Exhibit 10.86
SECURITIES PURCHASE AGREEMENT
by and among
Eldorado Stone Holdings Co., LP,
StoneCraft Industries, Inc.,
Xxxxxx Xxxxxxx
and
Headwaters Incorporated
TABLE OF CONTENTS
SECTION 1. ACQUISITION OF SECURITIES...............................1
1.1 Redemption by ES Corp and Northwest of Common Stock.........1
1.2 Purchase and Sale of Securities.............................2
SECTION 2. PURCHASE PRICE AND PAYMENT..............................2
2.1 Consideration...............................................2
2.2 Allocation of Consideration.................................3
2.3 Working Capital Adjustment..................................3
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS........5
3.1 Organization and Good Standing..............................5
3.2 Power and Authorization.....................................5
3.3 No Conflicts................................................5
3.4 Ownership of the Shares.....................................6
3.5 Holding Company.............................................6
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING THE
ELDORADO ENTITIES.......................................6
4.1 Organization and Good Standing..............................6
4.2 Power and Authorization.....................................7
4.3 Capitalization..............................................7
4.4 Investments and Subsidiaries................................8
4.5 No Conflicts................................................9
4.6 Financial Statements........................................9
4.7 Real Property..............................................10
4.8 Personal Property..........................................11
4.9 Taxes......................................................11
4.10 Litigation.................................................14
4.11 Labor Matters..............................................14
4.12 Intellectual Property Rights...............................15
4.13 Contracts and Commitments..................................16
4.14 Absence of Undisclosed Liabilities.........................17
4.15 Existing Condition.........................................17
4.16 Employee Benefit Plans.....................................18
4.17 Compliance with Laws and Instruments.......................20
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4.18 Environmental Compliance...................................21
4.19 Transactions With Affiliates...............................22
4.20 Product and Service Warranties.............................22
4.21 Insurance..................................................22
4.22 Inventory..................................................23
4.23 Accounts Receivable........................................23
4.24 Brokers....................................................23
4.25 Substantial Customers and Suppliers........................23
4.26 Bank and Brokerage Accounts................................24
4.27 No Other Representations or Warranties.....................24
4.28 Survival of Representations, Warranties, Covenants
and Agreements.............................................24
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER................24
5.1 Incorporation, Good Standing and Authority.................24
5.2 Validity of Contemplated Transactions......................25
5.3 Litigation.................................................25
5.4 Sufficient Funds...........................................25
5.5 Investment Representations.................................25
5.6 Brokers....................................................26
5.7 No Other Representations or Warranties.....................26
SECTION 6. OBLIGATIONS OF THE PARTIES UNTIL CLOSING...............26
6.1 Conduct of Business........................................26
6.2 Notification of Certain Matters............................26
6.3 Conduct of Business Pending Closing........................26
6.4 Negative Covenants.........................................27
6.5 Access.....................................................29
6.6 Consents...................................................29
6.7 HSR........................................................29
6.8 Commercially Reasonable Efforts............................30
6.9 Publicity..................................................30
6.10 Financing..................................................30
6.11 Exclusivity................................................30
6.12 Debt; Warrants.............................................31
6.13 Non-Solicitation...........................................31
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6.14 Employment Agreements......................................32
6.15 Tax Returns................................................32
6.16 Other Actions; Notification................................33
6.17 Accountant's Letter........................................33
SECTION 7. CERTAIN CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS....34
7.1 Representations and Warranties.............................34
7.2 Performance of Covenants...................................34
7.3 Approvals..................................................34
7.4 Legal Matters..............................................34
7.5 Opinions of Counsel........................................35
7.6 Closing Certificate........................................35
7.7 Releases of Liens..........................................35
7.8 Financing..................................................35
7.9 Financial Statements.......................................35
7.10 Officers' Certificates.....................................35
7.11 Resignations of Officers and Directors.....................35
7.12 Schedule...................................................35
7.13 Exchange of Securities.....................................36
7.14 No Adverse Change..........................................36
7.15 Sellers' Release...........................................36
7.16 Exercise of Options: Release...............................36
7.17 Keep Well Agreement........................................36
SECTION 8. CERTAIN CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS...36
8.1 Representations and Warranties.............................36
8.2 Performance of Covenants...................................36
8.3 Legal Matters..............................................37
8.4 Opinion of Counsel.........................................37
8.5 Closing Certificate........................................37
8.6 Approvals..................................................37
SECTION 9. CLOSING................................................37
9.1 Time and Place of Closing..................................37
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9.2 Deliveries at the Closing by Sellers.......................38
9.3 Deliveries at the Closing by Buyer.........................38
SECTION 10. TERMINATION AND ABANDONMENT............................38
10.1 Termination................................................38
10.2 Procedure for Termination..................................39
SECTION 11. INDEMNIFICATION........................................39
11.1 Indemnity..................................................39
11.2 Duration...................................................42
11.3 Exclusive Remedy...........................................42
SECTION 12. DEFINITIONS............................................42
SECTION 13. MISCELLANEOUS..........................................45
13.1 Construction...............................................45
13.2 Survival of Representations and Warranties.................45
13.3 Further Assurances.........................................46
13.4 Costs and Expenses.........................................46
13.5 Notices....................................................46
13.6 Assignment and Benefit.....................................48
13.7 Amendment, Modification and Waiver.........................48
13.8 Governing Law; Consent to Jurisdiction.....................48
13.9 Section Headings and Defined Terms.........................49
13.10 Severability...............................................49
13.11 Counterparts...............................................49
13.12 Entire Agreement...........................................49
13.13 Additional Parties.........................................50
13.14 Retention of Counsel.......................................50
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is dated as of
April 21, 2004 by and among Eldorado Stone Holdings Co., LP, a Delaware limited
partnership ("ES Holdings"), StoneCraft Industries, Inc., a California
corporation ("StoneCraft" ), Xxxxxx Xxxxxxx ("Xxxxxxx"), those persons becoming
members of Eldorado Stone LLC, a Delaware limited liability company
("Eldorado"), after the date hereof pursuant to the exercise of options or
warrants to purchase units of membership interests in Eldorado and made a party
to this Agreement pursuant to Section 13.13 hereof (together with ES Holdings,
Xxxxxxx and StoneCraft, "Sellers") and Headwaters Incorporated, a Delaware
corporation ("Buyer"). An index of defined terms is attached as an appendix
hereto.
BACKGROUND
ES Holdings and Xxxxxxx together own all of the membership interests in
Eldorado Stone Acquisition Co., LLC, a Delaware limited liability company ("ES
Acquisition"). ES Acquisition directly owns, and through its direct,
wholly-owned subsidiaries, Eldorado Stone Corporation, a Washington corporation
("ES Corp") and Northwest Stone & Brick Co., Inc., a Washington corporation
("Northwest"), indirectly owns, approximately 76.4% of the membership interests
in Eldorado and StoneCraft owns approximately 23.6% of the membership interests
in Eldorado.
Eldorado and its direct, wholly-owned subsidiaries Eagle Stone & Brick
LLC, X-X Xxxxx LLC, L&S Stone LLC, Eldorado Stone Operations LLC, StoneCraft
Industries LLC, Northwest Properties LLC, Northwest Stone & Brick LLC, Chihuahua
Stone LLC and Tempe Stone LLC, each a Delaware limited liability company
(together, the "Subsidiaries" and together with ES Acquisition, Eldorado, ES
Corp and Northwest, the "Eldorado Entities"), are engaged in the business of
manufacturing, distributing and selling the Eldorado Stone(R) brand of
manufactured stone products and pavers and franchising the production of the
Eldorado Stone(R) brand of manufactured stone products to regional manufacturers
located in the United States and other countries (the "Business").
The parties hereto desire to provide for the acquisition by Buyer of
all the interests in the Business through the sale by Sellers of all of the
securities they own in ES Acquisition and Eldorado to Buyer and for certain
other matters, all on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained, Sellers
and Buyer, all intending to be legally bound, hereby agree as follows:
SECTION 1. ACQUISITION OF SECURITIES
1.1 Redemption by ES Corp and Northwest of Common Stock. Immediately
prior to the Closing: (a) ES Corp shall redeem such number of shares of ES Corp
Common Stock as is equal to the total number of outstanding shares of ES Corp
Common Stock multiplied by the quotient (the "Quotient") of the cash held by ES
Corp divided by the Equity Value of the Eldorado Interest held by ES Corp
(provided that the Quotient shall not exceed .99), by distributing all of its
cash to ES Acquisition; and
1.2 (b) Northwest shall redeem such number of shares of Northwest
Common Stock as is equal to the total number of outstanding shares of ES Corp
Common Stock multiplied by the quotient (the "Quotient") of the cash held by ES
Corp divided by the Equity Value of the Eldorado Interest held by ES Corp
(provided that the Quotient shall not exceed .99), by distributing all of its
cash to ES Acquisition.
1.3 Purchase and Sale of Securities. Subject to the terms and
conditions of, and on the basis of and in reliance upon the covenants,
agreements and representations and warranties set forth in this Agreement, at
the Closing, Buyer shall, directly or indirectly, acquire all of the equity
interests in Eldorado and ES Acquisition (collectively, the "Securities")
through the sale, assignment, transfer and conveyance to Buyer of the Securities
as follows:
(a) ES Holdings shall sell, transfer and deliver to Buyer
955,815 Units of ES Acquisition, constituting approximately 95.6% of the
aggregate number of outstanding limited liability company interests in ES
Acquisition ("ESA Units") as of the date hereof and all of such interests in ES
Acquisition directly owned by it;
(b) Xxxxxxx shall sell, transfer and deliver to Buyer 44,185 ESA Units,
constituting approximately 4.4% of the ESA Units and all such interests in ES
Acquisition owned by him;
(c) StoneCraft shall sell, transfer and deliver to Buyer 23,623 Units
of Eldorado constituting approximately 23.6% of the aggregate number of
outstanding limited liability company interests in Eldorado (the "Eldorado
Interests") and all of such interests in Eldorado owned by it; and
(d) each other Seller who becomes a member of Eldorado after the date
hereof and becomes a party hereto pursuant to Section 13.13 shall sell, transfer
and deliver to Buyer all of the Units owned by such Seller.
SECTION 2. PURCHASE PRICE AND PAYMENT.
2.1 Consideration. Subject to adjustment as provided for in Section
2.3, the aggregate consideration for the Securities to be purchased by Buyer
shall be equal to Two Hundred One Million Dollars ($201,000,000), plus the tax
benefits to ES Corp and Northwest of the net consideration to holders of options
to purchase Securities, costs of unwinding the Company's interest rate swap
(provided for in the ISDA Master Agreement between Fleet National Bank and
Eldorado, dated October 22, 2001), management transaction bonuses to be paid by
the Company, and unamortized financing and management fees, all as calculated as
of the Closing Date in accordance with Schedule 2.1 attached hereto (the
"Purchase Price"). The Purchase Price shall be equal to the sum of the equity
value of all of the Securities to be sold pursuant to this Agreement (the
"Equity Value") and the aggregate amount of principal, interest, fees and other
amounts owed as of the Closing Date, net of any cash held by Eldorado and the
Subsidiaries, under each of (a) the Credit Agreement among ES Acquisition,
Canadian Imperial Bank of Commerce, CIBC Inc., National City Bank, Fleet
National Bank, Credit Agricole Indosuez, The Provident Bank, General Electric
Capital Corporation and Firstrust Savings Bank, as amended (the "Credit
Agreement" ) and (b) the outstanding Senior Subordinated Notes issued to
National City Capital Corporation, Great Lakes Capital Investments III, LLC,
Argosy Investment Partners, L.P., Credit Agricole Indosuez and Indosuez CMII,
Inc. on February 20, 2001 (the "Notes" ). The Purchase Price shall be paid by
Buyer as follows: (i) Buyer shall pay an amount equal to the Equity Value to
Sellers at Closing by wire transfer of immediately available federal funds
pursuant to instructions previously given by Sellers to Buyer for that purpose.
The sum paid to each Seller shall be determined by multiplying the Equity Value
by the percentage of ownership of each Seller set forth beside his, her or its
name on Schedule 2.1 hereto and (ii) Buyer shall make available, or cause to be
made available, funds for Eldorado to repay at Closing all of the indebtedness
owing under the Credit Agreement and the Notes (the indebtedness owing under the
Notes shall include the amount necessary for Eldorado to repurchase the
Warrants, as defined in the Notes.
2.2 Allocation of Consideration. The Purchase Price shall be allocated
among Sellers and paid as provided in Schedule 2.1. For federal income tax
purposes, the fair market value of each item of tangible personal property owned
by the Eldorado Entities as of the Closing Date and, accordingly, the amount of
Purchase Price that is allocable to such property, shall be allocated at fair
market value. Upon request of the Sellers, the Sellers shall be provided with a
copy of all appraisals of the value of such items.
2.3 Working Capital Adjustment.
(a) At least two days prior to the Closing Date, Eldorado
shall cause to be prepared and delivered to Buyer a working capital statement
(the "Working Capital Statement"), setting forth the calculation of the amount,
if any, by which the Estimated Working Capital (as defined below) will be
greater or less than the Target Working Capital as of the Closing Date.
(b) At the Closing, the amount of the Purchase Price shall be
increased (or decreased) by the amount by which the Estimated Working Capital is
greater than (or less than) the Target Working Capital.
(c) Within 30 days after the Closing Date, Buyer shall prepare
and deliver to Sellers a statement setting forth the Final Working Capital and
the Working Capital Adjustment, if any (the "Final Working Capital Statement").
The working capital adjustment shall be equal to the difference between the
Final Working Capital and the Estimated Working Capital (the "Working Capital
Adjustment"). If the Final Working Capital exceeds the Estimated Working
Capital, Buyer shall owe the Working Capital Adjustment to the Sellers, together
with interest thereon from the Closing Date at a rate of 9% per annum. If the
Estimated Working Capital exceeds the Final Working Capital, the Sellers shall
owe the Working Capital Adjustment to Buyer, together with interest thereon from
the Closing Date at a rate of 9% per annum. If the Sellers do not object to the
amount of the Working Capital Adjustment within 30 days of receipt of the Final
Working Capital Statement, Sellers shall pay to Buyer, or Buyer shall pay to the
Sellers, as the case may be, no later than the fifth business day after such
thirty-day period, an amount in cash equal to the Working Capital Adjustment, if
any.
(d) If Sellers object to the Final Working Capital Statement
and the calculation of the Working Capital Adjustment, if any, Sellers shall
notify Buyer within 30 days following receipt thereof, setting forth the basis
for its objection and its proposal for any adjustments to the Working Capital
Adjustment calculation. Buyer and the Sellers shall negotiate in good faith to
reach agreement as to any such proposed adjustment or that no such adjustment is
necessary within 30 days following receipt of notice of the Sellers' objection.
If agreement is reached in writing within such period as to all proposed further
adjustments, or Buyer and the Sellers agree that no adjustments are necessary,
the parties shall make such adjustments, if any, and the Working Capital
Adjustment shall be based thereon. If Buyer and the Sellers are unable to reach
agreement within such thirty-day period, then a "Big-4" accounting firm as
agreed upon by Buyer and the Sellers (the "Third Party Accounting Firm") shall
be engaged to review the proposed Working Capital Adjustment, and, to the extent
necessary, the Final Working Capital Statement, and shall make a determination
as to the resolution of any adjustments necessary to cause the Working Capital
Adjustment, if any, to have been properly prepared in accordance with this
Agreement. All such determinations shall relate only to such matters as are in
dispute and shall represent either agreement with the position taken by Buyer or
the Sellers or a compromise between such positions. The determination of the
Third Party Accounting Firm shall be delivered in writing as soon as practicable
following selection of the Third Party Accounting Firm; shall state the amount
due by either party as a result and shall be final, conclusive and binding upon
Buyer and the Sellers, absent fraud or clear error. Thereafter, not later than
ten days following the determination by the Third Party Accounting Firm, the
Working Capital Adjustment, if any, as determined by the Third Party Accounting
Firm, shall be paid in accordance with Section 2.3(c) hereof. Buyer and the
Sellers, pro rata, shall bear equally the costs of the Third Party Accounting
Firm.
(e) As used herein:
(i) "Final Working Capital" means the final
determination of the Net Working Capital (as defined below) as of the Closing
Date (immediately prior to, and without giving effect to, the transactions
contemplated hereby) determined in accordance with Section 2.3. Final Working
Capital as reflected in the Final Working Capital Statement shall be presented
in U.S. dollars and should not include any purchase accounting adjustments
required under Financial Accounting Standards Board, Statement of Financial
Accounting Standards No. 141, Business Combinations, or any accounting entries
to adjust for transaction bonuses or stock option exercises, cancellations and
rollovers (including related tax benefits), that result from the transactions
contemplated by this Agreement.
(ii) For purposes hereof, the "Estimated Working
Capital" shall mean Sellers' estimate of the Net Working Capital as of the
Closing Date.
(iii) For purposes hereof, the "Net Working Capital"
shall mean (x) the current assets of the Eldorado Entities (excluding cash) less
(y) the current liabilities (excluding the current portion due under the Credit
Agreement and the Notes of the Eldorado Entities as of the applicable period)
calculated consistently with the methodologies, general ledger account
groupings, and classifications included in the calculation of Target Working
Capital on Exhibit 2.3 hereto; provided, that (A) no reserve shall be included,
and no write off shall be taken, with respect to the collectibility of $719,191
in accounts receivable as described in Schedule 4.23, (B) absent the occurrence
of any event subsequent to February 29, 2004 that would cause Eldorado's
reserves, including without limitation accounts receivable, inventory and
warranty, not to be in compliance with GAAP (in which case such reserve shall be
appropriately adjusted to reflect such event), the dollar amounts of each such
reserve shall be the same as the relevant reserve included in the calculation of
Target Working Capital, and (C) except to the extent necessitated by material
changes in raw material or transfer costs, finished goods inventory shall be
valued at the same cost per square foot or unit as was used in calculating
Target Working Capital.
