockholders shall take, and shall cause the
Company to take, all commercially reasonable actions necessary or desirable to
cause the conditions set forth in Article 12 to be satisfied and to consummate
the transactions contemplated herein as soon as reasonably possible after the
satisfaction thereof (but in any event within three business days of such date).
8.6 No Negotiations. The Selling Stockholders shall not, and shall cause
the Company not to, directly or indirectly, through any officer, director, agent
or otherwise, solicit, initiate or encourage submission of any proposal or offer
from any person or entity (including any of its or their officers or employees)
relating to any liquidation, dissolution, recapitalization, merger,
consolidation or acquisition or purchase of all or a material portion of the
assets of, or any equity interest in, the Company or other similar transaction
or business combination involving the Company, or participate in any
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person or entity to
do or seek any of the foregoing. The Selling Stockholders shall, and shall cause
the Company to, promptly notify Investor if any such proposal or offer, or any
inquiry from or contact with any person with respect thereto, is made and shall
promptly provide Investor with such information regarding such proposal, offer,
inquiry or contact as Investor may request.
8.7 Environmental Matters.
(a) The Selling Stockholders shall cause the Company to allow Investor and
its representatives and agents access to the real property owned, leased or
operated by the Company as of the date hereof and all maintenance records,
licenses, permits, reports, certificates, correspondence with Governmental
Entities or other items relating to the construction, operation and
environmental condition of such real property or the business of the Company, as
such documentation may be kept in the ordinary course of business for the
purpose of reviewing and making photocopies of the same. The Selling
Stockholders shall furthermore cause the Company to make available for the
purpose of interviews with Investor and its representatives and agents such
employees and its representatives of the Company as may have knowledge useful in
environmental matters.
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(b) Investor or, after the Closing, the Company shall pay the expense of
performing any Phase I environmental audit and any Phase II environmental
testing (including, without limitation, soil borings, soil samples and ground
water samples), and preparing any written report in connection therewith.
8.8 Tax Matters.
(a) The Selling Stockholders shall prepare for filing the short period Tax
Return for the Company for the period from January 1, 1997 to and including the
day before the Closing Date and provide a copy of such return to the Company at
least 20 days before filing. The Company and the Selling Shareholders shall
review such return and shall attempt in good faith to resolve any disputes. If
the Company and the Selling Shareholders are unable to resolve such dispute
within ten (10) days, such issues shall be referred to the Independent
Accounting Firm for final determination. Pursuant to Section 9.7, the Company
shall provide reasonable access to the relevant portions of the Company's books
and records and personnel as may be required by the Selling Stockholders for the
purpose of preparing such Tax Returns.
(b) Investor acknowledges that the Company will claim all deductions
attributable to the payment of the Company's obligations with respect to the
Closing Incentive Payments shall be claimed for all Tax purposes on the short
period Tax Return of the Company ending on the day before the Closing Date;
provided, however, that in the event Investor provides written notice of its
objection to any such claimed deductions where the Closing Incentive Payment was
not delivered prior to the Closing Date, the Company shall not be required to
claim such deductions in such Tax Return unless the Selling Stockholders provide
the Company with (i) a reasoned opinion of counsel (which opinion and counsel
shall be reasonably satisfactory to the Company and its counsel) providing, in
effect, that such deductions are properly claimed in such short period Tax
Return and (ii) an agreement to indemnify the Company in connection with such
deductions, reasonably satisfactory to the Company.
(c) After the Closing, but on or before the due date of the short period
return referred to in clause (a) above, the Selling Stockholders that are not
residents of the State of Minnesota shall deliver to the Company a copy of
Minnesota Form MW-4NR, Minnesota Withholding Exemption Certificate.
8.9 Recapitalization Accounting; Cooperation. The Selling Stockholders
agree to cooperate and take commercially reasonable action to ensure that the
transaction contemplated by this Agreement will be treated as a recapitalization
for financial accounting purposes.
8.10 Amended Articles of Incorporation and Bylaws. On the Closing Date,
the Selling Stockholders agree to cause the Company (a) to file the amended
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Articles of Incorporation, and (b) to adopt the amended Bylaws, each in the form
submitted by Investor.
8.11 [Left Blank Intentionally]
8.12 Closing Incentive Payments. At least one (1) day prior to the Closing
Date, the Company shall pay the Closing Incentive Payments in the amounts and to
the individuals set forth on Scheduleu8.12, other than the portion of the
Closing Incentive Payments that relates to the Company's 1997 Management
Recognition, Transition and Equity Bonus Plan, which shall be paid by the
Company in accordance with the terms and conditions of such Plan.
ARTICLE 9
COVENANTS OF INVESTOR
Investor covenants and agrees with the Selling Stockholders as follows:
9.1 Confidentiality. Investor shall, and shall use all commercially
reasonable efforts to cause its Affiliates, associates, employees, agents and
representatives to, (i) hold in strict confidence and not disclose to any person
any and all documents and information containing proprietary information or
trade secrets of the Selling Stockholders or the Company furnished to, obtained
by or learned by Investor in connection with this Agreement and the transactions
contemplated hereby ("Confidential Information") and (ii) refrain from using any
such Confidential Information for any personal advantage, except that Investor
shall be free to disclose and use all or any of such Confidential Information
which can be shown to have been (a) already in the possession of Investor
without restrictions of confidentiality at the time of disclosure to Investor;
(b) a matter of public knowledge other than as a result of any action or
omission by or on behalf of Investor; (c) published other than as a result of
any action or omission by or on behalf of Investor in any publication for public
distribution or filed as public information with any governmental authority; or
(d) lawfully obtained by Investor from a third person without restrictions of
confidentiality. The covenants of Investor contained in this Section 9.1 (i)
shall survive any termination of this Agreement prior to Closing, (ii) shall
survive the Closing with respect to Confidential Information of the Selling
Stockholders and (iii) shall terminate at the Closing with respect to
Confidential Information of the Company.
