STOCK PURCHASE AGREEMENT BY AND AMONG THE MERIT GROUP, INC. AND NATIONAL PATENT DEVELOPMENT CORPORATION
Exhibit
2.1
Execution
Copy
BY
AND AMONG
THE
MERIT GROUP, INC.
AND
DATED
AS OF NOVEMBER 24, 2009
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1
THIS STOCK PURCHASE AGREEMENT
(this “Agreement”)
is made and entered into as of this 24th day
of November 2009 (the “Execution
Date”), by and between The Merit Group, Inc., a South Carolina
corporation (“Buyer”)
and National Patent Development Corporation, a Delaware corporation (“Seller”). All
capitalized terms used in this Agreement, but not otherwise defined, are set
forth in Exhibit
A.
W I T N E S S E T H:
WHEREAS, Seller is the owner
and holder of record of all of the issued and outstanding stock (the “Stock”)
of Five Star Products, Inc., a Delaware corporation (“Target”),
and Target is the holding company and sole shareholder of Five Star
Group, Inc., a Delaware corporation (“Operating
Company”);
WHEREAS, Operating Company is
solely engaged in the Business, all of the operations relating to the Business
are conducted by Operating Company, and neither Target nor Seller are directly
engaged in the Business;
WHEREAS, Seller desires to
sell, and Buyer desires to buy, all of the Stock, according to the terms and
subject to the conditions of this Agreement; and
WHEREAS, upon consummation of the
purchase and sale of Stock as contemplated by this Agreement, Buyer shall own
all of the issued and outstanding stock of Target.
NOW, THEREFORE, in
consideration of the premises and the mutual covenants and representations
hereinafter stated, the sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties agree as follows:
ARTICLE
1
Purchase
and Sale of the Stock
On the
terms and subject to the conditions of this Agreement, at the Closing, Seller
shall sell, transfer, convey, assign and deliver to Buyer, and Buyer shall
purchase and accept delivery from Seller, all of Seller’s right, title and
interest in and to the Stock.
ARTICLE
2
Purchase
Price; Adjustment; Allocation; Closing
2.1 Purchase
Price. Subject to the adjustments set forth in Section 2.2
below, the aggregate purchase price for the Stock shall be Thirty three million
one hundred twenty four thousand Dollars and No Cents
($33,124,000) (the
“Purchase
Price”). The Purchase Price shall be paid by Buyer to Seller
at the Closing by wire transfer of immediately available federal funds pursuant
to written wiring instructions to be provided by Seller prior to the
Closing. All payments to Seller shall be made in U.S. Dollars. All sales, transfer,
documentary, stamp, recording and other similar taxes and/or fees and taxes (if
any) which may be due or payable in connection with the sale of the Stock
pursuant hereto shall be borne by Seller.
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2.2 Adjustments to
Purchase Price.
(a) Cash
Flow Adjustment.
(i) At
the Closing, the Purchase Price shall be adjusted either (a) by increasing the
Purchase Price, dollar for dollar, based on any increase (excluding any increase
or decrease directly attributable to income tax payments or refunds) in the
amount of Revolving Indebtedness from March 31, 2009 through the Closing Date,
or (b) by decreasing the Purchase Price, dollar for dollar, based on any
decrease (excluding any increase or decrease directly attributable to income tax
payments or refunds) in Revolving Indebtedness from March 31, 2009 through the
Closing Date.
(ii) Schedule 2.2(a)(ii)
identifies the accounts and balances comprising Revolving Indebtedness as of
December 31, 2008 and as of March 31, 2009. Seller and Buyer agree
that any and all cash held or received by Operating Company, Target, or Seller
or any of its other affiliates in respect of the Business (other than the
payments received by Seller from either Target or Operating Company described on
Schedule
2.2(a)(ii)) during the period from the close of business on March 31,
2009 to the close of business on the Closing Date shall be applied against and
reduce Revolving Indebtedness and that such application shall be subject to
verification by Buyer in connection with the determination of the appropriate
cash flow adjustment to the Purchase Price contemplated by this Section 2.2;
provided that nothing in this sentence shall prohibit or restrict Target or
Operating Company re-borrowing funds against the Revolving Indebtedness for any
purpose not otherwise prohibited by the terms of this
Agreement. Seller agrees not to direct, or to allow Target or
Operating Company to direct, that any payment payable to Operating Company,
Target, or Seller in respect of the Business be made to any party other than
Operating Company or Target. In addition, any and all fees, costs and
expenses incurred by Operating Company, Target, or Seller in connection with
this Agreement, including without limitation any severance payments to be made
pursuant to the Employee Agreement, or the negotiation and consummation of the
transactions contemplated hereby shall be excluded in determining Revolving
Indebtedness as of the Closing Date and shall be paid by Seller.
(iii) Bank
of America’s determination of the amounts owed to it under the Operating
Company’s revolving line of credit, absent manifest error, shall be presumed to
be accurate in all respects. If Buyer and Seller fail to agree on the
amount of the Revolving Indebtedness by 2:00 p.m. on the Closing Date, then the
amount in dispute shall be held in escrow pursuant to an agreement substantially
in the form attached hereto as Exhibit B instead of
being included in the calculation of the Purchase Price at Closing pending
resolution of the dispute and either party may request that the dispute shall be
submitted to the Arbiter (or if the Arbiter refuses the engagement, to another
party who need not be an accountant, as selected by Buyer and Seller) to resolve
any remaining dispute as the amount in accordance with Section 2.2, which
resolution shall be final, binding, conclusive and
non-appealable. The parties shall instruct the Arbiter to deliver its
written determination not later than the thirtieth (30th) day after the dispute
is referred to the Arbiter. The Arbiter shall address only those
items in dispute and may not assign a value greater than the greatest value for
such item claimed by either party or smaller than the smallest value of such
item claimed by either party. The party whose proposed calculation of
the Revolving Indebtedness is closest to the final calculation of Revolving
Indebtedness set by the Arbiter shall pay a share of the fees and expenses of
the Arbiter equal to the total fees and expenses of the Arbiter multiplied by a
fraction the numerator of which is the difference between the proposed
calculation of such party and Arbiter’s final calculation and the denominator of
which is the amount of the difference between the proposed calculations of the
parties. The other party shall pay the balance of the Arbiter’s fees
and expenses.
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(b) Net Results
Adjustment.
(i) At
the Supplemental Closing (which shall be held five (5) Business Days after the
adjustment required by this Section 2.2 (b) is agreed upon by the Parties or
ordered by the Arbiter), the Purchase Price shall be further adjusted either (a)
by increasing the Purchase Price, dollar for dollar, by the amount of the Net
Results from March 31, 2009 through the Closing Date if such amount is a
positive number, or (b) by decreasing the Purchase Price, dollar for dollar, by
the amount of the Net Results from March 31, 2009 through the Closing Date if
such amount is a negative number.
(ii) Within
thirty (30) days after the Closing Date, Seller shall provide to Buyer the
unaudited calculation of the Net Results for the period from March 31, 2009
through the Closing Date and reasonable access to all work papers, schedules,
and detail reports that support the Seller’s calculations of Net Results (the
“Seller’s
Net Results Adjustment”). Buyer shall
have ten (10) Business Days after its receipt of Seller’s calculation of the Net
Results to notify Seller of any proposed adjustments that Buyer has to Seller’s
calculation of Net Results (the “Buyer’s
Net Results Adjustment”) in which case, Buyer shall provide reasonable
access to all work papers, schedules, and detail reports that support Buyer’s
calculations of its proposed amount. If Buyer does not notify Seller
of Buyer’s Net Results Adjustment within ten (10) Business Days, then the
Purchase Price shall be adjusted using the Seller’s Net Results
Adjustment.
If Buyer
notifies Seller of Buyer’s Net Results Adjustment within ten (10) Business Days
and Buyer and Seller fail to agree on Net Results within five (5) Business Days
of Seller’s receipt of Buyer’s Net Results Adjustment, then at the request of
either Buyer or Seller, the dispute shall be submitted to the Arbiter to resolve
any remaining dispute as to Net Results in accordance with the definition of Net
Results and this Section 2.2 (b), which resolution shall be final, binding,
conclusive and non-appealable. The parties shall instruct the Arbiter
to deliver its written determination not later than the thirtieth (30th) day
after the dispute is referred to the Arbiter. The Arbiter shall
address only those items in dispute and may not assign a value greater than the
greatest value for such item claimed by either party or smaller than the
smallest value of such item claimed by either party. The fees and
expenses of the Arbiter shall be shared by Seller and Buyer in proportion to the
percentage of the disputed amount determined to be for the account of Buyer and
Seller, respectively.
(c) Inventory
Adjustment. Schedule 2.2(c) identifies inventory held by
Operating Company as of September 30, 2009 which Buyer and Seller have
identified as slow moving or obsolete (the “Slow-Moving
Inventory”) and which has a book value at an amount equal to $1,792,972
as of September 30, 2009. The Slow-Moving Inventory shall be adjusted
as of the second (2nd)
Business Day prior to the Closing Date for any items contained therein which
have been sold or disposed of between September 30, 2009 and the Closing
Date. The second (2nd)
Business Day prior to the Closing Date shall be the “Slow-Moving
Inventory Valuation Date”. In connection with Seller’s
indemnity obligation under this Section 2.2(c), Buyer shall deposit Six Hundred
Thousand and no/100 Dollars ($600,000.00) of the Purchase Price in the Inventory
Escrow Account as set forth in Section 2.8 (the “Inventory
Escrow Amount”). The Purchase Price is subject to decrease,
but not increase in accordance with this Section 2.2(c), as calculated
below:
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(i) For
the period beginning on the Slow-Moving Inventory Valuation Date and ending on
the first (1st)
anniversary of the Closing Date, Buyer will use commercially reasonable efforts
to dispose of the Slow-Moving Inventory at favorable prices by returning such
Slow-Moving Inventory to vendors for refunds or usable credits, trading it out
for new lines, or selling such Slow-Moving Inventory to
customers. Buyer shall not dispose of any of the Slow-Moving
Inventory in a transaction which involves the sale of other products unless the
transaction is at arms’ length and does not involve a price reduction for the
Slow-Moving Inventory in consideration for terms more favorable to Buyer than
would otherwise be the case with respect to the other products. The
value of such Slow-Moving Inventory on the books of the Operating Company as of
the Slow-Moving Inventory Valuation Date less the value received for any such
Slow-Moving Inventory during such period ending on the first anniversary of the
Closing Date shall be the “Phase I
Inventory Adjustment.”
(ii) Within
sixty (60) days after the first (1st)
anniversary of the Closing Date, unless another method of distribution is agreed
upon by Buyer and Seller, Buyer shall sell all remaining Slow-Moving Inventory
to a liquidator selected by Buyer, subject to the reasonable approval of
Seller. The value of such Slow-Moving Inventory on the books of the
Operating Company as of the Slow-Moving Inventory Valuation Date less the value
received for such Slow-Moving Inventory from the liquidator shall be the “Phase II
Inventory Adjustment.”
(iii) The
aggregate of the Phase I Inventory Adjustment and the Phase II Inventory
Adjustment shall be the “Total
Inventory Adjustment” which shall be divided between Buyer’s and Seller’s
accounts respectively, such that Buyer shall be responsible for the first
(1st)
Four Hundred Thousand Dollars ($400,000) of such Total Inventory Adjustment (the
“Buyer’s
Share”) and Seller shall be responsible for, and the Purchase Price shall
be reduced by, the next Six Hundred Thousand Dollars ($600,000) of such Total
Inventory Adjustment (i.e. any and all Total Inventory Adjustment that exceeds
the amount of $400,000 but is equal to or less than $1,000,000) (the “Seller’s
Share”). The amount by which the Total Inventory Adjustment
exceeds One Million Dollars ($1,000,000) shall be for Buyer’s
account.
(iv) Within
twenty (20) Business Days after the end of each calendar quarter following the
Closing through the last quarter prior to the first (1st)
anniversary of the Closing Date, Buyer and Seller shall determine whether, as of
the end of such calendar quarter, the amount then held in the Inventory Escrow
exceeds Seller’s Maximum Liability. In such event, Seller shall
receive a payment out of the Inventory Escrow equal to the amount by which
the amount then held in the Inventory Escrow exceeds Seller’s Maximum
Liability. “Seller’s
Maximum Liability” at any calendar quarterly measurement date shall mean
the sum of (a)
Inventory Losses (if any) incurred in the disposition of Slow-Moving Inventory
from the Slow-Moving Inventory Valuation Date through the end of such calendar
quarter and (b) the total book value shown on Schedule 2.2(c) of the then
remaining Slow-Moving Inventory as of the end of such calendar
quarter; less the Buyer’s
Share, provided that in no event shall Seller’s Maximum Liability exceed the
Seller’s Share. “Inventory
Loss” with respect to any item of Slow-Moving Inventory shall mean the
amount equal to the value of any such Slow-Moving Inventory on the books of the
Operating Company as of the Slow-Moving Inventory Valuation Date less the value
received for any such Slow-Moving Inventory.
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(v) Within
twenty (20) Business Days after the end of each calendar quarter following the
Closing through the last quarter prior to the first (1st)
anniversary of the Closing Date, Buyer and Seller shall further determine
whether, as of the end of such calendar quarter, the aggregate losses (if any)
incurred in the disposition of Slow-Moving Inventory from the Slow-Moving
Inventory Valuation Date through the end of such calendar quarter exceed Buyer’s
Share. In such event, Buyer shall receive a payment out of the
Inventory Escrow equal to the amount by which such aggregate losses
exceeds Buyer’s Share less the amount of any prior distribution(s) to Buyer
pursuant to this Section 2.2(c)(v) from the Inventory Escrow, provided that
Buyer’s maximum recovery for Slow-Moving Inventory (and the maximum adjustment
to the Purchase Price) under this Section 2.2(c) shall be $600,000 plus all
interest attributable thereto. Any and all distributions to Buyer out
of the Inventory Escrow shall also include all interest attributable
thereto. The aggregate of any distributions made to Buyer from the
Inventory Escrow between the Closing Date and the last quarter prior to the
first (1st)
anniversary of the Closing Date shall be “Buyer’s
Interim Inventory Distributions”.
(vi) Within
five (5) Business Days after the determination of the Total Inventory
Adjustment, Buyer shall be entitled to a final distribution from the Inventory
Escrow Account in an amount equal to the Seller Share, together with interest
attributable thereto, less Buyer’s Interim Inventory Distributions, with the
balance of the Inventory Escrow Amount remaining to be distributed to
Seller.
(vii) For
so long as Operating Company holds the Slow-Moving Inventory, such Slow-Moving
Inventory shall remain separately accounted on the books of Operating Company
and the transactions concerning the Slow-Moving Inventory will be subject to
reasonable audit by Seller and a monthly written report prepared by Buyer, in a
form reasonably acceptable to Seller, reflecting the financial terms of all
dispositions of Slow-Moving Inventory during said month.
2.3 Section 338
Matters; Purchase Price Allocation.
(a) Buyer
and Seller shall join in timely making the Section 338(h)(10) Election with
respect to Target and shall cooperate in the completion and timely filing of any
Tax forms and other documents required for such elections in accordance with the
provisions of Section 1.338(h)(10)-1 of the Treasury regulations (or any
comparable provisions of foreign, state or local Laws with respect to Taxes) or
any successor provision.
(b) The
Purchase Price plus the liabilities of Target and Operating Company other than
the Revolving Indebtedness (plus any other relevant items) shall be allocated
among the assets of Target and Operating Company as set forth in the Allocation
Schedule. Any adjustment to the Purchase Price shall be allocated in
a manner consistent with the allocation set forth in the Allocation Schedule
and, in the event of such adjustment, the parties hereto agree to revise and
amend the Allocation Schedule in accordance with the procedures described in
Section 2.3(c).
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(c) The
parties agree that the Purchase Price plus the liabilities of Target and
Operating Company other than the Revolving Indebtedness (and any other relevant
items) will be allocated among the assets of Target and Operating Company for
all applicable Tax purposes in a manner consistent with Section 338 of the
Code and the Treasury regulations thereunder and in accordance with the
allocation schedule which shall be prepared by Buyer substantially in the form
of Schedule
2.3(c) and delivered to Seller within one hundred twenty (120) calendar
days after the Closing (the “Allocation
Schedule”), which shall become final and binding on the parties hereto
thirty (30) calendar days thereafter, unless Seller reasonably objects in
writing to Buyer, specifying the basis for its objection and proposing an
alternative allocation. If Seller does so object, the parties hereto
shall in good faith attempt to resolve the dispute within thirty (30) calendar
days after Buyer’s receipt of such objection. Any such resolution
shall be final and binding on the parties. Any unresolved disputes
shall be promptly submitted to the Arbiter for determination, which
determination shall be made within thirty (30) calendar days after such
submission. Each of the parties hereto agrees to, and to cause their
affiliates to, (i) prepare and timely file all applicable Tax returns,
including Form 8023 and Form 8883 (and all supplements thereto) in a manner
consistent with the Allocation Schedule and (b) act in accordance with the
Allocation Schedule for all Tax purposes, unless otherwise required by
Laws. The Allocation Schedule shall be revised to the extent
necessary to reflect any adjustments to the Purchase Price. Within
sixty (60) calendar days of any adjustments to the Purchase Price, Buyer shall
provide Seller with a revised Allocation Schedule, which shall become final and
binding on the parties hereto thirty (30) calendar days thereafter, unless
Seller reasonably objects in writing to Buyer, specifying the basis for its
objection and proposing an alternative allocation. If Seller does so
object, the parties hereto shall in good faith attempt to resolve the dispute
within thirty (30) calendar days after Buyer’s receipt of such
objection. Any such resolution shall be final and binding on the
parties. Any unresolved disputes shall be promptly submitted to the
Arbiter for determination, which determination shall be made within thirty (30)
calendar days after such submission. The fees and expenses of the
Arbiter incurred pursuant to this Section 2.3(c)
shall be borne as set forth in Section 2.3(d),
or otherwise as the Arbiter shall decide. The parties hereto shall
cooperate with each other and the Arbiter in connection with the matters
contemplated by this Section 2.3,
including by furnishing such information and access to books, records, personnel
and properties as may be reasonably requested. The determination of
the Arbiter shall be final and binding on the parties.
(d) In
the event the Buyer and the Seller submit any unresolved objections to the
Arbiter for resolution as provided in Section 2.3(c),
Buyer, on the one hand, and Seller, on the other hand, shall each pay fifty
percent (50%) of the resulting fees and expenses of the Arbiter.
2.4 Closing. The
Closing of the purchase and sale of the Stock (the “Closing”)
shall take place on the second (2nd)
Business Day after a Favorable Shareholder Vote; provided that, this Agreement
has not been terminated pursuant to Article 9 and the conditions to Closing set
forth in Articles 6 and 7 have been satisfied or waived by the applicable party
as of such date. The date on which the Closing actually occurs is
hereinafter referred to as the “Closing
Date”. The Closing shall be effective for economic and
accounting purposes as of the close of business on the Closing
Date.
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2.5 Conveyance,
Transfer, and Deliveries.
(a) Seller Closing
Deliveries. At the Closing, Seller shall deliver or cause to
be delivered to Buyer the following:
(i) certificates
representing all of the shares of Stock, duly endorsed (or accompanied by duly
executed stock powers) for transfer of the Stock to Buyer with all transfer
taxes, if any, paid by Seller, and any other documents that are necessary to
transfer to Buyer good and valid title to the Stock free and clear of all
Encumbrances;
(ii) any
documents that are necessary for the assets of each of Target and Operating
Company to be held by such Person free and clear of all Encumbrances except
Encumbrances identified on Schedule 2.5(a)(ii)
(the “Permitted
Encumbrances”);
(iii) a
certificate signed by Seller, dated as of the Closing Date, certifying as to the
satisfaction of the conditions set forth in Sections 6.1 and 6.2
hereof;
(iv) a
certificate of good standing of Operating Company and Target issued by the
Secretary of State of Delaware dated no earlier than twenty (20) Business Days
prior to the Closing Date;
(v)
a certificate of the Secretary or an Assistant Secretary of Seller dated the
Closing Date and certifying that (A) attached thereto are true, complete and
correct copies of the Charter and By-Laws of Seller, Target, and Operating
Company, each as amended and as in effect on the date of such certification, (B)
attached thereto are true, complete and correct copies of the resolutions duly
adopted by the Board of Directors and shareholders of Seller, approving the
transactions contemplated hereby and authorizing the execution, delivery and
performance by Seller of this Agreement and the sale and transfer of the Stock,
as in effect on the date of such certification, and (C) as to the incumbency and
signatures of those officers of Seller, Target, and Operating Company executing
any instrument or other document delivered in connection with such
transactions;
(vi) an
opinion of Xxx Xxxxxx LLP, counsel for Seller, Target, and Operating Company, as
to the matters set forth in Exhibit C attached
hereto, dated the date of the Closing and addressed to Buyer and its lenders, in
form and substance reasonably acceptable to Buyer and its counsel;
(vii) a
payoff letter from the holder of the Secured Indebtedness containing terms and
conditions consistent with the terms of this Agreement and otherwise reasonably
satisfactory to Buyer;
(viii) a
certificate, in such form as is reasonably satisfactory to Buyer, certifying
that the Seller is not a foreign person for purposes of Code §1445 or that the
purchase and sale herein is otherwise exempt from withholding under Code
§1445;
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(ix) the
executed Non-competition Agreement in the form of Exhibit E attached
hereto;
(x) the
executed Remediation Agreement; if obtained by Seller pursuant to Section
5.10(a), or evidence reasonably acceptable to Buyer of Seller’s submission to
the NJDEP of the RC (as such term is defined in Section 5.10 (a) hereof) and the
remediation funding source as set forth in Section 5.10 (a) hereof;
(xi) the
corporate minute books and stock record books of Target and Operating Company,
and all other books and records of Target and Operating Company;
(xii) the
Indemnity Escrow Agreement; and
(xiii) such
other documents and instruments as required pursuant this Agreement or as may be
reasonably requested by Buyer or its counsel.