(iv) For purposes hereof, "Target Working Capital"
shall mean $14,259,400.
(f) Any amounts payable pursuant to this Section 2.3 to
Sellers shall be allocated among the Sellers in the same proportions as set
forth on Schedule 2.1 and paid as provided therein.
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS.
Each Seller individually, and not jointly, represents, warrants and,
where applicable, covenants with Buyer, as of the date of this Agreement and as
of the Closing Date, as follows:
3.1 Organization and Good Standing. Such Seller is either an individual
or is an organization duly organized, validly existing and in good standing
under the laws of the state of its formation or organization and has all
necessary corporate or limited partnership power and authority to carry on its
business as presently conducted.
3.2 Power and Authorization. Such Seller has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
under the other agreements and documents required to be delivered by it prior to
or at the Closing. The execution, delivery and performance by such Seller of
this Agreement and the other agreements and documents required to be delivered
by it prior to or at the Closing have been duly authorized by all necessary
corporate or other action. This Agreement has been duly and validly executed and
delivered by such Seller and constitutes the legal, valid and binding obligation
of such Seller enforceable against it in accordance with its terms. When
executed and delivered as contemplated herein, each of the other agreements and
documents required to be delivered by it prior to or at the Closing shall
constitute the legal, valid and binding obligation of such Seller which is a
party thereto, enforceable against it in accordance with its terms.
3.3 No Conflicts.
(a) The execution, delivery and performance of this Agreement
by such Seller and the other agreements and documents required to be delivered
by it prior to or at the Closing do not and will not (with or without the
passage of time or the giving of notice):
(i) violate or conflict with the certificate or
articles of incorporation or bylaws (or other organizational documents) of such
Seller, or any Law, binding upon such Seller;
(ii) violate or conflict with, result in a breach of,
or constitute a default or otherwise cause any loss of benefit under any
agreement or other obligation to which such Seller is a party or by which it or
any of its assets are bound, or give to others any rights (including rights of
termination, foreclosure, cancellation or acceleration), in or with respect to
such Seller or any of the Securities owned by such Seller; or
(iii) result in, require or permit the creation or
imposition of any restriction, mortgage, deed of trust, pledge, Lien or
Encumbrance, security interest or other charge or claim of any nature upon or
with respect to the Securities owned by such Seller.
(b) There are no judicial, administrative or other
governmental actions, proceedings or investigations pending or, to the knowledge
of such Seller, threatened, that question any of the transactions contemplated
by, or the validity of, this Agreement or any of the other agreements or
instruments contemplated hereby or which, if adversely determined, would have an
a Material Adverse Effect upon the ability of such Seller to enter into or
perform its obligations under this Agreement or any such other agreements or
instruments. Such Seller has not received any request from any Governmental
Authority or instrumentality for information with respect to the transactions
contemplated hereby.
3.4 Ownership of the Shares. Such Seller owns the Securities listed as
owned by it on Schedule 3.4, beneficially and of record, free and clear of any
restriction, Lien or Encumbrance. Except as described in the Schedules, there
are no shareholder or other agreements affecting the right of such Seller to
convey such Securities to Buyer or any other right of such Seller with respect
to the Securities, all of which agreements shall be terminated prior to Closing,
and such Seller has the absolute right, authority, power and capacity to sell,
assign and transfer the Securities owned by it to Buyer free and clear of any
restriction, Lien or Encumbrance (except for restrictions imposed generally by
applicable securities laws). Upon delivery to Buyer of the certificates for the
Securities listed as owned by it on Schedule 2.1 at the Closing, Buyer will
acquire good, valid and marketable title to such Securities, free and clear of
any restriction, mortgage, deed of trust, pledge, Lien or Encumbrance (except
for applicable securities laws restrictions).
3.5 Holding Company. Neither Seller, ES Acquisition nor any corporation
owned directly by ES Acquisition, including ES Corp. and Northwest engages (or
at any time during the last three years has engaged) in any business other than
holding the Securities and does not have any assets or liabilities other than
the Securities or distributions received from Eldorado or ES Acquisition.
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING THE Eldorado entities.
Each Seller, individually, and not jointly, represents, warrants and,
where applicable, covenants with Buyer, as of the date of this Agreement and as
of the Closing Date, except as set forth on the Schedules attached hereto, as
follows:
4.1 Organization and Good Standing. Each of the Eldorado Entities is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, and has all limited liability company or
corporate power and authority, as applicable, to conduct its business as
presently conducted and to own and lease the properties and assets used in
connection therewith and to perform all of its obligations under each agreement
and instrument by which it is bound. Each of the Eldorado Entities is qualified
to do business as a corporation or limited liability company, as applicable, and
is in good standing in each jurisdiction where the nature or character of the
property owned, leased or operated by it or the nature of the business
transacted by it makes such qualification necessary, except where the failure to
be so qualified or be in good standing would not have a Material Adverse Effect.
Schedule 4.1 sets forth a complete and accurate list, separately for each
Subsidiary and Eldorado, of each jurisdiction in which each Subsidiary and
Eldorado is qualified to do business.
4.2 Power and Authorization. Each of the Eldorado Entities has full
limited liability company or corporate power and authority, as applicable, to
enter into and perform its obligations under this Agreement and all other
agreements and documents contemplated herein which are required to be delivered
by it prior to or at the Closing. The execution, delivery and performance by
each of the Eldorado Entities of the documents required to be delivered by it to
which it is a party have been duly authorized by all necessary corporate or
limited liability company action, as applicable. When executed and delivered as
contemplated herein, each of the documents required to consummate the
transactions contemplated herein shall constitute the legal, valid and binding
obligation of each of the Eldorado Entities that is a party thereto, enforceable
against each in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting the enforceability of creditors' rights
generally, general equitable principles, the discretion of courts in granting
equitable remedies and matters of public policy.
4.3 Capitalization.
(a) The total outstanding membership interests in ES
Acquisition consists of 1,000,000 ESA Units of which 955,815 are owned
beneficially and of record by ES Holdings and 44,185 are owned beneficially and
of record by Xxxxxxx (the "ES Acquisition Interests"). No Person has any
preemptive or other right with respect to any such equity interests or other
securities, and there are no offers, options, warrants, rights, agreements or
commitments of any kind (contingent or otherwise) relating to the issuance,
conversion, registration, voting, sale or transfer of any equity interests or
other securities of ES Acquisition or obligating ES Acquisition or any other
Person to purchase or redeem any such equity interests or other securities. All
of the issued and outstanding equity interests of ES Acquisition have been duly
authorized and are validly issued and outstanding, and have been issued in
compliance with all applicable securities and other Laws and are owned free and
clear of any Liens or Encumbrances. From and after the Closing, neither the
Sellers nor any other Person (other than the Buyer) will have any rights
whatsoever with respect to the ES Acquisition Interests or to any other
securities or incidents of ownership of, or in, ES Acquisition.
(b) The total outstanding membership interests in Eldorado
consists of 100,000 Eldorado Units of which 36,763 are owned beneficially and of
record by ES Acquisition, 22,186 are owned beneficially and of record by ES
Corp, 17,428 are owned beneficially and of record by Northwest and 23,623 are
owned beneficially and of record by StoneCraft. Except for the warrants and the
employee options as set forth on Schedule 4.3, no Person has any preemptive or
other right with respect to any such equity interests or other securities, and
there are no offers, options, warrants, rights, agreements or commitments of any
kind (contingent or otherwise) relating to the issuance, conversion,
registration, voting, sale or transfer of any equity interests or other
securities of Eldorado or obligating Eldorado or any other Person to purchase or
redeem any such equity interests or other securities. All of the issued and
outstanding equity interests of Eldorado have been duly authorized and are
validly issued and outstanding, and have been issued in compliance with all
applicable securities and other Laws and are owned free and clear of any Liens
or Encumbrances. From and after the Closing, neither the Sellers nor any other
Person (other than the Buyer will have any rights whatsoever with respect to the
Eldorado Interests or to any other securities or incidents of ownership of, or
in, Eldorado.
4.4 Investments and Subsidiaries.
(a) All of the issued and outstanding membership interests in
the Subsidiaries (the "Subsidiary Interests") are owned beneficially and of
record by Eldorado, free and clear of all Liens or Encumbrances. The Subsidiary
Interests constitute all of the issued and outstanding membership interests in
the Subsidiaries. The Subsidiary Interests are validly issued, fully paid and
non-assessable, issued in compliance with all applicable Laws and no additional
membership interests have been reserved for issuance. There are no outstanding
options with respect to the membership interest of any of the Subsidiaries or
agreements, arrangements or understandings to issue any options with respect to
the membership interests of any of the Subsidiaries, nor are there any
preemptive rights or agreements, arrangements or understandings to issue
preemptive rights with respect to the issuance or sale of the membership
interests of any of the Subsidiaries. From and after the Closing, no Person
(other than Eldorado) will have any rights whatsoever with respect to the
Subsidiary Interests or to any other securities or incidents of ownership of, or
in, any of the Subsidiaries.
(b) All of the issued and outstanding capital stock in both
Northwest and ES Corp (the "Corporate Subsidiary Stock") are owned beneficially
and of record by ES Acquisition, free and clear of all Liens or Encumbrances.
The Corporate Subsidiary Stock constitutes all of the issued and outstanding
capital stock in Northwest and ES Corp. The Corporate Subsidiary Stock is
validly issued, fully paid and non-assessable, issued in compliance with all
applicable Laws and no capital stock has been reserved for issuance. There are
no outstanding options with respect to the capital stock of either Northwest or
ES Corp or agreements, arrangements or understandings to issue any options with
respect to the capital stock of either Northwest or ES Corp, nor are there any
preemptive rights or agreements, arrangements or understandings to issue
preemptive rights with respect to the issuance or sale of the capital stock of
either Northwest of ES Corp. From and after the Closing, no Person (other than
ES Acquisition) will have any rights whatsoever with respect to the Corporate
Subsidiary Stock or to any other securities or incidents of ownership of, or in,
either Northwest or ES Corp.
(c) Since February 20, 2001, the Business has been conducted
solely by and through Eldorado and the Subsidiaries, and none of the Eldorado
Entities directly or indirectly owns, controls or has any investment or other
ownership interest in any corporation, partnership, joint venture, business
trust or other entity other than (i) Eldorado's ownership of the Subsidiary
Interests; (ii) ES Corp's ownership of 22,186 Eldorado Units; (iii) Northwest's
ownership of 17,428 Eldorado Units; (iv) StoneCrafts' ownership of 23,623
Eldorado Units; (v) ES Acquisition's ownership of 36,763 Eldorado Units; (vi) ES
Acquisition's 100% ownership of ES Corp; and (vii) ES Acquisition's 100%
ownership of Northwest. None of the Eldorado Entities has agreed, contingently
or otherwise, to share any profits, revenues, losses, costs or liabilities with,
or to guaranty the obligations of, any Person or entity, other than one or more
of the Eldorado Entities and other than as provided in its operating agreement
or other charter documents.
4.5 No Conflicts. The execution, delivery and performance of this
Agreement and the other agreements and documents required to be delivered to
consummate the transactions contemplated herein do not and will not (with or
without the passage of time or the giving of notice) (i) violate or conflict
with the certificate of formation on articles of incorporation, bylaws or
operating agreements (or other organizational documents) of any of the Eldorado
Entities; (ii) conflict with, violate, or result in a breach of, or constitute a
default under or the creation of any Lien or Encumbrance pursuant to or give
rise to any penalty, right of termination or otherwise cause any alteration of
any rights or obligations of any party under, any contract or agreement to which
any of the Eldorado Entities is a party or by which it is bound or any Law,
permit, license, order, judgment or decree applicable to any of the Eldorado
Entities, except in the case of (ii), for any conflict, breach, violation or
default that would not have a Material Adverse Effect. No permit, authorization,
consent or approval of, or filing with or notification to, any Governmental
Authority, regulatory or administrative body or any other third party is
required in connection with the execution and delivery of this Agreement by
Sellers or the consummation of the transactions contemplated herein.
4.6 Financial Statements.
(a) Sellers have delivered to Buyer true and complete copies
of the consolidated audited balance sheets of Eldorado and the Subsidiaries as
of December 31, 2001, 2002 and 2003 and the related audited consolidated
statements of income and members' equity and cash flow for fiscal year ended
December 31, 2001, 2002 and 2003 including the audit reports and notes thereto
(the "Financial Statements"). The Financial Statements (a) have been prepared in
accordance with GAAP consistently applied throughout the periods covered
thereby; and (b) fairly reflect in all material respects the financial position
of Eldorado and the Subsidiaries on a consolidated basis as of the respective
dates thereof and the results of operations and changes in members' equity and
cash flow for the periods then ended.
(b) Eldorado maintains a system of internal accounting
controls sufficient to provide reasonable assurance that, in all material
respects: (i) transactions related to or involving Eldorado and the Subsidiaries
are executed in accordance with management's general or specific authorizations;
(ii) transactions related to or involving Eldorado and the Subsidiaries are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP, consistently applied, and to maintain asset
accountability; (iii) access to assets of Eldorado and the Subsidiaries is
authorized only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
4.7 Real Property.
(a) Schedule 4.7 separately sets forth the address of real
property owned (the "Owned Real Property") or leased (the "Leased Real
Property") by each of the Eldorado Entities (the Owned Real Property and the
Leased Real Property may be collectively referred to as the "Real Properties").
Schedule 4.7 also sets forth a true and correct list of all leases or subleases
and any amendments, modifications or extensions thereto related to any Leased
Real Property.
(b) Each of the Eldorado Entities has good and marketable
title in fee simple to all of the Owned Real Property and owns all right, title
and interest in all leasehold estates and other rights purported to be granted
to them by the leases and other agreements relating to the Leased Real Property,
in each case free and clear of any Lien or Encumbrance except for: (i) liens for
current taxes, assessments and governmental charges and levies which may be paid
without penalty, interest or other additional charge or which are being
contested in good faith by appropriate proceedings and are not material in
amount or value in relation to the value of the associated property; and (ii)
any zoning or other governmentally established restrictions or encumbrances;
(iii) materialmen's, mechanics', carriers', warehousemen's, landlords',
workmen's, repairmen's, or other like liens arising in the ordinary course of
business, (iv) liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance,
social security and other like laws, or to secure the performance of
construction contracts, leases, statutory obligations, surety, appeal or
performance bonds; and (v) such minor utility and municipal easements and
restrictions, if any, as do not detract in any material respect from the value
of the Real Properties subject thereto and do not materially interfere with the
Real Properties used in the ordinary conduct of the business of the Eldorado
Entities as presently conducted (collectively, the "Permitted Encumbrances").
(c) All of the buildings and structures located on the Owned
Real Properties or the premises owned or leased by each of the Eldorado Entities
are suitable for the purposes used and, subject to ordinary wear and tear, are
in good operating condition and repair in all material respects. No such
building or structure, or any appurtenance thereto or equipment therein, or the
operation or maintenance thereof, violates any restrictive covenant or any Law
(including without limitation any such Laws relating to health, safety,
subdivision and zoning), which violation materially interferes with the use of
such building, structure or appurtenance, encroaches in any material respect on
any property owned by others, or which, to the Knowledge of Eldorado could
reasonably be expected to result in any Order against any of the Eldorado
Entities. All governmental permits, approvals and licenses required in
connection with the operation and, if applicable, ownership of such Real
Properties and all improvements thereon and the conduct of each of the Eldorado
Entities' business on the date hereof have been duly obtained, are in full force
and effect and no proceedings are pending or, to the Knowledge of Eldorado,
threatened which could lead to a revocation or other impairment of any thereof,
except where the failure to hold such permits, approvals or licenses would not
have a Material Adverse Effect. No condemnation, or other legal, proceeding is
pending, or to the Knowledge of Eldorado, threatened with respect to any of the
Real Properties.
(d) The Sellers have delivered or made available to Buyer true
and complete copies, to the extent reasonably available, of all (i) title
policies, mortgages, deeds of trust, deeds, leases, easements, restrictive
covenants, certificates of occupancy, and similar documents, and all amendments
thereto concerning the Owned Real Property, and (ii) leases, subleases or other
similar agreements and any amendments, modifications or extensions thereto
concerning the Leased Real Property and all other documents referred to in
clause (i) of this paragraph with respect to the Leased Real Property.
4.8 Personal Property. Each of Eldorado and the Subsidiaries has good
and valid title to the personal property owned by them free and clear of all
Liens or Encumbrances, except for any Permitted Encumbrances. All leased
personal property used in the Business is used pursuant to valid, subsisting and
enforceable leases, subleases, licenses and other agreements binding upon the
parties thereto in accordance with their terms, except as would not have a
Material Adverse Effect. All material properties and assets owned or leased by
Eldorado or any Subsidiary are in the possession or under the control of
Eldorado and are in good condition and repair, ordinary wear and tear excepted,
are suitable for the purposes for which they are being used, and are of a
condition, nature and quantity sufficient for the conduct of the Business prior
to the date hereof.
4.9 Taxes.
(a) All Tax Returns required to have been filed by or with
respect to any of the Eldorado Entities have been duly and timely filed
(including any extensions), and each such Tax Return correctly and completely
reflects Tax liability and all other information required to be reported thereon
in all material respects. All such Tax Returns are true, complete and correct in
all material respects. All Taxes due and payable by any of the Eldorado
Entities, whether or not shown on any Tax Return or claimed to be due by any
Governmental Authority, for periods (or portions of periods) covered by the
Financial Statements, have been paid or accrued on the balance sheet included in
the Financial Statements. ES Acquisition and Eldorado are each classified as a
partnership and each Subsidiary is treated as a disregarded entity for federal
income tax purposes. ES Corp and Northwest (collectively for this section, the
"Corporate Eldorado Entities") are treated as "C" corporations for federal
income tax purposes.
