AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
Exhibit
10.1
AMENDMENT
NO. 1 TO AGREEMENT AND PLAN OF MERGER
THIS
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
(this
“Amendment”) is entered into as of the 15th day of November, 2006, among
MILLSTREAM II ACQUISITION CORPORATION, a Delaware corporation (“Parent”),
MILLSTREAM II MERGER SUB, INC., a Pennsylvania corporation and a wholly owned
subsidiary of Parent (“Sub”),
and
SPECIALTY SURFACES INTERNATIONAL, INC., a Pennsylvania corporation (the
“Company”).
WHEREAS,
Parent,
Sub and the Company entered into an Agreement and Plan of Merger dated August
11, 2006 (the “Merger
Agreement”),
pursuant to which the Company will be merged with and into Sub (the
“Merger”)
and
the sole shareholder of the Company shall be entitled to receive cash and shares
of common stock of Parent in exchange for each share of common stock of the
Company; and
WHEREAS,
Parent,
Sub and the Company wish to amend certain terms of the Merger
Agreement.
NOW,
THEREFORE,
the
parties hereto agree as follows:
1. Capitalized
Terms.
Capitalized terms used but not defined in this Amendment shall have the meanings
as set forth in the Merger Agreement.
2. The
fifth
“WHEREAS” clause is hereby deleted in its entirety.
3. The
sixth
“WHEREAS” clause is hereby deleted in its entirety and replaced with the
following:
“WHEREAS,
simultaneously with the execution and delivery of this Agreement, Parent and
Xxxxx X. Xxxxxxxx (“X.
Xxxxxxxx”)
are
entering into an employment agreement (the “Employment
Agreement”),
relating to his employment by Parent on and after the Effective
Time;”
4. Section
2.1(c) of the Merger Agreement is deleted in its entirety and replaced with
the
following text:
“Conversion
of Company Common Stock.
(i)
Subject to Section 2.1(b), each share of Company Common Stock shall be converted
into the right to receive (A) the number of shares of fully paid and
nonassessable shares of Parent Common Stock equal to (1) 1,500,000 divided
by
(2) the number of issued and outstanding shares of Company Common Stock (the
“Outstanding
Shares”),
(B)
$8,000,000 in cash divided by the number of Outstanding Shares, (C) the Delayed
Cash Consideration, if any, divided by the number of Outstanding Shares, (D)
the
Delayed Stock Consideration, if any, divided by the number of Outstanding
Shares, (E) the Delayed Receivable
Consideration,
if any, divided by the number of Outstanding Shares, and (F) the Additional
Delayed Merger Consideration, if any, divided by the number of Outstanding
Shares. “Delayed
Cash Consideration”
means
an amount equal to $10.00 for each $1.00 that EBITDA exceeds $4,600,000 for
the
fiscal year ended December 31, 2007 (“Fiscal
2007”),
or
$6,500,000 for the fiscal year ended December 31, 2008 (“Fiscal
2008”),
but
not to exceed $2,000,000 in the aggregate for Fiscal 2007 and Fiscal 2008
combined. “Delayed
Stock Consideration”
means
(a) for Fiscal 2007, an amount equal to 1⅔ shares of Parent Common Stock for
each $1.00 that EBITDA exceeds $4,800,000 for Fiscal 2007, or (b) for Fiscal
2008, an amount equal to a number of shares equal to the 2008 Stock Formula
for
each $1.00 that EBITDA exceed the 2008 EBITDA Threshold, but not to exceed
2,000,000 shares in the aggregate for Fiscal 2007 and Fiscal 2008 combined.