(b) Buyer Closing Deliveries. At the Closing, Buyer
shall deliver or cause to be delivered to Seller the following:
(i) a
certificate signed by a duly authorized signatory of Buyer and dated as of the
Closing Date certifying as to the satisfaction of the conditions set forth in
Sections 7.1 and 7.2 hereof;
(ii) a
certificate of the Secretary or an Assistant Secretary of Buyer dated the
Closing Date, and certifying (A) that attached thereto is a true, complete and
correct copy of the Certificate of Incorporation and the Bylaws of Buyer, as
amended and as in effect on the date of such certification, (B) that attached
thereto is a true, complete and correct copy of the resolutions duly adopted by
the Board of Directors of Buyer approving the transactions contemplated hereby
and authorizing the execution, delivery and performance by Buyer of this
Agreement, which resolutions are valid and in effect on the date of such
certification, and (C) as to the incumbency and signatures of certain officers
of Buyer executing any instrument or other document delivered in connection with
such transactions;
(iii) a
certificate of good standing of Buyer issued by the Secretary of State of South
Carolina dated no earlier than twenty (20) Business Days prior to the Closing
Date;
(iv) the
Purchase Price; and
(v)
such other instruments and documents as Seller shall reasonably request not
inconsistent with the provisions hereof.
2.6 Payment of
Revolving Indebtedness and Swap Agreement. Schedule 2.6
identifies all Revolving Indebtedness as of March 31, 2009. Seller
shall deliver to Buyer a statement of Seller’s good faith estimate of Revolving
Indebtedness as of the Closing Date, such estimated statement to be delivered no
later than three (3) Business Days prior to the Closing Date. The
statement shall reflect Seller’s calculation of the estimated Revolving
Indebtedness as of the Closing Date. At the Closing, (i) Buyer shall
use its commercially reasonable efforts to cause Regions Bank to accept an
assignment of Bank of America’s rights and obligations under the Swap Agreement,
in form and substance satisfactory for Bank of America to agree to such
assignment and to release all Encumbrances on the assets of Target and Operating
Company held as security for the obligations of Target and Operating Company
under the Swap Agreement and (ii) Seller shall pay all
outstanding Revolving Indebtedness, shall cooperate with Buyer with respect to
obtaining an assignment of the Swap Agreement, and shall cause Operating
Company’s line of credit with Bank of America to be terminated and, subject to
Buyer fulfilling its obligations under (i) above, any and all Encumbrances held
by Bank of America against any assets of Target and/or Operating Company to be
released.
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2.7 Letter of
Credit. Buyer shall have caused
a letter of credit, in the form attached hereto as Exhibit G (the “Letter of
Credit”) to be delivered to Seller on the Execution Date or, with
confirmation from Buyer’s bank on the Execution Date that such Letter of Credit
shall be delivered, within five (5) Business Days after the Execution Date in
the face amount of Two Million Dollars and No Cents ($2,000,000.00) to satisfy
any liability of Buyer pursuant to Section 9.3. Seller shall provide
Buyer with five (5) Business Days written notice prior to delivering to the
issuer of the Letter of Credit notice that it intends to make a draw under the
Letter of Credit; provided that such notice period shall not, in any event, be
longer than the number of Business Days which would permit Seller to deliver its
notice of an intent to draw to the issuer one (1) Business Day prior to the
expiration of the Letter of Credit. Upon Seller’s drawing of the
Letter of Credit, absent fraud by Buyer, Buyer shall have no further liability
to Seller, Target, or Operating Company under this Agreement. Unless
Seller has taken action to make a draw under the Letter of Credit, the Letter of
Credit shall be returned to issuer for cancellation on the earlier of (i) the
Closing Date or (ii) ten (10) Business Days after the date upon which this
Agreement is validly terminated pursuant to Section 9.1 under facts and
circumstances which do not require the payment of liquidated damages by Buyer
pursuant to Section 9.3 unless Seller gives Buyer notice that it contests the
validity of such termination during such ten (10) Business Day
period.
2.8 Indemnity
Escrow. Pursuant to the terms of an Indemnity Escrow Agreement
substantially in the form of Exhibit I attached
hereto (the “Indemnity
Escrow Agreement ”), at the Closing, Three Hundred Thousand and no/100
Dollars ($300,000.00) of the Purchase Price (the “Indemnity
Escrow Amount”) shall be deposited by Buyer into an interest bearing
account (the “Indemnity
Escrow Account”) and the Inventory Escrow Amount shall be deposited by
Buyer into a second interest bearing account (the “Inventory
Escrow Account”), each held by the entity identified in the Indemnity
Escrow Agreement, or such other national banking association designated by Buyer
and Seller (the “Escrow
Agent”). The Indemnity Escrow Amount shall be available to satisfy any
indemnification claims pursuant to Article 8, subject to the terms and
conditions of Article 8 and the Indemnity Escrow Agreement. The
Indemnity Escrow Amount shall be held and released in accordance with the
Indemnity Escrow Agreement. The Inventory Escrow Amount shall be held
and distributed pursuant to the terms and conditions of Section 2.2(c) and the
Indemnity Escrow Agreement. The Indemnity Escrow Agreement shall be
executed and delivered by the Escrow Agent, Seller, and Buyer on the Closing
Date.
2.9 Employee
Agreement. On the Execution Date, Buyer and Seller will
execute and deliver to the other party the Employee Agreement in the form
attached hereto as Exhibit
F.
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ARTICLE
3
Representations
and Warranties of Seller
Seller
hereby represents and warrants to Buyer as follows:
3.1 Organization and
Related Matters. Each of Seller and Target is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, with full corporate power and authority to conduct its business as it
is now being conducted and to perform its obligations under this
Agreement. Operating Company is a corporation duly organized, validly
existing and in good standing under the laws of Delaware, with full corporate
power and authority to conduct the Business as it is now being conducted, to own
or use the properties and assets that it purports to own or use, and to perform
all its obligations under its Material Contracts. Each of Target and
Operating Company is qualified as a foreign corporation and is in good standing,
or is otherwise duly registered to do business, in the jurisdictions listed for
such Person on Schedule 3.1(a),
which jurisdictions are the only jurisdictions where the nature of the Business
or Target’s or Operating Company’s assets require such
qualification. Except as set forth on Schedule 3.1(b), each
of Seller, Target, and Operating Company has no wholly owned subsidiaries, nor
does it own any shares of capital stock or other securities of any other person
or entity.
3.2 Ownership of
Stock. Seller owns beneficially and of record all of the
issued and outstanding stock of Target. The Stock constitutes all of
the issued and outstanding stock of Target. Target owns beneficially
and of record all of the issued and outstanding stock of Operating
Company. There are no outstanding options, warrants, rights,
commitments, preemptive rights or agreements of any kind for the issuance or
sale of, or outstanding securities convertible into, any additional stock of any
class of either Target or Operating Company. None of Target’s or
Operating Company’s stock has been issued in violation of any federal or state
Law. Each of Seller and Target own their stock in Target and
Operating Company, respectively, free and clear of any Encumbrances, options,
rights of first refusal or other transfer restrictions and there are no voting
agreements, trusts, proxies or other agreements, instruments or undertakings
with respect to the voting of either Target’s or Operating Company’s
stock. Upon consummation of the transactions contemplated by this
Agreement, Buyer will acquire good and valid title to the Stock, free and clear
of all Encumbrances.
3.3 Authorization; No
Conflicts; Consents. The execution and delivery by Seller of
this Agreement and of the other agreements, documents and instruments
contemplated hereby, the consummation by Seller of the transactions contemplated
hereby and thereby, and the performance by Seller of its obligations hereunder
and thereunder: (i) have been duly and validly authorized by all
necessary corporate action by Seller (other than all necessary shareholder
action on the part of Seller) and (ii) constitute, and each of the other
agreements, documents and instruments contemplated hereby and thereby upon
execution and delivery will constitute, legal valid and binding obligations of
Seller enforceable in accordance with their terms assuming the due
authorization, execution and delivery thereof by Buyer and subject, as to
enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to creditors’ rights and general equity
principles.
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The
execution and delivery by Seller of this Agreement and of the other agreements,
documents and instruments contemplated hereby, the consummation by Seller of the
transactions contemplated hereby and thereby, and the performance by Seller of
its obligations hereunder and thereunder in accordance with the terms of this
Agreement do not and will not, except as set forth on Schedule 3.3, (A)
conflict with or violate any of the provisions of the charter or by-laws, or
other organizational documents, each as amended, of Seller, Target, or Operating
Company, (B) violate any law, ordinance, rule or regulation or any judgment,
order, writ, injunction or decree or similar command of any court,
administrative or governmental agency or other body applicable to Seller,
Target, or Operating Company, (C) violate the terms of, or result in the
acceleration of, any indebtedness or obligation of Seller, Target, or Operating
Company under, or violate or result in a breach of, or constitute a default
under, any instrument, agreement or indenture or any mortgage, deed of trust or
similar contract to which Seller, Target, or Operating Company is a party or by
which Seller, Target, Operating Company, or the Stock are bound or affected, (D)
result in the creation or imposition of any Encumbrance upon the Stock or any
asset of Operating Company or Target, or (E) except for the matters set forth in
Sections 5.8, 5.10, and 5.11 require the consent, authorization or approval of,
or notice to, or filing or registration with, any governmental body or
authority, or any other third party.
3.4 Financial
Statements. Seller has provided to Buyer true and complete
copies of (i) the consolidated audited balance sheet of Target as of December
31, 2008, and the consolidated related audited statement of income,
shareholders’ equity and changes in cash flows of Target for the fiscal year
then ended (including the notes thereto and any other information included
therein) (the "Annual
Financial Statements") and (ii) the consolidated unaudited balance sheet
of Target as of June 30, 2009 and the related consolidated unaudited statement
of income, shareholders’ equity and changes in cash flows for the quarterly
period then ended (the "Interim
Financial Statements", collectively with the Annual Financial Statements,
the "Financial
Statements"). The Financial Statements (i) fairly present the
financial condition, results of the operations and cash flows of the Business,
Target, and Operating Company as of and for the periods indicated and (ii) have
been prepared in accordance with GAAP consistently applied throughout and among
the periods covered thereby; except with respect to the absence of footnotes and
any other adjustments or disclosures which, consistent with GAAP and the past
practice of Target, would not be made with respect to the Interim Financial
Statements.
During
the period covered by the Financial Statements and through Closing, Target had
(and will have) no assets or operations other than the assets and operations of
Operating Company. The Secured Indebtedness consists solely of the
Revolving Indebtedness and outstanding letters of credit (if any), all of which
are associated with the revolving line of credit of Operating Company with Bank
of America, and any and all liabilities or obligations of Operating Company
under the swap agreement effective June 30, 2008. The Business is the
only business of the Operating Company.
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3.5 Absence of
Certain Changes. Since December 31,
2008, Operating Company has operated the Business in the ordinary course,
consistent with past practices and, except as set forth on Schedule 3.5 , there
has not been incurred, nor has there occurred with respect to the
Business: (a) any damage, destruction or loss (whether or not covered
by insurance) which has not been repaired or restored, or as to which
and to the extent proceeds from policies of insurance are not available, in
either case in excess of an additional $100,000 for any single loss or $250,000
for all such losses; (b) any sale, transfer, pledge or other disposition of any
operating assets of Operating Company (except sales of inventory in the ordinary
course of business or in connection with the Revolving Indebtedness) having an
aggregate book value of $50,000 or more; (c) any termination, amendment,
cancellation or waiver of any Material Contract or any termination, amendment,
cancellation or waiver of any rights or claims of Operating Company or Target
under any Material Contract (except in each case in the ordinary course of
business and consistent with past practices and any action which may be
taken with respect to the East Hanover, New Jersey warehouse facility
as permitted by Section 5.2); (d) any change in the accounting methods,
procedures or practices followed by Target or Operating Company, except as may
be required by GAAP, PCAOB or accounting rules adopted by the SEC or FASB
subsequent to the Execution Date, or any change in depreciation or amortization
policies or rates previously adopted by Target or Operating Company; (e) except
as required by any provisions of GAAP adopted after the Execution Date, any
write-down or write-up of the value of any inventory or equipment of Operating
Company or any increase in inventory levels in excess of historical levels for
comparable periods after taking into consideration any commercially reasonable
purchases of inventory to accept advantageous terms and conditions offered by
suppliers; (f) any increase in compensation paid, payable, or to become payable
by Target or Operating Company to any of its employees except salary adjustments
in the ordinary course of business and consistent with past practices prior to
April 1, 2009 or, except as required by law or an existing collective bargaining
agreement, other change in personnel policies or benefits; or (g) any agreement,
whether in writing or otherwise, by Seller, Target, or Operating Company to take
or do any of the actions enumerated in this Section 3.5.
3.6 Material
Contracts. Schedule 3.6 (a) sets
forth a list of all Material Contracts in existence as of the Execution
Date. True copies of all written Material Contracts in existence as
of the Execution Date, including all amendments, addendums, modifications, and
supplements thereto, and any assignments thereof, and a complete list of all
oral Material Contracts described or required to be described on Schedule 3.6 (a) have
been furnished to Buyer. Each of Target and Operating Company has
performed all of its obligations required to be performed by it to the date
hereof, and neither Target or Operating Company, nor any other party to any
Material Contract is in default or alleged in writing to be in default, under
any Material Contract. Each of the Material Contracts is valid and in
full force and effect and enforceable against the parties thereto in accordance
with their respective terms, subject to bankruptcy, insolvency and other laws of
general applicability relating to creditors’ rights and general principles of
equity and, except as set forth in Schedule 3.6(b), the
sale of the Stock, will not (i) require the consent of any party to a Material
Contract in existence as of the Execution Date or (ii) constitute a default
thereunder or an event permitting termination thereof.
3.7 Operating
Assets. The
assets owned or leased by Operating Company or Target (the “Operating
Assets”) include all properties
and assets (real, personal and mixed, tangible and intangible, and all leases,
licenses and other agreements) utilized in carrying on the Business in the
ordinary course. Except as set forth in Schedule 3.7 which
will be released on or prior to the Closing Date, Operating Company or Target
have good and valid title to all of the Operating Assets free and clear of all
Encumbrances except Permitted Encumbrances. Except as set forth in Schedule 3.7, the
Operating Assets are in the exclusive possession and control of Operating
Company or Target (as the case may be) and no Person other than Operating
Company or Target is entitled to possession of any portion of the Operating
Assets.
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3.8 Machinery,
Equipment, Software. Schedule 3.8 sets
forth a list of all machinery, equipment, tools, motor vehicles, furniture and
fixtures with an individual value on the books of Operating Company of $10,000
or over or, if leased, with annual lease payments of $5,000 or over, necessary
for or used in the operation of the Business in the manner in which the Business
has been operated, including a designation as to which of such items are owned
by Operating Company or Target and which items are leased to Operating Company
or Target (collectively, the “Equipment”). With
respect to Equipment which is leased, Schedule 3.8 also
contains a list of all leases or other agreements, whether written or oral,
relating thereto. All Equipment whether leased or owned is in good
operating condition, maintenance and repair in accordance with industry
standards taking into account the age thereof, ordinary wear and tear
excepted. All material operating (including without limitation
computer enterprise) systems and software are (i) operating satisfactorily for
the task to which they are being applied, (ii) reasonably capable of handling
existing and currently contemplated work volumes, and (iii) not in imminent need
of repair or replacement.
3.9 Inventories of
the Seller. All inventories of Operating Company are reported
in the Financial Statements in accordance with GAAP, consistently
applied. The levels of inventories are consistent with the levels
maintained by Operating Company in the ordinary course consistent with past
practices as may have been impacted by Operating Company’s actual or projected
sales levels. Operating Company is not in possession of any inventory
which is not owned by Operating Company, including goods already
sold. The current inventory of Operating Company is valued at the
lower of cost or current market as described in the footnotes to the Annual
Financial Statements.
3.10 Accounts
Receivable. All accounts receivable (including without
limitation trade accounts receivable and any amounts due from vendors) of
Operating Company represent valid obligations arising from sales actually made
or services actually performed by Operating Company in the ordinary course of
its business. All accounts receivable are reported in the Financial
Statements in accordance with GAAP, consistently applied. Except for private label
goods, Operating Company has made no presently enforceable warranties to any
customers or users of the products or services (separate and distinct from any
applicable manufacturers’, vendors’ or third parties’ warranties) other than the
warranties implied by applicable law including warranties of merchantability and
fitness for a particular purpose. Since the date of the Annual
Financial Statements, Operating Company has not discounted, provided incentives,
or taken any action that causes, or is intended to cause, or is reasonably
likely to cause, any account debtor of Operating Company to pay its accounts to
Operating Company other than in the ordinary course of business consistent with
past practices. Schedule 3.10 lists
vendor programs in which Operating Company participates as of the Execution
Date, and a summary of the program terms will be provided to Buyer on or prior
to the first Business Day after the Execution Date. All vendor
accounts receivable have been stated in the Financial Statements in accordance
with GAAP, consistently applied.
3.11 Real
Property.
(a) Schedule 3.11(a)
hereto contains a complete list of all real property owned or leased by Target
or Operating Company (collectively, the "Real
Property"). True and correct copies of all leases with respect
to the Real Property have been delivered to Buyer. The only real
property used by Target or Operating Company in connection with the Business is
the Real Property.
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(b) The
Real Property and all buildings and improvements thereon are in reasonable
physical condition, normal wear and tear excepted. There is no Person
other than Target or Operating Company or, as to leased Real Property, the
landlord to the extent provided for in the relevant lease or applicable law,
entitled to possession of the Real Property. All of the Real
Property, and Target’s or Operating Company’s use thereof, complies with all
applicable zoning, building, fire, use restriction, air, water, or other
pollution control, environmental protection, waste disposal, safety or health
codes, or other ordinances, laws, rules, or regulations but excluding any
Environmental Laws which are subject to Section 3.24 hereof and any matter
covered by the indemnification provided in Section 8.2 (a). Except as
set forth in Schedule
3.11(b), neither Target nor Operating Company has assigned, subleased,
transferred, conveyed, mortgaged, or deeded in trust any interest in any of the
leases. Neither Target nor Operating Company
has subordinated its interests under any of the Warehouse Leases
to any third Person, mortgagee or otherwise except to any lenders of the
landlords under such Warehouse Leases in the ordinary course of
business.
3.12
Intellectual
Property. Except for Intellectual Property appearing on or
used in connection with any third party products sold by Operating Company in
the ordinary course of business (for which Intellectual Property no
representation or warranty is provided hereunder) or as set forth on Schedule 3.12, (i)
there are no patents, trademarks, trade names, service marks, service names or
registered copyrights which are used in and material to the conduct of the
Business as presently conducted and there are no applications therefor or
licenses thereof (collectively, the "Intellectual
Property"), and (ii) there are no inventions, computer software, logos or
slogans, which are owned or leased by Operating Company that are used in and
material to the conduct of the Business as presently conducted, other than
paid-up licenses for commercially available software programs and for standard
and common intellectual property rights associated with equipment and supplies
acquired by Target or Operating Company, in either case under which either
Target or Operating Company is the licensee. Except with respect to
computer software, neither Target nor Operating Company, individually or
jointly, is a party to, nor pays a royalty to anyone under, any license or
similar agreement for any of the Intellectual Property. Operating
Company either owns the entire right, title and interest in and to or has the
right to use in the Business as presently conducted, the Intellectual Property
(as identified on Schedule 3.12) and no
third party is infringing such Intellectual Property. Neither the
Intellectual Property identified on Schedule 3.12 nor any
of Operating Company’s operations, activities or products with respect to the
Business infringes the patents, trademarks, trade names, copyrights or other
intellectual property rights of others; provided that no representation or
warranty is made with respect to third party products sold by Operating Company
in the ordinary course of business. Operating Company is not
wrongfully or otherwise using the property rights of others; provided that no
representation or warranty is made with respect to third party products sold by
Operating Company in the ordinary course of business.