9.2 Consents and Approvals. Investor shall use all commercially reasonable
efforts to obtain prior to the Closing all consents, authorizations and
approvals of any Person required to be obtained by Investor in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions provided for hereby.
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9.3 No Unreasonable Interference. Prior to the Closing, Investor will not,
directly or indirectly, solicit the employees or customers of the Company.
9.4 Release of Directors. Prior to the Closing, the Company shall release,
effective as of the Closing, each director who shall have resigned as a director
of the Company pursuant to Section 8.4 from all liabilities and obligations as a
director, pursuant to a release in form identical to Exhibit 9.4 attached
hereto.
9.5 Tax Matters. Investor shall file, or cause to be filed, all Tax
Returns of the Company (a) for Tax periods which begin before the Closing Date
and end after the Closing Date, and (b) for Tax periods which begin after the
Closing Date. After the Closing Date, Investor may, to the extent permitted by
Applicable Laws, amend, modify or otherwise change any Tax Return of the Company
for any Tax period; provided, however, that except with respect to any
amendment, modification or other change required by Applicable Law, the
Principal Stockholder shall have the right to approve any amended, modified or
otherwise changed Tax Return of the Company for a Tax period ending on or before
the Closing Date or any change in tax accounting methods affecting any such
Return where an increase in the taxable income of the Company is reported on
such amended Tax Return, which approval may be withheld or granted by the
Principal Stockholder in his sole and absolute discretion. Investor shall cause
the Company to pay the accrued liabilities set forth on Schedule 9.5 within
seventy-four (74) days of the Closing Date to the extent such accrued
liabilities are included on the Final Closing Balance Sheet.
9.6 Conditions. Investor shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in Article 11 to be
satisfied.
9.7 Books and Records. For a reasonable period of time after the Closing
Date (which for any tax-related matters shall mean at least seven (7) years
after the Closing Date), Investor will allow the Selling Stockholders and their
agents reasonable access to the relevant portions of the Company's books and
records and the Company's personnel for legitimate business reasons, such as the
preparation of tax returns or the defense of litigation. Without limiting the
generality of the foregoing, in connection with the short period Tax Return of
the Company that the Selling Stockholders will cause to be prepared, the Company
shall make available to the Selling Stockholders or their representatives the
working profit and loss statement prepared in connection with the Final Closing
Balance Sheets and all adjusting entries related thereto. Copies of such books
and records may be made in accordance with this section, at the cost of the
Selling Stockholders. The Selling Stockholders will not use and will hold in
confidence all confidential information identified as such by, and obtained
from, Investor and any of its officers, agents, representatives or employees;
provided, however, that information which (a) was in the public domain, (b) was
in fact known to the Selling Stockholders prior to disclosure by Investor or its
officers, agents, representatives or employees, or (c) becomes known to the
Selling Stockholders from or
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through a third party who has the legal right to disclose such information,
shall not be deemed to be confidential information.
9.8 WARN Act. After the Closing Date, all obligations to the employees or
former employees of the Company under the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. Sections 2101, et seq., shall be the sole obligation
of the Company.
9.9 Recapitalization Accounting; Cooperation. Investor agrees to cooperate
and take commercially reasonable action to ensure that the transaction
contemplated by this Agreement will be treated as a recapitalization for
financial accounting purposes.
9.10 Financing. Investor agrees to use all commercially reasonable efforts
to obtain the Recapitalization Financing.
9.11 Payment of Liabilities. For a period of 180 days after the Closing
Date, the Company shall pay the liabilities and obligations of the Company
reflected on the Final Closing Balance Sheet in a manner not materially
inconsistent with the Company's past practices.
ARTICLE 10
GOVERNMENTAL CONSENTS
10.1 Consents and Approvals. Each of the parties hereto shall use
commercially reasonable efforts to (i) effect all necessary registrations,
filings, notifications and submissions of information required under Applicable
Laws to any Governmental Entity including, but not limited to, filings under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and the
regulations promulgated thereunder (the "HSR Act"), (ii) obtain as promptly as
practicable all consents, authorizations, approvals and waivers required in
connection with the consummation of the transactions contemplated by this
Agreement under any Applicable Laws from any Governmental Entity, and (iii)
furnish to the other parties such necessary information and reasonable
assistance as such other parties may reasonably request in connection with the
foregoing.
ARTICLE 11
CONDITIONS TO SELLING STOCKHOLDERS' OBLIGATIONS
The obligations of the Selling Stockholders to cause the redemption of the
Redeemed Stock and otherwise consummate the Recapitalization is subject to the
fulfillment, or written waiver by the Selling Stockholders, prior to or at the
Closing of the following conditions:
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11.1 Investor Performance. All representations and warranties by Investor
contained in this Agreement shall be true and correct in all respects at and as
of the execution date of this Agreement and as of the Closing Date, as though
such representations and warranties were made at and as of the Closing Date
(unless limited by their term to a prior date), other than breaches of such
representations and warranties which would not reasonably be expected to have a
Material Adverse Effect. Investor shall have performed and complied with, in all
material respects, all covenants, obligations and agreements of this Agreement
to be performed and complied with by Investor at or before the Closing.
11.2 Consents and Approvals . The Selling Stockholders, the Company and
Investor shall have obtained all material consents, authorizations and approvals
under all statutes, laws, ordinances, regulations, rules, judgments, decrees and
orders of any Governmental Entity required to be obtained by the Selling
Stockholders or Investor, as the case may be, in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby (including, without limitation, expiration or
termination of the waiting period applicable to the consummation of the
redemption of the Redeemed Stock under the HSR Act).