(b) The unpaid Taxes of the Eldorado Entities (i) did not, as
of the most recent fiscal month end, exceed by any material amount the reserve
for Liability for Income Tax or any other Tax set forth on the face of the most
recent balance sheet included in the Financial Statements, as adjusted, in each
case, for operations and transactions in the ordinary course of business through
such month end, and (ii) will not exceed by any material amount such reserve as
adjusted for operations and transactions in the ordinary course of business
through the Closing Date.
(c) None of the Eldorado Entities is a party to any agreement
extending the time within which to file any Tax Return. No claim has been made
at any time during the last three years by any Governmental Authority of any
jurisdiction in which any of the Eldorado Entities does not file Tax Returns
that any of the Eldorado Entities is or may be subject to taxation by that
jurisdiction.
(d) Each of the Eldorado Entities has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor, shareholder, member or
other third party, except where the failure to withhold or pay would not have a
Material Adverse Effect.
(e) To Eldorado's Knowledge, no Governmental Authority has
taken action to assess additional Taxes against or in respect of it for any past
period which would reasonably be expected to have a Material Adverse Effect. To
Eldorado's Knowledge, there is no material dispute or claim concerning any Tax
liability of any of the Eldorado Entities either (i) threatened, claimed or
raised by any Governmental Authority or (ii) of which any of the Eldorado
Entities is otherwise aware. There are no liens for Taxes upon any assets of any
of the Eldorado Entities other than liens for Taxes not yet due. Schedule 4.9(e)
indicates those Tax Returns, if any, of any of the Eldorado Entities that have
been audited or examined by Governmental Authorities since February 20, 2001,
and indicates those Tax Returns of any of the Eldorado Entities that currently
are the subject of audit or examination. Each of the Eldorado Entities has
delivered or made available to Buyer complete and correct copies of all federal,
state, local and foreign income Tax Returns filed by it, and all material Tax
examination reports and statements of deficiencies assessed against or agreed to
by it, since the fiscal year ended December 31, 2001. None of the Eldorado
Entities has granted a power of attorney with respect to any matter relating to
Taxes.
(f) There are no outstanding agreements or waivers extending
the statutory period of limitation applicable to any Tax Returns required to be
filed by any of the Eldorado Entities or with respect to any Tax assessment or
deficiency affecting any of the Eldorado Entities.
(g) None of the Eldorado Entities has received any written
ruling during the past three years related to Taxes or entered into any
agreement with a Governmental Authority relating to Taxes.
(h) None of the Eldorado Entities has any liability for the
Taxes of any person other than itself (i) under section 1.1502-6 of the Income
Tax Regulations (or any similar provision of state, local or foreign law), (ii)
as a transferee or successor, (iii) by contract or (iv) otherwise.
(i) None of the Eldorado Entities has agreed to make and none
of the Eldorado Entities is required to make any adjustment under section 481 of
the Code (or similar provision of state, local or foreign law) by reason of a
change in accounting method.
(j) None of the Eldorado Entities is a party to or bound by
any obligations under any tax sharing, tax allocation, tax indemnity or similar
agreement or arrangement.
(k) Except for the ownership interests of the Corporate
Eldorado Entities in Eldorado, none of the Eldorado Entities is involved in,
subject to, or a party to any joint venture, partnership, contract or other
arrangement that is treated as a partnership for federal, state, local or
foreign income Tax purposes.
(l) At no time during the past three years have any of the
Eldorado Entities been included and none of the Eldorado Entities is includible
in the Tax Return of any affiliated, consolidated, combined, unitary or similar
group.
(m) At no time during the past three years have any of the
Eldorado Entities made any payments and no Eldorado Entity, is obligated to make
any payments, or is a party to any contract, agreement or arrangement covering
any current or former employee or consultant that under certain circumstances
could require it to make or give rise to any payments that are not deductible as
a result of the provisions set forth in section 280G of the Code or the Income
Tax Regulations thereunder or would result in an excise tax to the recipient of
any such payment under section 4999 of the Code, nor will compensation amounts
attributable to the exercise of existing employee options of Eldorado be
otherwise nondeductible.
(n) There is currently no limitation on the utilization of any
net operating losses, built-in losses, capital losses, Tax credits or other
similar items of a Corporate Eldorado Entity under (i) section 382 of the Code,
(ii) section 383 of the Code, (iii) section 384 of the Code or (iv) section 1502
of the Code and the Income Tax Regulations promulgated thereunder.
(o) Each material election with respect to income Taxes
affecting any of the Eldorado Entities is set forth in Schedule 4.9(o).
(p) No Corporate Eldorado Entity has ever been and no
Corporate Eldorado Entity is a United States real property holding corporation
within the meaning of section 897(c)(1)(A)(ii) of the Code. No Corporate
Eldorado Entity is a "consenting corporation" within the meaning of section
341(f)(1) of the Code. No Corporate Eldorado Entity has distributed the stock of
another corporation and no Corporate Eldorado Entity has had its stock
distributed by another corporation in a transaction described in sections 355 or
361 of the Code.
(q) None of the assets of any of the Eldorado Entities
constitutes tax-exempt bond financed property or tax-exempt use property, within
the meaning of section 168 of the Code. None of the Eldorado Entities is a party
to any "safe harbor lease" that is subject to the provisions of section
168(f)(8) of the Code as in effect prior to the Tax Reform Act of 1986, or to
any "long-term contract" within the meaning of section 460 of the Code.
(r) Each of the Eldorado Entities has substantial authority
for the treatment of, or has disclosed (in accordance with section
6662(d)(2)B)(ii) of the Code) on its federal income Tax Returns, all positions
taken on its relevant federal income Tax Returns that could give rise to a
substantial understatement of federal income Tax within the meaning of section
6662(d) of the Code.
(s) To the Knowledge of Eldorado, none of the Eldorado
Entities is a party to any transaction with an Affiliate or related party that
would require a transfer pricing study, whether for foreign or interstate
purposes.
(t) ES Acquisition has not made, and will not make any
election under Section 754 of the Code. Eldorado has made an election under
Section 754 of the Code, and will maintain such election.
(u) ES Acquisition's acquisition of an interest in Eldorado in
2001 resulted in a basis adjustment under Section 743(b) of the Code, a portion
of which was properly allocable to goodwill. ES Acquisition's Section 743(b)
adjustment allocable to goodwill is properly amortizable under Section 197 of
the Code and is not subject to the "anti-churning" rules of Section 197(f)(9).
Eldorado has not engaged in any transaction since its inception that resulted in
a Section 734(b) basis adjustment with respect to its assets.
4.10 Litigation.
(a) Except as set forth in Schedule 4.10, there are no
demands, disputes, claims, employee grievances, actions, suits or proceedings
(in law, equity or administrative) against, or investigations involving or
affecting, Eldorado or any of the Subsidiaries, their businesses or assets, or
their directors, officers, shareholders or members in their capacities as such,
before any court or Governmental Authority or instrumentality, or before an
arbitrator or mediator of any kind ("Proceeding"). Neither Eldorado nor any of
the Subsidiaries is in default with respect to any judgment, award,
determination, order, writ, injunction or decree of any court or federal, state,
municipal or Governmental Authority or any commission, board, bureau, agency,
instrumentality, administrator or arbitrator applicable to Eldorado or any of
the Subsidiaries. Schedule 4.10 sets forth a list of each material Proceeding
against Eldorado or any of the Subsidiaries or any of their assets that are: (i)
currently active or being contested; or (ii) were filed, presented, brought, or
in any manner active or outstanding, during the last three years.
(b) Neither the Sellers, Eldorado nor any of the Subsidiaries
have received written notice, and to the Knowledge of Sellers, neither Eldorado
nor any of the Subsidiaries are aware of any Orders outstanding against Eldorado
or any of the Subsidiaries.
(c) To the Knowledge of the Sellers, there are no facts or
circumstances that could reasonably be expected to give rise to any Proceeding
that would be expected to have a Material Adverse Effect.
4.11 Labor Matters.
(a) Neither Eldorado nor any of the Subsidiaries is a party to
or otherwise bound by any collective bargaining agreement or other Contract with
a labor union or labor organization with respect to any employee.
(b) Neither Eldorado nor any of the Subsidiaries' employees is
a member of any collective bargaining unit related to his or her employment with
Eldorado or any of the Subsidiaries, no collective bargaining unit has filed a
petition for representation of Eldorado or any of the Subsidiaries' employees,
no union organizing activity is being directed at Eldorado or any of the
Subsidiaries' employees, and there are no strikes, material slowdowns, work
stoppages or lockouts, or, to the Knowledge of the Sellers, by or with respect
to any employees of Eldorado or any of the Subsidiaries.
(c) Schedule 4.11 sets forth the workers' compensation claims
history of Eldorado and the Subsidiaries since January 1, 2002.
(d) Each of Eldorado and the Subsidiaries have, to the
Knowledge of Eldorado and the Subsidiaries, complied in all material respects
with all applicable legal requirements relating to its employees, arising from
statutes and/or regulations relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity, age
and disability discrimination, immigration control and the payment and
withholding of Taxes.
(e) To the Knowledge of the Sellers, no executive level
employee of any of the Eldorado Entities have given any notice that such
employee is terminating, or will terminate, his or her employment as a result of
any of the transactions contemplated by this Agreement.
4.12 Intellectual Property Rights.
(a) Schedule 4.12 lists all patents and registered trademark,
trade names, service marks, copyrights, and, with respect to each of the
foregoing, applications (including provisional applications) owned by any of the
Eldorado Entities (the "Eldorado IP" ), and lists any proceedings or actions
pending as of the date hereof before any court or tribunal (including the United
States Patent and Trademark Office or equivalent authority anywhere in the
world) related to the Eldorado IP. Each of the Eldorado Entities owns, licenses
or otherwise possesses legally enforceable rights to use all Eldorado IP and any
other technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or material that are used in or
material to the Business as currently conducted (collectively with the Eldorado
IP, the "Eldorado Intellectual Property Rights").
(b) Each of the Eldorado Entities has the unrestricted right
to use all Trade Secrets (defined below) required by it for the conduct of the
Business. Each of the Eldorado Entities has taken commercially reasonable
precautions to preserve and document its Trade Secrets. "Trade Secrets" shall
mean trade secrets, confidential information, know-how, inventions, processes,
formulae, discoveries, designs, customer lists, supplier lists, marketing
strategies, processes and technical data.
(c) None of the Eldorado Entities has received any written
communication alleging that Eldorado or any Subsidiary has violated any of the
patents, licenses, trademarks, service marks, trade names, copyrights, trade
secrets or other proprietary rights of any Person. To the Knowledge of Eldorado,
no third party is infringing upon or violating any of the Intellectual Property
Rights, Trade Secrets or other proprietary rights owned by Eldorado or the
Subsidiaries.
(d) None of the Eldorado Entities is subject to any Order,
action, or proceeding, that restricts in any manner the use, transfer, or
licensing of any Eldorado Intellectual Property Rights, Trade Secrets or other
intellectual property rights or that affects the validity, use, or
enforceability of such Eldorado Intellectual Property Rights, Trade Secrets or
other intellectual property rights.
(e) To the Knowledge of the Sellers, the operation of the
Business as currently conducted does not (i) infringe or misappropriate the
intellectual property of any other Person (ii) violate any term or provision of
any license or contract concerning such intellectual property, or (iii) violate
the privacy or publicity rights of any Person, and none of the Eldorado Entities
has received written notice from any Person alleging any of the foregoing
(including notice of third party patent or other intellectual property rights
from a potential licensor of such rights).
4.13 Contracts and Commitments. Schedule 4.13 hereto sets forth a
complete and accurate list of:
(a) Each Contract (other than open purchase orders) that
involves the performance of services or the delivery of goods or materials by
Eldorado and/or any Subsidiary of an amount or value in excess of $175,000;
(b) Each Contract (other than open sales orders) that involves
the performance of services for or the delivery of goods or materials to
Eldorado and/or any Subsidiary of amount or value in excess of $175,000;
(c) Each Contract that was not entered into in the ordinary
course of business that involves expenditures or receipts in excess of $175,000;
(d) Each license or other Contract with respect to the
Eldorado Intellectual Property Rights other than with respect to commercially
available software;
(e) Each Contract for capital expenditures in excess of
$175,000;
(f) Each Contract or commitment relating to the borrowing of
money or a line of credit or pursuant to which Eldorado and/or any Subsidiary
has guaranteed any Indebtedness or obligation of any Person;
(g) Each Contract with respect to environmental remediation at
any facility or property now or formerly owned by Eldorado and/or any
Subsidiary;
(h) Each representative, distribution, marketing or sales
agency Contract or commitment;
(i) Each Contract containing covenants limiting the freedom of
Eldorado and/or any Subsidiary to engage in any line of business or to compete
with any Person or covenants of another Person not to compete with Eldorado or
any Subsidiary;
(j) Each sole source supply Contract for the purchase of any
material raw material, component or product that is otherwise not generally
available and that is used in the manufacture of any product of the Business;
(k) Each guaranty and indemnity by Eldorado and/or any
Subsidiary to any Person in connection with the supply of components or raw
materials to the Business; and
(l) All other Contracts not otherwise described in this
Section 4.13, the absence, or existence, of which is reasonably likely to have a
Material Adverse Effect;
(m) All Contracts with respect to the acquisition of any other
entity, business, line of business or material amount of assets;
(n) All Contracts (including, but not limited to, employment,
severance, change of control or consulting) with executive officers of Eldorado
or any of the Subsidiaries and each commission, agency and representative
Contract (other than unwritten employment arrangements terminable at will
without payment of any contractual severance or other amount);
(o) Each Contract with respect to the sharing of profits,
revenues, losses, costs or liabilities of any Person or entity other than one or
more of the Eldorado Entities;
(p) Neither Eldorado nor any of the Subsidiaries is, or has
received written notice that it is, in violation or breach of or default under
any such Contract (or with notice or lapse of time or both, would be violation
or breach of or default under any such Contract). Each of Eldorado and each
Subsidiary has complied with the provisions of the above Contracts in all
material respects.
4.14 Absence of Undisclosed Liabilities. Neither Eldorado nor any of
the Subsidiaries has any liability, Indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, secured or unsecured (whether
accrued, absolute, contingent or otherwise) required to be reflected in the
Financial Statements (collectively, the "Liabilities" ), that are not reflected
on or adequately reserved against in the Financial Statements or the
accompanying notes thereto, except for (a) Liabilities incurred in the ordinary
course of business since the date of the Financial Statements which are usual
and normal in amount, and (b) Liabilities which would, individually or in the
aggregate, not have a Material Adverse Effect.
4.15 Existing Condition. Since December 31, 2003, there has not
occurred (i) any Material Adverse Effect or any event, change or effect which is
reasonably likely to have, individually or in the aggregate with other events,
changes or effects, a Material Adverse Effect; (ii) any damage to, destruction
or loss of any material asset of Eldorado or any Subsidiary (whether or not
covered by insurance); (iii) any change by Eldorado or any of the Subsidiaries
in its accounting methods, principles or practices; or (iv) any material
revaluation by Eldorado or any of the Subsidiaries of any of its or any
Subsidiary's assets, including, without limitation, writing off or writing down
notes or accounts receivable or inventory, other than in the ordinary course of
business consistent with past practice (v) any material increase in
compensation, rate of commission or rate of consulting fee outside of the
ordinary course of business payable to any stockholder, director, officer or
employee or entry into (or amendment of) any employment, severance or similar
agreement with any stockholder, director, officer, agent, consultant or
employee; (vi) waiver by Eldorado or any of the Subsidiaries of any material
right, forbearance of any material debt or release of any material claim except
in each case in the ordinary course of business; (vii) declaration or payment of
any distribution or payment of any dividend or other payment in respect of the
membership interests of Eldorado or any Subsidiary or any repurchase or
redemption of any such membership interests or other securities, other than tax
distributions contemplated by the Limited Liability Company Agreement of
Eldorado; (viii) adoption of or change in any Plan or labor policy; (ix) entry
into, amendment, termination or receipt of notice of termination of any
agreement or other document or commitment by Eldorado or any of the Subsidiaries
which is required to be disclosed in the Schedules, or any material transaction
(including, without limitation, any such relating to capital expenditures); (x)
sale (other than sales of inventory in the ordinary course of business),
assignment, conveyance, lease, or other disposition of any material asset or
property of Eldorado or any Subsidiary or mortgage, pledge, or imposition of any
Lien or Encumbrance on any material asset or property of Eldorado or any
Subsidiary; (xi) binding agreement to do any of the foregoing by Eldorado or any
Subsidiary; (xii) any authorization, issuance, sale or other disposition by
Eldorado or any of the Subsidiaries of any shares of any of their common stock,
membership units (or other equity interests), or any modification or amendment
of any right of any holder of any outstanding shares of capital stock,
membership units (or other equity interest) in Eldorado or the Subsidiaries;
and/or (xiii) any commencement, termination or change by Eldorado or the
Subsidiaries of any material line of business.
4.16 Employee Benefit Plans.
(a) Schedule 4.16 contains a complete list of all "employee
benefit plans," whether written or unwritten, as defined in Section 3(3) of
ERISA ("Plans"), sponsored, maintained or contributed to, or required to be
sponsored, maintained or contributed to, by Eldorado or any of the Subsidiaries,
currently or at any time within the past three years for the benefit of any
current or former employee, consultant or director of Eldorado or any of the
Subsidiaries under which Eldorado or any of the Subsidiaries has any present or
future obligation or liability. All Plans have been administered in substantial
compliance with their terms and the applicable provisions of ERISA and the Code
and/or other applicable Law. With respect to each Plan required to be listed on
Schedule 4.16, (i) each Plan which is intended to be qualified within the
meaning of Section 401(a) of the Code is so qualified and is, as most recently
amended, the subject of a favorable determination letter from the IRS as to its
qualification and nothing has occurred, whether by action or failure to act,
that could reasonably be expected to cause the loss of such qualification; (ii)
all contributions required under the terms of the Plans or under applicable law
have been made within the time required by law and the terms of the Plans; (iii)
there have been no "prohibited transactions" (as described in Section 4975 of
the Code or in Part 4 of Subtitle B of Title I of ERISA) with respect to any
Plan; and (iv) there are no inquiries, proceedings, claims or suits pending or
threatened by any Governmental Authority or by any participant or beneficiary
against any of the Plans, the assets of any of the trusts under such Plans or
the Plan sponsor or the Plan administrator, or against any fiduciary of any of
such Plans with respect to the design or operation of the Plans, other than
routine claims for benefits.