3.13 Accounts
Payable. All accounts payable and accrued expenses of
Operating Company to third parties or affiliates of Operating Company as of the
Execution Date and as of the Closing Date arose in the ordinary course of
business consistent with past practice and no material accounts payable or
accrued expenses are delinquent or past due. Seller has disclosed to
Buyer any objections, defenses or setoff rights to the accounts payable of
Operating Company which it is utilizing, or intends to use, in connection with
the payment of any accounts payable or accrued expenses.
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3.14 Approvals,
Permits and Authorizations. Set forth on Schedule 3.14 is a
list of all governmental licenses, permits, certificates of inspection, other
such authorizations, filings and registrations which are necessary for Target
and Operating Company to own its respective assets and for Operating Company to
operate the Business as presently conducted (collectively, the “Authorizations”). Neither
Target nor Operating Company has received any notifications to the effect that
any Authorizations have not been duly and lawfully secured or made by Target or
Operating Company and are not in full force and effect. There is no
proceeding pending or Threatened action, to revoke or limit any
Authorization.
3.15 Seller and Target
SEC Documents. Except as set forth on Schedule 3.15, each
of Seller and Target has filed all reports, schedules, forms, statements and
other documents (including exhibits and other information incorporated therein)
with the SEC required to be filed by Seller and Target under the Securities Act
of 1933, as amended or Sections 13(a), 14(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (to the extent related to the Business) since December
31, 2007 (the “Seller
SEC Documents”). As of their respective dates, the Seller SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as
amended, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Seller SEC Documents and none of the
Seller SEC Documents contained, as of the date filed (except to the extent
amended or superseded by a subsequent filing), any untrue statements of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements (including the related notes) included in the Seller SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be otherwise indicated in the
notes thereto or as may be otherwise permitted by the rules and regulations of
the SEC or subject, in the case of unaudited statements to normal and recurring
year-end adjustments).
3.16 Compliance with
Laws. Target, Operating Company, and the operation of the
Business is now and has been in the past (through the expiration of any
applicable statute of limitations) in compliance with, and all of the Operating
Assets comply with (i) all applicable laws, rules, regulations and
codes (including, without limitation, any laws, rules, regulations and codes
relating to anticompetitive practices, discrimination, employee benefits,
employment, health, safety, fire, building and zoning, but excluding laws
relating to Employee Benefit Plans which are the subject to Section 3.23 hereof,
Environmental Laws which are the subject of Section 3.24 hereof and laws
relating to the Real Property which are subject to Section 3.11 and the
indemnification provided in Schedule 8.2) and (ii) all applicable orders, rules,
writs, judgments, injunctions, decrees and ordinances; provided that there is no
representation and warranty being made with respect to products manufactured by
third parties other than the representation and warranty contained herein with
respect to sale and distribution of said third party products; provided
further that as to the sale and distribution of said third party products in
states or other jurisdiction where the sale of such product may be prohibited,
compliance with applicable laws may be based on reasonable reliance on the
information and disclosures, without independent investigation,
received (or the fact that no relevant information or
disclosures has been received) by Operating Company from the
manufacturer of said third party products.
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Except as
set forth on Schedule
3.16, neither Target nor Operating Company has received any notification
of any asserted present or past failure by it to comply with such laws, rules,
regulations or codes, or such orders, rules, writs, judgments, injunctions,
decrees or ordinances except for past violations as to which the relevant
statute of limitations has expired or as to which Operating Company or Target
has completed all actions required to be in compliance therewith. Set
forth on Schedule
3.16 are all orders, writs, judgments, injunctions, decrees and other
awards of any court or any governmental instrumentality applicable to Target,
Operating Company, or the Business. Seller has delivered to Buyer
copies of all reports, if any, of Operating Company required since December 31,
2007 under all applicable worker health and safety laws and
regulations. The deficiencies, if any, noted on such reports or any
deficiencies noted by inspection from December 31, 2007 through the Closing Date
have been corrected by Operating Company or are being contested in good faith
for which adequate reserves have been established.
3.17
Insurance. Except as set forth on Schedule 3.17 (i),
neither Target nor Operating Company has, during the last three (3) fiscal
years, been denied or had revoked or rescinded any policy of insurance and there
is no presently effective notice of cancellation or termination of any policy of
insurance. Set forth on Schedule 3.17 (ii) is
a list of Target’s and Operating Company’s insurance policies and a summary of
information pertaining to property damage and personal injury claims against
either Target or Operating Company during the past three (3) years, all of which
are fully satisfied or are being defended by the insurance carrier and involve
no exposure to either Target or Operating Company. Except as set
forth on Exhibit 3.17(ii), there are no pending open claims, covered or alleged
to be covered under one or more of the past or present policies insuring Target
or Operating Company, against Target or Operating Company relating to the
operations of the Business or otherwise for which applicable insurance
deductibles have not been met or insurance coverage has been
denied.
3.18 Taxes. All
material domestic and foreign federal, state and local Tax returns and reports
required as of the date hereof to have been filed by Target and/or Operating
Company (or any consolidated, combined, or unitary group of which Target and/or
Operating Company is or was a member) for taxable periods ending prior to the
Closing Date will have been duly and timely filed by the Closing Date with the
appropriate governmental agencies or taxing authorities, and all such returns
and reports are true, correct and complete in all material
respects. All Taxes payable by, or due from, Target and/or Operating
Company for all periods arising on or prior to the Closing Date have been (i)
fully paid by Target and/or Operating Company or (ii) have been adequately
provided for in the Financial Statements of Target or Operating
Company. Except as set forth in Schedule 3.18, there
are no audits or investigations open, pending, or Threatened of any of the Tax
returns related to the Business. No claim has ever been made by any
authority in a jurisdiction where Target and/or Operating Company does not file
Tax returns or reports that Target and/or Operating Company is or may be subject
to taxation by such jurisdiction.
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3.19 Litigation. Except
as set forth in Schedule 3.19, there
are no actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or Threatened against Seller, Target, or
Operating Company with respect to the Operating Assets or Operating Company’s
employees, customers, or vendors, or the Business generally. Except
as set forth in Schedule 3.19, none
of Seller, Target, or Operating Company is now under any judgment, order, writ,
injunction, decree, award or other similar command of any court, administrative
agency or other governmental authority applicable to the Operating Assets, the
Stock, Operating Company’s employees, customers or vendors, or Seller, Target,
or Operating Company generally or which relate to this Agreement and/or the
transactions contemplated hereby.
3.20 Powers of
Attorney. Except as set forth in Schedule 3.20, there
are no Persons, holding general or special powers of attorney from Target or
Operating Company.
3.21 Broker’s and
Finder’s Fees. Except for CRT Investment Banking LLC none of Seller, Target,
or Operating Company has incurred any liability to any broker, finder or agent
or any other Person for any fees or commissions with respect to the transactions
contemplated by this Agreement, and Seller assumes all liability to CRT
Investment Banking LLC and any such broker,
finder or agent or any other person or entity claiming any such fee or
commission.
3.22 Labor. Target
has no employees. Schedule 3.22(a) (i)
discloses, as of recent date but prior to the Execution Date, all of Operating
Company’s employees, with a present annual compensation of over $50,000, as well
as each such person’s compensation (including, separately, base pay and any
incentive or commission pay), title, status (e.g. active, disabled, authorized
leave, full time, part time, etc.), length of employment, employment contract
(if any), accrued vacation time, and any benefits arrangements (e.g. stock
option grants, phantom stock, stock appreciation, profit participation,
etc). Except as set forth on Exhibit 3.22 (a) (ii), Operating Company
has no independent sales representatives, nor are there any consultants that
receive compensation directly or indirectly from Target or Operating Company
(except in an employee capacity). Except as set forth in Schedule 3.22(b): (i)
Operating Company is not delinquent in the payment (A) to or on behalf of any
past or present employees of any cash, compensation or benefits for all periods
prior to the Execution Date and as of the Closing Date or (B) of any amount
which is due and payable to any domestic or foreign federal or state fund
pursuant to any workers' compensation statute, rule or regulation or any amount
which is due and payable to any workers' compensation claimant; and (ii) no
material dispute exists between Operating Company and any of its employees,
except any dispute relating to or based upon any changes in employment status or
the terms of employment planned or communicated by Buyer with respect to any
such employees as a result of this transaction. Except as set forth
on Schedule
3.22(c), Operating Company is not currently, nor has it ever been, a
party to any collective bargaining agreement or other labor contract, and there
has not been, nor is there pending or Threatened, any union organizational drive
or application for certification of a collective bargaining agent with respect
to Operating Company’s employees. There is no present lockout of any
employees of Operating Company. There is no unfair labor practice
complaint or other employment claim pending or Threatened against Operating
Company before the National Labor Relations Board or any other Governmental
Authority.
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3.23 Employee Benefit
Plans.
(a) Schedule
3.23(a) sets forth a correct and complete list of all employee
benefit plans as defined under Section 3(3) of ERISA, plus all other benefit
plans, policies, programs, agreements or arrangements, including but not limited
to, any bonus, deferred compensation, severance pay, retention, change in
control, employment, consulting, pension, profit-sharing, retirement, insurance,
stock purchase, stock option, incentive or equity compensation, vacation,
disability, life insurance, or other fringe benefit plan, program, policy,
agreement, arrangement or practice (whether written or oral, qualified or
nonqualified, funded or unfunded) maintained, contributed to or required to be
contributed to, by Seller, Target or Operating Company for the benefit of any
current or former employees, officers, consultants or directors of Target or
Operating Company, or with respect to which Target or Operating Company,
directly or indirectly, could have any liability (each an “Employee Benefit
Plan” and collectively, the “Employee Benefit
Plans”).
(b) Seller
has delivered to Buyer (and its counsel) correct and complete copies
of (i) each Employee Benefit Plan (including all amendments thereto) or written
description of each Employee Benefit Plan that is not otherwise in writing; (ii)
the three most recent annual reports on Form 5500 and all schedules thereto
required to be filed with respect to the 401 (k) Savings plan of Operating
Company; (iii) the most recent Summary Plan Description and Summary of Material
Modifications for each Employee Benefit Plan to the extent applicable; (iv) each
current trust agreement, insurance contract or policy, group annuity contract
and any other funding arrangement relating to any Employee Benefit Plan, to the
extent applicable; (v) the most recent actuarial report, financial statements
and valuation report, to the extent applicable; (vi) the current IRS favorable
determination letter for each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code or any trust intended to be exempt under
Section 501(a) of the Code; and (vii) with respect to each Employee Benefit Plan
intended to be qualified under Section 401(a) of the Code, test results for the
last three plan years demonstrating such Employee Benefit Plan’s compliance with
the applicable coverage, annual additions and nondiscrimination rules under the
Code.
(c) Except
as set forth on Schedule 3.23 (c),
the Employee Benefit Plans have complied and continue to comply in form and
operation with the requirements of ERISA, the Code and other applicable
Laws. Target and Operating Company are in compliance with, and have
performed all of their respective obligations with respect to, the Employee
Benefit Plans, including but not limited to the COBRA health care continuation
requirements of Sections 601-608 of ERISA and Section 4980B of the
Code and applicable state laws regarding health care continuation
coverage.
(d) Neither
Target, Operating Company nor any ERISA Affiliate has ever maintained, adopted
or established, contributed or been required to contribute to, or otherwise
participated in or been required to participate in, (i) a
“multiemployer plan” (as defined in Section 3(37) of ERISA); (ii) a defined
benefit plan subject to Title IV of ERISA, (iii) a plan subject to the minimum
funding standards of Section 412 of the Code or Section 302 of ERISA; (iv) a
multiple employer plan within the meaning of Section 413(c) of the Code; or (v)
a “multiple employer welfare arrangement” as defined in Section 3(40) of
ERISA. [No Employee Benefit Plan that is a “nonqualified deferred
compensation plan” is noncompliant with Section 409A of the Code.
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(e) Except
as set forth on Schedule 3.23 (e),
each Employee Benefit Plan (and related trust) that is intended to be qualified
under Section 401(a) of the Code and exempt from taxation under Section 501(a)
of the Code is so qualified and exempt as of the date hereof, and in each case
Target or Operating Company either has received a favorable determination letter
from the IRS with respect thereto or is properly relying on the IRS opinion or
advisory letter issued with respect to a prototype or volume submitter plan
document which Target or Operating Company has duly adopted. No
circumstances exist that would reasonably be expected to adversely affect the
qualified and exempt status of any such Employee Benefit Plan (and its related
trust). No event has occurred and no condition exists with respect to
any Employee Benefit Plan that (i) has resulted or could result in a “prohibited
transaction” (within the meaning of Section 4975 of the Code or Section 406 of
ERISA) or otherwise has resulted or could result in the imposition of a material
excise tax, penalty or fine under ERISA or the Code; (ii) has
resulted or could result in a material breach of fiduciary duty or violation of
Part 4 of Title I of ERISA; or (iii) could cause Target, Operating Company or
Buyer to be subject, either directly or indirectly (through an ERISA Affiliate
or otherwise) to any liability (whether or not asserted as of the date hereof)
under ERISA, the Code, any other applicable laws or otherwise.
(f) There
are no unpaid contributions or premiums due prior to the date hereof with
respect to any Employee Benefit Plan that are required to have been made under
the terms of such Employee Benefit Plan, any related insurance contract or any
applicable law and all contributions and premiums due have been timely
made. With respect to each Employee Benefit Plan, there are no
funded benefit obligations for which contributions have not been made or
properly accrued and there are no unfunded benefit obligations that have not
been accounted for by reserves. No assets of Target or Operating
Company are allocated to or held in a “rabbi trust” or similar funding
vehicle.
(g) With
respect to each Employee Benefit Plan: (i) no filing, application or other
matter is pending with the IRS, the Pension Benefit Guaranty Corporation, the
United States Department of Labor or any other governmental body, and (ii) there
is no action, suit, audit, investigation or claim pending, Threatened or
anticipated (other than routine claims for benefits).
(h) Neither
Target nor Operating Company has any obligation or made any promise under any
Employee Benefit Plan or otherwise to provide any health, life insurance or
other post-termination benefit coverage (whether or not insured) to retired or
other former employees, directors or consultants (or any spouses or dependents),
except as specifically required by COBRA or applicable state healthcare
continuation coverage laws.
(i) Except
as set forth in Schedule 3.23(i),
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby, or any termination of employment or service or
other event or occurrence in connection therewith will or may (i) entitle any
current or former employee, director or consultant of Target or Operating
Company to any payment or benefit (or result in the funding of any such payment
or benefit) or result in any forgiveness of indebtedness with respect to any
such persons, (ii) increase the amount of any compensation, equity award or
other benefits otherwise payable by Target or Operating Company or (iii) result
in the acceleration of the time of payment, funding or vesting of any
compensation, equity award or other benefits. No amounts payable or
that could become payable (individually or collectively and whether in cash,
capital stock of Target or Operating Company or other property) under any of the
Employee Benefit Plans or any other contract, agreement or arrangement with
respect to which Target or Operating Company may have any liability (including
by virtue of the execution of and consummation of the transactions contemplated
by this Agreement) would not be deductible for federal income tax purposes by
virtue of Sections 404, 162(m) or 280G of the Code.
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(j) Except
as set forth in Schedule 3.23(j),
each Employee Benefit Plan can be freely amended, terminated or otherwise
discontinued after the Closing without the consent of participants and without
liability and neither Target nor Operating Company has any express or implied
commitment, whether legally enforceable or not, to adopt any new Employee
Benefit Plan or modify, change or terminate any existing Employee Benefit Plan
other than as may be required by ERISA or the Code. No termination,
discontinuance, load, market value adjustment or other similar fee or expense is
or shall become payable by any Employee Benefit Plan or the participants
therein, or Target or Operating Company, in connection with the discontinuance
of contributions to, the termination of any investment contract with respect to
and/or the amendment or termination of, any Employee Benefit Plan.
(k) Each
individual who renders or has rendered services to Target or Operating Company
who is or has been classified as having the status of an independent contractor,
leased employee, consultant or other status other than employee for any purpose
(including for the purposes of taxation and tax reporting and under the Employee
Benefit Plans) is or has been properly characterized as such.
3.24 Environmental
Matters.
(a) Except
for inventory held for sale in the ordinary course of business in compliance
with Environmental Law or as set forth on Schedule 3.24,
no amount of any Hazardous Substances are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that Target or Operating Company has at any time owned, operated, occupied or
leased;
(b) Seller
has made available to Buyer, prior to the Execution Date, all
documents, records and other written information in the possession, custody or
control of Seller, Target, or Operating Company concerning any Hazardous
Substances, any activities or permits related to Hazardous Substances or any
other environmental or health and safety matter which is material and relevant
to Target or Operating Company or any of their properties, assets or operations,
whether generated by Seller, Target, Operating Company, or others,
including, without limitation, environmental audits, environmental
risk assessments, environmental site assessments, subsurface investigations,
documentation regarding offsite disposal of Hazardous Substances, spill control
plans and reports, correspondence, permits and other authorizations related to
any Environmental Law, Hazardous Substance or environmental or health and safety
matters;
(c) Except
for inventory purchased or sold in the ordinary course of business in compliance
with Environmental Laws or as set forth on Schedule 3.24,
neither Target nor Operating Company has transported or disposed of any
Hazardous Substances that could give rise to any liability of Target or
Operating Company under any Environmental Law; and
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(d) Except
as to any matter covered under the indemnification provided in Section 8.2 (a),
(i) Target and Operating Company are and have been in compliance with all
Environmental Laws for the past five (5) years except where such non-compliance
would not be material to the Business and (ii) except as may be set forth in
Section 5.10 or Section 5.11, Target and Operating Company have no liability
under any Environmental Laws with respect to the Business or any property that
Target or Operating Company has at any time owned, operated, occupied or
leased.
3.25 Interest in
Competitors and Related Entities. Except as set forth on
Schedule 3.25,
neither the Target or Operating Company nor any affiliate of either of them (i)
has any direct or indirect interest in any Person engaged or involved in any
business which is competitive with the Business, (ii) has any direct or indirect
interest in any Person which is a lessor of assets or properties to, supplier
of, or provider of services to, the Business, or (iii) has a beneficial interest
in any contract or agreement, written or oral, with respect to the Business to
which Target or Operating Company is a party.
3.26 Principal
Customers and Suppliers. Schedule 3.26 lists
the 100 largest customers (along with a summary of notice given to any one or
more of said customers which were effective on November 2, 2009 and November 16,
2009 reducing the maximum dollar amount of orders which Seller would accept for
reasons related to the credit standing of such customers) and 25 largest vendors
(the “Principal
Customers and Suppliers”) of Operating Company during 2007, 2008 and the
6 month period ended June 30, 2009 and the volume of business with each such
customer and vendor. Except as set forth or reflected on Schedule 3.26, no
Principal Customer or Supplier has suspended, terminated or materially reduced
its business with Operating Company or communicated to Seller, Operating
Company or Target an attempt to suspend, terminate or materially reduce its
business with Operating Company since June 30, 2009, other than normal
fluctuations in the ordinary course of business consistent with past practices
(including a credit hold or similar actions taken buy Operating Company under
criteria established prior to the Execution Date in the ordinary course of
business) or the general state of the economy.
3.27 Bank
Accounts. Schedule
3.27 lists all bank accounts, credit cards, safe deposit
boxes, and lock boxes in the name of, or controlled by, Target and/or Operating
Company and details about the persons having access to, or authority over such
accounts, credit cards, safety deposit boxes, and lock boxes.
ARTICLE
4
Representations
and Warranties of Buyer
Buyer
hereby represents and warrants to Seller as follows:
4.1 Organization and
Related Matters. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of South
Carolina. Buyer has full corporate power and authority to execute and
deliver this Agreement and the other agreements and documents and instruments
contemplated hereby, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder.
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4.2 Authorization; No
Conflicts; Consents. The execution and
delivery by Buyer of this Agreement and the other agreements, documents and
instruments contemplated hereby, the consummation by Buyer of the transactions
contemplated hereby and thereby and the performance by Buyer of its obligations
hereunder and thereunder: (i) have been duly and validly authorized
by all necessary corporate action on the part of Buyer and (ii) constitute, and
each of the other agreements, documents and instruments contemplated hereby and
thereby upon execution and delivery will constitute legal, valid, and binding
obligations of Buyer enforceable in accordance with their terms assuming the due
authorization, execution and delivery thereof by Seller, Target, and Operating
Company, and subject, as to enforceability, to bankruptcy, insolvency and other
laws of general applicability relating to creditors’ rights and general equity
principles.
The
execution, delivery and performance of this Agreement or the other documents and
instruments to be executed and delivered by Buyer pursuant hereto and the
consummation by Buyer of the transactions contemplated hereby and thereby will
not (i) conflict with or violate any provisions of the certificate of
incorporation or bylaws of Buyer, (ii) violate any law to which Buyer is
subject, or (iii) violate the provisions of, or constitute a breach or default
whether upon lapse of time and/or the occurrence of any act or event otherwise
under any contract or agreement to which Buyer is a party or by which Buyer or
any of its assets or properties may be bound or affected.