11.3 No Litigation. There shall not be threatened, instituted or pending
any action or proceeding before any Governmental Entity, (a)uchallenging or
seeking to make illegal, or to delay or otherwise directly or indirectly
restrain or prohibit, the consummation of the transactions contemplated hereby
or seeking to obtain material damages in connection with such transactions,
(b)useeking to prohibit direct or indirect ownership or operation by Investor of
all or a material portion of the business or assets of the Company, or to compel
Investor or any of its Affiliates or the Company to dispose of or to hold
separately all or a material portion of the business or assets of Investor and
its Affiliates or of the Company, as a result of the transactions contemplated
hereby, or (c)useeking to invalidate or render unenforceable any material
provision of this Agreement or any of the other Transaction Documents.
11.4 Consummation of Recapitalization. All of the conditions to closing in
favor of the Selling Stockholders or the Company set forth in the other
Transaction Documents shall have been satisfied or waived by the Selling
Stockholders or the Company, and Investor and its Affiliates shall have
performed in all material respects all of the covenants and agreements required
to be performed and complied with by them on or prior to the Closing Date under
the other Transaction Documents.
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ARTICLE 12
CONDITIONS TO OBLIGATIONS OF INVESTOR
The obligation of Investor to consummate the Recapitalization is subject
to the fulfillment, or written waiver by Investor, prior to or at the Closing of
the following conditions:
12.1 The Selling Stockholders' Performance. All representations and
warranties by the Selling Stockholders and the Principal Stockholder contained
in this Agreement shall be true and correct in all respects at and as of the
execution date of this Agreement and as of the Closing Date, as though such
representations and warranties were made at and as of the Closing Date (unless
limited by their term to a prior date), other than breaches of such
representations and warranties which would not reasonably be expected to have a
Material Adverse Effect. The Selling Stockholders shall have performed and
complied with, in all material respects, all covenants, obligations and
agreements of this Agreement to be performed and complied with by the Selling
Stockholders at or before the Closing.
12.2 Consents and Approvals. The Selling Stockholders, the Company and
Investor shall have obtained all consents, authorizations and approvals under
all statutes, laws, ordinances, regulations, rules, judgments, decrees and
orders of any Governmental Entity or of any other person required to be obtained
by the Selling Stockholders or Investor, as the case may be, in connection with
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby (including, without limitation,
expiration or termination of the waiting period applicable to the consummation
of the redemption of the Redeemed Stock under the HSR Act).
12.3 No Litigation. There shall not be threatened, instituted or pending
any action or proceeding before any Governmental Entity, (a)uchallenging or
seeking to make illegal, or to delay or otherwise directly or indirectly
restrain or prohibit, the consummation of the transactions contemplated hereby
or seeking to obtain material damages in connection with such transactions,
(b)useeking to prohibit direct or indirect ownership or operation by Investor of
all or a material portion of the business or assets of the Company, or to compel
Investor or any of its Affiliates or the Company to dispose of or to hold
separately all or a material portion of the business or assets of Investor and
its Affiliates or of the Company, as a result of the transactions contemplated
hereby, or (c)useeking to invalidate or render unenforceable any material
provision of this Agreement or any of the other Transaction Documents.
12.4 No Material Adverse Effect. There shall not have occurred, since the
date of this Agreement, any event, change or circumstance constituting a
Material Adverse Effect.
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12.5 Delivery of Documents. Investor shall have received from the Selling
Stockholders the documents described in Sections 5.2(a) through 5.2(n).
12.6 Financing Contingency. Investor shall have obtained or arranged for
(a) at least $38.8 million of equity financing in the Company from Investor,
Ontario Teachers and Senior Management pursuant to the Company Subscription
Agreements to partially finance the payment of the Total Consideration ("Equity
Financing"), (b) bridge financing of $80 million from Bankers Trust Company
pursuant to the terms of that certain Senior Credit Agreement dated as of the
Closing Date to finance the payment of the balance of the Total Consideration
and transaction fees and expenses ("Bridge Financing") (the Equity Financing and
the Bridge Financing shall be referred to collectively as the "Recapitalization
Financing").
12.7 Due Diligence. Investor shall have completed a due diligence
investigation of the business, affairs, assets, liabilities, historical
financial results, operations and prospects of the Company, and Investor shall
not have learned any information as a result of such investigation which in the
reasonable opinion of Investor is likely to have a Material Adverse Effect
(which material adverse information shall not include, but shall be in addition
to, any information disclosed prior to the execution and delivery of this
Agreement, including information set forth in detail in the Confidential
Memorandum prepared by Xxxxxxxxx, Agio, Xxxxx and Company on behalf of the
Selling Stockholders, and information contained in this Agreement, including the
schedules hereto). This condition shall be deemed satisfied in full unless
Investor delivers written notice to the Selling Stockholders of the receipt of
such material adverse information in reasonable detail. In the event Investor
delivers to the Selling Stockholders such notice, this condition shall be deemed
satisfied in full if, within ten days of receiving such notice, the Selling
Stockholders shall have cured or prevented, to the reasonable satisfaction of
Investor, any such Material Adverse Effect or the underlying causes likely to
have such effect.
12.8 Consummation of Recapitalization. All of the conditions to closing in
favor of Investor set forth in the other Transaction Documents shall have been
satisfied or waived by Investor, and the Selling Stockholders, the Company and
their respective Affiliates shall have performed in all material respects all of
the covenants and agreements required to be performed and complied with by them
under the other Transaction Documents and the Recapitalization Documents.