(b) Neither Eldorado, any of the Subsidiaries, nor any entity
required to be aggregated therewith, under Section 414 of the Code ("ERISA
Affiliate") sponsors or contributes (or is obligated to sponsor or contribute)
to (i) a "multiemployer plan" as such term is defined in ERISA Section 3(37); or
(ii) an "employee pension benefit plan," as defined in Section 3(2) of ERISA,
that is subject to ss.412 of the Code or ss.302 of Title I of ERISA. During the
three-year period ending on the Closing Date, neither Eldorado nor any of the
Subsidiaries, nor any ERISA Affiliate, has contributed or been obligated to
contribute to either of such plans, referenced in (i) and (ii) above.
(c) There are no unsatisfied liabilities to participants, the
IRS, the United States Department of Labor ("DOL"), the Pension Benefit Guaranty
Corporation ("PBGC") or to any other person or entity which have been incurred
as a result of the termination of any Plan ever maintained by Eldorado or any of
the Subsidiaries or any ERISA Affiliate, and neither Eldorado nor any of the
Subsidiaries nor any ERISA Affiliate sponsors, maintains, contributes to or is
required to contribute to any Plan which is subject to the minimum funding
requirements of Part 3 of Subtitle B of Title I of ERISA or subject to Section
412 of the Code. To the Knowledge of Eldorado and the Subsidiaries, there is no
pending litigation or action relating to any Plan or other benefit arrangement,
and there are no facts or circumstances that could reasonably be expected to
give rise to any such litigation or action. To the Knowledge of Eldorado and the
Subsidiaries, no investigation, audit or other administrative proceeding by the
DOL, the PBGC, the IRS or any other Governmental Authorities are pending or in
progress. All material contributions due under each Plan or benefit arrangement
have been paid or accrued on the books of Eldorado and the Subsidiaries in
accordance with DOL Regulation 2510.3-102(b).
(d) All reports and information required to be filed with the
DOL, IRS and PBGC or any other Governmental Authority or furnished to plan
participants and their beneficiaries with respect to each Plan required to be
listed on Schedule 4.16 have been so filed and/or furnished and all annual
reports (including Form 5500 series) of such Plans were certified without
qualification by each Plan's accountants and no material change has occurred
with respect to matters covered by the most recent Form 5500 since the date
thereof. Current accurate and complete copies of all Plans (and, if applicable,
related trust agreements or other funding instruments), and all amendments
thereto and related summary plan descriptions and, for the three most recent
years, Forms 5500 and attached schedules and audited financial statements have
been made available to the Buyer. All discrimination test results for plans
qualified under Section 401(a) of the Code, flexible benefit plans under Code
ss.125, or self-insured plans under Section 105(h) of the Code have been made
available to the Buyer.
(e) The consummation of the transactions contemplated herein
will not, either alone or in combination with another event, (i) entitle any
employee or any current or former employee, officer, director, consultant or
agent of Eldorado or any of the Subsidiaries to severance pay, unemployment
compensation or any other payment, or (ii) accelerate the time of payment or
vesting of, or increase the amount of, compensation or benefits due to any such
individual.
(f) There has been no violation of the "continuation coverage
requirement" of "group health plans" as set forth in section 4980B of the Code
and Part 6 of Subtitle B of Title I of ERISA (sometimes referred to as "COBRA")
with respect to any Plan maintained by Eldorado or any of the Subsidiaries or
any ERISA Affiliate to which such continuation coverage requirements apply.
There has been no violation of the health insurance obligations imposed by
section 9801 of the Code and Part 7 of Subtitle B of Title I of ERISA with
respect to any Plan to which such insurance obligations apply. Neither Eldorado,
any of the Subsidiaries nor any ERISA Affiliate has contributed to a
nonconforming group health plan (as defined in Section 5000(c) of the Code) and
no ERISA Affiliate of Eldorado or any of the Subsidiaries has incurred a tax
under Section 5000(a) of the Code which is or is reasonably expected to become a
liability of Eldorado or an ERISA Affiliate.
(g) Other than such continuation of benefit coverage under
group health plans as is required by applicable law, the cost of which is fully
paid by the former employee or his or her dependent, neither Eldorado nor any
Subsidiary maintains retiree life or retiree health plans providing for
continuing coverage for any employee or any beneficiary of an employee after the
employee's termination of employment.
(h) The Sellers have furnished or made available to the Buyer
copies of each material, written severance or other similar contract,
arrangement or policy and each material, written plan, agreement, policy or
arrangement providing for insurance coverage (including any self-insured
arrangements), vacation benefits, disability benefits, early retirement
benefits, death benefits, hospitalization benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock purchase,
phantom stock, stock appreciation or other forms of compensation or
post-retirement benefits that (i) is not a Plan, (ii) is entered into,
maintained or contributed to, as the case may be, by Eldorado or any of the
Subsidiaries, and (iii) covers any employee, former employee, director,
consultant or independent contractor of Eldorado or any of the Subsidiaries.
(i) Neither Eldorado nor any of the Subsidiaries have engaged
in a transaction described in Section 4069 or 4212(c) of ERISA. No circumstances
exist pursuant to which Eldorado or any of the Subsidiaries could reasonably be
expected to incur any material liability for any Tax imposed under ss.ss.4971
through 4980B of the Code or any liability under ss.ss.502(i) or (1) of ERISA.
(j) Neither Eldorado nor any of the Subsidiaries have, since
February 20, 2001, terminated, suspended, discontinued contributions to or
withdrawn from any Plan subject to Title IV of ERISA, including (without
limitation) any multiemployer plan, as defined in ss.3(37) of ERISA.
(k) Schedule 4.16 sets forth a description of the vacation
carry-over policy of Eldorado and each of the Subsidiaries and lists any and all
liabilities, of any nature whatsoever, resulting from or related to such policy.
4.17 Compliance with Laws and Instruments. Each of Eldorado and each
Subsidiary is and at all times during the last three years has been, in
compliance with and has not received any notice of any violation or delinquency,
with respect to, any Laws, applicable to the Business, except for such
violations or delinquencies that, individually or in the aggregate, would not
have a Material Adverse Effect. Neither the ownership or use of Eldorado's and
the Subsidiaries' assets nor the conduct of the Business conflicts with rights
of any other Person or violates, or with or without the giving of notice or the
passage of time, or both, will violate, conflict with or result in a breach,
default, right to accelerate or loss of rights under, or result in the creation
of any Lien or Encumbrance pursuant to, any term or provision of the formation
documents of Eldorado or any Subsidiary as presently in effect, or any Contract,
permit, license, consent, approval, instrument, Law, statute, rule or regulation
or any Order, judgment, award or decree to which Eldorado or any Subsidiary is a
party or by which Eldorado or any Subsidiary or the Business may be bound or
affected, except any as would not, individually or in the aggregate, have a
Material Adverse Effect.
4.18 Environmental Compliance.
(a) Eldorado and each Subsidiary have complied with, and are
in compliance with and have not received any written notice of any violation or
delinquency with respect to, any Law or any agreement with, or any license or
permit from, any Governmental Authority to which the operation of the Business
or any of its assets or personnel is subject and which relates to human health
or the environment including, without limitation, any Environmental Laws, except
where such non-compliance would not be reasonably expected to have a Material
Adverse Effect. Neither Eldorado, any Subsidiary, nor to Eldorado's Knowledge,
any of the Properties, nor to Eldorado's Knowledge, any formerly owned or leased
properties has been made subject to any allegation, claim, judgment, decree,
Order, arbitration award, deed restriction, permit condition, licensing
restriction or any other restriction of the operation of the Business by any
Governmental Authority relating to Environmental Laws. To Eldorado's Knowledge,
there are no circumstances or conditions existing that may prevent or interfere
with such compliance in the future. Either Eldorado or a Subsidiary has obtained
all approvals, consents, permits, licenses and other authorizations required
under Environmental Laws for the use, ownership, operation and/or occupation of
the Real Properties and for the conduct of the Business, except for such
approvals the absence of which would not have a Material Adverse Effect.
(b) There is no Environmental Claim pending, or to the
Knowledge of Eldorado, no claim threatened against Eldorado, any Subsidiary or
the Real Properties or any real property formerly owned or leased by Eldorado.
To the Knowledge of Eldorado there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Hazardous
Materials into the environment that could form the basis of any Environmental
Claim relating to the Business or against Eldorado or any Subsidiary or the Real
Properties or any property formerly owned or leased by either Eldorado or any
Subsidiary.
(c) Schedule 4.18(c) hereto lists all environmental
assessments or agreements that, to the Knowledge of Eldorado, exist or were
prepared for or at the request of Eldorado and are in its possession or control
relating to any of the Real Properties or any facilities or Real Properties or
formerly owned or leased real property (or any real property geologically or
hydrologically adjoining any of such properties), of Eldorado and the
Subsidiaries.
(d) Except as in compliance with all Environmental Laws and to
the Knowledge of Eldorado, there are no Hazardous Materials present on or in the
environment at any of the Real Properties or, at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Real Properties or such adjoining property, or incorporated into any
structure therein or thereon, except where such non-compliance would not be
reasonably expected to have a Material Adverse Effect. Neither Eldorado nor any
of the Subsidiaries nor any other Person for whose conduct it or they may be
held responsible to the Knowledge of Eldorado or any of the Subsidiaries, or any
other Person, has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to or on the Real Properties or any other properties or
assets (whether real, personal, or mixed) in which the Sellers and/or the
Eldorado Entities has or had an interest.
(e) Except as in compliance with all Environmental Laws or
where such non-compliance would not be reasonably expected to have a Material
Adverse Effect and as set forth in the documents listed on Schedule 4.18, to the
Knowledge of Eldorado, there are no (i) underground storage tanks, active or
abandoned, (ii) polychlorinated biphenyl containing equipment, or (iii) asbestos
containing material, at or under any Owned Real Property, or at or under any
Leased Real Property.
4.19 Transactions With Affiliates. Schedule 4.19 hereto sets forth, for
each Person who is an Affiliate, every agreement, undertaking, understanding or
compensation arrangement of any Affiliate with Eldorado and/or any Subsidiary
(other than normal employment arrangements) and any interest of any Affiliate in
any property, real, personal or mixed, tangible or intangible, used in or
pertaining to the Business (other than ownership of membership interests of
Eldorado).
4.20 Product and Service Warranties. A copy of each standard warranty
of Eldorado and each Subsidiary is set forth on Schedule 4.20. Neither Eldorado
nor any Subsidiary has expanded its warranty obligation to any customer beyond
that which is set forth in the standard warranties. To the Knowledge of
Eldorado, there are no design or manufacturing defects with respect to any
products sold by Eldorado or any Subsidiaries prior to the Closing Date that
reasonably could result, in connection with normal use, in product liability.
There are no material outstanding claims (including, without limitation, claims
for product liability, defects or breaches of product or service warranties) in
connection with the manufacture, production, sale, distribution or use of any
products or services sold by Eldorado or any Subsidiary (individually a
"Warranty Claim" and collectively, "Warranty Claims") except for any Warranty
Claims, individually or in the aggregate, which would not have a Material
Adverse Effect. Neither Eldorado nor any Subsidiary has received notice of any
facts or circumstances that reasonably would be expected to be the basis for any
material Warranty Claim on or after the date hereof. To the Knowledge of
Eldorado, no fact or circumstance exists that would support any personal injury
claim arising from or relating to any product manufactured Eldorado or any
Subsidiary prior to or on the Closing Date. For purposes of the preceding
sentence, "manufactured" shall mean that the product constitutes or constituted
finished goods inventory.
4.21 Insurance.
(a) Eldorado and the Subsidiaries maintain insurance under
various insurance policies, as set forth on Schedule 4.21(a) hereto, which
policies, to Eldorado's Knowledge, are valid and enforceable in accordance with
their terms and all premiums due thereunder have been paid when due and neither
Eldorado nor any of the Subsidiaries have received any written notice of
cancellation or termination in respect of any such policy. At no time was there
a period in which Eldorado or the Subsidiaries lacked such insurance coverage,
except as such failure to maintain coverage is not reasonably likely to have a
Material Adverse Effect. There are no outstanding claims under such policies
except such claims, individually or in the aggregate, which would not have a
Material Adverse Effect.
(b) Neither Eldorado nor any Subsidiary has received (i) any
notice of cancellation of any policy or binder of insurance required to be
identified in Schedule 4.21(a) or refusal of coverage thereunder; (ii) any
notice that any issuer of such policy or binder has filed for protection under
applicable bankruptcy or insolvency laws or is otherwise in the process of
liquidating or has been liquidated; or (iii) any other indication that any such
policy or binder may no longer be in full force or effect or that the issuer of
any such policy or binder may be unwilling or unable to perform its obligations
thereunder. Neither Eldorado nor any Subsidiary has, within the last three
years, been refused any insurance nor has their coverage been limited.
(c) Schedule 4.21(c) contains a list of all claims made under
any insurance policies covering Eldorado or any of the Subsidiaries since
January 1, 2002. Neither the Sellers, Eldorado nor any of the Subsidiaries have
received written notice that any insurer under any policy referred to in this
Section is denying liability with respect to a claim thereunder or defending any
claim under a reservation of rights clause.
4.22 Inventory. All inventory of Eldorado and the Subsidiaries used in
the Business as set forth in the Financial Statements consists of, and all
inventory as of the Closing Date will consist of, raw materials, work-in-process
and finished goods of a quality and quantity usable or salable in the ordinary
course of the Business. The value at which inventories were reflected in the
Financial Statements was calculated using the first in, first out (FIFO)
inventory valuation principle, subject to provisions for or omissions of
obsolete inventory, all in accordance with GAAP, applied on a basis consistent
with that of the preceding fiscal year.
4.23 Accounts Receivable. All accounts receivable of the Business as
set forth in the Financial Statements are, and all accounts receivable which
have arisen or arise between the date of the 2003 Financial Statements and the
Closing Date: (i) are and will be, genuine, valid, binding and subsisting,
having arisen or arising out of bona fide sales and deliveries of products or
the performance of services in the ordinary course of business consistent with
past practice; (ii) to the Knowledge of Eldorado, all accounts receivable of the
Business set forth in the Financial Statements in the aggregate are collectible
in the ordinary course of business, subject to no defenses, counterclaims or
set-offs (other than in the ordinary course); (iii) do not represent obligations
for goods sold on consignment, on approval or on a sale-or-return basis or
subject to any other repurchase or return arrangements; and (iv) are subject to
allowances for bad debts and accruals as reflected in the Financial Statements.
Such allowances and accruals are reasonable, adequate and appropriate based on
Eldorado's prior experience and are in accordance with GAAP, applied on a basis
consistent with that of the preceding fiscal year.
4.24 Brokers. No Person acting on behalf of any Seller or any of its
Affiliates or under the authority of any of the foregoing is or will be entitled
to any brokers' or finders' fee or any other commission or similar fee, directly
or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement other than Citigroup Global Markets
Inc., and any commission or similar fee to which Citigroup Global Markets Inc.
may be entitled is an obligation of the Sellers, and not of any of the Eldorado
Entities.
4.25 Substantial Customers and Suppliers. Schedule 4.25 lists the ten
largest customers of the Eldorado Entities on the basis of revenues for goods
sold or services provided for the twelve month period ending December 31, 2003.
Schedule 4.25 lists the ten largest suppliers of the Eldorado Entities on the
basis of cost of goods or services purchased during the twelve month period
ending December 31, 2003. Except as disclosed in Schedule 4.25, to the Knowledge
of the Sellers and/or the Eldorado Entities, no such customer or supplier is
insolvent or threatened with bankruptcy or insolvency.
4.26 Bank and Brokerage Accounts. Schedule 4.26 sets forth: (i) a list
of the names and locations of all banks, securities brokers and other financial
institutions at which any of the Eldorado Entities has an account or safe
deposit box or maintains a banking, custodial, trading or other similar
relationship; and (ii) a true and complete list and description of each such
account, box and relationship, indicating in each case the account number and
the names of all persons having signatory power with respect thereto.
4.27 No Other Representations or Warranties. Except for the
representations and warranties contained in this Section 4, neither Sellers, nor
any of the Eldorado Entities makes any representations or warranties, and
Sellers and the Eldorado Entities hereby disclaim any other representations or
warranties (express or implied), whether made by Sellers, any of the Eldorado
Entities or by any of their officers, directors, employees or agents, if any,
with respect to the execution, delivery and performance of this Agreement, the
transactions contemplated hereby or the business conducted by the Eldorado
Entities notwithstanding the delivery or disclosure to the Buyer or any of its
representatives of any documentation or other information with respect to any
one or more of the foregoing.
4.28 Survival of Representations, Warranties, Covenants and Agreements.
Even though the Buyer may investigate the affairs of the Eldorado Entities and
attempt to confirm the accuracy of the representations and warranties of the
Seller and/or the Eldorado Entities, the Buyer, nonetheless, shall have the
right to rely fully upon the representations, warranties, covenants and
agreements of the Sellers and/or the Eldorado Entities contained in this
Agreement. All such representations, warranties, covenants and agreements will
survive the Closing for the periods specified in this Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents, warrants and, where applicable, covenants with
Sellers, as of the date of this Agreement and as of the Closing Date, that:
5.1 Incorporation, Good Standing and Authority. Buyer is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Utah, and has all requisite corporate power and authority to conduct
its business as presently conducted and to own and lease the properties and
assets used in connection therewith. The execution and delivery of this
Agreement and any other agreement, instrument or other document necessary to
consummate the transactions contemplated herein and the consummation of the
transactions contemplated herein and thereby are within the corporate power of
Buyer and have been duly authorized by all necessary corporate action on the
part of Buyer. This Agreement and any other agreement, instrument or other
document necessary to consummate the transactions contemplated herein constitute
the legal, valid and binding obligations of Buyer, enforceable against Buyer in
accordance with its and their terms, except that the enforcement thereof may be
limited by (i) bankruptcy, insolvency reorganization, moratorium, fraudulent
conveyance or similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a Proceeding at law or in equity).