Schedule 4.2 lists
all consents and approvals by any governmental entity or any other Person
necessary for the execution and delivery of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated hereby.
4.3 Legal
Proceedings. There is no order or
proceeding pending or Threatened against Buyer that individually or when
aggregated with one or more other actions or proceedings, has or might
reasonably be expected to have a materially adverse effect on Buyer’s ability to
perform this Agreement and to consummate the transactions contemplated
hereby.
4.4 Commitment
Letters. Buyer has delivered to
Seller accurate copies of the commitment letters, including all exhibits,
schedules and amendments or modifications to such letters (the terms of which
include all conditions precedent to the funding set forth therein), with respect
to the financing contemplated to be provided in connection with the transactions
contemplated by this Agreement (the “Commitment
Letters”). The Commitment Letters are in full force and effect
as of the Execution Date. The financing detailed in the Commitment
Letters is sufficient to enable Buyer to fund the Purchase Price and all fees
and expenses of Buyer in connection with the transactions contemplated
hereby.
4.5 Broker’s and
Finder’s Fees. Buyer has not incurred
any liability to any broker, finder or agent or any other Person for any fees or
commissions with respect to the transactions contemplated by this Agreement, and
Buyer assumes all liability to any such broker, finder or agent or any other
Person claiming any such fee or commission.
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4.6 Buyer Material in
Proxy Statement. The material and
information to be provided by Buyer to Seller for inclusion in the proxy
materials referred to in Section 5.8 will not contain any statement which, at
the time and in the light of the circumstances under which it is made, is false
or misleading with respect to any material fact, or will it omit any material
fact necessary to make the material and information accurate or
complete.
ARTICLE
5
Covenants
Seller
covenants and agrees that:
5.1 Access. Until
the Closing, Seller shall, and shall cause each of Target and Operating Company
to, afford to Buyer, its attorneys, accountants, and representatives, free and
full access to the properties, operations, books, records and personnel of
Target and Operating Company and provide to Buyer and its representatives such
additional financial and operating data and other information as to the
obligations and properties of Target and Operating Company reasonably available
to Seller, Target, or Operating Company as Buyer shall from time to time
reasonably request. Notwithstanding the foregoing (i) it is agreed
that Buyer, prior to the Execution Date has completed, or has been provided with
access acceptable to it of, all surveys and appraisals, measurements,
and structural and engineering studies, and conducted all environmental
assessments, test borings and other tests of surface and subsurface conditions
(including, without limitation, tests and analyses of soil, surface water, and
groundwater and the installation of soil borings and monitoring xxxxx), deemed
necessary by Buyer in its discretion; provided, however, that Seller has
commissioned such environmental assessments and reports as are necessary for it
to comply with its obligations under Section 5.10 or Section 5.11 and has
arranged with any such environmental consultants that such reports will be made
available to Buyer and its advisors and lenders; (ii) Seller shall not be
required to provide to Buyer information which would result in (x) the loss of
attorney-client privilege with respect to such information or (y) a breach of a
binding agreement as to which the Target or Operating Company is a party;
provided that, as to any information within the ambit of this subsection (ii)
the parties shall use reasonable commercial efforts to make appropriate
substitute disclosure arrangements. Unless and until the Closing
takes place, all information provided pursuant to this Section 5.1 shall be held
by Buyer pursuant to the confidentiality provisions contained in the letter
agreement between the parties dated February 17, 2009. No
investigation by Buyer heretofore or hereafter made shall affect the
representations and warranties of the Seller, Target, and Operating Company
contained herein.
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5.2 Operation of
Business of Target and Operating Company. From April 1, 2009
through the Closing, Seller agrees that, without the consent of Buyer, Seller
shall cause each of Target and Operating Company to (a) maintain their corporate
existence in good standing, (b) operate the Business, including maintaining
inventory levels, substantially as presently operated and only in the ordinary
course and consistent with both past operations and its obligations under any
existing agreements and as may be impacted by Operating Company’s actual or
projected sales levels or actions taken as a result of changes in the financial
condition of vendors or customers; provided that Target or Operating Company may
take all commercially reasonable actions to extend the lease on the existing
terms of its present East Hanover, NJ warehouse for a period of one year on
terms and conditions acceptable to the lessor of said facility, (c) use its
reasonable commercial efforts to preserve intact the present organization and
employees of the Business and Operating Company’s relationships with Persons,
including customers and vendors, having business dealings with the Business
except for actions taken as a result of deteriorating financial condition of
vendors or customers and, provided that, as such actions relate to any employee,
Seller need only provide the payments provided for in the Employee Agreement,
(d) comply with all laws, rules, regulations and orders applicable to the
Business, (e) pay all taxes, charges and assessments with respect to the
Business when due, subject to any valid objection or contest of such amounts
asserted in good faith and adequately reserved against, (f) make all debt
service payments with respect to the Business when contractually due and
payable, (g) pay all accounts payable and other current liabilities with respect
to the Business when due and in accordance with ordinary past business
practices, (h) except to the extent required by law, maintain without amendment
the Employee Benefit Plans, (i) maintain the property, plant and equipment of
Operating Company in good operating condition in accordance with industry
standards taking into account the age thereof, (j) maintain its books and
records of account with respect to the Business in the usual, regular and
ordinary manner, and (k) not take any action which would cause the
representations and warranties made by Seller, Target, and Operating Company in
this Agreement, taken as a whole, to be materially untrue or incorrect as of the
Closing Date. Seller further covenants and agrees that Seller shall
cause Operating Company to file Tier II Chemical Inventory Reports for calendar
year 2007 (or partial year if necessary or appropriate) and calendar year 2008
to the applicable Governmental Authorities for the property located at 0000
Xxxxxxxxxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxx on or before December 31, 2009, to the
extent that the operations of Operating Company meet the minimum reporting
requirements (if any) for each such jurisdictions.
5.3 Insurance. Seller,
Target, and Operating Company shall use reasonable commercial efforts to
maintain Operating Company’s insurance coverages with respect to the Business
with the same insurers, at the same amounts of coverage, and with the same types
of coverage that exist at the Execution Date except if replaced by similar
coverage from a reasonably acceptable carrier.
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5.4 Forbearance by
Seller, Target, and Operating Company. From April 1, 2009
through the Closing, Seller agrees that without the prior written consent of
Buyer except as expressly otherwise provided in this Agreement, neither Target
nor Operating Company shall, and Seller shall not cause or permit either Target
or Operating Company to,: (a) incur any Secured Indebtedness (provided that
Operating Company can use Revolving Indebtedness for business expenses incurred
in the ordinary course of business); (b) declare, issue or make any direct or
indirect redemption, purchase or other acquisitions of any shares of their
capital stock or property or make any payment or distribution in respect of the
capital stock of Target or Operating Company; (c) except for Permitted
Encumbrances, encumber any of its properties or assets; (d) sell, lease,
transfer or dispose of any of its properties or assets (other than the sales of
inventory in the ordinary course of business consistent with past practice or
the sale, transfer or disposal of other insubstantial properties provided that
the sale proceeds are used to reduce the Revolving Indebtedness), (e) grant any
rights of value, or cancel, compromise, release or assign any indebtedness owed
to it by or any claims held by it other than third party customer or vendor
indebtedness or claims in the ordinary course of business; (f) make or commit to
make any expenditures of a capital nature in excess of $50,000 in the aggregate,
except as otherwise set forth on Schedule 5.4; (g)
enter into any contract or agreement (other than short term arrangements entered
into in the ordinary course of business consistent with past practice) or amend,
terminate or waive any rights or claims under any Material Contract, except as
permitted by Section 5.2 with respect to the East Hanover, NJ warehouse; (h)
cancel or terminate or allow to lapse any insurance policy naming it as a
beneficiary or loss payee unless replaced by similar coverage from a reasonably
acceptable carrier; (i) increase in any manner the compensation, remuneration
(other than the payments required by the Employee Agreement and increases
required under the terms of a collective bargaining agreement) or, except to the
extent required by law, alter in any manner the fringe benefits of any of its
officers or employees; (j) other than as set forth in the Employee Agreement,
pay or agree to pay any such officers or employees (including former employees)
any pension, retirement allowance or other benefit (including severance) not
required by any existing Employee Benefit Plan; (k) except as may be permitted
by this Agreement, commit to any employment agreement or Employee Benefit Plan
with or for any of its officers or employees or any other person or entity, or
alter, amend or terminate in whole or in part or curtail or permanently
discontinue contributions to any pension plan or any other Employee Benefit
Plan; (l) change its cash management customs and practices or engage in any
other practice to accelerate the collection of any accounts receivable or delay
payment of any accounts payable or other liabilities beyond their scheduled due
dates and consistent with past practice; (m) change any of its accounting
principles, methods or practices unless required by GAAP, PCAOB or the SEC or
FASB accounting rules; (n) terminate or fail to renew any applicable permits;
(o) make any investment, by purchase, contribution to capital, property transfer
or otherwise, in any other Person; (p) dispose of or permit to lapse any rights
(to the extent such rights are currently protected) to the use of any
Intellectual Property; (q) make any payments to any Person, except for payments
in respect of Indebtedness, after the opening of business on the day preceding
the Closing Date; (r) offer or make any incentives available to any customers
which differ substantially from incentives previously offered in the ordinary
course of business; (s) pay any expenses of Seller, Target, or Operating Company
relating to the transactions contemplated by this Agreement to the extent such
payment increases Indebtedness as of the Closing Date; (t) take any action which
will render inaccurate any representation or warranty made herein or which would
result in a breach by the Seller of its obligations hereunder or (u) enter into
any agreement or do any of the things described in clauses (a) through (t) of
this Section 5.4.
5.5 Additional
Information. Prior to the
Closing, Seller shall furnish to Buyer such additional information with respect
to any matters or events arising or discovered subsequent to the Execution Date
which, if existing or known on the Execution Date, would have rendered any
representation or warranty made by Seller, Target, and Operating Company or any
information contained in any Exhibit or Schedule hereto or in other information supplied in
connection herewith then inaccurate or incomplete; provided, however that
information provided in accordance with this Section 5.5 shall not be taken into
account when determining Seller’s compliance with Section 6.1. Seller
shall promptly distribute to Buyer all management reports relating to the
Business which are circulated to mid-level or senior-level management consistent
with past practices. Seller shall further notify Buyer of any
circumstances or events which is reasonably likely to have a material adverse
impact on the Seller’s, Target’s, or Operating Company’s vendor, customer,
employee, or bank relationships as such are related to the
Business.
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5.6 Employee Benefit
Plans.
(a) Until
the Closing, Seller shall fully cooperate with Buyer with respect to Buyer’s
continued review of the Employee Benefit Plans and related matters, and Seller
shall use its reasonable commercial efforts to obtain and furnish Buyer and its
advisors with such additional information as they may reasonably
request.
(b) Seller
and Buyer have identified certain potential document, operational and/or other
compliance matters that could adversely affect the tax-qualified status of the
Five Star Group, Inc. 401(k) Savings Plan (the “401(k)
Plan”). In this regard and on behalf of Operating Company,
Seller agrees to prepare and be responsible for a submission under the Voluntary
Correction Program with Service Approval (“VCP”)
component of the IRS Employee Plans Compliance Resolution System that satisfies
the requirements of Revenue Procedure 2008-50 (and any subsequent Revenue
Procedure or other applicable IRS guidance) (the “VCP
Submission”). The VCP Submission shall identify, propose
corrections for and seek a compliance statement regarding, without limitation,
all failures to timely adopt amendments to the 401(k) Plan, the inclusion of one
specific individual who may be ineligible to participate as a participant under
the 401(k) Plan, such other identified failures that Buyer reasonably requests
Seller to include in the VCP submission (which requests Seller shall not
unreasonably deny) and any other failures the correction of which is necessary
and appropriate in connection with such VCP Submission (including such failures
(as described above) that are discovered in connection with the preparation of
such VCP Submission, in each such case as determined in consultation with Buyer
(and its advisors). The date upon which the VCP Submission shall be
filed with the IRS shall not be determined until it is also determined pursuant
to subsection (c) below whether the 401(k) Plan will be terminated prior to the
Closing Date. If the 401(k) Plan will not be terminated prior to the
Closing Date, then Seller shall use its best reasonable efforts to cause the VCP
Submission to be filed prior to or on the Closing Date (or if not filed by such
time, as soon as administratively practicable thereafter). If the
401(k) Plan will be terminated prior to the Closing Date and Buyer so requests,
then Seller shall prepare and include a correct and complete Application for
Determination for Terminating Plan (Form 5310) and related attachments with the
VCP Submission (with the term “VCP Submission” as used herein to then be deemed
to include such additional Application and attachments) and cause the VCP
Submission to be filed as soon as administratively practicable after the Closing
Date. In either case, the complete VCP Submission (and any
supplemental information subsequently furnished to the IRS) shall be made
available to Buyer (and its advisors) for the Buyer’s (and its advisors’) review
and comment for at least five (5) Business Days prior to
filing. Seller shall take and incorporate all reasonably requested
comments of Buyer (and its advisors) with respect to the VCP Submission (and any
supplemental information subsequently furnished to the IRS). Seller
shall continue to be responsible for and manage the VCP Submission after the
Closing Date through the resolution of all matters covered by the VCP Submission
to the reasonable satisfaction of Buyer. To the extent that Seller or
any of its advisors receives or sends any communication (either written or oral)
from or to the IRS related to the VCP Submission, they shall promptly advise
Buyer and its advisors of such communication including the prompt delivery of a
copy of any written correspondence received from or sent to the
IRS. In the event that the IRS proposes a correction with respect to
any component of the VCP Submission that differs from or is in addition to the
correction proposed by Seller in the initial VCP Submission, Seller may not
accept the alternative or additional correction without Buyer’s prior written
consent which may not be unreasonably withheld. Seller shall be
solely responsible for all fees, costs, corrective contributions and earnings to
the 401(k) Plan, penalties and all other expenses and liabilities of Operating
Company, Target and Buyer related to the VCP Submission; provided that Seller
shall not be responsible for the fees and expenses for counsel and others
employed or retained by Buyer or, after the Closing, Target or Operating Company
for the purpose of reviewing the VCP Submission (including any supplemental
information furnished to the IRS) as prepared by Seller and its counsel on
behalf of Operating Company.
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(c) If
requested by Buyer in writing no later than seven (7) days prior to the Closing
Date, Seller shall cause Operating Company to formally terminate the 401(k) Plan
by action of its Board of Directors (in a form reasonably acceptable to Buyer)
at least one (1) Business Day prior to the Closing Date and the effective date
of such termination shall be at least one (1) Business Day prior to the Closing
Date. In such case, Seller also shall cause Operating Company to
amend (in a form reasonably acceptable to Buyer) the 401(k) Plan as of the date
of termination to (i) fully vest all accounts of all affected participants
therein and (ii) bring the 401(k) Plan into compliance with all qualification
requirements that apply as of the date of termination (as prescribed by IRS
Revenue Procedure 2007-44 or any applicable subsequent IRS
guidance). Also in such case, at the Closing, Seller shall deliver to
Buyer a duly executed plan amendment and resolutions of Operating Company’s
Board of Directors reflecting the termination of and the foregoing amendments to
the 401(k) Plan.
5.7 Negotiations with
Others. Seller shall
have the right to solicit or encourage, directly or indirectly, and furnish or
cause to be furnished any information to, any Person in connection with, or
negotiation for, or otherwise pursue, (a) the sale of substantially all of the
operating assets of Operating Company or the assets of Seller, (b) the sale of
the Business, (c) the sale of capital stock of Seller, Target, or Operating
Company, or (d) any other merger, consolidation, recapitalization,
restructuring, acquisition, disposition, or other similar corporate strategy
(individually or collectively, an “Alternative
Transaction”). In the course of pursuing any Alternative
Transaction, Seller, Target, and Operating Company further agree to maintain the
confidentiality of any and all proprietary and confidential information of
Target and Operating Company and the Business and shall disclose such
confidential information to any third parties only pursuant to the terms of a
confidentiality agreement, the benefits of which may be assigned to Buyer in the
event that the transaction contemplated by this Agreement proceeds to the
Closing. Seller, Target, and Operating Company agree that they will
promptly inform Buyer of the existence of any inquiries, solicitations or
proposals with respect to any Alternative Transaction. To the
extent that any such inquires, solicitations, or proposals for an Alternative
Transaction result in an offer to Seller, Target, or Operating Company
(individually or collectively, an "Alternative
Offer"), Seller, Target, and Operating Company shall promptly provide
Buyer with notice of the details of such Alternative Offer.
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5.8 Proxy
Statement. Upon the execution of this Agreement, Seller will
promptly prepare and file with the SEC a preliminary proxy statement intended,
after satisfaction of all comments of the SEC staff, to be sent to shareholders
of Seller soliciting their adoption and approval of this Agreement and the
transactions contemplated hereby (the “Proxy
Statement”). Seller will use its reasonable commercial efforts
to submit the preliminary proxy materials to the SEC within ten (10) Business
Days after the Execution Date. Buyer will have reasonable opportunity
not to exceed two (2) Business Days to review and comment
upon Seller’s proxy solicitation materials, and Seller shall use commercially
reasonable efforts to accept Buyer’s comments to the extent consistent with
relevant rules and regulations of the SEC. Seller will notify Buyer
promptly of the receipt of any comments from the SEC or its staff and of any
requests by the SEC or its staff for amendments or supplements to the Proxy
Statement, or for additional information, and will supply Buyer with copies of
all correspondence between Seller and the SEC or its staff with respect to the
Proxy Statement. Seller shall use its commercially
reasonable efforts to respond to and satisfy any comments of the SEC and to file
a definitive Proxy Statement with the SEC and mail such definitive Proxy
Statement to Seller’s shareholders at the earliest practicable time consistent
with Seller’s compliance with Rule 14a-13 of the SEC and other applicable law
and Buyer satisfying its obligations under Section 5.16 and any actions of
Seller permitted under Section 5.7. Seller will use commercially
reasonable efforts to cause all documents that it is responsible for filing with
the SEC or other regulatory authorities to comply in all material respects with
all applicable requirements of law and the rules and regulations promulgated
thereunder. Other than information provided by Buyer, which shall
remain subject to the representation and warranty contained in Section 4.6, the
information included in the Proxy Statement or other definitive proxy materials
at the time of filing thereof with the SEC will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Seller will
use its reasonable commercial efforts (giving due consideration to the fact that
time is of the essence under the circumstances and the time reasonably required
to solicit proxies, comply with Rule 14a-13 of the SEC and other applicable law
and any re-circulation or other actions Seller believes reasonably necessary
under the rules and regulations of the SEC and applicable law), to take all
action necessary in accordance with the Certificate of Incorporation and Bylaws
of Seller to convene a meeting of Seller’s shareholders to consider adoption and
approval of the transactions contemplated by this Agreement as soon as
reasonably possible and before the Closing Date
Deadline. Seller shall, as of the Execution Date, have in
its possession and shall have disclosed to Buyer a fairness opinion by an
investment banker engaged by Seller with respect to the transaction contemplated
hereby and such opinion shall be and remain incorporated into the Proxy
Statement unless and until such time as said investment banker notifies Seller
that it is withdrawing such opinion. On the Execution Date Seller’s
Board of Directors shall take action to recommend that the transaction
contemplated hereby be approved by Seller’s shareholders and such recommendation
shall be and remain incorporated into the Proxy Statement unless and until such
time as Seller’s Board of Directors withdraws said recommendation based, after
consultation with counsel, upon a reasonable belief that such action is required
by its fiduciary duty under applicable law. Seller shall promptly
notify Buyer of an omission of a material fact or an untrue statement of a
material fact which is contained, should have been contained or should be
contained in the Proxy Statement except to the extent of information provided,
or which should have been provided, by Buyer.
5.9 Cooperation. Seller shall provide,
and cause Target and Operating Company to provide, commercially reasonable
cooperation in connection with the arrangement of the financing to be obtained
by Buyer in connection with the transactions contemplated hereby (the “Financing”)
including (a) providing to Buyer’s financing sources financial information in
their possession with respect to Operating Company and the Business and the
transactions contemplated hereby as reasonably requested by Buyer or Buyer’s
financing sources, including information and projections prepared by Seller,
Target, or Operating Company relating to Operating Company, Target, the Stock
and the transactions contemplated hereby, and (b) making Seller’s and Operating
Company’s senior officers and other representatives reasonably available to
Buyer’s financing sources in connection with such financing, to participate
reasonably in due diligence sessions and to participate reasonably in
presentations related to the Financing. Upon the written consent of
Seller (which consent shall not be unreasonably withheld), Seller shall cause
Operating Company to arrange joint Buyer and Operating Company calls with such
significant customers and vendors of Operating Company as shall be reasonably
designated by Buyer. Anything provided pursuant to this Section 5.9
shall not be deemed a representation or warranty of Seller unless otherwise
subject to a representation or warranty pursuant to another Section of this
Agreement.