ARTICLE 13
TERMINATION
13.1 Termination. Subject to Section 13.1(c), this Agreement may be
terminated at any time prior to the Closing as follows:
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(a) Either Investor or the Selling Stockholders may, without liability to
the other party, terminate this Agreement by notice to the other parties:
(i) if the Closing shall not have occurred on or before December 15,
1997;
(ii) subject to Section 10.1, if any court of competent jurisdiction
shall have issued a preliminary injunction which restrains or enjoins any of the
transactions contemplated hereby; provided, however, that no such termination
shall be permitted by either party unless it shall have complied with Section
10.1(b);
(iii) if any of the conditions precedent to the performance of such
party's obligations at the Closing shall not have been fulfilled; provided,
however, that the other party shall be allowed ten (10) days within which to
satisfy any such unfulfilled conditions precedent (other than the Selling
Stockholder's failure to deliver the Redeemed Stock in accordance with Section
5.2(a) or the Company's obligation to deliver the Closing Cash Payments in
accordance with Section 5.3(a), respectively, for which no grace period is
available).
(b) Investor and the Principal Stockholder may terminate this Agreement by
their mutual written consent.
(c) Notwithstanding any provision in this Article 13 to the contrary, a
party whose breach has prevented the Closing shall not have the right to
terminate this Agreement without the written consent of Investor in the case of
such breach by any Selling Stockholder, or the Company and the Selling
Stockholders in the case of such a breach by Investor.
13.2 Effect of Termination. If this Agreement is terminated, this
Agreement (except for Section 9.1, this Section 13.2 and Section 15.2 which
shall survive such termination), shall no longer be of any force or effect and
there shall be no liability on the part of any party or any of its directors,
officers, shareholders or agents except, in the case of termination because of a
default or breach resulting from the willful fault of another party, the
aggrieved party or parties may recover from the defaulting party the amount of
expenses incurred by such aggrieved party or parties in connection with this
Agreement and the transactions contemplated hereby which the aggrieved party or
parties would otherwise have to bear pursuant to Section 15.2. If this Agreement
shall be terminated, each party will (i) redeliver all documents, work papers
and other materials of any other party relating to this Agreement or the
transactions contemplated hereby, whether obtained before or after the execution
of this Agreement, to the party furnishing the same, and (ii) destroy all
documents, work papers and other materials developed by its accountants, agents
and employees in connection with the transactions contemplated hereby which
embody any proprietary information or trade secrets furnished by any party
hereto or deliver such documents, work papers and
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other materials to the party furnishing such proprietary information or trade
secrets or excise such proprietary information or trade secrets therefrom and
all information received by any party hereto with respect to the business of any
other party or any of its subsidiaries (other than information which is a matter
of public knowledge or which has heretofore been or is hereafter published in
any publication for public distribution or filed as public information with any
governmental authority) shall not at any time be used for any personal advantage
or disclosed by such party to any third person to the detriment of the party
furnishing such information.
ARTICLE 14
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
14.1 Survival of Representations and Warranties. All representations and
warranties contained in Article 6 (with respect to the Selling Stockholders) and
in Article 7 (with respect to Investor and the Company), and the indemnification
obligation of the parties with respect thereto, and all other indemnification
obligations of the parties hereunder, shall survive the Closing until May 21,
1999; provided, however, that (a) the representations and warranties set forth
in Sectionsu6.2(g) and 6.2(l) shall survive the Closing until thirty (30) days
after the expiration of the applicable statute of limitations, and (b) the
representations and warranties set forth in Sections 6.1(a), 6.1(b) and 6.2(a)
shall survive the Closing indefinitely.
14.2 The Selling Stockholders' Indemnification Obligations. Subject to the
terms and conditions of this Article 14 and the express limitations of Section
14.3, the Selling Stockholders agree to indemnify and hold the Company harmless
against any and all Damages resulting from or relating to:
(a) any breach of any representation or warranty of the Selling
Stockholders contained in this Agreement; provided that (i) any claim by
Investor for indemnification under this paragraph (a) must be made within the
survival period for said breach as provided for in Section 14.1 and no later,
and (ii) the Principal Stockholder shall be the sole Selling Stockholder liable
for any indemnification obligations resulting from or relating to any breach of
any representation or warranty of the Principal Stockholder contained in Section
6.2 of this Agreement; provided, the Principal Stockholder shall be jointly and
severally liable for the representations and warranties under Section 6.1, and
each Trust Stockholder shall be severally liable for their own representations
and warranties under Section 6.1;
(b) any breach of any covenant of the Selling Stockholders contained in
this Agreement;
(c) any liability or obligation of the Company specifically excluded from
the calculation of Estimated Closing Stockholders Equity and Final Stockholders
Equity pursuant to Section 3.3(a);
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and any and all actions, suits, demands, assessments or judgments with respect
to any claim arising out of or relating to the subject matter of the
indemnification. The parties recognize that in order to structure the
transactions contemplated hereby as a recapitalization, Investor and certain
other investors (other than the Selling Stockholders) are acquiring less than
100% of the capital stock of the Company. The parties also recognize that a
breach of a representation, warranty or covenant of the Selling Stockholders may
not result in actual "Damages" suffered by the Company but would result in
actual "Damages" by a purchaser of 100% of the shares of capital stock of the
Company. Notwithstanding anything to the contrary contained herein or in any
Transaction Document, for purposes of the indemnification obligations under
Section 14.2, Damages suffered, sustained or incurred by the Company shall be
deemed to include those that would have been sustained by a purchaser of 100% of
the shares of capital stock of the Company for the sum of $129,200,000.