5.2 Validity of Contemplated Transactions. Neither the execution and
delivery of this Agreement and any other agreement, instrument or other document
necessary to consummate the transactions contemplated herein by Buyer nor the
consummation by Buyer of the transactions provided for herein or therein will
conflict with, violate, or result in a breach of or default under any Contract
to which Buyer is a party or by which it is bound or any law, permit, license,
order, judgment or decree applicable to Buyer or any provision of the charter or
bylaws of Buyer.
5.3 Litigation. There is no pending action or Proceeding that has been
commenced against Buyer that may have the effect of preventing, delaying, or
making illegal the transactions contemplated herein.
5.4 Sufficient Funds. To the knowledge of Buyer, no event has occurred
and no circumstances currently exist that would be likely to cause the Buyer to
be unable to arrange and complete the Financing, as defined in Section 6.10. If
the Financing occurs, Buyer will have available to it as of the Closing Date
sufficient funds to, upon the Closing, pay the aggregate Purchase Price set
forth in Section 2 hereof and to satisfy any and all obligations of the Buyer
due and owing as a result of the consummation of the transactions contemplated
hereby.
5.5 Investment Representations.
(a) Buyer is acquiring the Securities for its own account for
purposes of investment and not for the account of any other Person, not for
resale to any other Person, and not with a view to or in connection with a sale
or distribution of the Securities. Buyer has no present or contemplated
agreement, undertaking, arrangement, obligation, indebtedness or commitment for
the disposition of the Securities by Buyer.
(b) Buyer understands that (i) the Securities have not been
registered under the Securities Act or the securities laws of any state or other
jurisdiction, (ii) the Securities may not be sold, transferred, or otherwise
disposed of without registration under the Securities Act and under any
applicable state or other jurisdiction's respective securities laws, or an
exemption therefrom, and that without an effective registration statement
covering the Securities or an available exemption from registration under the
aforementioned securities laws (including, without limitation, the Securities
Act), the Securities must be held indefinitely and (iii) Sellers do not have any
obligation to register the Securities.
(c) Buyer has been furnished access to the business records of
the Eldorado Entities and such additional information and documents as Buyer has
requested and has been afforded an opportunity to ask questions of and receive
answers from representatives of the Eldorado Entities concerning the terms and
conditions of this Agreement and the transactions contemplated herein, the
purchase of the Securities, the Business, the operations, market potential,
capitalization, financial condition, assets, properties and prospects of the
Eldorado Entities, and all other matters deemed relevant by Buyer. Buyer has
sufficient knowledge and experience in finance and business that it is capable
of evaluating the risks and merits of its investment in the Securities and Buyer
is able financially to bear the risks thereof.
5.6 Brokers. No Person acting on behalf of Buyer or any of its
Affiliates or under the authority of any of the foregoing is or will be entitled
to any brokers' or finders' fee or any other commission or similar fee, directly
or indirectly, from any of such parties in connection with any of the
transactions contemplated by this Agreement other than X.X. Xxxxxx and any
commission or similar fee to which X.X. Xxxxxx may be entitled to is an
obligation of Buyer.
5.7 No Other Representations or Warranties. Except for the
representations and warranties contained in this Section 5, Buyer makes no
representations or warranties, and Buyer hereby disclaims any other
representations or warranties (express or implied), whether made by Buyer or by
any of its officers, directors, employees or agents, if any, with respect to any
matter.
SECTION 6. OBLIGATIONS OF THE PARTIES UNTIL CLOSING.
6.1 Conduct of Business. Sellers will, and will cause the Eldorado
Entities to, use commercially reasonable efforts to carry on their respective
businesses in the ordinary course consistent with past practice, expect as
otherwise contemplated herein.
6.2 Notification of Certain Matters. Between the date hereof and the
Closing, Sellers will give prompt notice in writing to Buyer of: (a) any
information known to Sellers that indicates that any representation or warranty
of Sellers contained herein will not be true and correct in any material respect
as of the Closing, and (b) the occurrence of any event known to Sellers which
will result in, or has a reasonable prospect of resulting in, the failure to
satisfy a condition in Section 7 hereof; and Buyer will give prompt notice in
writing to Sellers of: (a) any information known to Buyer that indicates that
any representation or warranty of Buyer contained herein will not be true and
correct in any material respect as of the Closing, and (b) the occurrence of any
event known to Buyer which will result in, or has a reasonable prospect of
resulting in, the failure to satisfy a condition in Section 8 hereof.
6.3 Conduct of Business Pending Closing. Except as expressly provided
in the Schedules or herein or as would not have a Material Adverse Effect,
between the date hereof and the Closing Sellers shall:
(a) cause the Eldorado Entities to maintain their corporate or
limited liability existence, to pay and discharge debts, liabilities and
obligations as they become due, and to operate in the ordinary course in a
manner consistent with past practice and the provisions of this Agreement and in
compliance in all material respects with all applicable Laws, Authorizations,
contracts and agreements (including, without limitation, those identified in the
Schedules);
(b) cause the Eldorado Entities to maintain their facilities
and assets in the same state of repair, order and condition as they were on the
date hereof, reasonable wear and tear excepted;
(c) cause the Eldorado Entities to maintain their books and
records in accordance with past practice, and to use commercially reasonable
efforts to maintain in full force and effect all Authorizations and all
insurance policies and binders;
(d) cause the Eldorado Entities to use commercially reasonable
efforts to preserve intact the Eldorado Entities' present business organization
and maintain their relations and goodwill with the suppliers, customers,
employees and others having a business relationship with any of them;
(e) promptly advise Buyer of the written threat or
commencement against the Eldorado Entities or any Seller of any dispute, claim,
action, suit, proceeding, arbitration or investigation known to any Seller which
would result in a Materially Adverse Effect, or which challenges or may affect
the validity of this Agreement or any action taken or to be taken in connection
with this Agreement or the ability of any of the Eldorado Entities or any Seller
to consummate the transactions contemplated herein or therein; and
(f) promptly advise Buyer of any event or the existence of any
fact which makes
untrue, or will make untrue as of the Closing, any representation or warranty of
the Eldorado Entities or Sellers set forth in this Agreement.
6.4 Negative Covenants. Except as expressly provided herein, between
the date hereof and the Closing, without the prior written consent of Buyer, the
Eldorado Entities shall not, and Sellers shall not cause or permit the Eldorado
Entities to:
(a) take any action or permit to occur any event which would
breach any covenant of the Eldorado Entities or any Seller, or cause any
representation or warranty of the Eldorado Entities or any Seller to be untrue
as of the Closing in any material respect; provided, however, that nothing in
this Agreement shall be deemed to prohibit Eldorado from making tax
distributions to its members as contemplated by the Limited Liability Company
Agreement of Eldorado, or to prohibit ES Acquisition from distributing cash to
its members;
(b) make any change in any of the Eldorado Entities'
authorized or issued capital stock, membership interests or other securities;
grant any option or other right to purchase securities of any of the Eldorado
Entities; issue or make any security convertible into capital stock; grant any
registration rights; or purchase, redeem, retire or make any other acquisition
of any shares of capital stock, membership interests or other securities;
(c) amend the certificate or articles of incorporation or
bylaws (or equivalent governing documents) of any of the Eldorado Entities;
(d) fail to pay or discharge when due any liability or
obligation of any of the Eldorado Entities;
(e) enter into any agreement, commitment or transaction other
than in the ordinary course of business, consistent with past practice, or which
is material to the business, operations or financial condition of any of the
Eldorado Entities, whether or not in the ordinary course of business;
(f) enter into any contract with any Seller or any affiliate
of any Seller;
(g) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership, limited
liability company, association or other business organization or division
thereof relating to or affecting the Business;
(h) sell, lease, license, encumber or otherwise dispose of, or
agree to sell, lease, encumber or otherwise dispose of, any of the assets of any
of the Eldorado Entities, other than transactions that are in the ordinary
course of business consistent with past practice or pursuant to licenses entered
into in the ordinary course of business consistent with past practice, and, in
any event, except as expressly permitted in this Agreement, and which involve
assets which in the aggregate are not in excess of $175,000;
(i) except in the ordinary course of business, increase the
compensation payable or to become payable to any director, officer, employee or
independent contractor of any of the Eldorado Entities related to the Business,
except for increases required under employment agreements existing on the date
hereof, or grant any severance or termination pay to, or enter into any
employment or severance agreement, or establish, adopt, enter into, or amend or
take action to enhance or accelerate any rights or benefits under, any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director or officer, except, in each case,
as may be required by the terms of any such plan, agreement, trust, fund, policy
or arrangement or to comply with applicable law or regulation;
(j) knowingly violate or fail to perform any material
obligation or duty imposed upon it by any applicable federal, state or local
law, rule, regulation, guideline or ordinance related to the Business;
(k) make or change any material tax election, change any
annual tax accounting period, adopt or change any method of tax accounting, file
any amended Tax Return, enter into any material closing agreement, settle any
material Tax claim, assessment, or proposed assessment, surrender any right to
claim a material Tax refund, consent to any extension or waiver of the
limitation period applicable to any material Tax claim or assessment or take or
omit to take any other action, if any such action or omission would have the
effect of materially increasing any post-closing Tax liability of the Buyer or
any Person related to the Buyer;
(l) make any change in its method of accounting or accounting
practice;
(m) as related to the Business, make or agree to make any new
capital expenditure not previously committed, or new capital expenditures in
excess of $50,000 in the aggregate other than for molds to be used in the
operation of Business;
(n) other than in the ordinary course of business consistent
with past practice, enter into, modify, amend or terminate any material
Contract, or waive, release or assign any material rights or claims under any
Contract;
(o) fail to maintain insurance coverage relating to the
Business;
(p) make or revoke any Tax election (including but not limited
to any entity classification election on Internal Revenue Service Form 8832, or
successor form, or any comparable election under any state, local or foreign Tax
law);
(q) take, or commit or agree to take any action that would
cause any of the Sellers not to perform their covenants hereunder or in any of
the conditions set forth in this Agreement hereof not being satisfied; or
(r) authorize or announce an intention to do any of the
foregoing, or enter into any Contract to do any of the foregoing.
6.5 Access. From the date of this Agreement until this Agreement is
terminated, or until the Closing, whichever is earlier, the Buyer and its
respective officers, directors, attorneys, accountants and representatives, upon
reasonable notice, shall be permitted to examine the property, books and records
and titles of Eldorado and the Subsidiaries, and to have access to employees,
employee files and records and the real properties, provided that such access is
coordinated through Xxxx Xxxxx, Xxx Xxxxxxx or Sellers' counsel, and such
officers, directors, attorneys, accountants and representatives shall be
afforded reasonable access to such property, books, records and titles upon
reasonable prior notice, except where such access is prohibited by Law. Within 5
business days from the date of execution of this Agreement, the Buyer, through
either Xxxx Xxxxx or Xxx Xxxxxxx, shall arrange a meeting between its quality
assurance/quality control ("QA/QC") representatives and Xxxxxxx Xxxxxxxxx and
Xxxxxxx Xxxxxxxx for the purpose of reviewing proprietary information of the
Business such as QC manuals, production manuals, mix-designs, mold design and
production files and manuals, ICBO files, ICC files, etc. (the "Proprietary
Information"). At such meeting, the Seller's representatives shall freely
discuss the Proprietary Information with the Buyer's QA/QC representatives and
the Buyer's QA/QC representatives, shall not be allowed to make copies of any
documents or notes regarding the meeting or the matters discussed at the
meeting.
6.6 Consents. Prior and subsequent to the Closing, Sellers shall use
commercially reasonable efforts to obtain (and cooperate with the Buyer in
obtaining) all consents, permits, Authorizations, approvals of, and exemptions
by, any Governmental Authority or third party necessary for the consummation of
the transactions contemplated by this Agreement as set forth on Schedule 6.6.
6.7 HSR. Each of the parties undertakes and agrees to file (and such
filing shall request early termination) as soon as practicable, and in any event
within two business days after the date of this Agreement, a Notification and
Report Form under the HSR Act with the United States Federal Trade Commission
(the "FTC") and the United States Department of Justice, Antitrust Division (the
"Antitrust Division"), and to make any other competition filing or notifications
required by any other Governmental Authority as promptly as practicable. If
either of the parties have made such filing prior to the date hereof, then such
party shall, within one business day after the date of this Agreement amend such
filing to request early termination. Each of the parties shall (i) respond as
promptly as practicable to any formal or informal inquiries received from the
FTC or the Antitrust Division for additional information or documentary
materials, and to all inquiries and requests received from any State Attorney
General or other Governmental Authority in connection with antitrust or
competition matters, and (ii) take all commercially reasonable steps to seek
early termination of any applicable waiting period under the HSR Act or any
similar laws and to obtain all required approvals, and (iii) refrain from
entering into any agreement with the FTC or the Antitrust Division or any
Governmental Authority not to consummate or delay consummation of or to give
notice of consummation other than as required by law, of the transactions
contemplated by this Agreement, except with the prior written consent of the
other parties hereto (which shall not be unreasonably withheld or delayed). Each
of the parties or its counsel shall promptly notify the other party or its
counsel of any written or oral communication to that party or counsel from the
FTC, the Antitrust Division, any State Attorney General or any other
Governmental Authority and shall permit the other party or its counsel to review
in advance any proposed written communication to any of the foregoing.
6.8 Commercially Reasonable Efforts. Prior to the Closing, each party
hereto shall use commercially reasonable efforts to cause to occur the
transactions contemplated hereby and to cause all conditions to the performance
of the parties hereto that are within its control to be satisfied. No party
shall take any action to cause any such covenant, agreement, transaction or
condition not to occur, be satisfied or be performed, as the case may be.
6.9 Publicity. Any party hereto may announce or otherwise disclose the
transactions contemplated by this Agreement, so long as, with respect to any
advertisement or press release naming the other party, Buyer or such Seller is
given at least two business days to review such advertisement or press release
for accuracy.
6.10 Financing. Buyer shall use commercially reasonable efforts to
arrange and complete the financing (the "Financing"), in a form and manner
reasonably acceptable to the Buyer, necessary to consummate the transactions
contemplated in this Agreement. Buyer will keep the Sellers reasonably informed
with respect to the status of its efforts to arrange and complete the Financing,
including, without limitation, with respect to the occurrence of any event which
Buyer believes may have a materially adverse effect on the ability of Buyer to
arrange and complete the Financing; provided that Buyer shall not be obligated
to accept terms not reasonably satisfactory to it. The Sellers shall cooperate
with Buyer to arrange and complete the Financing. Prior to the distribution of
any offering memorandum by Buyer with respect to any Financing, Buyer shall
submit to Sellers those portions of the offering memorandum which relate to
Sellers, the Eldorado Entities or the Business for Sellers' approval and such
approval shall not be unreasonably withheld or delayed.
6.11 Exclusivity. The Sellers shall not (and the Sellers shall not
allow any of the Eldorado Entities or any of their directors, officers,
employees, agents, affiliates or representatives, including investment bankers,
financial advisors, attorneys and accountants to (collectively,
"Representatives")) directly or indirectly, take any of the following actions:
(i) solicit, initiate, facilitate or knowingly encourage, or furnish information
with respect to any of the Eldorado Entities or the Business in connection with,
any inquiry, proposal or offer from any Person with respect to any merger,
consolidation or other business combination or acquisition (other than the
transaction contemplated in this Agreement) involving any of the Eldorado
Entities or the acquisition of all or a substantial portion of the assets of, or
any securities of, any of the Eldorado Entities or any tender offer or exchange
offer (an "Acquisition Transaction"); (ii) negotiate, discuss, explore or
otherwise communicate or cooperate in any way with any third party with respect
to any Acquisition Transaction; (iii) enter into any agreement, arrangement or
understanding with respect to an Acquisition Transaction or requiring any of the
Sellers and/or any of the Eldorado Entities to abandon, terminate or refrain
from consummating the transactions contemplated in this Agreement; or (iv) make
or authorize any statement, recommendation or solicitation in support of any
Acquisition Transaction. Notwithstanding the foregoing, the Sellers shall have
the right to advise any person with whom they are engaged in discussions or
negotiations relating to a potential Acquisition Transaction that the Sellers
have entered into exclusive negotiations regarding the sale of the Securities,
provided that they shall not disclose the proposed Purchase Price or the
identity of Buyer. The Sellers shall, and shall cause their Representatives to,
notify Buyer promptly after (and in any event no later than 24 hours) receipt of
any written inquiry, offer or proposal with respect to an Acquisition
Transaction, including information as to the identity of the party or offeror
making such inquiry, offer or proposal.
6.12 Debt; Warrants. At the Closing and subject to obtaining the
Financing, the Buyer shall provide, or cause to be provided, funds necessary for
Eldorado to repay all amounts, including principal and interest, outstanding
under the Credit Agreement and the Notes. In connection with such repayment,
Eldorado, at the Closing, shall (i) cause the lenders under each of the Credit
Agreement and the Notes to release Eldorado, the Subsidiaries and each of their
respective Affiliates (and any other Person bound by the Credit Agreement and/or
the Notes) from any and all obligations under such agreements, (ii) cause such
lenders to file all documents and filings in or with all local, state and
federal jurisdictions or authorities releasing any and all liens any lenders may
have on the tangible or intangible assets or properties of Eldorado or any of
the Eldorado Entities and (iii) cause such lenders to return the Warrants,
marked "Cancelled," to Eldorado. All such releases, filings and documentation
shall be in the form and substance reasonably acceptable to Buyer and shall be
hereafter referred to collectively as the "the Releases."