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5.10 The New Jersey
Transfer Act.
(a) Conduct of ISRA
Proceedings.
(i) With
respect to the Real Property leased by Target or Operating Company pursuant to
the New Jersey Lease (the “NJ
Property”) and the transactions contemplated by this Agreement, Seller
shall (x) within 5 days of the execution of this Agreement, submit to the NJDEP
a General Information Notice (as such term is defined in ISRA) and (y) prior to
the Closing Date obtain from the NJDEP and execute a Remediation Agreement (as
such term is defined in ISRA) (“Remediation
Agreement”) or, if either the GIN or the application to obtain such
Remediation Agreement is not submitted by Seller to the NJDEP prior to November
3, 2009, submit to the NJDEP (1) a Remediation Certification (as such term is
defined in the SRRA) (“RC”) respecting the consummation
of the transactions contemplated by this Agreement, and (2) a remediation
funding source (as such term is defined under ISRA) in the minimum amount of
$100,000 or in such greater amount as may be required by the NJDEP, which
remediation funding source shall be satisfactory in form and substance to the
NJDEP. In the event the NJDEP requires Target or Operating Company to
be parties to the Remediation Agreement or the RC, Seller shall be the lead
responsible party under such Remediation Agreement or RC. Seller
shall take such actions as are necessary or useful to achieve Compliance with
ISRA after the Closing Date. As reasonably requested by Seller, and
subject to Section 5.10(d) hereof, Buyer agrees to promptly execute such
documents prepared by Seller in connection with the satisfaction of the
obligations under this Section 5.10(a)
(ii) In
the event Seller does not submit the remediation funding source with the RC as
provided under Section 5.10(a)(i) above, Seller shall within the time period
required by the NJDEP, the Remediation Agreement or ISRA, and at its sole cost
and expense, obtain and post or execute, submit to the NJDEP and thereafter
maintain in full force and effect, any remediation funding source required under
the Remediation Agreement or ISRA to secure the performance of Seller’s ISRA
compliance activities at the NJ Property. Any such remediation
funding source shall be satisfactory in form and substance to the NJDEP or to an
LSRP retained by Seller in connection with the satisfaction of Seller’s
obligations hereunder, as applicable.
(iii) Seller
shall make all filings and take all actions required under the New Jersey Lease,
the Remediation Agreement, ISRA or the SRRA to achieve Compliance with ISRA with
respect to the NJ Property.
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(iv) Seller
shall promptly provide Buyer with copies of all documents, including
correspondence and final workplans and reports, including field and laboratory
data, summaries, proposals and recommendations, submitted by Seller or an LSRP
to, or received by Seller or an LSRP from, the NJDEP in connection with Seller’s
actions to achieve Compliance with ISRA. For avoidance of doubt,
Seller shall promptly provide Buyer with copies of such documents deemed to be
final by the LSRP, but not intended to be submitted or certified to the NJDEP
until a later date as required under ISRA or the SRRA.
(v)
Seller shall pay all ISRA Compliance Costs necessary or incurred in order to
achieve Compliance with ISRA.
(b) Performance of Remedial
Actions. As
to any Remedial Actions or other activities that Seller undertakes or performs
at or with respect to the NJ Property pursuant to Section 5.10 (a) above in
order to achieve Compliance with ISRA, Seller agrees to:
(i) If
required by the SRRA or ISRA, or if otherwise elected by Seller, retain and
engage a properly licensed LSRP to assist Seller in achieving Compliance with
ISRA;
(ii) Promptly
perform, and cause all consultants and contractors (including without limitation
any LSRP) retained by Seller to perform, all such Remedial Actions in a
workmanlike manner and consistent with all applicable Environmental
Laws;
(iii) Comply
with the New Jersey Lease and all Environmental Laws applicable to the
implementation of such Remedial Actions at the NJ Property and obtain all
permits, authorizations and consents required under applicable Environmental
Laws or by the NJDEP or the LSRP or other governmental agency or authority in
order to implement such Remedial Actions at the NJ Property. Without
in any way limiting or affecting the generality of the foregoing, Seller shall
satisfy and comply with, and cause its contractors and consultants (including
any LSRP) to satisfy and comply with, (1) all timeframes as established by the
NJDEP pursuant to the SRRA or ISRA, as such timeframes may be extended, in such
manner so as to avoid the assumption of direct oversight by the NJDEP pursuant
to Section 27 of the SRRA, and (2) the public notification requirements set
forth at N.J.A.C. 7:26E-1.1 et seq. (as such
requirements may be amended, modified or supplemented after the Closing Date);
(iv) Cause
all consultants and contractors (including without limitation any LSRP)
performing such Remedial Actions to provide and maintain in full force and
effect insurance in commercially reasonable types and amounts as are customarily
maintained by contractors and consultants for the performance of comparable work
or services until sixty (60) days following the completion of the Remedial
Action. Seller shall provide copies of insurance certificates
indicating that Buyer and Operating Company have been named as an additional
insured under such policies before Buyer and Operating Company shall be required
to provide access to the NJ Property;
(v) Use
reasonable commercial efforts to select and propose to the NJDEP, or cause any
LSRP to select, Remedial Actions which shall not unreasonably interfere with
Buyer’s and Operating Company’s use of, or operation of the Business on or at,
the NJ Property;
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(vi) Use
reasonable commercial efforts to implement such Remedial Actions at such times,
in such manner and with such advance notice to Buyer so as not to unreasonably
interfere with Buyer’s and Operating Company’s use of, or operation of the
Business on or at, the NJ Property;
(vii) Promptly
upon the completion of the Remedial Action, restore the Property to
substantially the same condition it was in prior to the performance of the
Remedial Action;
(viii) Provide
Buyer with a reasonable opportunity to (a) review and comment upon any work
plans or reports (including without limitation any workplans or reports prepared
by an LSRP) respecting any Remedial Action and other material submissions to the
NJDEP prior to submission and implementation; (b) review and copy, at Buyer’s
cost and expense, documents concerning any Environmental Conditions on, at,
under or emanating from the NJ Property or any Remedial Actions proposed or
implemented to address the same; and (c) have a representative present during
the performance of any Remedial Action and obtain, at Buyer’s sole cost and
expense, split samples of any samples taken by or on behalf of
Seller. In the event that Buyer does not provide written comments to
Seller as permitted by Section 5.10(b)(viii)(a) within five (5) Business Days
from Buyer’s receipt of any proposed workplans, reports or other submissions,
Buyer’s right to provide comments to Seller with respect to the same shall be
deemed waived. In the event Buyer presents comments upon any such
work plans, reports or other submissions respecting any Remedial Actions, Seller
may, but shall be under no obligation to, incorporate such
comments. Buyer shall not advance any positions with or comments to
NJDEP or the LSRP that are adverse to the positions taken or submissions made by
or on behalf of Seller unless (1) Seller’s positions and/or submissions are not
supportable by the Technical Requirements for Site Remediation, N.J.A.C.
7:26E-1.1 et seq., including its
variance provisions, or other applicable Environmental Laws, or (2) any Remedial
Actions being proposed by Seller will unreasonably interfere with Buyer’s use
of, or operation of the Business on or at, the NJ Property.
(c) Access. Buyer shall cause
Operating Company to provide reasonable access to the NJ Property in connection
with Seller’s performance of Remedial Actions at the NJ Property in accordance
with this Section 5.10. Buyer shall also cause Operating Company, as
reasonably requested by Seller and as Operating Company may be permitted under
the New Jersey Lease, to provide use of the utilities serving the NJ Property
and space for the installation of any Seller Remediation Equipment (defined
below) and for the temporary storage of non-hazardous wastes and Seller
Remediation Equipment, provided that such actions do not unreasonably interfere
with Operating Company’s day-to-day operations at the NJ Property or cause
Operating Company to be in non-compliance with the New Jersey
Lease;
(d) Default. In
the event Seller fails to (i) satisfy any of its obligations under this Section
5.10, or (ii) comply with the requirements of ISRA or other applicable
Environmental Laws in connection with Seller’s actions to achieve Compliance
with ISRA (such non-compliance being evidenced by (1) the issuance by the NJDEP
of a written notice of violation or functional equivalent either by the NJDEP or
an LSRP (“NOV”),
which NOV is not resolved (to the satisfaction of the NJDEP or such LSRP) by
Seller within a reasonable time period, or (2) the issuance by the NJDEP of
notice to Seller or its LSRP that the NJDEP intends to assume direct oversight
of Seller’s ISRA compliance proceeding pursuant to Section 27 of the SRRA), then
Buyer shall, following the provision of thirty (30) days’ prior written notice
to Seller (or within such lesser time as may be necessary so as to avoid the
NJDEP’s assumption of direct oversight) (during which time the default remains
uncured), have the right, but not the obligation, to take (on Seller’s account
and at Seller’s sole cost and expense) such actions, including but not limited
to Remedial Actions, reasonably necessary or useful in Buyer’s sole discretion
to cure such default and/or to achieve Compliance with ISRA. In such
event:
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(i) Seller
consents and covenants to Buyer’s use, sampling and maintenance of equipment and
facilities installed by Seller in connection with the performance of the
Remedial Actions with respect to soil or groundwater at the NJ Property,
including without limitation, groundwater monitoring xxxxx, groundwater
treatment facilities, underground piping, and such other similar facilities,
piping and xxxxx necessary or required in order to monitor, treat or recover
groundwater from beneath or emanating from the NJ Property (collectively, “Seller
Remediation Equipment”);
(ii) As
reasonably requested by Buyer, Seller shall execute documents necessary or
useful to enable the implementation of the Remedial Actions selected by Buyer in
accordance with this Section 5.10, and approved by the NJDEP or the LSRP,
including any applications, submissions, affidavits or certifications, or other
recordable instruments with respect to all or any portion of the NJ
Property;
(iii) Buyer
shall not unreasonably or materially interfere with, or cause damage to, any
Seller Remediation Equipment installed by Seller in accordance with this Section
5.10, and Buyer shall be solely responsible for reimbursing Seller for all costs
and expenses Seller incurs to repair or replace any Seller Remediation Equipment
that is damaged by Buyer or its agents, contractors or invitees;
and
(iv)
Seller shall, within fifteen (15) days of Seller’s receipt of any invoice(s)
from Buyer for costs incurred by Buyer pursuant to this Section 5.10(d)
(including without limitation ISRA Compliance Costs), reimburse Buyer for all
such costs in the full amount as set forth in each such invoice plus interest at
fifteen percent (15%) of the cost of each invoice.
5.11 Connecticut
Transfer Act.
(a) General. Seller
shall diligently perform, at Seller’s sole costs, all activities and remediation
options necessary to achieve compliance with the provisions of the Connecticut
Transfer Act, including, without limitation: (i) preparation of the forms and
documents required pursuant to the Connecticut Transfer Act; (ii) execution and
filing of the appropriate Connecticut Transfer Act forms and documents as the
Certifying Party (as defined in the Connecticut Transfer Act); and
(iii) payment of all fees required by the Connecticut Transfer Act
(collectively “Seller’s
Obligations”). Notwithstanding this obligation of Seller,
Buyer agrees that Buyer, to the exclusion of Seller, shall have the sole
obligation for any investigation and remediation costs, including reimbursement
of Seller for such costs, arising as a result of Buyer’s use of the CT Property
after the Closing.
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(b) Termination of and
Limitation on the Extent of Seller’s Obligations. The
obligations of Seller pursuant to this Section shall terminate upon Seller’s
receipt of a certification by the Connecticut Department of Environmental
Protection (“CTDEP”)
approving the remediation, or if authorized by CTDEP, verification by an
Licensed Environmental Professional (“LEP”)
that the remediation has been performed in accordance with Connecticut
Remediation Standard Regulations (R.C.S.A. §22a-133k-1, et. seq.) (the “RSRs”). Buyer
acknowledges that Seller shall not be required to be the Certifying Party for
any post-Closing Connecticut Transfer Act form filings, other than such
post-Closing forms filings related to the transaction that is the subject of
this Agreement. It is agreed and understood by Buyer that, upon
Seller’s receipt of the items identified herein that: (a) Seller shall neither
have nor incur further obligations to Buyer to address any conditions or
requirements arising from or related to former, current or future environmental
conditions at, under, emanating from or having emanated from the CT Property;
and (b) Buyer shall reimburse Seller for reasonable costs incurred by Seller
relating to post-Closing conditions caused by Buyer. For so long as
Operating Company leases the CT Property, Buyer shall cause Operating Company
not to conduct any activity that is in violation of or inconsistent with any
deed restriction or Environmental Land Use Restriction (“ELUR”)
recorded against the CT Property with the approval and consent of the owner of
the CT Property and the CTDEP or Seller’s LEP.
(c) Remediation
Plan/Approval. In performing the Seller’s Obligations pursuant
to Section 5.11(a) above, Seller shall have the right, in Seller’s sole
judgment, to: (i) develop a plan and course of action to achieve Seller’s
Obligations (the “Remediation
Activities”) provided that such Remediation Activities are consistent
with Environmental Laws applicable to the CT Property, will not unreasonably
disturb Operating Company’s use of the CT Property, and with the understanding
and agreement of Buyer that such Remediation Activities will not be impacted by
any alteration of the CT Property or structures thereon by Operating Company;
(ii) appeal any determinations made by any governmental entity concerning the
appropriate requirements for investigation and remediation as required by the
Connecticut Transfer Act; and/or (iii) in performing the Seller’s Obligations,
Seller shall have the right, in Seller’s sole judgment, to avail itself of the
remedial alternatives available to comply with the RSRs, including but not
limited to the use of any variances or engineering controls or use restrictions,
including ELURs, approved by the CTDEP or Seller’s LEP. For so long
as Operating Company leases the CT Property, Buyer shall cause Operating Company
to use commercially reasonable efforts to obtain from the owner of the CT
Property any required signatures for any variance and/or use or activity
restriction, including deed restrictions and ELURs, if such restriction is
consistent with Operating Company’s intended use of the CT
Property.
(d) Regulatory
Communication. With respect to the Remediation Activities,
Seller shall serve as the liaison with any governmental entity involved in or
otherwise overseeing or having jurisdiction of the Remediation
Activities. Should Buyer or Seller receive or otherwise come to have
any communication, written or oral, with any governmental entity regarding the
Remediation Activities or conditions relating to the Remediation Activities,
Buyer or Seller shall promptly share such communication with the
other.
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(e) Buyer’s
Obligations. For so long as Operating Company leases the CT
Property, Buyer shall cause Operating Company to reasonably cooperate with
Seller: (i) in Seller’s performance of the Remediation Activities and compliance
with the Connecticut Transfer Act, including obtaining the execution by
Operating Company and/or the CT Property owner of any documentation required for
purposes of the Remediation Activities; (ii) in that Buyer shall promptly
provide to Seller all data, information and/or communications that are delivered
to or received by Buyer or Operating Company that are related to or arise out of
or in connection with the Remediation Activities or conditions relating to the
Remediation Activities; (iii) in that Buyer shall promptly inform Seller of any
Release of Hazardous Substance on, at or from the CT Property in violation of
Environmental Laws; and (iv) in connection with Seller’s pursuit of any appeal
by Seller of any determination by any governmental entity regarding the
appropriate investigation and remediation, provided that Seller shall pay for
Buyer’s costs and expenses incurred as a result of Seller’s appeal.
(f) Buyer’s
Activities. For so long as Operating Company leases the CT
Property, Buyer agrees that it will not use the CT Property for residential
use.
(g) Access. For
so long as Operating Company leases the CT Property and as Operating Company may
be permitted under the Connecticut Lease, Buyer shall cause Operating Company
to: (i) provide reasonable access to the CT Property in connection with Seller’s
performance of the Remediation Activities and Seller’s Obligations in accordance
with this Section 5.11; (ii) provide use of the utilities serving the CT
Property and space for the installation of any Seller Remediation Equipment and
for the temporary storage of non-hazardous wastes and Seller Remediation
Equipment as reasonably requested by Seller, provided that such actions do not
unreasonably interfere with Operating Company’s day-to-day operations at the CT
Property or cause Operating Company to be in non-compliance with the Connecticut
Lease; and (iii) grant and obtain all necessary approvals for Seller and
Seller’s agents to access the CT Property to the extent necessary to allow
Seller to pursue or defend any actions by or claims against third parties
relating to the conditions on, at, emanating from or having emanated from the CT
Property and/or Seller’s satisfaction of Seller’s Obligations.
5.12 Severance
etc. Seller agrees to make the severance and other payments to
employees of Target and Operating Company substantially in the amounts, and at
the times, set forth in the Employee Agreement in the form attached hereto as
Exhibit
F.
5.13 Private Label Inventory.
Seller agrees that during the fifteen (15) Business Day period after the
Execution Date Buyer and Seller shall contact Operating Company’s private label
vendors listed on Schedule
5.13 to request additional detail, including without
limitation price, quantity, description, and any other information reasonably
requested by Buyer or Seller, regarding all finished goods inventory, packaging
inventory, box inventory, or any other package product component or inventory
which is identified and held by Operating Company’s private label vendors (i)
which is not in Operating Company’s current product lines and (ii) as to which
such vendor claims an obligation or liability of Operating Company or Target to
repurchase such inventory (“Discontinued
Merchandise”). Seller covenants and agrees that prior to the
Closing Date it will use reasonable commercial efforts, with the consent of
Buyer not to be unreasonably withheld, to discharge any obligation and/or
liability Operating Company or Target may have with respect to such Discontinued
Merchandise or otherwise establish, to the reasonable satisfaction of Buyer,
that neither Operating Company nor Target will have any continuing obligation to
any such vendors for such Discontinued Merchandise post-Closing. All cash
paid or received for such Discontinued Merchandise pursuant to the preceding
sentence shall be included in the determination of Revolving Indebtedness and
Net Results. The full amount of any payment made to discharge any
such obligation to a vendor shall be recorded as an expense of Operating
Company. Any Discontinued Merchandise as to which Operating Company
or Target will continue to have an obligation or liability after the Closing
shall result in a pre-closing reserve on the books of Operating Company in the
full amount of the obligation for the payment owed to the applicable private
label vendors for such Discontinued Merchandise (with such Discontinued
Merchandise considered to have a book value of zero). The amount of
any such reserve shall be included in the determination of Net
Results.
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Buyer
covenants and agrees that:
5.14 Environmental
Claims. With the exception of (i) any reports to, permits by,
filings with, or other actions with any Governmental Authorities, which Buyer
may make or take upon advice of Buyer’s counsel that are either required by law
or reasonably prudent to protect Buyer or Operating Company from any liabilities
or obligations after giving Seller prior written notice and reasonably
considering any comments on the form and substance of said notice from Seller
(provided that in no event shall Seller have more than two (2) Business Days to
review and comment) and (ii) any other actions not covered by clause (i) that
are reasonably prudent in the ordinary conduct of the Business with prior
consent of Seller which consent shall not be unreasonably withheld or
delayed, Buyer covenants to refrain from taking any action which
would be reasonably expected to materially increase the likelihood that a claim
or Threatened claim would be made by any Person with respect to the
environmental matters as to which the indemnification contained in Schedule 8.2 is
applicable.
5.15 Financing. Buyer
shall use its commercially reasonable efforts to take, or cause to be taken, and
do, or cause to be done, all things necessary to consummate the financing
referred to in the Commitment Letters on the terms described in the Commitment
Letters. In the event that all or any portion of the financing
referred to in the Commitment Letters becomes unavailable for any reason, Buyer
shall use its commercially reasonable efforts to arrange to obtain, as promptly
as practicable, alternate financing from alternate sources in an amount
sufficient to proceed with the Closing hereunder and shall keep Seller
reasonably informed of such efforts. Buyer shall give Seller prompt
written notice in the event that any of the Commitment Letters is, or is going
to be, withdrawn or modified in any material respect. In addition to
the Commitment Letters, on or prior to the Execution Date, Buyer has received a
loan in the amount of One Million Five Hundred Thousand Dollars ($1,500,000)
from Buyer’s shareholders. Buyer is under no obligation to, and shall
not, repay the loan to its shareholders prior to the earlier of the day after
the Closing Date or the termination of this Agreement.
5.16 Information and
Materials for Proxy Statement. Within five (5) Business Days
after the Execution Date, Buyer will provide to Seller all information and
materials relating to Buyer, or within Buyer’s control, which are reasonably
necessary under the rules and regulations of the SEC for Seller to prepare and
file the preliminary proxy materials required by Section 5.8 and shall provide
such further information and materials reasonably necessary for Seller to
satisfy any comments of the SEC with respect to the Proxy Statement and as
otherwise required by the laws, rules and regulations of the SEC to prepare
definitive proxy materials and shall promptly notify Seller of an omission of a
material fact or untrue statement of a material fact related to Buyer or its
financing which is contained, or should have been contained in the Proxy
Statement and shall promptly supply such information to Seller to correct such
omission or untrue statement.