14.3 Limitations on the Selling Stockholders' Indemnification Obligations.
(a) The Selling Stockholders shall have no obligation to provide
indemnification pursuant to Section 14.2 except to the extent that the aggregate
amount of indemnification to which the Company, but for this Section 14.3,
otherwise shall have become entitled hereunder shall exceed $750,000 (the
"Selling Stockholders' Basket"), in which event the Selling Stockholders shall
be obligated, subject to the next succeeding sentence, to provide
indemnification only with respect to all amounts in excess of the Selling
Stockholders' Basket. Notwithstanding any language in this Section 14.3 to the
contrary, the Selling Stockholders' indemnification obligation for Damages (i)
pursuant to Section 14.2(b) or Section 14.2(c) or (ii) pursuant to Section
14.2(a), with respect to a breach of any representation or warranty contained in
Sections 6.1(a), 6.1(b), 6.2(a) or 6.2(u), shall not be subject to or limited by
the Selling Stockholders' Basket and instead shall be payable in full to the
Company, subject to the other limitations provided for in this Section 14.3.
(b) Subject to the exceptions described in this clause (b),
notwithstanding any other provision contained in this Agreement or the other
Transaction Documents to the contrary, in no event shall the Selling
Stockholders have any liability for indemnification pursuant to Section 14.2(a),
the other terms of this Agreement or the other Transaction Documents in an
aggregate amount in excess of Ten Million Dollars ($10,000,000); provided,
however, that the only exceptions to such liability limitation shall be any
claim for indemnification made by the Company with respect to (i) a breach of
the representations or warranties contained in Section 6.1(a), Section 6.1(b),
Sectionu6.2(a), Section 6.2(g)(vii), or Section 6.2(u)), and (ii) any action or
proceeding brought on the basis of fraud.
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(c) Notwithstanding anything contained in this Agreement to the contrary,
the Selling Stockholders shall have no liability for indemnification hereunder
with respect to any claim for indemnification (i) for bad debts and service
credits to the extent of the reserves therefor in the Final Closing Balance
Sheet, (ii) arising solely from a change by the Company in accounting principles
after the Closing, or (iii) arising from a change in law or regulation after the
Closing Date (including Taxes and Environmental Laws) having a retroactive
effect, it being agreed that if a retroactive tax law change results in a refund
to Selling Stockholders, they shall reimburse the Company for the amount of such
refund. Any indemnification to which the Company, but for the immediately
preceding sentence, otherwise shall have become entitled hereunder, shall not be
taken into account in calculating the Selling Stockholders' Basket.
(d) Notwithstanding any other provision herein to the contrary, (i)xxxx
indemnification obligation of each Trust Stockholder to the Company hereunder
shall be determined on a several basis and shall be limited (A) with respect to
any individual Indemnifiable Claim, solely to each Trust Stockholder's
proportionate share of any Damage resulting from or relating to such Claim,
determined in accordance with the percentage interest of each Trust Stockholder
as set forth on Schedule 2.4, and (B) in the aggregate to each Trust
Stockholder's share of the Total Consideration (including the Earn-Out) payable
under this Agreement, and (ii)xxxx indemnification obligation of the Principal
Stockholder shall be joint and several.
14.4 The Company's Indemnification Obligations. Subject to the terms and
conditions of this Article 14, the Company agrees to indemnify and hold the
Selling Stockholders harmless against any and all Damages, except as expressly
limited by the terms of Section 14.5, resulting from or relating to:
(a) any breach of representation or warranty of Investor contained in this
Agreement or of the Company contained in Section 7.2 of the Agreement; provided
that any claim by the Selling Stockholders for indemnification under this
paragraph (a) must be made no later than May 21, 1999;
(b) any breach of any covenant of Investor, or the Company that requires
action by the Company after the Closing, contained in this Agreement;
and any and all actions, suits, demands, assessments or judgments with respect
to any claim arising out of or relating to the subject matter of the
indemnification.
14.5 Limitations on Indemnification Obligations of the Company. The
Company shall have no obligation to provide indemnification pursuant to Section
14.4 except to the extent that the aggregate amount of indemnification to which
the Selling Stockholders, but for this Section 14.5, otherwise shall have become
entitled hereunder shall exceed $750,000 (the "Company Basket"), in which event
the Company shall be
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obligated, subject to the next succeeding sentence, to provide indemnification
only with respect to all amounts in excess of the Company Basket.
Notwithstanding anything contained in this Agreement to the contrary, in no
event shall the Company have any liability for indemnification pursuant to
Section 14.4 in an aggregate amount in excess of Ten Million Dollars
($10,000,000); provided, however, that the foregoing liability limitation shall
not apply to a breach of the Company's representations and warranties set forth
in Section 7.2. Notwithstanding any language in this Section 14.5 to the
contrary, indemnification for Damages resulting from or relating to the breach
of a covenant provided for in Section 14.4(b) shall not be subject to this
Section 14.5 for the purpose of calculating the Company Basket and instead shall
be payable in full to the Selling Stockholders, subject to the overall
limitation for all Damages provided for in this Section 14.5.
14.6 Procedure for Indemnification Claims. The respective indemnification
obligations of the Selling Stockholders and the Company pursuant to Sections
14.2 and 14.4 shall be conditioned upon compliance by the Selling Stockholders
and the Company with the following procedures for indemnification claims based
upon or arising out of any claim, action or proceeding by any person not a party
to this Agreement, provided, that except for compliance with the submission of a
claim within the survival period as provided for in Section 14.1 (which
requirement shall be absolute and unqualified), the failure of an Aggrieved
Party to comply with the procedural requirements of this Section 14.6 shall
result in the extinguishment of such Aggrieved Party's indemnification claim
only if and to the extent that the failure to comply results in prejudice to the
Indemnifying Party.