6.13 Non-Solicitation.
(a) Except as expressly provided in this Agreement, for a
period of two years from the Closing Date, none of the Sellers nor their
Affiliates shall, directly or indirectly, or through an Affiliate, (i) cause or
seek to cause any individual who was an employee of any of the Eldorado Entities
at any time, to terminate his or her employment with any of the Eldorado
Entities, or (ii) interfere in any other way with the employment, or other
relationship, of any employee of any of the Eldorado Entities; provided,
however, that Xxxxxxx Xxxxx may serve on the board of directors of one or more
of the portfolio companies of Xxxxxx Partners, Inc. and its affiliates, provided
further that this restriction shall not apply to any general or public
solicitation by any of the Sellers or a third party or if any employee initiates
discussions with any of the Sellers on his or her behalf.
(b) The Sellers agree that the Buyer's remedies at law for any
breach or threat of breach by it of any of the provisions of this Section 6.13
will be inadequate, and that, in addition to any other remedy to which the Buyer
may be entitled at law or in equity, the Buyer shall be entitled to a temporary
or permanent injunction or injunctions or temporary restraining orders or orders
to prevent breaches of the provisions of this Section 6.13 and to enforce
specifically the terms and provisions hereof, in each case without the need to
post any security or bond. Nothing herein contained shall be construed as
prohibiting the Buyer from pursuing, in addition, any other remedies available
to it for such breach or threatened breach. A waiver by the Buyer of any breach
of any provision hereof shall not operate or be construed as a waiver of a
breach of any other provisions of this Agreement or of any subsequent breach
thereof. The Buyer may for itself and any of the Eldorado Entities assign all of
the rights under this Section 6.13 to any successor to the business of the
Eldorado Entities, including all remedies for breach of this Section 6.13.
(c) The parties consider the restrictions contained in this
Section 6.13 hereof to be reasonable for the purpose of preserving the goodwill,
proprietary rights and going concern value of the Eldorado Entities, but if a
final judicial determination is made by a court having jurisdiction that the
time or territory or any other restriction contained in this Section 6.13 is an
unenforceable restriction on the Sellers' activities, the provisions of this
Section 6.13 shall not be rendered void but shall be deemed amended to apply as
to such maximum time and territory and to such other extent as such court may
judicially determine or indicate to be reasonable. Alternatively, if the court
referred to above finds that any restriction contained in this Section 6.13 or
any remedy provided herein is unenforceable, and such restriction or remedy
cannot be amended so as to make it enforceable, such finding shall not affect
the enforceability of any of the other restrictions contained therein or the
availability of any other remedy. The provisions of this Section 6.13 shall in
no respect limit or otherwise affect the Sellers' obligations under other
agreements with any of the Eldorado Entities.
6.14 Employment Agreements. From the date hereof until the Closing, the
Buyer shall negotiate, in good faith, the terms of employment agreement(s) with
Xxxx Xxxxx and such other executives of Eldorado that it deems appropriate. Such
employment agreement(s) shall address responsibilities, compensation, and other
benefits, provided, however, that Buyer entering into such agreement(s) shall
not be a condition to Closing hereunder.
6.15 Tax Returns. The Sellers shall file short-period tax returns for
ES Acquisition and Eldorado. The Sellers shall prepare or cause to be prepared
and timely filed all necessary federal and state income tax returns for ES
Acquisition and Eldorado for the period beginning on January 1, 2004 and ending
on Closing Date ("Short Period Returns"). The Short Period Returns filed for
Eldorado will properly include the following deductions (i) write-off of costs
associated with hedging transaction provided for in the ISDA (International Swap
Dealers Association, Inc.) Master Agreement between Fleet National Bank and
Eldorado, dated October 22, 2001 that will be unwound at closing, said costs to
be in the amount of approximately $759,000 (ii) write off of capitalized
management fees and financing costs in the amount of approximately $1,843,000;
(iii) net option proceeds in the amount of approximately $3,814,000, which will
be characterized and reported as compensation expenses for federal and state
income tax purposes; and (iv) management bonuses in an amount up to $2,900,000,
which will be characterized and reported as compensation expenses for federal
and state income tax purposes. Eldorado will recognize no income or gain as a
result of the deductions described in this Section 6.15. All items of income,
gain, loss, deduction, and credit will be allocated among the members of
Eldorado on the Short Period Returns in accordance with the limited liability
company agreement of Eldorado as currently in effect - 23.6% StoneCraft, 36.8%
ES Acquisition, 22.2% ES Corp, and 17.4% Northwest. The Sellers and the Buyer
shall "true up" the amount of the deductions set forth in items (i) through (iv)
of this Section (the "Deductions") at Closing by applying the actual amount of
the deductions to the formula set forth in Schedule 2.1 (the "Revised
Calculation"). If the Revised Calculation results in the Tax Benefit from
Expenses total being more or less than $1,476,000 (the "Revised Tax Benefit")
the parties shall adjust the amount of the tax benefit to be paid to Sellers as
set forth in Section 2.1. By way of example, if the Revised Tax Benefit is less
than $1,476,000, the tax benefit to be paid by the Buyer shall be reduced on a
dollar for dollar basis, likewise if the Revised Tax Benefit is more than
$1,476,000, the tax benefit to be paid by the Buyer shall be increased on a
dollar for dollar basis.
6.16 Other Actions; Notification. Subject to compliance with Law, the
Sellers shall have the right to review in advance, and to the extent practicable
each will consult with Buyer on, all information relating to the Business, the
Sellers and the Eldorado Entities that Buyer proposes to include in any filing
made with, or written materials submitted to, any third party and/or any
Governmental Authority in connection with the Financing of the transactions
contemplated in this Agreement (the "Transactions"), which may include, but not
be limited to a Rule 144A offering memorandum that includes the financial
information set forth in the Financial Statements, as well as pro forma
financial information with respect to the Eldorado Entities, and one or more
related Current Reports on Form 8-K to be filed by Buyer. In exercising the
foregoing right, Sellers shall act reasonably and as promptly as practicable.
Without limiting the foregoing, the Sellers shall, upon reasonable request by
Buyer, furnish Buyer with all information concerning itself, the Eldorado
Entities, their directors, officers and stockholders, the Business and such
other matters as may be necessary in connection with any statement, filing,
notice or application made by or on behalf of the Buyer to any third party
and/or any Governmental Authority in connection with the Financing. Sellers
shall be reimbursed for all out-of-pocket expenses incurred by them for any
actions requested by the Buyer related to the Financing. The information
furnished by the Sellers or any of the Eldorado Entities shall conform in all
material respects to the representations and warranties included in Sections 3
and 4 hereof and nothing herein shall be deemed to expand or otherwise modify
any of such representations and warranties or Sellers' liability for any breach
thereof. Upon Buyer's written request, the Sellers shall, or shall cause the
Eldorado Entities to, at any time prior to Closing confirm, to their Knowledge,
the existence or absence of any facts identified by Buyer that would make it
necessary or advisable to supplement or amend any materials containing
information concerning the Sellers, the Eldorado Entities, or their directors,
officers or members provided to third parties or filed with any Governmental
Authority in connection with any Financing.
6.17 Accountant's Letter. In each case upon Buyer's request and at
Buyer's expense, on or before the Closing the Sellers shall cause the Eldorado
Entities to use their commercially reasonable efforts to cause KPMG LLP to (a)
deliver to the Buyer and its directors a "comfort letter" in customary form (a
"Comfort Letter") addressed to the Buyer and its directors covering the
Financial Statements, and any interim financial periods subsequent thereto for
which financial statements have been reviewed by such accountants, (b) deliver
to Buyer's underwriters, placement agent or lenders, as the case may be, a
Comfort Letter addressed to such entities covering any financial information of
the Eldorado Entities used in connection with Buyer's efforts to arrange and
complete the Financing, and (c) grant any consents required under the Securities
Act of 1933 or the Securities Exchange Act of 1934, each as amended, in
connection with the filing by Buyer of reports or financial statements of the
Eldorado Entities audited by KPMG LLP with the Securities and Exchange
Commission.
6.18 KMPG SEC Audit. The Sellers shall cause the Eldorado Entities to
use their commercially reasonable efforts to cause KPMG LLP to deliver to the
Buyer audited financial statements (income statements, balance sheet, statements
of shareholder equity and cash flow statements) audited by KPMG LLP in
compliance with the rules and regulations of the Securities and Exchange
Commission, for the periods ending December 31, 2002 and December 31, 2003 (the
"KPMG SEC Audit") on or before April 30, 2004. Notwithstanding anything to the
contrary in this Agreement, any third party fees and/or costs associated with
the Sellers and/or the Eldorado Entities compliance with this section shall be
shared equally between the Sellers and the Buyer.
SECTION 7. CERTAIN CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
The obligation of Buyer to consummate the transactions contemplated
herein is subject to the fulfillment by or at the Closing of each of the
following conditions or the written waiver thereof by Buyer:
7.1 Representations and Warranties. Each Seller's representations and
warranties contained in this Agreement shall be deemed to have been made again
at and as of the Closing and shall then be true and correct in all material
respects (except for representations and warranties, if any, made as of a
specified date, which shall be true and correct in all material respects as of
the specified date).
7.2 Performance of Covenants. Sellers shall have obtained all consents
and approvals which are listed on Schedule 7.2 except for those consents and
approvals the failure of which to obtain, either individually or in the
aggregate, would not have a Material Adverse Effect and Sellers shall have
performed and complied with in all material respects, unless waived, in writing,
by Buyer, each agreement, covenant or obligation required by this Agreement to
be so performed or complied with by any of them at or before Closing.
7.3 Approvals. The consent or approval of all Persons necessary for the
consummation of the transactions contemplated herein shall have been obtained
and no such consent or approval: (a) shall have been conditioned upon the
modification, cancellation or termination of any lease, commitment, Contract,
easement, right or Authorization of Sellers; or (b) shall impose on the Buyer or
Sellers any condition, provision or requirement not presently imposed upon
Sellers, and which is described in the Schedules, or any condition that would be
more restrictive after the Closing on Buyer than the conditions presently
imposed on Sellers. All consents, approvals and actions of, filings with and
notices to any Governmental Authority necessary to permit Buyer and the Sellers
to perform their obligations under this Agreement and to consummate the
transactions contemplated herein, including, but not limited to, the expiration
or termination of all waiting periods applicable under the HSR Act: (i) shall
have been duly obtained, made or given; (ii) shall be in form and substance
reasonably satisfactory to Buyer; (iii) shall not impose any material
limitations or restrictions on Buyer; (iv) shall not be subject to the
satisfaction of any material condition that has not been satisfied or waived;
and (v) shall be in full force and effect.
7.4 Legal Matters. The Closing shall not violate any Order or decree of
any court or Governmental Authority and no suit, action, Proceeding or
investigation, shall have been brought or threatened by any Person or
Governmental Authority (other than the Buyer or an Affiliate of Buyer) which
questions the validity or legality of this Agreement or the transactions
contemplated herein.
7.5 Opinions of Counsel. Buyer shall have received legal opinions from
Drinker Xxxxxx & Xxxxx LLP, counsel for ES Holdings and Xxxxx, Xxxxx & Xxxxxx
LLP, counsel for StoneCraft, dated as of the Closing substantially in the form
and to the effect of Exhibit 7.5(a) and Exhibit 7.5(b), respectively, subject to
assumptions and exceptions customary for similar transactions.
7.6 Closing Certificate. Sellers shall have furnished to Buyer at
Closing a certificate or certificates executed by the Secretary or an Assistant
Secretary of each Seller that is an entity attaching or certifying the following
(a) copies, certified by the appropriate Governmental Authority as of a date not
more than 30 days prior to the Closing Date, of the articles of incorporation or
certificates of formation of each Seller and all amendments thereto, (b) copies,
certified by the Secretary of each Seller, as of the Closing Date, of the bylaws
of each Seller, (c) copies, certified by the Secretary or an Assistant Secretary
of each Seller, of resolutions of each Seller authorizing the execution and
delivery by such Seller of this Agreement and any other agreement, instrument or
other document necessary to consummate transactions contemplated hereby, (d) a
certificate of the Secretary or an Assistant Secretary of each Seller
identifying the name, title and incumbency of, and bearing the signatures of,
the officers of each Seller authorized to execute and deliver this Agreement and
any other agreement, instrument or other document necessary to consummate the
transactions contemplated hereby and (e) certificates of good standing issued
with respect to each Seller by the appropriate governmental and taxing officials
of the State of its incorporation or formation as of a date not more than 10
days prior to the Closing Date, accompanied by bring-down certificates dated as
of the Closing Date.
7.7 Releases of Liens. Buyer shall have received evidence of repayment
of all outstanding principal, interest and fees owed pursuant to the Credit
Agreement and the Notes, and the release of all Liens or Encumbrances on any
property of any of the Eldorado Entities or any other Person created in
connection with the Credit Agreement or the Notes and the lenders shall have
returned the Warrants, marked "Cancelled", to Eldorado as set forth in Section
6.12.
7.8 Financing. Buyer shall have arranged and completed the Financing.
7.9 Financial Statements. The Sellers shall have caused the Eldorado
Entities to provide the Buyer with copies of each monthly financial statement,
prepared in accordance with GAAP, in all material respects, and corresponding
certification required to be delivered in connection with the Credit Agreement
since January 31, 2004, within 10 business days after the date hereof or on such
later dates as such financial statements and certifications are delivered
pursuant to the Credit Agreement. In addition, the Sellers shall have caused the
Eldorado Entities to provide the Buyer with a copy of Eldorado's March 31, 2004
quarter ended financial statement, prepared in accordance with GAAP, in all
material respects, and consistent with the KPMG SEC Audit, certified by the
Chief Financial Officer of Eldorado as, to his knowledge, fairly presenting in
all material respects the financial condition and results of operations of
Eldorado.
7.10 Officers' Certificates. The Sellers shall have delivered to Buyer
(a) a certificate, dated the Closing Date and executed by the Chief Executive
Officer of Eldorado, substantially in the form and to the effect of Exhibit
7.10(a) hereto, and (b) a certificate, dated the Closing Date and executed by
the Chief Financial Officer of Eldorado, substantially in the form of Exhibit
7.10(b) hereto.
7.11 Resignations of Officers and Directors. The Sellers shall have
delivered to Buyer the resignations of the officers and directors of the
Eldorado Entities that Buyer, prior to Closing, has indicated to Sellers that
Buyer desires to have resign such positions. Such resignations shall be
effective as of the Closing Date.
7.12 Schedule. The Sellers shall have delivered to Buyer a copy of the
Schedules, updated and current through the Closing Date.
7.13 Exchange of Securities. Certificates representing the Securities,
to the extent that any such Securities are certificated, shall have been
delivered to Buyer in accordance with the terms of this Agreement.
7.14 No Adverse Change. Since the date of this Agreement, there shall
have been no change, event or condition of any character (whether or not covered
by insurance) which has had or would reasonably be expected to have a Material
Adverse Effect in or on the Business.
7.15 Sellers' Release. The Sellers shall have delivered to the Buyer a
release by each of the Sellers, substantially in the form of Exhibit 7.15
hereto, releasing the Eldorado Entities from any and all liability to the
Sellers, except (i) as may have arisen or may arise under this Agreement, and
(ii) as may be related to any right to indemnity or insurance provided for in
any limited liability company agreement of any of the Eldorado Entities for
officers and/or directors of the Eldorado Entities.
7.16 Exercise of Options: Release. The Sellers shall have delivered to
Buyer evidence that each of the holders of options to purchase Securities, as
set forth on Schedule 4.3, have executed his or her right to purchase such
Securities or such right has been cancelled. The Sellers shall have also
delivered to Buyer executed releases, in a form reasonably acceptable to the
Buyer, from each such option holder who is not also a Seller to the effect that,
upon payment to such option holder of that portion of the Purchase Price
designated as payment of the consideration due such option holder, the option
holder releases the Buyer and the Eldorado Entities from any and all claims that
the option holder has, and from any rights whatsoever with respect to any
securities or incidents of ownership of, or in, any of the Eldorado Entities.
7.17 Keep Well Agreement. Each Seller that is not an individual shall
have delivered to Buyer executed copies of a Keep Well Agreement from each of
its stockholders or limited partners, substantially in the form and to the
effect of Exhibit 7.17, except for changes necessary to reflect the individual
circumstances of the respective stockholders or limited partners.
SECTION 8. CERTAIN CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.
The obligation of Sellers to consummate the sale of the Securities is
subject to the fulfillment by or at the Closing of each of the following
conditions or the written waiver thereof signed by Sellers:
8.1 Representations and Warranties. Buyer's representations and
warranties contained in this Agreement shall be deemed to have been made again
at and as at the Closing and shall then be true and correct in all material
respects (except for representations and warranties, if any, made as of a
specified date, which shall be true and correct in all material respects as of
the specified date).
8.2 Performance of Covenants. Buyers shall have obtained all consents
and approvals which are listed on Schedule 7.2 except for those consents and
approvals the failure of which to obtain, either individually or in the
aggregate, would not have a Material Adverse Effect and Buyer shall have
performed and complied with in all material respects, unless waived, in writing,
by Sellers, each agreement, covenant or obligation required by this Agreement to
be so performed or complied with by any of them at or before Closing.
8.3 Legal Matters. The Closing shall not violate any Order or decree of
any court or Governmental Authority and no suit, action, investigation, or legal
or administrative proceeding shall have been brought or threatened by any Person
or Governmental Authority (other than Sellers or an Affiliate of Sellers) which
questions the validity or legality of this Agreement or the transactions
contemplated herein.
8.4 Opinion of Counsel. Sellers shall have received a legal opinion
from the Buyer's general counsel, counsel for Buyer, dated as of the Closing
substantially in the form and to the effect of Exhibit 8.4, subject to
assumptions and exceptions customary for similar transactions.