“2008 Stock Formula” means the quotient of one divided by the quotient of (i)
the difference between $8,500,000 minus the 2008 EBITDA Threshold divided by
(ii) the difference between 2,000,000 million shares and the number of shares,
if any, of Delayed Stock Consideration earned in Fiscal 2007. “2008
EBITDA Threshold”
means
an amount equal to $6,500,000 plus the quotient of (a) the difference between
$2,000,000 minus the amount of Delayed Cash Consideration earned in Fiscal
2007
divided by (b) ten. “Delayed
Receivable Consideration”
means
an amount equal to $0.50 for each $1.00 collected in respect of amounts owed
by
the Obligated Parties at any time prior to the two year anniversary of the
Closing Date in respect of amounts owed by the Obligated Parties to the Company
as of the date of this Agreement. “Additional
Delayed Merger Consideration”
means
an amount equal to two percent of the increase in annual Net Sales of Parent
for
the Fiscal 2007, Fiscal 2008 and fiscal year ending December 31, 2009 over
Parent’s Net Sales for the immediately preceding fiscal year (i.e., the increase
of 2007 Net Sales over 2006 Net Sales, the increase of 2008 Net Sales over
2007
Net Sales and the increase of 2009 Net Sales over 2008 Net Sales); provided
that
the amount of Additional Delayed Merger Consideration shall not exceed $600,000
in any year. For purposes of this Agreement, “Net
Sales”
shall
mean gross sales as set forth on Parent’s audited annual financial statements
less promotional discounts and allowances to the extent such discounts and
allowances are included in gross sales. For the fiscal year ending December
31,
2006, the Net Sales of the Company prior to the Effective Time and of the
Surviving Corporation after the Effective Time shall constitute Net Sales of
Parent. For purposes of this Agreement, “EBITDA”
shall
mean operating income derived from the operations of the Surviving Corporation
for the specified period plus depreciation and amortization attributable to
the
operations of the Surviving Corporation for such period minus
any
amounts included in EBITDA (a) derived from the sale of the Company’s interest
in XxxxXxxxxx.xxx, Inc. d/b/a Turf Store Co. and (b)
collected from the Obligated Parties in respect of amounts owed by the Obligated
Parties to the Company as of the date of this Agreement; provided, however,
that
in the event the Surviving Company shall have acquired, either through the
acquisition of substantially all of the assets, all of the stock or by merger
or
otherwise, an operating business (the “Target
Business”)
the
amount of operating income plus depreciation and amortization (the “Target
Income”)
generated from the Target Business that shall be included for purposes of
calculating EBITDA will be the amount by which the Target Income generated
during the period between the date of the acquisition through the end of the
fiscal year in question (the “Measurement
Period Target Income”)
exceeds the Target Income in the comparable prior year period (the “Comparable
Period Target Income”);
provided, further, that in the event the acquisition of the Target Business
took
place during the Fiscal 2007, the Measurement Period Target Income will be
the
Target Income generated from January 1, 2008 through December 31, 2008 and
the
Comparable
Period
Target Income will be the Target Income generated from January 1, 2007 through
December 31, 2007 for purposes of the EBITDA calculation for the Fiscal 2008;
provided, further, that in the event the Measurement Period Target Income is
less than the Comparable Period Target Income, the amount of such difference
will be deducted for purposes of calculating EBITDA. EBITDA shall be as
determined by Parent’s certified public accountants from the audited financial
statements for the specified period. The parties acknowledge and agree that
the
obligation to pay any Delayed Cash Consideration, Delayed Stock Consideration,
Delayed Receivable Consideration and/or Additional Delayed Merger Consideration
shall be binding upon any and all successors and assigns of the Surviving
Corporation, including, without limitation, any purchaser of all or
substantially all of the assets of Surviving Corporation and any surviving
company in a merger, consolidation or similar event involving the Surviving
Corporation (a “Successor”).
Parent, Sub and the Surviving Corporation shall use commercial reasonable
efforts to ensure that Successor keeps books and records reasonably sufficient
to determine whether the conditions to such payment have been met.
Notwithstanding anything to the contrary contained herein, in the event the
payment of any Delayed Cash Consideration, Delayed Receivable Consideration
or
Additional Delayed Merger Consideration would cause the value of the shares
of
Parent Common Stock received by the shareholder of the Company in the Merger
to
be less than forty percent (40%) of the total value of all consideration
received by the shareholder of the Company in the Merger for purposes of Section
368(a)(2)(D) of the Code (the “Total Value”), then the Surviving Corporation and
Parent shall pay an amount of Delayed Cash Consideration, Delayed Receivable
Consideration or Additional Delayed Merger Consideration in shares of Parent
Common Stock necessary such that the value of the shares of Parent Common Stock
in lieu of cash received by the shareholder of the Company in the Merger is
equal to forty percent (40%) of the Total Value. In the event Parent and
theSurviving Corporation issue shares of Parent Common Sock in lieu of the
payment of Delayed Cash Consideration, Delayed Receivable Consideration or
Additional Delayed Merger Consideration in cash pursuant to the immediately
preceding sentence and thereafter amounts of Delayed Stock Consideration become
payable, then Parent and Surviving Corporation shall thereafter, in lieu of
issuing shares of Parent Common Stock in payment of the obligation to pay
Delayed Stock Consideration, pay an amount of Delayed Stock Consideration in
cash equal to the lesser of (i) the value of the Delayed Cash Consideration,
Delayed Receivable Consideration and Additional Delayed Merger Consideration,
as
the case may be, that was paid in stock pursuant to the immediately preceding
sentence and (ii) an amount such that its payment would not make the value
of
shares of Parent Common Stock issued in the Merger be less than forty percent
(40%) of Total Value. The value of each share of Parent Common Stock to be
received in the Merger shall equal the last closing sale of a share of Parent
Common Stock on the day prior to the date of issuance; provided, however, for
purposes of determining the number of shares to be issued in lieu of the payment
of Delayed Cash Consideration, Delayed Receivable Consideration or Additional
Delayed Merger Consideration in cash, such value shall equal the average of
the
last closing sale price of Parent Common Stock for the ten trading days
immediately preceding the date of issuance.”