(a) If at any time a claim shall be made or threatened, or an action or
proceeding shall be commenced or threatened, against a party hereto (the
"Aggrieved Party") which could reasonably result in liability of the other party
(the "Indemnifying Party") under its indemnification obligations hereunder, the
Aggrieved Party shall give to the Indemnifying Party prompt notice of such
claim, action or proceeding. Such notice shall state the basis for the claim,
action or proceeding and provide a reasonable estimate of the amount thereof (to
the extent such amount is determinable at the time when such notice is given)
and shall permit the Indemnifying Party to assume the defense of any such claim,
action or proceeding (including any action or proceeding resulting from any such
claim).
(b) The Indemnifying Party may assume control of such a claim only if the
Indemnifying Party acknowledges unconditionally that it is liable to pay
indemnification hereunder for such a claim. The Aggrieved Party may participate,
at its expense, in the defense of such claim, action or proceeding provided that
the Indemnifying Party shall direct and control the defense of such claim,
action or proceeding. The Aggrieved Party agrees to cooperate and make available
to the Indemnified Party all books and records and such officers, employees and
agents of the Aggrieved Party as are reasonably necessary and useful in
connection with the defense.
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The Indemnifying Party shall not, in the defense of such claim, action or
proceeding, consent to the entry of any judgment or award, or enter into any
settlement, except in either event with the prior consent of the Aggrieved
Party, which does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Aggrieved Party of a release from all liability
in respect of such claim, action or proceeding.
(c) If the Indemnifying Party does not assume the defense of any such
claim within thirty (30) days of its tender, action or proceeding, the Aggrieved
Party may defend against such claim, action or proceeding in such manner as it
may deem appropriate. The Indemnifying Party agrees to cooperate and make
available to the Aggrieved Party all books and records and such officers,
employees and agents of the Indemnifying Party as are reasonably necessary and
useful in connection with the defense.
(d) In the event an Aggrieved Party or Indemnifying Party shall cooperate
in the defense or make available books, records, officers, employees or agents,
as required by the terms of paragraphs (b) and (c), respectively, of this
Section 14.6 the party to which such cooperation is provided shall pay the
out-of-pocket costs and expenses (including reasonable legal fees and
disbursements) of the party providing such cooperation and of its officers,
employees and agents reasonably incurred in connection with providing such
cooperation, but shall not be responsible to reimburse the party providing such
cooperation for such party's time or the salaries or costs of fringe benefits or
other similar expenses paid by the party providing such cooperation to its
officers and employees in connection therewith.
14.7 Other Indemnification Provisions.
(a) The indemnification obligations of the Selling Stockholders and the
Company under this Section 14 shall constitute the sole and exclusive remedies
of Investor, the Company and the Selling Stockholders, respectively, with
respect to the matters described in Sections 14.2 and 14.4, respectively;
provided, however, that no party's remedies shall be so limited with respect to
any action or proceeding brought on the basis of fraud. Notwithstanding any
language to the contrary in this Section 14.7(a), a party shall not be precluded
from seeking specific performance of this Agreement to the extent such relief is
available under governing law.
(b) All amounts paid by the Indemnifying Party under this Article 14 shall
be treated as adjustments to the Total Consideration for all tax purposes.
(c) The amount of any indemnification to be paid under this Article 14
shall be computed after giving effect to any tax benefits actually realized by
the Aggrieved Party and any insurance proceeds actually received by the
Aggrieved Party,
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after taking into account the tax consequences of the receipt of any indemnity
payment hereunder.
(d) Notwithstanding any provision herein to the contrary, to the extent
the Company shall become entitled to any indemnification pursuant to this
Article 14, the Company first must seek such indemnification from the Escrow
Deposit, until such time as the funds in the Escrow Deposit are exhausted.
(e) Notwithstanding any provision herein to the contrary, the Indemnifying
Party's obligation to indemnify the Aggrieved Party in connection with a breach
of any representation or warranty, and the amount of Damage to be indemnified,
shall be determined without regard to any materiality qualification set forth in
such representation or warranty.
ARTICLE 15
MISCELLANEOUS
15.1 Assurance of Further Action. Subject to the terms and conditions of
this Agreement, from time to time prior to or after the Closing, each of the
parties hereto agrees to use commercially reasonable efforts to take or cause to
be taking all action, to do or cause to be done, and to assist and cooperate
with the other party hereto in doing, all things necessary, proper or advisable
under Applicable Laws to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement, including,
but not limited to, (a) the satisfaction of the conditions precedent to the
obligations of any of the parties hereto; (b) the defending of any lawsuits or
other legal proceedings, whether judicial or administrative, challenging this
Agreement or the performance of the obligations hereunder or thereunder; and (c)
the execution and delivery of such instruments, and the taking of such other
actions as the other party hereto may reasonably require in order to carry out
the intent of this Agreement.
15.2 Expenses. Whether or not the Closing is consummated, except as
otherwise set forth in this Agreement, all fees and expenses incurred in
connection with the negotiation, preparation, execution and performance of this
Agreement (including without limitation fees and expenses of legal counsel,
accountants and other professionals) shall be paid by the party incurring such
expense. Without limiting the generality of the foregoing (a) Investor or, after
the Closing, the Company, shall bear all of the fees and expenses payable in
connection with the Recapitalization Financing including, without limitation,
the origination and other fees and expenses payable in connection with the
Bridge Financing, and (b) the Selling Stockholders shall bear all their own
expenses and all expenses of the Company in connection with this Agreement and
the transactions contemplated hereby, including, without limitation, all brokers
commissions, fees and expenses and all attorneys fees and expenses incurred
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by the Selling Stockholders or the Company in connection with this Agreement and
the transactions contemplated hereby (other than the Recapitalization
Financing).