8.5 Closing Certificate. Buyer shall have furnished to Sellers at
Closing a certificate or certificates executed by the Secretary or an Assistant
Secretary of Buyer attaching or certifying the following (a) copies, certified
by the appropriate Governmental Authority of the State of Utah as of a date not
more than 30 days prior to the Closing Date, of the Certificate of Incorporation
of Buyer and all amendments thereto, (b) copies, certified by the Secretary of
Buyer, as of the Closing Date, of the bylaws of Buyer, (c) copies, certified by
the Secretary or an Assistant Secretary of Buyer, of resolutions of Buyer
authorizing the execution and delivery by Buyer of this Agreement and any other
agreement, instrument or other document necessary to consummate the transactions
contemplated hereby, (d) a certificate of the Secretary or an Assistant
Secretary of Buyer identifying the name, title and incumbency of, and bearing
the signatures of, the officers of Buyer authorized to execute and deliver this
Agreement and any other agreement, instrument or other document necessary to
consummate the transactions contemplated hereby and (e) certificates of good
standing issued with respect to Buyer by the appropriate governmental and taxing
officials of the State of Utah, as of a date not more than 10 days prior to the
Closing Date, accompanied by bring-down certificates dated as of the Closing
Date.
8.6 Approvals. All registrations, filings, applications, notices,
consents, approvals, orders, qualifications and waivers listed on Schedule 6.6,
shall have been filed, made or obtained and all consents, approvals and actions
of, filings with and notices to any Governmental Authority necessary to permit
Buyer and the Sellers to perform their obligations under this Agreement and to
consummate the transactions contemplated herein (including, but not limited to,
the expiration or termination of all waiting periods applicable under the HSR
Act): (i) shall have been duly obtained, made or given; (ii) shall be in form
and substance reasonably satisfactory to Sellers; (iii) shall not impose any
material limitations or restrictions on Sellers; (iv) shall not be subject to
the satisfaction of any material condition that has not been satisfied or
waived; and (v) shall be in full force and effect.
SECTION 9. CLOSING.
9.1 Time and Place of Closing. The closing of the purchase and sale of
the Securities (the "Closing") pursuant to this Agreement shall take place at
the offices of Drinker Xxxxxx & Xxxxx LLP, One Xxxxx Square, 18th and Xxxxxx
Xxxxxxx, Xxxxxxxxxxxx, XX 00000-0000 on such date and at such time as may be
agreed to by Buyer and Sellers, which date shall not be later than the last to
occur of: (i) 14 days after the delivery of the KPMG SEC Audit described in
Section 7.18; or (ii) 3 business days after the waiting period applicable to the
consummation of the transactions contemplated herein under the HSR Act shall
have expired or been terminated (the "Closing Date"). Subject to Section 10,
failure to consummate the Closing shall not result in the termination of this
Agreement or relieve any Person of any obligation hereunder.
9.2 Deliveries at the Closing by Sellers. At the Closing, in addition
to the other actions contemplated elsewhere herein, Sellers shall deliver to
Buyer all of the agreements and items referred to in Section 7, and such other
documents and instruments as Buyer may reasonably request to effectuate or
evidence the transactions contemplated by this Agreement.
9.3 Deliveries at the Closing by Buyer. At the Closing, in addition to
the other action contemplated elsewhere herein, Buyer shall deliver, or shall
cause to be delivered, to Sellers the Purchase Price and all of the agreements
and items referred to in Section 8, and such other documents and instruments as
Sellers may reasonably request to effectuate or evidence the transactions
contemplated by this Agreement.
SECTION 10. TERMINATION AND ABANDONMENT.
10.1 Termination. This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing:
(a) by Buyer or Sellers if the Closing has not occurred by
June 1, 2004, provided that the failure to close is not a result of a breach on
the part of the party acting to terminate this Agreement;
(b) by mutual written consent of Buyer and Sellers;
(c) by Buyer, if any representation or warranty of Sellers
made in or pursuant to this Agreement is untrue or incorrect in any material
respect, Sellers materially breach the covenants or other terms of this
Agreement, or any one or more of the conditions precedent to Closing contained
in Section 7 are not satisfied, provided that any such breach has not been (i)
waived by Buyer or (ii) cured by Sellers within 30 days after written notice
thereof to Sellers from Buyer;
(d) by Sellers, if any representation or warranty of Buyer
made in or pursuant to this Agreement is untrue or incorrect in any material
respect, Buyer materially breaches the covenants or other terms of this
Agreement, or any one or more of the conditions precedent to Closing contained
in Section 8 are not satisfied, provided that any such breach has not been (i)
waived by Sellers or (ii) cured by Buyer within 30 days after written notice
thereof to Buyer from Sellers;
(e) by the Buyer if there has been a change, event or
condition of any character (whether or not covered by insurance) which, in the
aggregate, has had or would reasonably be expected to have, or if the Buyer
discovers, as a result of the QA/QC meeting described in Section 6.5, any fact
or circumstance that would reasonably be expected to have a Material Adverse
Effect on the Business;
(f) by either Buyer or the Sellers if any court or
Governmental Authority of competent jurisdiction shall have issued an Order,
decree or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated in this Agreement and such
Order, decree or ruling or other action shall have become final and
nonappealable; provided, however, that the right to terminate this Agreement
pursuant to this Section shall not be available to any party who has not used
commercially reasonable efforts to cause such Order, decree or ruling to be
lifted;
(g) by Sellers if Sellers shall have received notice from
Buyer that Buyer believes that an event has occurred which may have a materially
adverse effect on the ability of Buyer to arrange and complete the Financing.
10.2 Procedure for Termination. A party terminating this Agreement
pursuant to Section 10.1 shall give written notice thereof to each other party
hereto, whereupon this Agreement shall terminate and the transactions
contemplated herein shall be abandoned without further action by any party;
provided, however, that if such termination is by Buyer or Sellers pursuant to
Section 10.1(c) or (d), nothing herein shall affect the non-breaching party's
right to damages on account of such other party's breach.
SECTION 11. INDEMNIFICATION.
11.1 Indemnity.
(a) Subject to the limitations set forth in this Section 11,
each Seller severally, but not jointly, shall indemnify and hold harmless Buyer
and its officers, directors, employees, stockholders, representatives, agents,
successors and assigns, from and against any Loss or Losses sustained or
required to be paid by Buyer resulting from (i) any misrepresentation or breach
of any representation or warranty made by such Seller in this Agreement and any
other agreement, instrument or other document necessary to consummate the
transactions contemplated herein, including the Schedules, or (ii) any breach of
or failure to perform any covenant, agreement or obligation of such Seller
contained in this Agreement and any other agreement, instrument or other
document necessary to consummate the transactions contemplated herein.
(b) Subject to the limitations set forth in this Section 11,
Buyer shall indemnify and hold harmless Sellers and their respective officers,
directors, employees, stockholders, members, representatives, agents, successors
and assigns from and against any Loss or Losses sustained or required to be paid
resulting from (i) any misrepresentation or breach of any representation or
warranty made by Buyer in this Agreement and any other agreement, instrument or
other document necessary to consummate the transactions contemplated herein,
(ii) any breach of any covenant, agreement or obligation of Buyer contained in
this Agreement and any other agreement, instrument or other document necessary
to consummate the transactions contemplated herein, or (iii) any efforts by the
Buyer to arrange and complete the Financing or any filing by or on behalf of the
Buyer in connection therewith, including any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except, with respect to this subsection
(iii), to the extent that any such untrue statement or omission was made in
reliance upon and in conformity with written information furnished to Buyer by
any Seller specifically for use therein, and such information was, to the
Knowledge of Eldorado, untrue at the time it was provided.
(c) (i) In the event that any indemnified party is entitled to
indemnification with respect to any Loss or potential Loss arising from any
Proceeding, judicial or administrative, instituted by any third party (any such
third-party Proceeding being referred to as a "Third-Party Claim"), the
indemnified party shall give the indemnifying party prompt notice thereof. Any
failure or delay on the part of the indemnified party to give such notice shall
not affect whether an indemnifying party is liable for reimbursement except and
to the extent that the indemnifying party is prejudiced thereby. The
indemnifying party shall be entitled to control, contest and defend such
Third-Party Claim. Notice of the intention so to contest and defend shall be
given by the indemnifying party to the indemnified party within 20 business days
after the indemnified party's notice of such Third-Party Claim (but, in all
events, at least ten business days prior to the date that an answer to such
Third-Party Claim is due to be filed). Such contest and defense shall be
conducted by counsel chosen by the indemnifying party. So long as the
indemnifying party is conducting the defense of the Third-Party Claim in
accordance with this Section 11.1(c)(i), the indemnified party shall be
entitled, at its own cost and expense (which expense shall not constitute a Loss
unless counsel for the indemnified party advises in writing that there is a
conflict of interest, and only to the extent that such expenses are reasonable),
to participate in, but not control, such contest and defense and to be
represented by attorneys of its or their own choosing reasonably acceptable to
the indemnifying party, provided that the indemnified party will cooperate with
the indemnifying party in the conduct of such defense. Neither the indemnified
party nor the indemnifying party may concede, settle or compromise any
Third-Party Claim without the consent of the other party, which consent will not
be unreasonably withheld or delayed, except that the indemnifying party may
settle a Third-Party Claim if the indemnifying party obtains a full release of
all underlying claims. Notwithstanding the foregoing, if a settlement offer
solely for money damages is made by the applicable third party claimant, and the
indemnifying party notifies the indemnified party in writing of the indemnifying
party's willingness to accept the settlement offer and pay the amount called for
by such offer, and the indemnified party declines to accept such offer, the
indemnified party may continue to contest such Third-Party Claim, free of
participation by the indemnifying party, and the amount of any ultimate
liability with respect to such Third-Party Claim that the indemnifying party has
an obligation to pay hereunder shall be limited to the lesser of (x) the amount
of the settlement offer that the indemnified party declined to accept or (y) the
aggregate Losses of the indemnified party with respect to such Third-Party
Claim.
(ii) In the event any indemnified party has a claim
against any indemnifying party that does not involve a Third-Party Claim, the
indemnified party shall deliver a written notice describing such claim in
reasonable detail to the indemnifying party within 30 days after the discovery
of the basis for such claim.
(iii) Any liability resulting from an indemnification
claim made pursuant to this Section 11 against the Sellers for the breach of any
representation or warranty made in this Agreement by the Sellers solely
regarding StoneCraft shall be the responsibility of StoneCraft, any liability
resulting from an indemnification claim made pursuant to this Section 11 against
the Sellers for the breach of any representation or warranty made in this
Agreement by the Sellers solely regarding ES Holdings shall be the
responsibility of ES Holdings, any liability resulting from an indemnification
claim made pursuant to this Section 11 against the Sellers for breach of any
representation or warranty made in this Agreement by the Sellers solely
regarding Xxxxxxx shall be the responsibility of Xxxxxxx and any liability
resulting from an indemnification claim made pursuant to this Section 11 against
the Sellers for breach of any representation or warranty made in this Agreement
by the Sellers solely regarding ES Acquisition, ES Corp and/or Northwest shall
be the responsibility of ES Holdings and Xxxxxxx.
(d) In connection with any indemnification claim by Buyer
under this Agreement, Sellers, collectively shall not be liable in an aggregate
amount which, if added to all other amounts paid as indemnification payments by
the Sellers, would exceed an amount equal to Twenty Million Dollars
($20,000,000) (the "Cap"). Notwithstanding the foregoing, Sellers shall not be
required to indemnify Buyer for any Losses arising under this Section 11 unless
(i) each individual Loss is at least Seventy-Five Thousand dollars ($75,000)
(the "Threshhold") and (ii) until the aggregate amount of all Losses for which
Buyer is otherwise entitled to indemnification pursuant to this Section 11.1
exceeds an amount equal to One Million Five Hundred Thousand Dollars
($1,500,000) (the "Basket"). In the event that, at any time, the Buyer's
aggregate Losses for which Buyer is entitled to indemnification pursuant to this
Section 11.1 exceed the Basket, then the Sellers shall be liable only for Losses
in excess of the Basket; provided however that if the aggregate Losses for which
Buyer is entitled to indemnification pursuant to this Section 11.1 exceed the
Basket the Threshold shall thereafter be reduced to zero dollars ($0) for each
individual Loss. Notwithstanding any other provision of this Agreement, each
Seller shall be liable for its pro rata portion of the indemnification payment
(up to its pro rata portion of the Cap, to the extent applicable), each based on
the percentage of the Purchase Price proceeds received by such Seller set forth
on Schedule 2.1, and in no event in excess of the amount of such proceeds
received by such Seller. Buyer shall not be required to indemnify any Seller for
any Losses arising under Section 11.1(b)(i) or (ii) unless (x) each individual
Loss realized by the Sellers is at least Seventy-Five Thousand Dollars ($75,000)
("Sellers' Threshold") and (y) until the aggregate amount of all claims for
which the Sellers are otherwise entitled to indemnification pursuant to Section
11.1(b)(i) or (ii) exceeds in the aggregate an amount equal to One Million Five
Hundred Thousand Dollars ($1,500,000) (the "Sellers' Basket") whereafter Buyer
shall be liable only for Losses in excess thereof; provided however that if the
aggregate Losses for which Sellers are entitled to indemnification pursuant to
Section 11.1(b)(i) or (ii) exceed the Sellers' Basket the Sellers' Threshold
shall thereafter be reduced to zero dollars ($0) for each individual Loss.
Notwithstanding anything herein to the contrary, while Buyer may make an
indemnification claim against Sellers under this Section 11 at any time
permitted pursuant to Section 11.2, Buyer shall exhaust any remedies available
to it under any insurance or other contract providing for insurance coverage or
indemnification with respect to such claims, prior to seeking recovery against
Sellers under this Section 11.
(e) Notwithstanding anything herein to the contrary, any Loss
otherwise indemnifiable hereunder shall be reduced by any amount actually
recoverable in connection therewith under insurance or the indemnified party
shall, upon receiving full payment for such Loss from the indemnifying party,
assign to the indemnifying party the right to pursue recovery under such
insurance.
(f) If an indemnifying party makes any payment under Section
11 in respect of any Losses, such indemnifying party shall be subrogated, to the
extent of such payment, to the rights of the indemnified party against any third
party (other than the indemnified party's insurers) with respect to such Losses;
provided, however, that such indemnifying party shall not have any rights of
subrogation with respect to any other party hereto or any of their respective
Affiliates or their Affiliates' respective officers, directors, agents or
employees. To the extent the indemnifying party does not have rights of
subrogation against any party as a result of the proviso to the proceeding
sentence, the indemnified party will take commercially reasonable steps to
collect from such third party in respect of such Losses, and will turn over to
the indemnifying party any amounts it receives from such third party in respect
of such Losses (less any and all reasonable costs and expenses associated with
such collection), to the extent of the payment actually made by the indemnifying
party in respect of such Losses.
11.2 Duration. The obligations set forth in Section 11.1 shall be
unconditional and absolute and remain in effect until a date that is 18 months
from the Closing Date; provided, however, that such obligations shall remain in
effect with respect to the representations and warranties of Sellers set forth
in Sections 4.9 (Taxes) and 4.16 (Employee Benefit Plans) until a date that is
three years from the Closing Date; provided, further, that such obligations
shall continue beyond such periods with respect to any claims made against any
indemnifying party during such periods that are not resolved at the conclusion
of such periods.
11.3 Exclusive Remedy. Buyer and Sellers acknowledge and agree that,
from and after the Closing, the foregoing indemnification provisions in this
Section 11 shall be the exclusive remedy of Buyer and Sellers with respect to
the transactions contemplated by this Agreement, except that nothing set forth
herein shall be deemed to limit any party's rights or remedies in the event that
the other party has committed fraud or other intentional acts in connection
therewith. The parties acknowledge and agree that, prior to the Closing, the
indemnification provisions in this Section 11 shall be of no force or effect and
the parties shall, subject to the other terms and provisions of this Agreement
(including, without limitation, the terms and provisions of Section 13), have
any rights and remedies available to them at law or in equity; provided,
however, that (i) the Sellers shall have no liability for any breach of a
representation or warranty in Section 4 until the Closing, and (ii) the Buyer
shall have no liability for any breach of a representation or warranty in
Section 5 until the Closing.
SECTION 12. DEFINITIONS
Whenever used in this Agreement, the following terms and phrases shall
have the following respective meanings:
"Affiliate" shall mean, with respect to any Person, (i) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary of such Person, (ii) each Person that
controls, is controlled by or is under common control with such Person or any
Affiliate of such Person, (iii) each of such Person's officers, directors, joint
venturers and partners and (iv) each member of the immediate family of any
Person that is a natural person. For the purpose of this definition, "control"
of a Person shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"The Code" shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"Contract" or "Contracts" shall mean each contract, agreement or
commitment of any nature, whether written or oral, to which any of the Eldorado
Entities is a party, or by which any of the Eldorado Entities is bound.
"Environmental Claim" shall mean any proceeding or notice by any Person
or Governmental Authority alleging potential liability arising out of, based on,
or resulting from (i) the release or disposal into, or the presence in the
environment, including, without limitation, the indoor environment, of any
Hazardous Materials by any of the Eldorado Entities at any location owned or
leased by, or formerly owned or leased by any of the Eldorado Entities on or
prior to the Closing Date, or (ii) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Laws by any of the
Eldorado Entities prior to Closing.
"Environmental Laws" means all federal, state, local and foreign
environmental laws, decrees, judgments, codes and ordinances and all rules and
regulations promulgated thereunder, civil or criminal, including, without
limitation, Laws relating to emissions, discharges, releases or threatened
releases of Hazardous Materials into the Environment or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials. Such Environmental Laws shall
include, but are not limited to, the Resource Conservation and Recovery Act and
the Comprehensive Environmental Response, Compensation and Liability Act.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or a successor law, and the regulations and rules issued pursuant to
that act or to any successor law.
"GAAP" means generally accepted accounting principles in the United
States as in effect on the date hereof, applied consistently with past practices
as disclosed to Buyer herein.