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5.17 Standstill.
In the event this Agreement is terminated prior to the Closing, then, effective
with the termination of this Agreement and for a period of one (1)
year thereafter, without the prior written consent of the Board of
Directors of Seller, neither Buyer nor any affiliates, acting alone or as part
of a group, will (i) acquire or offer or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or securities
convertible into voting securities of Seller, (ii) propose to enter into,
directly or indirectly, any merger or business combination involving Seller
or any of its subsidiaries (including Operating Company), (iii) otherwise
seek to influence or control, in any manner whatsoever (including proxy
solicitation or otherwise) the management or policies of Seller or (iv)
assist, advise or encourage (including by knowingly providing or arranging
financing for that purpose) any other Person in doing any of the
foregoing.
5.18 Guaranties. From
and after the Closing, other than the extension until September 30, 2011 of the
Warehouse Lease in East Hanover, New Jersey, Buyer shall take no action with
respect to the Warehouse Leases which would expand the scope of, or lengthen the
guaranty period under, any guaranty or other instrument establishing a
guarantor’s obligations with respect to a Guaranteed Liability; including
without limitation any other extension of the lease term under any of the
Warehouse Leases unless concurrently with such extension, the landlord agrees in
writing to terminate the guarantor’s liability with respect to the relevant
Guaranteed Liability.
5.19 COBRA. Buyer agrees to,
or shall cause Operating Company to, provide COBRA to those (i) employees of
Operating Company who incur a COBRA qualifying event in connection with the
consummation of the transactions contemplated by this Agreement and (ii)
eligible former employees of Operating Company who are receiving COBRA under
Operating Company’s group health plan as of the Closing Date, in either the case
of (i) or (ii) subject to the relevant individual’s timely election of, and
timely payment of the applicable costs for, COBRA. Notwithstanding
the foregoing, nothing in this Section 5.19 shall affect Seller’s indemnity
obligations under Section 8.2.
Seller
and Buyer each covenant to the other:
5.20 Reasonable
Commercial Efforts. Each party hereto shall use its reasonable
commercial efforts to take all action and do all things necessary in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Article 6 and Article 7).
5.21 Expenses. Whether
or not the transactions provided for herein are consummated, each party hereto
shall pay all of its own fees, costs and expenses (including, without
limitation, those of advisors, financial advisors, lawyers or accountants)
incurred by it in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the transactions contemplated
hereby. In the event of the Closing, no expenses incurred by Seller,
Target, or Operating Company prior to the Closing in connection with the
consummation of the transactions hereby shall be assumed or payable by Buyer or
be retained by Target or Operating Company after Closing.
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5.22 Publicity. No
party hereto shall issue any press release or otherwise make any public
statements with respect to transactions contemplated hereby, except that any
party may make any public disclosure it believes in good faith is required by
applicable law including without limitation disclosure required pursuant to the
Securities Exchange Act of 1934, as amended or the rules and regulations adopted
thereunder or which Seller, after consultation with counsel, reasonably
determines are required thereunder. If so required, such press
release or public statement shall be made only after consultation among the
parties hereto.
5.23 Taxes.
(a) Filing of Target and
Operating Company Tax Returns.
(i) Seller
shall cause the income of Target and Operating Company, including any income of
Target and Operating Company arising from the Section 338(h)(10) Election,
to be included in Seller’s consolidated U.S. federal income Tax return (and in
any state or local consolidated, combined or unitary Tax returns of Seller or
its affiliates in which Target and/or Operating Company is required to be
included) for pre-Closing Tax periods. Seller shall accurately
prepare or cause to be accurately prepared, and timely file or cause to be
timely filed, all Tax returns of Target and Operating Company that are required
to be filed on or before the Closing Date, and all income Tax returns of Target
and Operating Company for taxable periods ending on or before the Closing Date
that are required to be filed after the Closing Date, and shall remit and pay or
cause to be remitted and paid any Taxes attributable to pre-Closing Tax periods,
including those Taxes shown as due on such Tax returns.
(ii) Buyer
shall accurately prepare or cause to be accurately prepared, and timely file or
cause to be timely filed, all Tax returns of Target and Operating Company that
are required to be filed after the Closing Date that are not described in Section 5.23(a)(i)
and shall remit and pay or cause to be remitted and paid any Taxes shown as due
on such Tax returns.
(b) Cooperation. After
the Closing, the parties to this Agreement shall cooperate, and shall cause
their affiliates to cooperate, in preparing and filing all Tax returns to the
extent reasonably requested, including by providing each other with access to
information, records, documents, properties and personnel relating to Target,
Operating Company or the Operating Assets. The parties shall
cooperate, and shall cause their affiliates to cooperate, in the same manner in
defending or resolving any audit, examination or litigation relating to
Taxes. Seller will promptly notify Buyer in writing upon receipt by
Seller of notice of any pending or threatened Tax audit or proceeding by any
Governmental Authority which may affect the liability for Taxes of Target and/or
Operating Company.
(c) Tax
Refunds. If, at any time on or after the Closing Date, (i)
Target or Operating Company receives any refund, rebate, return, credit or other
similar payment with respect to Taxes from any Governmental Authority relating
to a pre-Closing Tax period, or (ii) Buyer receives any refund, rebate, return,
credit or other similar payment for Taxes for which Buyer received a
reimbursement from Seller for Taxes under this Agreement, Buyer shall promptly
notify Seller in writing of such receipt and shall remit the full amount of such
payment (including any interest thereon received from the Governmental
Authority) to Seller in immediately available funds.
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(d) Amended
Returns. None of Buyer, Target, and Operating Company shall
file or permit to be filed any amended Tax return with respect to Target or
Operating Company for any pre-Closing Tax period without obtaining the prior
review and written consent of Seller, which shall not be unreasonably withheld
(it being understood, for the avoidance of doubt, that if an amendment to such a
Tax return is required by Laws, it would be unreasonable for Seller to withhold
its consent). If the filing of such an amended Tax return is
requested by Seller, Buyer shall cause Target and/or Operating Company to file
such amended Tax return, provided that the
filing of such amended Tax return will not adversely affect Buyer or its
affiliates, as reasonably determined by Buyer, and Seller shall pay the
reasonable out-of-pocket expenses incurred by Buyer, Target, and Operating
Company in respect of such filing.
(e) Allocation of Liability For
Taxes. For purposes of this Agreement, when it is necessary to
determine the liability for Taxes of Target and/or Operating Company for a
taxable period that includes, but does not end on, the Closing Date, the
determination of the Taxes of Target for the pre-Closing Tax period shall be
determined by assuming that Target and/or Operating Company had a taxable year
or period which ended on the Closing Date (i.e. the parties shall “close the
books” on such date and shall elect to do so as provided by applicable Laws),
except that exemptions, allowance or deductions that are calculated on an annual
basis, such as the deduction for depreciation, shall be apportioned on a daily
prorated basis, with Seller being entitled to the daily proration of such items
for the Closing Date. The parties to this Agreement agree to report
(and to cause their Affiliates to report) any item attributable to a transaction
that occurs on the Closing Date but after the Effective Time in accordance with
the “next day rule” contained in Treasury regulations section
1.1502-76(b)(1)(ii)(B).
5.24 Newington Connecticut Warehouse
Lease. To the extent the term of the lease between Operating
Company (tenant) and Xxxxxx Co. (landlord) for the warehouse located at 00
Xxxxxx Xxxx, Xxxxxxxxx, XX 00000 continues for some or all of the period from
March 31, 2010 through September 30, 2010 and Operating Company does not
continue to utilize the warehouse in operation of the Business, Seller covenants
to pay Buyer an amount equal to 50% of all rent and other sums due from Buyer
and/or Operating Company to landlord under such lease for the period starting on
the later of March 31, 2010 or when Operating Company ceases to utilize such
facility in its operations through September 30, 2010.
ARTICLE
6
Conditions
Precedent to Obligations of Buyer
The
obligations of Buyer under this Agreement at the Closing and the consummation by
Buyer of the transactions contemplated hereby are subject to the satisfaction or
fulfillment, prior to or at the Closing, of each of the following conditions,
unless waived in writing by Buyer:
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39
6.1 Representations
and Warranties. The representations and
warranties made by Seller in this Agreement (disregarding for the purpose of
this Section 6.1 any materiality qualifications set forth in such
representations and warranties), taken as a whole and excluding matters to the
extent Buyer Indemnitees are indemnified pursuant to Section 8.2, shall be true
and correct except for any breach of the representations and warranties which,
in the aggregate with other breaches of said representations and warranties of
Seller, is not material to the Business of Seller, Operating Company, or Target
or the Operating Assets taken as a whole at and as of the Execution Date and at
and as of the Closing Date (or the date of termination of this Agreement in
accordance with Article 9) as though such representations and warranties were
made at and as of such times.
6.2 Performance of
Obligations of Seller, Target, and Operating Company. Each of Seller, Target,
and Operating Company shall have performed and complied with all of its
respective covenants, agreements, obligations and restrictions pursuant to this
Agreement required to be performed or complied with by Seller, Target, or
Operating Company prior to or at the Closing, except for any non performance or
non compliance which, in the aggregate with all other non performance or non
compliance and with Section 6.1, is not material to consummation of the
transactions contemplated hereby, the Business or the Operating Assets taken as
a whole.
6.3 No
Litigation. No action, suit or other
proceeding shall be pending or Threatened before any court, tribunal or
governmental authority seeking or threatening to restrain or prohibit the
consummation of the transactions contemplated by this Agreement, or seeking to
obtain damages in respect thereof, or involving a claim that consummation
thereof would result in a violation of any law, rule, decree or regulation of
any governmental authority having appropriate jurisdiction, and no order, decree
or ruling of any governmental authority or court shall have been entered
challenging the legality, validity or propriety of this Agreement or the
transactions contemplated hereby or prohibiting, restraining or otherwise
preventing the consummation of the transactions contemplated
hereby.
6.4 Approval of
Seller’s Shareholders. There shall have been a Favorable
Shareholder Vote on or before the Closing Date Deadline.
6.5 Governmental
Consents. All consents and approvals of any Governmental
Authority necessary in order to consummate the transactions contemplated by this
Agreement shall have been obtained and be in full force and effect and any and
all applicable waiting periods shall have expired.
ARTICLE
7
Conditions
Precedent to Obligations of Seller
The
obligations of Seller under this Agreement at the Closing and the consummation
by Seller of the transactions contemplated hereby are subject to the
satisfaction or fulfillment prior to or at the Closing of each of the following
conditions, unless waived in writing by Seller:
7.1 Representations
and Warranties. The representations and warranties made by
Buyer in this Agreement, taken as a whole and excluding matters to the extent
Seller Indemnitees are indemnified pursuant to Section 8.3, shall be true and
correct except for any matter which, in the aggregate with other breaches of
said representations and warranties of Buyer, is not material to the
consummation of the transactions contemplated hereby at and as of the Execution
Date and at and as of the Closing Date (or the date of termination of this
Agreement in accordance with Article 9) as though such representations and
warranties were made at and as of such times.
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7.2 Performance of
Obligations of Buyer. Subject to the
fulfillment of Article 6 conditions, Buyer shall have available to it sufficient
cash to pay the Purchase Price in immediately available funds
(without regard to whether Buyer has complied with the covenants contained in
Section 5.15) and shall have performed and complied with all of its other
covenants, agreements, obligations and restrictions pursuant to this Agreement
required to be performed or complied with by Buyer prior to or at the Closing,
except for any non performance or non compliance which along with Section 7.1 is
not material to the consummation of the transactions contemplated
hereby.
7.3 No
Litigation. No action, suit or other
proceeding shall be pending or Threatened before any court, tribunal or
governmental authority seeking or threatening to restrain or prohibit the
consummation of the transactions contemplated by this Agreement, or seeking to
obtain damages in respect thereof, or involving a claim that consummation
thereof would result in a violation of any law, rule, decree or regulation of
any governmental authority having appropriate jurisdiction, and no order, decree
or ruling of any governmental authority or court shall have been entered
challenging the legality, validity or propriety of this Agreement or the
transactions contemplated hereby or prohibiting, restraining or otherwise
preventing the consummation of the transactions contemplated
hereby.
7.4 Approval of
Seller’s Shareholders. There shall have been a Favorable
Shareholder Vote on or before the Closing Date Deadline.
7.5 Governmental
Consents. All consents and approvals of any Governmental
Authority necessary in order to consummate the transactions contemplated by this
Agreement shall have been obtained and be in full force and effect and any and
all applicable waiting periods shall have expired.
ARTICLE
8
Indemnification
and Nonsurvival of Representations and Warranties
8.1 Nonsurvival of
Representations and Warranties and Covenants. Except to the
extent of fraud, none of the representations and warranties in this Agreement,
or in any instrument delivered pursuant to this Agreement, shall survive the
Closing or the earlier termination of this Agreement pursuant to Article 9
hereof, and
no party hereto shall have any liabilities after the Closing in respect of the
breach of any covenants under this Agreement or under any instrument delivered
pursuant to this Agreement to be performed at or
prior to Closing.
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8.2 Agreement to
Indemnify by Seller. Seller hereby
agrees to indemnify and save Buyer, its affiliates, and their respective
shareholders, officers, directors, employees, successors and assigns, Target,
and Operating Company (each, a “Buyer
Indemnitee”) harmless from and against, for and in respect of, any and
all demands, judgments, injuries, penalties, fines, damages, losses,
obligations, liabilities, claims, actions or causes of action, encumbrances,
costs, expenses (including, without limitation, reasonable attorneys’ fees,
consultants’ fees and expert witness fees), suffered, sustained, incurred or
required to be paid by any Buyer Indemnitee, whether claims are made by a Buyer
Indemnitee or a third party, (a) arising out of, based upon, in connection with
or as a result of the assertion against any Buyer Indemnitee or the Stock of any
liability or obligation arising out of or based upon any of the items listed on
Schedule 8.2,
(b) arising out of, based upon, or in connection with the failure of Seller to
perform the covenants contained in this Agreement which are to be performed
after the Closing, (c) in the event of fraud by Seller, Target or Operating
Company in the negotiation, execution, or performance of this Agreement or (d)
arising out of, based upon, in connection with or as a result of the assertion
against any Buyer Indemnitee of any liability or obligation arising out of or
based upon any of any of the items identified on Schedule 3.23(c) or
any other alleged operational or other compliance failures with respect to the
401(k) Plan except with respect to costs and expenses incurred in connection
with, or pursuant to, the VCP Submission under Section 5.6 (b), such costs and
expenses shall be handled as provided for in that Section 5.6 (b).
8.3 Agreement to
Indemnify by Buyer. Buyer hereby
agrees to indemnify and save Seller, its shareholders, officers, directors,
employees, successors and assigns (each, a “Seller
Indemnitee”) harmless from and against, for and in respect of, any and
all demands, judgments, injuries, penalties, damages, losses, obligations,
liabilities, claims, actions or causes of action, encumbrances, costs and
expenses (including, without limitation, reasonable attorneys’ fees and expert
witness fees) suffered, sustained, incurred or required to be paid by any Seller
Indemnitee, whether claims are made by a Seller Indemnitee or a third party, (a)
arising out of, based upon, in connection with or as a result of the assertion
against any Seller Indemnitee of a payment or other obligation under a guaranty
with respect to Guaranteed Liabilities or (b) arising out of, based upon, or in
connection with the failure of Buyer to perform the covenants contained in this
Agreement which are to be performed after the Closing or (c) arising
out of, based upon, or in connection with changes of employment status or the
terms of employment planned or communicated by Buyer with respect to any such
employees as a result of the transaction contemplated by this Agreement,
including actions taken by Buyer or by Operating Company at the direction of
Buyer pursuant to the Employee Agreement or (d) in the event of fraud by Buyer
in the negotiation, execution, or performance of this Agreement.
8.4 Procedures
Regarding Third Party Claims. The procedures
to be followed with respect to indemnification hereunder regarding claims by
third persons shall be as follows:
(a) Promptly
after receipt by any Buyer Indemnitee or Seller Indemnitee, as the case may be,
of notice of the commencement of any action or proceeding (including, without
limitation, any notice relating to a tax audit) or the assertion of any claim by
a third person, which the person receiving such notice has reason to believe may
result in a claim by it for indemnity pursuant to this Agreement, such person
(the “Indemnified
Party”) shall give notice of such action, proceeding or claim to the
party against whom indemnification pursuant hereto is sought (the “Indemnifying
Party”), setting forth in reasonable detail the nature of such action or
claim, including copies of any written correspondence from such third person to
such Indemnified Party.
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42
(b) The
Indemnifying Party shall be entitled, at its own expense, to participate in the
defense of such action, proceeding or claim, and, if (i) the action, proceeding
or claim involved seeks (and continues to seek) solely monetary damages, (ii)
the Indemnifying Party confirms, in writing, its obligation hereunder to
indemnify and hold harmless the Indemnified Party with respect to such damages
in their entirety pursuant to Sections 8.2, 8.3, 8.4, or 8.5 hereof, as the case
may be, and (iii) the Indemnifying Party shall have made provision which, in the
reasonable judgment of the Indemnified Party, is adequate to satisfy any adverse
judgment as a result of its indemnification obligation with respect to such
action, proceeding or claim, then the Indemnifying Party shall be entitled to
assume and control such defense with counsel chosen by the Indemnifying Party
and approved by the Indemnified Party, which approval shall not be unreasonably
withheld or delayed; provided however if, in the reasonable opinion of the
Indemnified Party, the counsel chosen by the Indemnifying Party has, or could
reasonably be expected to have during the pendency of such proceeding, a
conflict of interest, the Indemnified Party shall have the right to request
different counsel reasonably selected by Indemnified Parties to represent the
Indemnified Party, the fees and expenses of which shall be paid as incurred by
the Indemnifying Party. The Indemnified Party shall be entitled to
participate therein after such assumption, the costs of such participation
following such assumption to be at its own expense except as provided in the
previous sentence. Upon assuming such defense, the Indemnifying Party
shall not enter into any settlement without the written consent of the
Indemnified Party unless (i) the settlement provides solely for the payment of
monetary damages which is dispositive of the matters involved and is paid in
full by the Indemnifying Party on the effective date of the settlement and (ii)
the settlement does not involve an admission of any liability by the Indemnified
Party and (iii) the settlement does not involve any restriction or limitation on
the Indemnified Party.
(c) With
respect to any action, proceeding or claim as to which (i) the Indemnifying
Party does not have the right to assume the defense or (ii) the Indemnifying
Party shall not have exercised its right to assume the defense, the Indemnified
Party shall assume and control the defense of and contest such action,
proceeding or claim with counsel chosen by it and approved by the Indemnifying
Party, which approval shall not be unreasonably withheld or
delayed. The Indemnifying Party shall be entitled to participate in
the defense of such action, the cost of such participation to be at its own
expense. The Indemnifying Party shall be obligated to pay the
reasonable attorneys’ fees and expenses of the Indemnified Party as such fees
and expenses are incurred but only to the extent that such fees and expenses
relate to claims as to which indemnification is due under Sections 8.1 or 8.2
hereof, as the case may be. The Indemnified Party shall have full
rights to dispose of such action and enter into any monetary compromise or
settlement; provided, however, in the event that the Indemnified Party shall
settle or compromise any claims involved in the action insofar as they relate
to, or arise out of, the same facts as gave rise to any claim for which
indemnification is due under Sections 8.2, 8.3, 8.4, or 8.5 hereof, as the case
may be, it shall act reasonably and in good faith in doing so.
(d) Both
the Indemnifying Party and the Indemnified Party shall cooperate fully with one
another in connection with the defense, compromise or settlement of any such
claim, proceeding or action, including, without limitation, by making available
to the other all pertinent information and witnesses within its control except
that neither party shall be required to reveal attorney-client related
information where such disclosure will waive the attorney-client privilege
provided that the parties shall use commercially reasonable efforts to make
appropriate substitute disclosure arrangements.
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43
8.5 Limitations on
Buyer’s Indemnity. All claims by any Buyer Indemnitee under
Section 8.2(a) must be made by notice to Seller of the underlying facts upon
which such claim is based on or prior to March 31, 2011; except for claims made
pursuant to paragraph (4) (i) and (ii) of Schedule 8.2 which must be made by
notice to Seller of the underlying facts upon which such claim is based for each
of the New Jersey and Connecticut Warehouse Leases, determined individually, on
or prior to the earlier of September 30, 2011 or, solely with respect
to indemnity claims for such Warehouse Lease, the date upon which such Warehouse
Lease is terminated. Seller’s aggregate liability with respect to the
indemnification obligations under Section 8.2(a) is limited to an amount equal
to Two Million Dollars ($2,000,000), except for claims made pursuant to
paragraph (4) of Schedule 8.2, for which Seller’s liability is capped at Six
Hundred Thousand Dollars ($600,000); provided that the foregoing is not
intended to limit Seller’s obligations to comply with Sections 5.10 and 5.11 of
this Agreement.