15.3 Waiver. The parties hereto may by written agreement (i) extend the
time for or waive or modify the performance of any of the obligations or other
acts of the parties hereto or (ii) waive any inaccuracies in the representations
and warranties contained in this Agreement or in any document delivered pursuant
to this Agreement.
15.4 Notices. All notices, requests or other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed first class certified mail postage prepaid addressed as follows: if to
the Principal Stockholder, to Xxx X. Xxxxxxx, Pier 66 Resort & Marina, 0000
Xxxxxxxxx 00xx Xxxxxx, Xx. Xxxxxxxxxx, XX 00000, Attn: Starlight F-124 (with a
copy to Xxxxxxx X. XxXxxxxxx, Esq., Xxxxxx & Whitney LLP, Pillsbury Center
South, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, XX 55402); if to the Trust
Stockholders, to Xxxxxxx X. Xxxxxxxx, Esq., X.X. Xxx 000, Xxxxxx, Xxxxx Xxxxxx
00000, with a copy to Xxxxxx & Whitney, LLP, Attn: Xxxxxxx X. Xxxxxx, Esq.,
Trustee, Pillsbury Center South, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, XX 00000;
if to Investor, to BT Capital Partners, Inc., Attn: Xxxxxx Xxxxxxxxxx, 000
Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000 (with a copy to X'Xxxxxxxx, Graev & Karabell,
LLP, Attn: Xxxx X. Xxxxx, Esq., 00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx, Xxx Xxxx, XX
10112); or to such other address as may have been furnished in writing to the
party giving the notice by the party to whom notice is to be given.
15.5 Entire Agreement. This Agreement embodies the entire agreement among
the parties and there have been and are no agreements, representations or
warranties, oral or written among the parties other than those set forth or
provided for in this Agreement. This Agreement may not be modified or changed,
in whole or in part, except by a supplemental agreement signed by each of the
parties.
15.6 Rights Under this Agreement; Nonassignability. This Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns, but shall not be assignable by any party without the
prior written consent of the other parties; provided, however, that Investor may
assign all or any part of its rights under this Agreement and delegate all or
any part of its obligations under this Agreement to one or more corporations all
or substantially all of the capital stock or equity interests of which are owned
by Investor or an Affiliate of Investor, in which event all of the rights and
powers of Investor, and remedies available to it hereunder shall extend to and
be enforceable by each such corporation. Any such assignment and delegation
shall not release Investor from its obligations hereunder and Investor
guarantees to the Selling Stockholders the performance by any such assignee
corporation of its obligations hereunder and under the agreement of such
corporation referred to in the penultimate sentence of this Section 15.6. In the
event of any such assignment and delegation, the terms "Investor" and "party" as
used in this Agreement shall be deemed to refer to each such corporation where
reference is made to actions to
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be taken pursuant to this Agreement and the transactions contemplated hereby and
shall be deemed to include both Investor and each such corporation where
appropriate. As a condition of the Closing, each such corporation shall execute
and deliver to the Selling Stockholders an agreement, in form and substance
satisfactory to the Selling Stockholders and its counsel, to be bound by the
terms of this Agreement, and irrevocably authorizing Investor to act for it in
all matters pertaining to this Agreement, and representing and warranting to the
Selling Stockholders as to the same matters, with appropriate modifications, set
forth in Section 7. The Selling Stockholders shall be required to deal, and give
notices to, and shall be fully protected in dealing only with, and giving
notices only to, Investor with respect to all matters pertaining to this
Agreement.
Nothing contained in this Agreement is intended to confer upon any person,
other than the parties to this Agreement and their respective permitted
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
15.7 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed in the State of New York and
shall be construed without regard to (i) any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York and (ii) any presumption or other rule requiring the
construction of an agreement against the party causing it to be drafted. Any
legal action in a proceeding brought in accordance with the terms of Section
15.14 (including for enforcement of any arbitration award) shall be brought in
either Hennepin County, Minnesota, in the Courts of the State of Minnesota or of
the United States District Court for the District of Minnesota, or in New York,
New York, in the Courts of the State of New York or of the United States
District Court for the Southern District of New York (the aforementioned courts
shall be referred to collectively as the "Courts"), and, by execution and
delivery of this Agreement, the parties hereby accept for themselves and in
respect of their property, generally and unconditionally, the exclusive
jurisdiction of the aforesaid Courts. The parties irrevocably consent to the
service of process out of any of the aforementioned Courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the parties at their addresses referenced in Section 15.4.
The parties hereby irrevocably waive any objection which they may now or
hereafter have to laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement or any of the other
Transaction Documents, brought in the Courts referred to above and hereby
further irrevocably waive and agree, to the extent permitted by Applicable Laws,
not to plead or claim in any such Court that any such action or proceeding
brought in any such Court has been brought in an inconvenient forum.
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15.8 Publicity. Without consultation with the other party, no party to
this Agreement shall issue any press release or otherwise make any public
statement with respect to this Agreement or the transactions contemplated
hereby, except for such press releases or other statements as the disclosing
party may reasonably determine are required by applicable law, including,
without limitation, a press release to be made by the Selling Stockholders in
connection with the execution of this Agreement.
15.9 Headings; References to Sections, Exhibits and Schedules. The
headings of the Sections, paragraphs and subparagraphs of this Agreement are
solely for convenience and reference and shall not limit or otherwise affect the
meaning of any of the terms or provisions of this Agreement. The references
herein to Sections, Exhibits and Schedules, unless otherwise indicated, are
references to sections of and exhibits and schedules to this Agreement.