"Governmental Authority" or "Governmental Authorities" means any
domestic (federal, state or local) or foreign court, administrative agency or
commission or other governmental or regulatory body, authority, department,
board, tribunal or instrumentality.
"Hazardous Materials" shall mean any chemical, materials, substance,
waste, pollutant, toxic substance, contaminant, hazardous waste, hazardous
substance or extremely hazardous material regulated under any Environmental
Laws, including, without limitation, petroleum or any refined product or
fraction thereof, asbestos, radioactive material, urea formaldehyde foam
insulation or polychlorinated biphenyls.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
release, storage, transfer, transportation, treatment, disposal or use of
Hazardous Materials in, on, under, about, or from the Properties or any part
thereof into the Environment, and any other act in violation of Environmental
Laws.
"HSR Act" means Section 7A of the Xxxxxxx Act (Title II of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended) and the rules
and regulations promulgated thereunder.
"Indebtedness" of any Person means all obligations of such Person (i)
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases, (v) long term debt and (vi) in the nature of
guarantees of the obligations described in clauses (i) through (v) above of any
other Person.
"Knowledge" of Eldorado or any of the Subsidiaries respecting a
particular matter shall mean the actual knowledge, without duty of inquiry, of
Xxxxxxx Xxxxx, Xxxx Xxxxxxx, Xxxxx Xxxxxxxx, Xxxxxxx Xxxx, Xxx Xxxxxxx,
Xxxxxxxxx Xxxxx or Xxxxxxx Xxxxxxxxx regarding such matter. Solely for purposes
of any representation with respect to ES Acquisition, ES Corp and Northwest,
"Knowledge" shall also mean, exclusively with respect to ES Acquisition, ES Corp
and Northwest, the actual knowledge, without duty of inquiry, of Xxxxxx X. May
regarding such matter.
"Law" or "Laws" means any law, statute, regulation, ordinance, permit,
license, certificate, judgment, order, award or other decision or requirement of
any arbitrator, court, government (federal, state, local or foreign) or
Governmental Authority or instrumentality (domestic or foreign).
"Lien or Encumbrance" or "Liens or Encumbrances" means any option,
charge, equitable interest, community property interest, right of first refusal,
imperfection of title, easement, deed of trust, right-of-way, mortgage, pledge,
security interest, encumbrance, lien or charge of any kind, including, without
limitation, any conditional sale or other title retention agreement, any lease
in the nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction and including
any lien or charge arising by statute or other laws, which secures the payment
of a debt (including, without limitation, any Tax) or the performance of an
obligation, whether voluntarily incurred or arising by operation of law.
"Loss" or "Losses" means all damages, losses, liabilities, fines,
penalties, costs and expenses (including settlement costs, court costs and any
reasonable legal expenses incurred in connection with defending any actions)
less the net Tax benefit actually realized by the Person suffering a Loss, if
any, resulting from such Loss.
"Material Adverse Effect" means any change or effect materially adverse
to operations, properties or condition (financial or otherwise) of the Business
or any of the Eldorado Entities taken as a whole.
"Order" or "Orders" means any writ, judgment, decree, injunction or
similar order of any Governmental Authority (in each such case whether
preliminary or final).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a business or other
trust, a joint venture, any other business entity or an unincorporated
organization.
"Schedules" means the disclosure schedules delivered by the Sellers to
the Buyer containing exceptions to the representations and warranties and
setting forth other information required by this Agreement. The Schedules are
attached to, and incorporated into, this Agreement.
"Tax" or "Taxes" means all federal, state local or foreign taxes of any
kind, charges, fees, customs, duties, imposts and levies, including, without
limitation, all net income, gross receipts, ad valorem, value added, transfer,
gains, franchise, profits, inventory, net worth, capital stock, assets, sales,
use, license, estimated, withholding, payroll, premium, capital employment,
social security, workers compensation, unemployment, excise, severance, stamp,
occupation and property taxes, together with any interest and penalties, fines,
additions to tax or additional amounts imposed by any taxing authority.
"Tax Return" means any return, report, declaration, statement,
extension, form or other documents or information filed with or submitted to, or
required to be filed with or submitted to, any Governmental Authority in
connection with the determination, assessment, collection or payment of any Tax
(including all filings with respect to employment-related Taxes).
"Taxable Period" means any taxable year or any other period that is
treated as a taxable year (or other period, or portion thereof, in the case of a
Tax imposed with respect to such other period; e.g., a quarter) (including, any
short period or interim period) with respect to which any Tax may be imposed
under any applicable statute, rule, or regulation.
SECTION 13. MISCELLANEOUS.
13.1 Construction. Within this Agreement and all other documents
required to consummate the transactions contemplated herein, the singular shall
include the plural and the plural shall include the singular, and any gender
shall include all other genders, all as the meaning and the context of this
Agreement shall require. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or Law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
13.2 Survival of Representations and Warranties. Subject to Section
11.2, the representations and warranties made by the parties in this Agreement
and in the certificates, documents and schedules delivered pursuant hereto shall
survive the consummation of the transactions herein contemplated.
13.3 Further Assurances. Each party hereto shall use its commercially
reasonable efforts to comply with all requirements imposed hereby on such party
and to cause the transactions contemplated herein to be consummated as
contemplated herein and shall, from time to time and without further
consideration, either before or after the Closing, execute such further
instruments and take such other actions as any other party hereto shall
reasonably request in order to fulfill its obligations under this Agreement and
to effectuate the purposes of this Agreement and to provide for the orderly and
efficient transition to Buyer of the ownership of the Business and the
Securities. Each party shall promptly notify the other parties of any event or
circumstance known to such party that could prevent or delay the consummation of
the transactions contemplated herein or which would indicate a breach or
non-compliance with any of the terms, conditions, representations, warranties or
agreements of any of the parties to this Agreement.
13.4 Costs and Expenses. Except as otherwise expressly provided herein
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated herein shall be paid by the party incurring such fees
or expenses, whether or not the transactions contemplated herein are
consummated.
13.5 Notices. Except for notices or communications required pursuant to
Section 2.3 of this Agreement, all notices or other communications permitted or
required under this Agreement shall be in writing and shall be sufficiently
given if and when hand delivered to the Persons set forth below or if sent by
documented overnight delivery service or registered or certified mail, postage
prepaid, return receipt requested, or by telegram addressed as set forth below
or to such other Person or Persons and/or at such other address or addresses as
shall be furnished in writing by any party hereto to the others. Any such notice
or communication shall be deemed to have been given as of the date received, in
the case of Personal delivery, or on the date shown on the receipt or
confirmation therefor in all other cases. With regard to notices or
communications required pursuant to Section 2.3 of this Agreement, notice may be
given as provided above, or may be given by telecopy to the telecopy numbers
provided below, and such notice or communication shall be deemed to have been
given or made on the date given, provided that confirmation of such telecopy
shall be made available upon request of the receiving party.
To Buyer:
Headwaters Incorporated
10653 Xxxxx Xxxxx Xxxxx Xxxxxxx
Xxxxx 000
Xxxxx Xxxxxx, Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: Chief Executive Officer
With copies to:
Headwaters Incorporated
00000 Xxxxx Xxxxx Xxxxx Xxxxxxx
Xxxxx 000
Xxxxx Xxxxxx, Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attn: General Counsel
To ES Holdings:
Eldorado Stone Holdings Co., LP
c/o Graham Partners, Inc.
0000 Xxxx Xxxxxxx Xxxx
Xxxxxxx Xxxxxx, Xxxxxxxxxxxx 00000
Attn: Xxxxxx X. May, Managing Principal
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
With copies to:
Drinker Xxxxxx & Xxxxx LLP
Suite 300
0000 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxx, Xx., Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
To StoneCraft:
StoneCraft Industries, Inc.
0000 Xxxxxxxxx Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxx
With copies to:
Xxxxx, Xxxxx & Xxxxxx LLP
0000 Xxxxxxxx Xxxxxxxxx, 0xx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxx X. Xxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
To Xxxxxxx:
Xxxxxx Xxxxxxx
00000 Xxxxx Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
13.6 Assignment and Benefit.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective permitted successors and permitted
assigns. Neither this Agreement, nor any of the rights hereunder or thereunder,
may be assigned by any party, nor may any party delegate any obligations
hereunder or thereunder, without the written consent of the other party hereto
or thereto; provided, however, that Buyer may assign this Agreement to one or
more of its directly or indirectly owned subsidiaries and such assignment shall
not release Buyer or Sellers from any of their covenants or obligations under
this Agreement. Any non-permitted assignment or attempted assignment shall be
void.
(b) This Agreement shall not be construed as giving any
Person, other than the parties hereto and their permitted successors, heirs and
assigns, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any of the provisions herein contained, this Agreement and all
provisions and conditions hereof being intended to be, and being, for the sole
and exclusive benefit of such parties, and permitted successors, heirs and
assigns and for the benefit of no other Person or entity.
13.7 Amendment, Modification and Waiver. The parties may amend or
modify this Agreement in any respect. Any such amendment or modification shall
be in writing. The waiver by a party of any breach of any provision of this
Agreement shall not constitute or operate as a waiver of any other breach of
such provision or of any other provision hereof, nor shall any failure to
enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof.
13.8 Governing Law; Consent to Jurisdiction. This Agreement is made
pursuant to, and shall be construed and enforced in accordance with, the laws of
the Commonwealth of Pennsylvania (and United States federal Law, to the extent
applicable), irrespective of the principal place of business, residence or
domicile of the parties hereto, and without giving effect to otherwise
applicable principles of conflicts of law. Any legal action, suit or Proceeding
arising out of or relating to this Agreement may be instituted in any federal
court in the Eastern District of Pennsylvania or in any state court in the
Commonwealth of Pennsylvania, and each party waives any objection which such
party may now or hereafter have to the laying of the venue of any such action,
suit or Proceeding, and irrevocably submits to the jurisdiction of any such
court. Any and all service of process and any other notice in any such action,
suit or Proceeding shall be effective against any party if given as provided
herein. Nothing herein contained shall be deemed to affect the right of any
party to serve process in any other manner permitted by Law or to commence legal
proceedings or otherwise proceed against any other party in any jurisdiction
other than Pennsylvania. Nothing contained herein or in any Transaction Document
shall prevent or delay Buyer from seeking, in any court of competent
jurisdiction, specific performance or other equitable remedies in the event of
any breach or intended breach by Sellers of any of their obligations hereunder.
13.9 Section Headings and Defined Terms. The section headings contained
herein are for reference purposes only and shall not in any way affect the
meaning and interpretation of this Agreement. Except as otherwise indicated, all
agreements defined herein refer to the same as from time to time amended or
supplemented or the terms thereof waived or modified in accordance herewith and
therewith.
13.10 Severability. The invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provisions or
parts were omitted.
13.11 Counterparts. This Agreement and the other documents required to
consummate the transactions contemplated herein may be executed in one or more
counterparts, each of which shall be deemed an original (including facsimile
signatures); and any Person may become a party hereto by executing a counterpart
hereof, but all of such counterparts together shall be deemed to be one and the
same instrument. It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for any of the other counterparts.
The parties hereto may deliver this Agreement and the other documents required
to consummate the transactions contemplated herein by telecopier
machine/facsimile, provided that the original signature pages are promptly
delivered to each party to this Agreement, and each party shall be permitted to
rely upon the signatures so transmitted to the same extent and effect as if they
were original signatures.
13.12 Entire Agreement. This Agreement, together with the Schedules,
the Confidentiality Agreement dated December 12, 2003, by and between Eldorado
and Buyer and the agreements, exhibits, schedules and certificates referred to
herein or delivered pursuant hereto, constitute the entire agreement between the
parties hereto with respect to the purchase and sale of the Securities and
supersede all prior agreements and understandings. The submission of a draft of
this Agreement or portions or summaries thereof does not constitute an offer to
purchase or sell the Securities, it being understood and agreed that neither
Buyer nor Sellers shall be legally obligated with respect to such a purchase or
sale or to any other terms or conditions set forth in such draft or portion or
summary unless and until this Agreement has been duly executed and delivered by
all parties.
13.13 Additional Parties. Any Person who becomes a Member of Eldorado
subsequent to the date of this Agreement by virtue of exercising an option or a
warrant to purchase Eldorado Units may become a party to this Agreement by
signing the signature page hereto. Such Person shall be deemed to be a Seller,
with all rights and obligations as such, as of the date such Person executes a
signature page hereto.
13.14 Retention of Counsel. In any dispute or proceeding arising under
or in connection with this Agreement, including, without limitation, Sections
2.3 and 11.1 hereof, Sellers shall have the right, at their election, to retain
the firm of Drinker Xxxxxx & Xxxxx LLP and Xxxxx, Xxxxx & Xxxxxx LLP to
represent them in such matter and Buyer, for itself and the Eldorado Entities
and for its and the Eldorado Entities' successors and assigns, hereby
irrevocably waives and consents to any such representation in any such matter
and the communication by such counsel to Sellers in connection with any such
representation of any fact known to such counsel arising by reason of such
counsel's prior representation of Sellers or the Eldorado Entities. Buyer, for
itself and the Eldorado Entities, and its and the Eldorado Entities' successors
and assigns, hereby irrevocably acknowledges and agrees that all communications
between Sellers and their counsel, including, without limitation, Drinker Xxxxxx
& Xxxxx LLP and Xxxxx, Xxxxx & Xxxxxx LLP, made in connection with the
negotiation, preparation, execution, delivery and closing under, or any dispute
or proceeding arising under or in connection with this Agreement which,
immediately prior to the Closing, would be deemed to be privileged
communications of the Sellers and their counsel and would not be subject to
disclosure to the Buyer in connection with any process relating to a dispute
arising under or in connection with this Agreement or otherwise, shall continue
after the Closing to be communications between Sellers and such counsel and
neither Buyer nor any Person purporting to act on behalf of or through Buyer,
shall seek to obtain the same by any process on the grounds that the privilege
attaching to such communications belongs to the Eldorado Entities and not the
Sellers. Other than as explicitly set forth in this Section 13.14, the parties
acknowledge that any attorney-client privilege attaching as a result of legal
counsel representing the Eldorado Entities prior to the Closing shall survive
the Closing and continue to be a privilege of the Eldorado Entities, and not the
Sellers, after the Closing.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement, under seal, all as of the date first above written.
ELDORADO STONE HOLDINGS CO., L.P.
By: /s/ Xxxxxx X. May
--------------------------------------
Name:
Title:
STONECRAFT INDUSTRIES, INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Secretary
/s/ Xxxxxx Xxxxxxx
(as Attorney-in-Fact for Xxxxxx Xxxxxxx)
--------------------------------------
XXXXXX XXXXXXX
HEADWATERS INCORPORATED
By: /s/ Xxxx X. Xxxxxx
--------------------------------------
Name: Xxxx X. Xxxxxx
Title: Chairman and CEO
ADDITIONAL SELLERS
(as provided in Section 13.13):
Signature page to the Securities Purchase Agreement
Index of Defined Terms
"Contract", 43
"Contracts", 43
"Environmental Claim", 43
"Environmental Laws", 43
"Governmental Authorities", 44
"Governmental Authority", 44
"Hazardous Activity", 44
"Hazardous Materials", 44
"Sellers' Basket", 42
"Sellers' Threshold", 42
"The Code", 43
"Threshhold", 41
Affiliate, 43
Agreement, 1
Antitrust Division, 30
Basket, 41
Business, 1
Buyer, 1
Cap, 41
Closing, 38
Closing Date, 38
COBRA, 20
Comfort Letter, 34
Credit Agreement, 2
DOL, 19
Eldorado, 1
Eldorado Entities, 1
Eldorado Interests, 2
Eldorado IP, 15
Equity Value, 2
ERISA, 44
ERISA Affiliate, 19
ES Acquisition, 1
ES Corp, 1
ES Holding, 1
ESA, 2
Estimated Working Capital, 4
Final Working Capital, 4
Final Working Capital Statement, 3
Financial Statements, 9
Financing, 31
FTC, 30
GAAP, 44
Xxxxxxx, 1
XXX Xxx, 00
Xxxxxxxxxxxx, 00
Intellectual Property Rights, 15
Knowledge, 44
Law, 44
Liabilities, 17
Liens, 45
Loss, 45
Losses, 45
Material Adverse Effect, 45
Net Working Capital, 4
Northwest, 1
Notes, 3
Order, 45
Orders, 45
PBGC, 19
Permitted Encumbrances, 10
Person, 45
Plans, 18
Proceeding, 14
Purchase Price, 2
Schedule, 45
Securities, 2
Sellers, 1
Short Period Returns, 33
StoneCraft, 1
Subsidiaries, 1
Subsidiary Interests, 8
Target Working Capital, 5
Tax, 45
Tax Return, 45
Taxable Period, 46
Taxes, 45
Third Party Accounting Firm, 4
Third-Party Claim, 40
Trade Secrets, 15
Transactions, 33
Warranty Claims, 22
Working Capital Adjustment, 3
Working Capital Statement, 3
Headwaters will supplementally furnish a copy of omitted schedules to this
agreement to the SEC upon request.
Summary of omitted schedules:
Schedule 2.1 Estimated Tax Benefit Calculation, Purchase Price Allocation
Schedule 3.4 Ownership of Securities
Schedule 4.1 Organization of Good Standing
Schedule 4.3 Capitalization
Schedule 4.4 Investments and Subsidiaries
Schedule 4.7 Real Property
Schedule 4.9 Taxes
Schedule 4.10 Litigation
Schedule 4.11 Labor Matters
Schedule 4.12 Intellectual Property Rights
Schedule 4.13 Contracts and Commitments
Schedule 4.15 Existing Condition
Schedule 4.16 Employee Benefit Plans
Schedule 4.18 Environmental Compliance
Schedule 4.19 Transactions with Affiliates
Schedule 4.20 Product and Service Warranties
Schedule 4.21 Insurance
Schedule 4.22 Inventory
Schedule 4.23 Accounts Receivable
Schedule 4.25 Substantial Customers and Suppliers
Schedule 4.26 Bank and Brokerage Accounts