8.6 Adjustment to
Purchase Price. Any payment pursuant to this Article 8
shall be treated for income Tax purposes as an adjustment to the Purchase Price
paid by the Buyer; provided that in the event such treatment is not permitted,
the parties agree that the Indemnifying Party shall indemnify and hold harmless
the Indemnified Party against any Taxes imposed in connection with the payment
of any indemnity payment.
ARTICLE
9
Termination
9.1 Termination. Notwithstanding
any other provision herein contained to the contrary, this Agreement may be
terminated at any time prior to the Closing Date:
(a) in
accordance with a written agreement executed by and between Buyer and
Seller;
(b) at
any time after the Closing Date Deadline, by written notice by Buyer or Seller
to the other party hereto if the Closing shall not have been completed on or
before the Closing Date Deadline;
(c) by
Seller or Buyer in the event, based upon the exercise of the fiduciary duties of
the board of directors of Seller (upon advice of counsel), Seller, Target, or
Operating Company accepts in writing an Alternative Offer; or
(d) by
Seller or Buyer by written notice to the other party in the event that, prior to
the Closing Date Deadline, Buyer or Seller, as the case may be, determines by
action of its board of directors after consultation with its legal and other
representatives that through the other party’s material breach of its
obligations hereunder, the conditions precedent to the obligation of the
non-breaching party to proceed with the Closing cannot be satisfied on or before
the Closing Date Deadline.
9.2 Procedure and
Effect of Termination. In the event of termination of this
Agreement pursuant to Section 9.1, this Agreement shall be of no further force
or effect; provided, however, that any termination
pursuant to Section 9.1 shall not relieve any party hereto of any liability
under Section 9.3 through Section 9.8, as applicable. In addition, in
the event of any such termination, all filings, applications and other
submissions made pursuant to this Agreement or prior to the execution of this
Agreement in contemplation thereof shall, to the extent practicable, be
withdrawn from the agency or other entity to which made.
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44
9.3 Seller Liquidated
Damages. In the event of the termination of this Agreement by
Buyer or Seller in accordance with Section 9.1(b) or by Seller in accordance
with Section 9.1(d), Buyer shall be obligated to pay Seller total liquidated
damages (inclusive of all of Seller’s costs and expenses) in the amount of Two
Million Dollars ($2,000,000); provided at the date of such
termination (A) each and all of the conditions precedent to the
obligations of Buyer reflected in Sections 6.1 and 6.2 hereof have been fully
satisfied by Seller, waived in writing by Buyer or any non-satisfaction is the
direct result of a material breach by Buyer of its obligations hereunder and (B)
the termination is not a Buyer No Damage Termination and (C) one or more of the
conditions precedent to the obligations of Seller set forth in Sections 7.1 or
7.2 have not been fully satisfied by Buyer or waived in writing by Seller or any
non-satisfaction is the direct result of a material breach by Seller of its
obligations hereunder.
9.4 Buyer Liquidated
Damages. In
the event of the termination of this Agreement by Buyer or Seller pursuant to
Section 9.1(b) or by Buyer in accordance with Section 9.1(d), Seller shall pay
to Buyer total liquidated damages (inclusive of all of Buyer’s costs and
expenses) in the amount of Two Million Dollars ($2,000,000); provided at
the time of such termination (A) each and all conditions precedent to
the obligations of Seller set forth in Sections 7.1 and 7.2 hereof have been
fully satisfied by Buyer, waived in writing by Seller or any non-satisfaction is
the direct result of a material breach by Seller of its obligations hereunder
and (B) the termination is not a Seller No Damage Termination and (C) one or
more of the conditions precedent to the obligations of Buyer set forth in
Sections 6.1 or 6.2 have not been fully satisfied by Seller or waived in writing
by Buyer or any non-satisfaction is the direct result of a material breach by
Buyer of its obligations hereunder .
9.5 Buyer Breakup
Fee. If this Agreement is terminated by Seller or Buyer
pursuant to Section 9.1(c), Seller shall pay to Buyer a total “break-up fee”
(inclusive of Buyer’s costs and expenses) of Two Million Dollars
($2,000,000). For avoidance of doubt, Buyer shall not be entitled to
payment under Section 9.4 if it is entitled to receive payment under this
Section 9.5
9.6 Payment. All
amounts due and payable under Section 9.3, 9.4 or 9.5, as applicable, shall be
paid immediately upon delivery of notice of termination of this
Agreement.
9.7 Limitation on
Liability; Exclusive Remedy. If damages are due and payable as provided
for in Sections 9.3 or 9.4, any payment of liquidated damages made pursuant to
Sections 9.3 or 9.4, or the payment of the break-up fee pursuant to Section 9.5
shall be the receiving party’s sole and exclusive remedy in respect of the
termination of this Agreement and shall be in lieu of any other remedies at law
or in equity to which such receiving party might otherwise be entitled with
respect to the transactions contemplated by this Agreement. Buyer and
Seller each acknowledge and agree that such liquidated damage amounts are
reasonable in light of the anticipated harm which would be caused by the paying
party’s failure to close the transaction contemplated under this Agreement, the
difficulty of proof of loss, the inconvenience and non-feasibility of otherwise
obtaining an adequate remedy, and the value of the transactions to be
consummated hereunder. The parties agree that the liquidated damages
provided in this Section are intended to limit the claims that each party may
have against the other. In the event a party hereto (the “breaching
party”) commits fraud against the other party to this Agreement (the
“non-breaching party”) in connection with the making of a representation or
warranty or the performance or non-performance of a covenant in this Agreement
by the breaching party, then the non-breaching party may as an alternative to
liquidated damages seek actual monetary damages (but not consequential or
punitive damages) and equitable relief to which it may be entitled so long as
the non-breaching party is not in material breach of this
Agreement.
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9.8 Non-Solicitation. In
the event that this Agreement is terminated pursuant to Section 9.1, then Buyer
and certain of its affiliates will execute and deliver to Seller and Seller will
execute and deliver to Buyer a Non-Solicitation Agreement, in the form attached
as Exhibit H
prohibiting the solicitation of Target’s or Operating Company’s employees by
Buyer and Buyer’s employees by Seller for a period of two (2) years from the
date of termination.
ARTICLE
10
Miscellaneous
Provisions
10.1 Access to Books
and Records after Closing. Buyer shall,
following the Closing, give, and shall cause to be given, to Seller and its
authorized representatives such access, during normal business hours and upon
prior notice, to such books, records and documents of Target and Operating
Company as shall be reasonably necessary for Seller in connection with the
preparation and filing, post filing governmental requests or audits of Seller’s
tax returns for periods prior to the Closing and for other reasonable business
purposes and to make extracts and copies of such books and records at the
expense of Seller. If Buyer desires to dispose of any books, records
or documents of the Business relating to the time period prior to the Closing at
anytime prior to the expiration of the applicable statute of limitations for
federal tax purposes for all tax years prior to the Closing, it shall give
Seller reasonable notice and Seller shall have the right to take possession of
such books, records or documents at Seller’s cost and expense.
10.2 Parties in
Interest; No Third Party Beneficiaries. This Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns of the parties
hereto. Nothing in this Agreement, expressed or implied, is intended
or shall be construed to confer upon or give to any employee or shareholder of
Seller, or any other Person, other than the parties hereto and their successors
and permitted assigns, any rights, remedies or other benefits under or by reason
of this Agreement.
10.3 Assignment. This Agreement
shall not be assignable by any party hereto without the prior written consent of
the other parties; provided, however, Buyer may
assign its rights and obligations hereunder to a wholly-owned subsidiary of
Buyer presently existing or hereafter formed but no such assignment shall in any
event operate or be construed to release Buyer from any of its obligations under
this Agreement. Nothing contained in
this Agreement shall prohibit its assignment by Buyer (or any permitted assignee
of Buyer) as collateral security, and Seller, Target, and Operating Company each
hereby agree to execute any acknowledgment of such assignment by Buyer as may be
required by any lender to Buyer.
10.4 Entire Agreement;
Amendment. This
Agreement, including the schedules and exhibits which are attached hereto and
incorporated herein contain the entire understanding of the parties hereto and
supersedes all prior agreements and understandings between the parties hereto
with respect to its subject matter hereof (except the confidentiality and
non-solicitation provisions of that certain Letter of Confidentiality
entered into by Seller and Buyer on February 17, 2009 which shall remain in
effect for the time period set forth therein or, if earlier, the
Closing Date). This Agreement may be amended or modified only by a
written instrument duly executed by the parties hereto.
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46
10.5 Headings;
Construction. The Article and
Section headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Because this Agreement was prepared as a result of negotiation and mutual
agreement between the parties hereto, neither this Agreement nor any provision
hereof shall be construed against either party hereto as the party that prepared
this Agreement or any such provision.
10.6 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
10.7 Notices. All notices, claims, certificates, requests, demands
and other communications hereunder shall be (a) given in writing, (b) delivered
personally or sent by fax or by a nationally recognized overnight courier,
postage prepaid, and (c) deemed to have been duly given when so delivered
personally or sent by fax, with receipt confirmed, or one (1) Business Day after
the date of deposit with such nationally recognized overnight
courier. All such notices, claims, certificates, requests, demands
and other communications shall be addressed to the respective parties at the
addresses set forth below or to such other address as the person to whom notice
is to be given may have furnished to the others in writing in accordance
herewith.
|
If
to Buyer, to:
|
With
a copy to:
|
|
|
The
Merit Group, Inc.
|
Xxxxxx
Xxx Xxxxx & Xxxxxxxxx LLP
|
|
|
0000
Xxxxx Xxxxxx
|
000
Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
|
|
|
Xxxxxxxxxxx,
Xxxxx Xxxxxxxx 00000
|
Xxxxxxxxx,
Xxxxx Xxxxxxxx 00000
|
|
|
Attention: Xxx
Xxxxx
|
Attention:
Xxxxxxx X. Xxxxxx
|
|
|
Fax: (000)
000-0000
|
Fax:
(000) 000-0000
|
|
If to
Seller, to:
Attention;
Xxxxxx X. Xxxxx, Chairman of the Board
c/o
Bedford Oak Advisors, LLC
000 Xxxxx
Xxxxxxx Xxxx
Xx.
Xxxxx, XX 00000
Fax: (000)
000-0000
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47
With a
copy to:
Xxx
Xxxxxx LLP
One
Canterbury Green
000 Xxxxx
Xxxxxx
Xxxxxxxx,
Xxxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxx
Fax:
(000) 000-0000
Buyer or
Seller may change the address or fax number to which such communications are to
be directed by giving written notice to the others in the manner provided in
this Agreement.
10.8 Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to its
principles of conflicts of law.
10.9 Remedies. Except as
expressly provided in this Agreement to the contrary, each of the parties to
this Agreement is entitled to all remedies in the event of breach provided at
law or in equity, specifically including, but not limited to, specific
performance.
10.10 Waivers. Any party to
this Agreement may, by written notice to the other parties hereto, waive any
provision of this Agreement from which such party is entitled to receive a
benefit. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of such provision or any other provision of this
Agreement.
10.11 Severability. It is the desire
and intent of the parties hereto that the provisions of this Agreement be
enforced to the fullest extent permissible under applicable laws and public
policies applied in each jurisdiction in which the enforcement is
sought. Accordingly, if any particular provision of this Agreement
shall be adjudicated by a court of competent jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision
could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
10.12 Exhibits and
Schedules. All exhibits and schedules hereto, or documents
expressly incorporated into this Agreement, are hereby incorporated into this
Agreement and are hereby made a part hereof as if set out in full in this
Agreement. Any fact or item disclosed on any schedule to this
Agreement shall not be deemed disclosed on any other schedule to this
Agreement.
10.13
Relationship of
the Parties and Joint Venturers. This
Agreement does not create an association, trust, partnership, joint
venture or other entity or similar legal relationship among the parties
hereto. No party is or shall act as or be the agent or representative
of any other party.
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48
10.14 Reliance. The
representations and warranties made by any party in this Agreement have been
made solely for the benefit of the other party hereto and may not be relied upon
by any third party, including any shareholder of Seller or any proposed investor
in a security of Seller and are intended, among other things, as a means of
allocating the risk as of a specified date or dates on the accuracy of such
representation or warranty as between the parties to this Agreement and may be
subject to material qualifications which may differ from what may be viewed as
material by an investor in securities of Seller.
10.15 Scope of
Provisions. It is recognized and intended by the parties that
the circumstances under which the Closing Date Deadline may be extended pursuant
to the definition of Target Meeting Date are not in all respects identical to,
and do not parallel, the acts and activities required of Seller under Section
5.8 which provide Seller with other bases for not being able to convene a
meeting of its stockholders and receive a Favorable Shareholder Vote on or
before the Closing Date Deadline and, for avoidance of doubt, the parties hereby
state that it is possible that Seller has satisfied its obligations under
Section 5.8 even though there is a failure to convene the Seller’s
stockholders meeting or obtain the Favorable Shareholder Vote on to
before the Closing Date Deadline.
10.16 Time is of the
Essence. The parties agree that time is of the essence in the
performance by the parties of their obligations and covenants, including without
limitation the covenants set forth in Section 5.8 and 5.16.
[Signatures
Are on the Following Pages]
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49
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be executed and
delivered on the date first above written.
BUYER:
|
/s/ Xxx
Xxxxx
|
||
|
Name: Xxx
Xxxxx
|
||
|
Title: President
|
||
SELLER:
|
/s/ Xxxxxx
Xxxxx
|
||
|
Name: Xxxxxx
Xxxxx
|
||
|
Title: Chairman,
President and Chief Executive
Officer
|
||
Exhibits
Exhibit
A: Definitions
Exhibit
B: Form of Escrow Agreement
Exhibit
C: Form of Opinion Letter of Xxx Xxxxxx LLP
Exhibit
D: Intentionally Deleted
Exhibit
E: Form of Non-Competition Agreement
Exhibit
F: Form of Employee Agreement
Exhibit
G: Form of Letter of Credit
Exhibit
H: Form of Non-Solicitation Agreement
Exhibit
I: Form of Indemnity Escrow Agreement
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50
EXHIBIT
A
Definitions
“401(k) Plan” shall
have the meaning as set forth in Section 5.6(b).
“Agreement” shall have
the meaning as set forth in the introductory paragraph.
“Allocation Schedule”
shall have the meaning as set forth in Section 2.4.
“Alternative Offer”
shall have the meaning as set forth in Section 5.7.
“Alternative
Transaction” shall have the meaning as set forth in Section
5.7.
“Annual Financial
Statements” shall have the meaning as set forth in Section
3.4
“Arbiter” shall mean
Xxxxx Xxxxxxxx or another independent public accounting firm as shall be agreed
upon by the parties in writing.
“Authorizations” shall
have the meaning as set forth in Section 3.14.
“Business” shall mean
the wholesale distribution of home decorating, hardware, and finishing
products.
“Business Day” shall
mean any day except Saturday, Sunday or any day on which banks are generally not
open for business in the City of Charlotte, North Carolina.
“Buyer” shall have the
meaning as set forth in the introductory paragraph.
“Buyer Indemnitee”
shall have the meaning as set forth in Section 8.2.
“Buyer’s Interim Inventory
Distributions” shall have the meaning as set forth in Section
2.2(c)(v).
“Buyer’s Net Results
Adjustment” shall have the meaning as set forth in Section
2.2(b)(ii).
“Buyer’s No Damage
Termination” shall mean a termination pursuant to Section 9.1 (b) or (d)
if at the date of such termination (A) (i) the condition precedent set forth in
Section 7.3 has not been satisfied for any reason other than as a result of
litigation initiated by Buyer or any of its affiliates (including without
limitation its officers and directors) or (ii) the condition precedent set forth
in Section 7.5 has not been satisfied for any reason or (iii) there has not been
a Favorable Shareholder Vote for any reason other than a material breach of
Buyer’s covenants contained in Section 5.16, and (B) the conditions precedent
set forth in Sections 7.1 and 7.2 hereof have been fully satisfied by Buyer,
waived in writing by Seller or any non-satisfaction is the direct result of a
material breach by Seller of its obligations hereunder.
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51
“Buyer’s Share” shall
have the meaning as set forth in Section 2.2(c)(iii).
“Cash” shall mean, as
of any Business Day, the aggregate amount of cash held in bank accounts or lock
boxes of Target and Operating Company, together with any pending deposits or
amounts in transit which for timing reasons have not yet been credited to the
balance held in such accounts or lock boxes, as of the opening of business on
such Business Day.
“Closing” shall have
the meaning as set forth in Section 2.5.
“Closing Date” shall
have the meaning as set forth in Section 2.5.
“Closing Date
Deadline” means the earlier of (i) the first Business Day after the
Target Meeting Date or (ii) one hundred fifty (150) days after the Execution
Date (or if not a Business Day, on the first Business Day
thereafter).
“COBRA” means
continuation coverage required under Section 4980B of the Code and Part 6 of
Title I of ERISA
“Code” shall mean the
United States Internal Revenue Code of 1986, including all regulations and rules
promulgated thereunder, all as may be amended from time to time.
“Commitment Letters”
shall have the meaning as set forth in Section 4.4.
“Compliance with ISRA”
shall mean the receipt of a letter or letters from the NJDEP or an LSRP
approving a Deminimis Quantity Exemption (“DQE”), a Negative Declaration or a
Remediation-In-Progress Waiver (as such terms are defined under ISRA), or a No
Further Action Letter and Covenant Not to Xxx (as such term is defined under
ISRA) issued by the NJDEP, or any form of a Response Action Outcome by the NJDEP
or an LRSP, or other written determination by the NJDEP or an LSRP that the
requirements of ISRA have been satisfied with respect to the NJ
Property.
“Connecticut Lease”
shall mean the lease of Operating Company’s warehouse located in Newington,
Connecticut.
“Connecticut Transfer
Act” shall mean the property transfer law, Conn. Gen. Stat. Ch. 445 §§
22a-134 et seq.
“CTDEP” shall have the
meaning as set forth in Section 5.11 (b).
“CT Property” shall
mean the Real Property leased by Target and Operating Company pursuant to the
Connecticut Lease.
“Discontinued
Merchandise” shall have the meaning set forth in Section
5.13.
“ELUR” shall have the
meaning as set forth in Section 5.11 (b)
“Employee Agreement”
shall mean the agreement substantially in the form of Exhibit F.
“Employee Benefit
Plan(s)” shall have the meaning as set forth in Section
3.23.
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52
“Encumbrance(s)” shall
mean any mortgages, deeds of trust, liens, pledges, charges, security interests,
contractual restrictions, claims or encumbrances of any kind or character
whatsoever.
“Environment” shall
mean, without limitation, ambient air, surface water, groundwater, soil,
sediment and land.
“Environmental
Conditions” shall mean any pollution or contamination of, or
the Release of Hazardous Substances into, the Environment.
“Environmental Law”
shall mean any Laws relating to pollution or protection of human health or the
Environment (including ambient air, surface water, groundwater, land surface or
subsurface strata), including Laws relating to emissions, discharges, spills,
Releases or threatened Releases of Hazardous Substances into or impacting the
Environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, recycling, storage, disposal, transport, sale, offer for sale,
distribution or handling of Hazardous Substances, including the Comprehensive
Environmental Response, Compensation and Liability Act as amended (“CERCLA”),
the Emergency Planning and Community Right-to-Know Act as amended, the Resource
Conservation and Recovery Act as amended, the Clean Air Act as amended, the
Clean Water Act as amended, the Superfund Amendments and Reauthorization Act as
amended, the Toxic Substances Control Act as amended, the New Jersey Spill
Compensation and Control Act, as amended, the Xxxxxxxxxx and Contaminated Sites
Remediation Act, as amended, ISRA, SRRA, the Connecticut Transfer Act, the state
and local Laws implementing said acts, and any analogous Laws and all rules and
regulations promulgated thereunder.
“Equipment” shall have
the meaning as set forth in Section 3.8.
“ERISA” shall mean the
United States Employee Retirement Income Security Act of 1974 and the rules and
regulations promulgated thereunder.
“ERISA Affiliate”
shall mean any
trade or business, whether or not incorporated, that, together with Seller,
Target and/or Operating Company would be deemed a “single employer” within the
meaning of Section 4001(b) of ERISA or Section 414 of the Code.
“Escrow Agent” shall
have the meaning as set forth in Section 2.8.
“Excluded Assets”
shall have the meaning as set forth in Article I.
“Execution Date” shall
have the meaning as set forth in the introductory paragraph.
“Favorable Shareholder
Vote” shall mean a vote in favor of the transactions contemplated by this
Agreement by the holders of a majority of the common stock of
Seller.
“Financial Statements”
shall have the meaning as set forth in Section 3.4.
“Financing” shall have
the meaning as set forth in Section 5.9.
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53
“GAAP” shall mean
generally accepted accounting principles as applied in the United
States.