15.10 Knowledge. When applied to any party to this Agreement, the term
"knowledge" and any derivatives thereof shall refer only to the actual knowledge
of the party (if a natural person), or in the case of the Selling Stockholders
and the Company, the persons set forth on Schedule 15.10 of the Disclosure
Schedule, after review of his or her official personnel files, and no
information known by any other employee, or any attorney, accountant or other
representative, of such party shall be imputed to such party.
15.11 [Left blank intentionally].
15.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but which together constitute
one and the same instrument.
15.13 Trustee's Liability. The parties hereto acknowledge and agree that
neither a Trustee of a Trust Stockholder nor any legal representative, heir,
successor or assignee (his "Legal Representatives") of such Trustee, shall have
any individual or personal liability for any liabilities or obligations under
this Agreement solely by reason of his acting as a trustee thereunder
(including, without limitation, for any breach of any representation, warranty,
covenant or agreement of any of the Trust Stockholder or any other part under
this Agreement), nor shall resort be had to the property of any such Trustee or
his Legal Representatives for the satisfaction of any such liability or
obligation. Each trustee of a Trust Stockholder shall execute this Agreement and
any other Transaction Documents on behalf of any and all trusts created or to be
created under the trust agreement pursuant to which such Trust Stockholder was
formed.
15.14 Dispute Resolution. The parties acknowledge and agree that they
shall cooperate in good faith to resolve promptly any disputes arising under or
related to this Agreement and the Transaction Documents. In the event the
parties are unable
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to resolve any such dispute on an amicable basis, the parties agree that in some
situations arbitration can be a quick, effective and relatively inexpensive
method of dispute resolution. With these principles in mind, the parties agree
to the following:
(a) Disputes involving a claim or claims that, in total, seek less than
One Million Dollars ($1,000,000) in relief and do or does not involve a claim
for equitable relief, will be adjudicated exclusively through use of the
arbitration services provided by the American Arbitration Association ("AAA"),
using the AAA's Commercial Rules. Any such arbitration may be venued in
Minneapolis, Minnesota or New York, New York, at the discretion of the party
initiating such an arbitration. The parties further agree that any award granted
by the arbitrator shall not exceed One Million Dollars ($1,000,000), exclusive
of interest (if any). The parties agree that any attempt by the arbitrator to
exercise power other than as provided for herein, or to issue an award that
violates this Section 15.14(a), shall be null, void and unenforceable in any
forum.
(c) The parties agree that any dispute involving claims seeking monetary
relief exceeding One Million Dollars ($1,000,000), or any claims seeking any
form of equitable relief, in whole or in part, shall be adjudicated exclusively
in a court of competent jurisdiction pursuant to Section 15.7 and shall not be
subject to arbitration.
15.15 Action By Selling Stockholders. Each of the Selling Stockholders
hereby agrees that the Selling Stockholders, as a group, shall deal with the
Company, Investor and all other third parties in connection with all matters
arising under this Agreement and the other Transaction Documents in accordance
with the decision of the Selling Stockholder or Selling Stockholders who hold a
majority of the percentage interests of the Redeemed Stock set forth on Schedule
2.4 ("Majority Stockholder(s)"). Such Majority Stockholder(s) shall have the
power to act on behalf of all of the Selling Stockholders for all purposes,
including administering the post-closing adjustments, the indemnification
procedures and the Escrow Agreement, and the Company, Investor and such third
parties, respectively, shall be entitled to rely upon, and shall be fully
protected in relying upon, the power and authority of the Majority
Stockholder(s) to act on behalf of the Selling Stockholders.
15.16 Third Party Beneficiary. The Earn-Out Recipients are each intended
third party beneficiaries of this Agreement solely for purposes of
Sectionu3.1(b). Except as set forth in the preceding sentence, there are no
other third party beneficiaries of this Agreement.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BT CAPITAL PARTNERS, INC.
By /s/ [ILLEGIBLE]
-------------------------------
Its Partner
----------------------------
---------------------------------
Xxx X. Xxxxxxx
XXXX X. XXXXXXX 1995
IRREVOCABLE TRUST
By
-------------------------------
Xxxxxxx X. Xxxxxx, as Trustee of
the Trust and not individually
By
-------------------------------
Xxxxxxx X. Xxxxxxxx, as Trustee
of the Trust and not individually
56
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BT CAPITAL PARTNERS, INC.
By
-------------------------------
-------------------------------
Its Partner
----------------------------
/s/ Xxx X. Xxxxxxx
---------------------------------
Xxx X. Xxxxxxx
XXXX X. XXXXXXX 1995
IRREVOCABLE TRUST
By /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx, as Trustee of
the Trust and not individually
By /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxx, as Trustee
of the Trust and not individually
XXXXXXX XXXXXXXX XXXXXXX
1995 IRREVOCABLE TRUST
By /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx, as Trustee of
the Trust and not individually
By /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxx, as Trustee
of the Trust and not individually
57
XXXX X. XXXXXXX 1997
IRREVOCABLE TRUST
By /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx, as Trustee of
the Trust and not individually
By /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxx, as Trustee
of the Trust and not individually
XXXXXXX XXXXXXXX XXXXXXX
1997 IRREVOCABLE TRUST
By /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx, as Trustee of
the Trust and not individually
By /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxx, as Trustee
of the Trust and not individually
XXX X. XXXXXXX 1997
IRREVOCABLE ANNUITY TRUST
By /s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx, as Trustee of
the Trust and not individually
00
XXXXX XXXXXXX CORPORATION
By /s/ Xxxxxxx X. Xxxx
-------------------------------
-------------------------------
Its President/CEO
----------------------------