5. The
first
sentence of Section 2.1(c)(ii) of the Merger Agreement is hereby deleted in
its
entirety and replaced with the following:
“The
shares of the Parent Common Stock to be issued, including the Delayed Stock
Consideration, if any, and all cash payable including the Delayed Cash
Consideration, if any, the Delayed Receivable Consideration, if any, and the
Delayed Merger
Consideration,
if any, upon the conversion of the Company Common Stock pursuant to Section
2.1(c), are referred to collectively as “Merger
Consideration”.”
6. Section
2.1(c)(iii) of the Merger Agreement is hereby deleted in its
entirety.
7. Section
2.2(b) of the Merger Agreement is hereby deleted in its entirety and replaced
with the following:
“Exchange
Procedures.
Immediately following the Effective Time, (x) Parent shall pay to the holders
of
the outstanding Company Common Stock the $8,000,000 to which such holders are
entitled as the portion of the Merger Consideration described in clause (B)
of
Section 2.1(c)(i) and (y) the Exchange Agent shall deliver to the holders of
shares of Company Common Stock certificates representing the number of shares
of
Parent Common Stock into which such shares shall have been converted in
accordance with clause (A) of Section 2.1(c)(i). The Delayed Cash Consideration,
if any, and the Delayed Stock Consideration, if any, shall be paid to the
holders of the shares of Company Common Stock that were converted into the
right
to receive the Merger Consideration within ten days after the issuance of the
audited financial statements of Parent for each of the fiscal years ending
2007
and 2008. The Delayed Receivable Consideration, if any, shall be paid to the
holders of the shares of the Company Common Stock that were converted into
the
right to receive the Merger Consideration with thirty days of receipt of
immediately available funds from the Obligated Parties in respect of amounts
owed by the Obligated Parties to the Company as of the date of this Agreement.
The Additional Delayed Merger Consideration, if any, shall be paid to the
holders of the shares of Company Common Stock that were converted into the
right
to receive the Merger Consideration within ten days after the issuance of the
audited financial statements of Parent for each of the fiscal years ending
2007,
2008 and 2009. Each share of Company Common Stock shall be deemed at any time
after the Effective Time to represent only the right to receive the Merger
Consideration as contemplated by this Section 2.2.”
8. All
references in the Merger Agreement to Delayed Merger Consideration are hereby
deleted and replaced with Additional Delayed Merger Consideration.
9. Parent,
Sub and the Company hereby agree that the Indemnification Agreement is hereby
terminated.
10. All
references in the Merger Agreement to the Indemnification Agreement are hereby
deleted.
11. Section
6.4 is amended to delete the following text:
“;
provided, however, that Parent shall not indemnify X. Xxxxxxxx for any act
or
omission to the extent such act or omission causes “Parent Losses” (as defined
in the Indemnification Agreement)”
12. Section
6.13(b) of the Merger Agreement is hereby deleted in its entirety
13. A
new
Section 7.1(h) is added to the Merger Agreement as follows:
“(h)
Stock
Value.
The
value of the shares of Parent Common Stock to be received in the Merger (at
the
Effective Time, and without regard to the possibility of the payment of Delayed
Cash Consideration, Delayed Stock Consideration, Delayed Receivable
Consideration and Additional Delayed Merger Consideration) can not be less
than
forty percent (40%) of the total value of all consideration to be received
by
the shareholder of the Company in the Merger for purposes of Section
368(a)(2)(D) of the Code. For purposes of this condition, the value of each
share of Parent Common Stock to be received in the Merger shall equal the last
closing sale of a share of Parent Common Stock on the day prior to the
Merger.
14. No
Further Modifications.
Except
as expressly set forth in this Amendment, the Merger Agreement shall be
unmodified and remain in full force and effect.
15. Governing
Law.
This
Amendment shall be governed by, and construed in accordance with, the internal
laws of the Commonwealth of Pennsylvania, applicable to contracts made and
to be
performed entirely within the Commonwealth of Pennsylvania (without giving
effect to principles of choice of law or conflict of laws that would require
application of the laws of a jurisdiction other than the Commonwealth of
Pennsylvania).
[SIGNATURES
APPEAR ON THE FOLLOWING PAGE]
IN
WITNESS WHEREOF,
Parent,
Sub and the Company have duly executed this Amendment, all as of the date first
written above.
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By:
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/s/
Xxxxxx Xxxxxxx
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Name:
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Xxxxxx
Xxxxxxx
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Title:
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Chairman,
Chief Executive
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Officer
and President
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MILLSTREAM
II MERGER SUB, INC.
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By:
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/s/
Xxxxxx Xxxxxxx
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Name:
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Xxxxxx
Xxxxxxx
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Title:
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Chairman,
Chief Executive
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Officer
and President
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SPECIALTY
SURFACES INTERNATIONAL, INC.
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By:
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/s/
Xxxxx Xxxxxxxx
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Name:
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Xxxxx
Xxxxxxxx
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Title:
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Chief
Executive Officer
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