“Governmental
Authority” shall mean any federal, state or local or foreign government,
any political subdivision thereof or any court, administrative or regulatory
agency, department, instrumentality, body or commission or other governmental
entity or agency, domestic or foreign.
“Guaranteed Liability”
shall mean the guaranty by Seller, or its former parent GP Strategies
Corporation, of the obligations of Target or Operating Company under the
Warehouse Leases.
“Hazardous Substance”
shall mean those substances, whether waste materials, raw materials, finished
products, co-products, byproducts or any other materials or articles or
constituents thereof which (from use, handling, processing, storage, emission,
disposal, spill, Release or any other activity or for any other reason) are
regulated by, form the basis of liability under, or are defined as a
contaminant, pollutant, dangerous, designated or controlled substance product,
solid or hazardous waste, hazardous substance, or toxic substance under any
Environmental Law, including gasoline or any other petroleum product or
byproduct or fractions thereof, any form of natural gas, asbestos,
polychlorinated biphenyls, radon or other radioactive substances, infectious,
carcinogenic, mutagenic or etiologic agents, pesticides, defoliants, explosives,
flammables, corrosives, urea formaldehyde, alcohols, chemical solvents, or any
other material or substance which constitutes a health, safety or environmental
hazard to any Person or the Environment.
“Indebtedness” shall
mean (i) all indebtedness for borrowed money of Target and/or Operating Company,
(ii) all obligations of Target and/or Operating Company evidenced by bonds,
debentures, notes or other similar instruments or debt securities, (iii) all
indebtedness of Target and/or Operating Company secured by purchase money
mortgage or other Encumbrance to secure all or part of the purchase price of the
property subject to such Encumbrance, (iv) all obligations under leases which
have been or must be, in accordance with GAAP, recorded as capital leases in
respect of which Target and/or Operating Company is liable as lessee, and (v)
any off-balance sheet financing of a Person (excluding all operating leases),
but excluding any and all liabilities or obligations owed by Target and/or
Operating Company under the swap agreement effective June 30, 2008 that
Operating Company has in association with the revolving line of credit of
Operating Company with Bank of America.
“Indemnified Party”
shall have the meaning as set forth in Section 8.4(a).
“Indemnifying Party”
shall have the meaning as set forth in Section 8.4(a).
“Indemnity Escrow
Account” shall have the meaning as set forth in Section 2.8.
“Indemnity Escrow
Agreement” shall have the meaning as set forth in Section
2.8.
“Indemnity Escrow
Amount” shall have the meaning as set forth in Section 2.8.
“Intellectual
Property” shall have the meaning as set forth in Section
3.12.
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54
“Interim Financial
Statements” shall have the meaning as set forth in Section
3.4.
“Inventory Escrow
Account” shall have the meaning as set forth in Section 2.8.
“Inventory Escrow
Amount” shall have the meaning as set forth in Section
2.2(c).
“Inventory Loss” shall
have the meaning as set forth in Section 2.2(c)(iv).
“IRS” shall mean the
Internal Revenue Service.
“ISRA” shall mean the
Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq., and the regulations
promulgated thereunder, N.J.A.C. 7:26B-1.1 et seq., as amended by the
SRRA.
“ISRA Compliance
Costs” shall mean all fees, costs and expenses incurred to achieve
Compliance with ISRA, including without limitation, attorneys’, consultants’ and
engineering fees and disbursements, NJDEP filing fees and oversight charges,
costs (including any surcharges) associated with securing and maintaining any
remediation funding source, laboratory and analytical costs and expenses,
equipment charges, costs associated with any NJDEP audits pursuant to SRRA,
industrial or hazardous waste disposal costs and all other fees, costs and
expenses incurred in connection with or relating to Remedial
Actions.
“Laws” shall mean all
statutes, rules, codes, regulations, restrictions, ordinances, orders, decrees,
approvals, directives, judgments, injunctions, writs, awards and decrees of, or
issued by, all Governmental Authorities.
“LEP” shall have the
meaning as set forth in Section 5.11 (b).
“Letter of Credit”
shall have the meaning as set forth in Section 2.7.
“Losses” shall mean
all fines, penalties, damages (including, without limitation, damages on account
of personal injury or death, property damage or damage to natural resources),
fees, costs or expenses (including, without limitation, sampling, monitoring or
remediation costs, reasonable attorneys’, consultants’ and engineering fees and
disbursements, costs of defense and interest).
“LSRP” shall mean a
Licensed Site Remediation Professional as defined at N.J.S.A.
13:1K-8.
“Material Contract”
shall mean any contract, agreement, understanding or arrangement to which Target
or Operating Company is a party or by which Target, Operating Company, or the
Stock is bound, which provides for performance (including liabilities or
obligations of Target or Operating Company) after April 1, 2009 and (i) has been
filed with the Securities and Exchange Commission by either Seller or Target,
(ii) obligates any party thereto after the date hereof to make payments per
annum of more than $50,000,, (ii) is a lease or other contract related to rights
in real property, (iii) contains a covenant not to compete or similar provision
which limits or restricts the ability of Operating Company to conduct the
Business, including as to manner or place, (iv) provides for the extension of
credit by Target or Operating Company in excess of $20,000 except contracts
relating to the payment for goods and services entered into with customers of
the Business in the ordinary course of business, (v) provides for a guaranty or
indemnity by Target or Operating Company, (vi) constitutes a collective
bargaining agreement or an employment agreement which provides for severance
benefits to any officer, director or material group of employees, (vii)
represents a contract or agreement upon which the Business is substantially
dependent or which is otherwise material to the Business or contains any
provision pursuant to which Target or Operating Company will be obligated to
make any payment or provide any benefit to any Person as a result of the
consummation of the transactions contemplated hereby, or (viii) represents a
contract or agreement that would be required to be filed by Seller as a
“material contract” pursuant to Item 601(b)(10) of Regulation S-K of the
Securities Act of 1934.
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“New Jersey Lease”
shall mean the lease of Operating Company’s warehouse located in East Hanover,
New Jersey.
“Net Results” shall
refer to the unaudited net income, or if applicable net loss (which shall be
reflected as a negative number in this calculation), as determined under GAAP,
of Operating Company for the period from March 31, 2009 through the Closing Date
as calculated with the following adjustments to the extent they are included in
the unaudited net income (or net loss) of Operating Company: (i) add all amounts
of depreciation and amortization, (ii) if there is income tax expense
for the period add back said income tax expense, but (iii) if there is income
tax benefit for the period, deduct therefrom said income tax benefit; all in
accordance with GAAP applied consistently with the Annual Financial
Statements.
“NJDEP” shall mean the
New Jersey Department of Environmental Protection, its divisions, bureaus and
subdivisions.
“NJ Property” shall
have the meaning as set forth in Section 5.10(a)(i).
“NOV” shall have the
meaning as set forth in Section 5.10 (d).
“Operating Assets”
shall have the meaning as set forth in Section 3.7.
“Operating Company”
shall have the meaning as set forth in the introductory paragraph.
“Permitted
Encumbrances” shall have the meaning as set forth in Section
2.5(a)(ii).
“Person” shall mean
any individual, corporation, partnership, joint venture, limited liability
company, trust, unincorporated organization or Governmental
Authority.
“Phase I Inventory
Adjustment” shall have the meaning as set forth in Section
2.2(c)(i).
“Phase II Inventory
Adjustment” shall have the meaning as set forth in Section
2.2(c)(ii).
“Principal Customers and
Suppliers” shall have the meaning as set forth in Section
3.26.
“Proxy Statement”
shall have the meaning as set forth in Section 5.8.
“Purchase Price” shall
have the meaning as set forth in Section 2.1.
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56
“RC” shall have the
meaning as set forth in Section 5.10 (a) (1).
“Real Property” shall
have the meaning as set forth in Section 3.11.
“Release” shall mean
“release” as defined in CERCLA or in any other Environmental Law.
“Remedial Action”
means any and all response actions, including without limitation: (y)
investigations of Environmental Conditions of any kind or nature whatsoever,
including site assessments, site investigations, remedial investigations, soil,
groundwater, surface water, sediment sampling or monitoring; or (z) actions of
any kind or nature whatsoever taken to remove, xxxxx or remediate Environmental
Conditions, including the use, implementation, application, installation,
operation or maintenance of removal actions, in-situ or ex-situ remediation
technologies applied to the surface or subsurface soils, encapsulation or
stabilization of soils, excavation and off-site treatment or disposal of soils,
systems for the recovery and/or treatment of groundwater or free
product.
“Remediation
Activities” shall have the meaning as set forth in Section
5.11(c).
“Remediation
Agreement” shall have the meaning as set forth in Section
5.10(a)(i).
“Remediation
Certificate” shall have the meaning as set forth in Section
5.10(a)(1).
“Response Action
Outcome” or “XXX” shall have the
meaning set forth at N.J.S.A. 13:1K-8.
“Revolving
Indebtedness” shall mean, as of any Business Day, (i) the aggregate
amount of Indebtedness under Operating Company’s revolving line of credit with
Bank of America (Account number: Five Star Group, Client ID 130FSG, Loan
ID FSG 01), minus (ii) Cash,
plus (iii), the
aggregate amount of any checks written by Operating Company which have not
cleared Operating Company’s bank account as of such Business Day. The
calculation of Revolving Indebtedness for purposes of any adjustments to the
Purchase Price shall also be determined in accordance with Section 2.2(a),
including with respect to the exclusions and applications mandated
therein.
“RSRs” shall have the
meaning as set forth in Section 5.11(b).
“SEC” shall mean the
Securities and Exchange Commission.
“SEC Clearance” shall
mean the date on which either in accordance with notice from the SEC or as a
result of the passage of sufficient time under applicable law the Proxy
Statement may be filed in definitive form with the SEC and mailed to
shareholders of Seller in order to obtain a Favorable Shareholder
Vote.
“Section 338(h)(10)
Election” shall mean the joint election of the Buyer and Seller to treat
the sale of Stock as a deemed sale of assets of Target and Operating Company
pursuant to Section 338(h)(10) of the Code and any comparable election
under foreign, state or local Laws.
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“Secured Indebtedness”
shall mean Indebtedness, the payment of which is secured in whole or in part by
any Encumbrance on any of the assets or properties of Operating Company or
Target.
“Seller” shall have
the meaning as set forth in the introductory paragraph.
“Seller Indemnitee”
shall have the meaning as set forth in Section 8.3.
“Seller No Damage
Termination” shall mean a termination pursuant to Section 9.1 (b) or (d)
if at the date of such termination (A) (i) the condition precedent set forth in
Section 6.3 has not been satisfied for any reason other than as a result of
litigation initiated by Seller, Target or Operating Company or any of their
affiliates (including without limitation their respective officers and
directors) other than a shareholders derivative action initiated in the name of
Seller, Target or Operating Company by other than an affiliate of such entities
or (ii) the conditions precedent set forth in Section 6.5 have not been
satisfied for any reason other than the failure of Seller to obtain the
governmental consents set forth on Schedule 3.3 directly caused by Seller’s
material breach of its obligations under Sections 5.10 or 5.11 or (iii) a
Favorable Shareholder Vote has not been obtained because of a shareholder vote
rejecting the transaction, if but only if, Seller’s Board of Directors did not
withdraw its recommendation of the transaction contemplated hereby prior to said
shareholder vote, and (B) the conditions precedent set forth in Sections 6.1 and
6.2 hereof have been fully satisfied by Seller, waived in writing by Buyer or
any non-satisfaction is the direct result of a material breach by Buyer of its
obligations hereunder.
“Seller Remediation
Equipment” shall have the meaning as set forth in Section
5.10(d)(i).
“Seller’s Net Results
Adjustment” shall have the meaning as set forth in Section
2.2(b)(ii).
“Seller’s Maximum
Liability” shall have the meaning as set forth in Section
2.2(c)(iv).
“Seller’s Obligations”
shall have the meaning as set forth in Section 5.11 (a).
“Seller SEC Documents”
shall have the meaning as set forth in Section 3.15.
“Seller’s Share” shall
have the meaning as set forth in Section 2.2(c)(iii).
“Slow-Moving
Inventory” shall have the meaning as set forth in Section
2.2(c).
“Slow-Moving Inventory
Valuation Date” shall have the meaning as set forth in Section
2.2(c).
“SRRA” shall mean the
Site Remediation Reform Act, P.L. 2009, c. 60, and the regulations promulgated
thereunder..
“Stock” shall have the
meaning as set forth in the Recitals.
“Supplemental Closing” shall
have the meaning as set forth in Section 2.2 (b).(i)
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“Target” shall have
the meaning as set forth in the introductory paragraph.
“Target Meeting Date”
shall mean thirty (30) Business Days after SEC Clearance plus any additional
number of Business Days equal to any reasonable delay in Seller’s ability to
convene a valid shareholders’ meeting to consider the transaction contemplated
hereby which is caused by (i) compliance with the requirements of
Rule 14a-13 of the SEC or (ii) a re-solicitation of proxies or
required amendment of the proxy materials if such re-solicitation or
amendment is caused by (A) any one of a change in the terms of Buyer’s
financing, the loss thereof or any other event or circumstance which
necessitates a change in the information related to Buyer or its financing
contained in Seller’s proxy statement or (B) the necessity to
include in the Seller’s proxy materials information with respect to an
Alternative Offer if, but only
if, Seller’s Board of Directors has not accepted such Alternative Offer
and continues to recommend this transaction to its shareholders.
“Tax” or “Taxes” shall mean any
domestic and foreign federal, state and local income, profits, franchise, sales,
use, occupation, property, excise, payroll, withholding, employment, estimated
and other taxes of any nature, including interest, penalties and other additions
to such taxes.
“Threatened” shall
mean a statement in writing which, on its face, includes an allegation of
wrongdoing or liability or an intent to seek damages or other redress in
connection therewith.
“Total Inventory
Adjustment” shall have the meaning as set forth in Section
2.2(c)(iii).
“Union Employees”
shall mean all persons employed on the Closing Date covered by the collective
bargaining agreement between Operating Company and Local No. 11, affiliated with
International Brotherhood of Teamsters dated December 20, 2008.
“VCP” shall have the
meaning as set forth in Section 5.6(b).
“VCP Submission” shall
have the meaning as set forth in Section 5.6(b).
“Warehouse Leases”
shall mean the leases related to Operating Company’s warehouses in East Hanover,
New Jersey, Brooklyn, New York and Newington, Connecticut
“Working Capital”
shall refer to the working capital of Operating Company and shall mean (i) the
sum of (A) inventory, (B) accounts receivable and (C) prepaid expenses, MINUS
(ii) the sum of (A) accounts payable, offset, to the extent consistent with
GAAP, consistently applied, amounts due under vendor rebate and marketing
allowance programs, (B) accrued liabilities (including customer rebates but
excluding Indebtedness), (C) deferred show revenue, and (D) accrual for
inter-company normal operating costs; all in accordance with GAAP applied
consistently with the Annual Financial Statements and the form of Schedule
2.2(a)(i).
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59
Schedule
8.2
Indemnification
1. all
Indebtedness;
2. all
liabilities for any and all pending or Threatened litigation required to be set
forth in Schedule
3.19;
3. all
obligations and liabilities arising out of or related to environmental matters
(i) relating to Seller’s Remedial Action required under Sections 5.10 and 5.11
or (ii) which are disclosed on Schedule 3.24 or are
known to one or more of the officers of Seller, Operating Company, or Target as
of the Closing Date, in either case, to the extent that such matters are or
become the subject of any third party claim pending or Threatened and Buyer
makes a claim therefore pursuant to Article 8 on or before March 31,
2011(whether or not such third party claim is pending or Threatened as of the
Closing Date);
4. (i)
Seventy Five percent (75%) of the liabilities and obligations arising with
respect to the Real Property or Operating Company’s use thereof through
September 30, 2011, in connection with any failure to comply with all applicable
laws, rules, and regulations to the extent such failure existed on the Closing
Date; and (ii) Seventy Five percent (75%) of the liabilities and obligations
arising with respect to any event or condition existing as of the Closing Date
which would require Target or Operating Company to expend monies under a repair
or restoration obligation in any Warehouse Lease if such Warehouse Lease were to
terminate after giving effect to Buyer paying the first $25,000 of any such
liabilities and obligations, and (iii) environmental matters which are not
disclosed, but would have been subject to disclosure, on Schedule 3.24 but for
the fact that such matters were not known to one or more officers of Seller,
Operating Company, or Target as of the Closing Date, to the extent such matters
become the subject of third party claims pending or Threatened and Buyer makes a
claim therefore pursuant to Article 8 on or before March 31, 2011,
provided however, that Seller’s aggregate liability under this paragraph (4)
shall not exceed $600,000;
5. all
liabilities and obligations with respect to the COBRA requirements of Section
4980B of the Code and Sections 601-608 of ERISA and any applicable state health
care continuation coverage requirements arising from or with respect to the
sponsorship, administration and/or operation prior to the Closing by Operating
Company or Target of any group health plan, except Buyer’s liabilities or
obligations to provide, or to cause Operating Company to provide, COBRA benefits
after the Closing pursuant to Section 5.19.
Page
60
The
following attachments to this agreement are omitted. The registrant agrees to
furnish supplementally a copy of each
such omitted attachment to the Staff of the Securities and Exchange Commission
upon request by the Staff.
EXHIBITS
|
Exhibit
B:
|
Form
of Escrow Agreement
|
|
Exhibit
C:
|
Form
of Opinion Letter of Xxx Xxxxxx LLP
|
|
Exhibit
E:
|
Form
of Non-Competition Agreement
|
|
Exhibit
F:
|
Form
of Employee Agreement
|
|
Exhibit
G:
|
Form
of Letter of Credit
|
|
Exhibit
H:
|
Form
of Non-Solicitation Agreement
|
|
Exhibit
I:
|
Form
of Indemnity Escrow Agreement
|
SCHEDULES
|
Schedule
2.2(a)(ii) –
|
Cash
Flow Adjustment
|
|
Schedule
2.2(c) –
|
Slow
Moving Inventory
|
|
Schedule
2.3(c) –
|
Allocation
Schedule
|
|
Schedule
2.5(a)(ii) –
|
Permitted
Encumbrances
|
|
Schedule
2.6 –
|
Revolving
Indebtedness as of March 31, 2009
|
|
Schedule
3.1 (a) –
|
Qualifications
|
|
Schedule
3.1(b) –
|
Subsidiaries
|
|
Schedule
3.3 –
|
Non-Contravention
|
|
Schedule
3.5 –
|
Absence
of Certain Changes
|
|
Schedule
3.6 (a) –
|
Material
Contracts
|
|
Schedule
3.6 (b) –
|
Consent
or Default
|
|
Schedule
3.7 –
|
Encumbrances
|
|
Schedule
3.8 –
|
Machinery,
Equipment and Software
|
|
Schedule
3.10 –
|
Vendor
Programs
|
|
Schedule
3.11 (a) –
|
Real
Property
|
|
Schedule
3.11 (b) –
|
Real
Property Assignment, Sublease, Transfer, Conveyance, Mortgage or
Deed
|
|
Schedule
3.12 –
|
Intellectual
Property
|
|
Schedule
3.14 –
|
Approvals,
Permits and Authorizations
|
|
Schedule
3.15 –
|
Seller
and Target SEC Documents
|
|
Schedule
3.16 –
|
Compliance
with Laws
|
|
Schedule
3.17 (i) –
|
Insurance
|
|
Schedule
3.17 (ii) –
|
Claims;
Insurance
|
|
Schedule
3.18 –
|
Taxes
|
|
Schedule
3.19 –
|
Litigation
|
|
Schedule
3.20 –
|
Powers
of Attorney
|
|
Schedule
3.22(a)(i) –
|
Employees
|
|
Schedule
3.22(a)(ii) –
|
Independent
Sales Representatives
|
|
Schedule
3.22(b) –
|
Labor
Disputes and Delinquencies in Payment
|
|
Schedule
3.22(c) –
|
Collective
Bargaining or Labor Contract
|
|
Schedule
3.23(a) –
|
Employee
Benefit Plans
|
|
Schedule
3.23(c) –
|
Compliance
|
|
Schedule
3.23(e) –
|
Qualification
|
|
Schedule
3.23(i) –
|
Employee
Rights
|
|
Schedule
3.23(j) –
|
Consents
and Liabilities under Employee Benefit Plans
|
|
Schedule
3.24 –
|
Environmental
Matters
|
|
Schedule
3.25 –
|
Interest
in Competitors and Related Entities
|
|
Schedule
3.26 –
|
Principal
Customers and Suppliers; Principal Customers Credit Hold; Principal
Customer or
Supplier
Suspension, Termination or Material Reduction since June 30,
2009
|
|
Schedule
3.27 –
|
Bank
Accounts
|
|
Schedule
4.2 –
|
Buyer
Consents And Approvals
|
|
Schedule
5.4 –
|
Expenditures
by Seller, Target, and Operating Company
|
|
Schedule
5.13–
|
Private
Label Vendors
|
