XXXXXX INVESTMENTS, INC.
February 25, 1997
Xx. Xxx Xxxx
Xx. Xxxxx Xxxxx
Xxxx'x Flooring, Inc.
0000 Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
Re: Letter of Intent for the Purchase of the Assets
of Nonn's Flooring, Inc. by Xxxxx Corp.
Dear Xx. Xxxx and Xx. Xxxxx:
The purpose of this letter is to confirm our mutual
understanding and agreement in principle with respect to the proposed
acquisition by Xxxxx Corp. ("Buyer") of substantially all of the assets of
Nonn's Flooring, Inc. ("Seller") on the terms and conditions set forth herein.
This letter is intended to be a nonbinding letter of intent which does not
create enforceable rights or legally binding obligations, except as specifically
set forth in paragraph 11 below. The purchase and sale of the assets shall only
be effected by a definitive Asset Purchase Agreement (the "Purchase Agreement"),
and documents ancillary thereto, to be prepared by counsel for the Seller, and
which will substantially contain the terms and provisions contemplated hereby.
1. Assets to be Purchased
The assets to be purchased (the "Purchased Assets") shall
consist of all of the following assets of Seller, other than the Excluded Assets
(as defined below): accounts receivable, machinery, equipment, vehicles, tools,
supplies, spare parts, office furniture, equipment and supplies; inventory,
contracts, contractual rights, work in process, leases, licenses, permits, and
purchase and sales orders; Seller's corporate name and the goodwill associated
therewith; Seller's telephone and facsimile numbers; Seller's sales, advertising
and promotional materials; all of Seller's books, files, papers and other
information and records, except for those items listed below as Excluded Assets;
and all prepaid items.
2. Assets Excluded from Purchase
The following assets of Seller (collectively, the "Excluded
Assets") shall be excluded from the sale and are not Purchased Assets: all cash,
cash items, marketable securities, certificates of deposit and other investments
of Seller; any corporate franchise, articles of incorporation, corporate seal,
stock books, minute books and other corporate records having to do with the
corporate organization and capitalization of Seller; and all of Seller's
accounting and tax records.
3. Liabilities Assumed.
Buyer shall assume all of Seller's liabilities and obligations
existing as of the Closing Date (as defined below).
4. Purchase Price
The purchase price of the Purchased Assets (the "Purchase
Price") shall be $3,000,000 to be paid in cash at the Closing. The Purchase
Price shall be increased (or decreased) by the amount by which the Purchased
Assets on the Closing Date, less the liabilities assumed, exceed (or are less
than) $1,382,000 [the comparable figure from the June 30, 1996 financials].
5. Employment Agreements.
5.1 Buyer will enter into employment agreements
with Xxx Xxxx and Xxxxx Xxxxx (the "Shareholders") in the capacity of executive
officers, which agreements shall include customary industry compensation and
benefits (the "Employment Agreements"). The term of the Employment Agreements
shall commence on the Closing Date (as defined below) and terminate on the third
anniversary thereof, with automatic annual extensions upon achievement of
certain mutually established criteria. The Employment Agreements shall provide
for guaranteed bonus payments to the Shareholders totaling at least $500,000 in
stock and/or cash, to be determined prior to Closing, based upon the
profitability levels mutually established as of the Closing Date.
5.2 Buyer will enter into employment agreements
with all key executives identified by the Shareholders, which agreements shall
include customary industry compensation and benefits, as well as performance
bonuses.
6. Additional Compensation
The Shareholders shall have the following
opportunities to receive additional compensation in connection with their
employment by Xxxxx:
(a) If, under the Shareholders' leadership, the
business as acquired by Xxxxx meets or exceeds certain mutually agreed-upon
projections as of each of the first three anniversaries of the Closing Date,
Buyer will pay the Shareholders $166,667 on each such anniversary, to be paid in
cash and/or stock, as agreed by the parties as of the Closing Date.
(b) Xxxxx invites the Shareholders' assistance
in the overall operation of Buyer in addition to those responsibilities to be
set forth in the Employment Agreements. If the Shareholders accept such
additional responsibilities, they shall be compensated based upon plans
acceptable to the Shareholders and Buyer prior to the performance of those
services.
7. No Solicitation
In consideration of Buyer entering into this Letter
of Intent, and undertaking to negotiate the Purchase Agreement, investigate the
business of Seller, and incur expenses in connection therewith, it is agreed
that from and after the date hereof and for a period of thirty (30) days
hereafter Seller (and any affiliate or representative of Seller) will not
solicit offers from other persons interested in purchasing all or part of the
Purchased Assets or Seller's capital stock, or negotiate any such transaction.
8. Conditions to Buyer Closing
The Purchase Agreement shall provide that the
obligations of Buyer thereunder are expressly subject to the following
conditions precedent:
(a) The net profit of Seller for the fiscal year
ending December 31, 1996 shall be at least $400,000; and
(b) Buyer shall have entered into a five year
triple-net lease with Xxxx-Xxxxx Partnership for the building currently used in
Seller's business, which lease shall provide for monthly rent of $16,500, with
annual adjustment for changes in the Consumer Price Index.
9. Due Diligence
9.1 Immediately following the execution of this
Letter of Intent, Seller shall permit Buyer and its representatives reasonable
access during normal business hours to all of Seller's
facilities, properties, books, contracts, commitments, and records for the
purpose of making such investigations as Buyer may desire with respect to the
business and operations of Seller.
9.2 Buyer agrees to exercise its best efforts in
conducting such due diligence in a manner that will not significantly interfere
or disrupt the normal operations of Seller or arouse suspicions of Seller's
employees, customers or suppliers that either the capital stock or assets of
Seller are for sale. Buyer and its employees, representatives, agents,
attorneys, accountants, and financial advisors (the "Representatives") shall
treat confidentially all information provided to or obtained by any of them in
connection with their investigation of Seller (the "Evaluation Material") and
not disclose the Evaluation Material to any person without the prior written
consent of Seller. Buyer and the Representatives will not use the Evaluation
Material in any way detrimental to Seller, and the Evaluation Material shall not
be used by Buyer or the Representative other than for the purpose of evaluating
the acquisition of the Purchased Assets.
9.3 In the event that the Purchase Agreement is
not executed by the parties hereto or the transaction is not consummated on or
before the Closing Date, Buyer and the Representatives shall return to Seller,
or destroy, all documents obtained by them relating to Seller, and shall return
to Seller, or destroy, all analyses prepared by Buyer or the Representatives
with respect to Seller based upon information obtained from Seller.
10. Timing.
The Purchase Agreement shall provide for a closing date (the
"Closing Date") of April 15, 1997, on which date the transactions contemplated
hereby and thereby will be consummated (the "Closing").
11. Non-Binding Effect.
Other than paragraphs 7, 9, 12 and 14, this Letter of Intent
is not intended to be, and does not constitute, a binding agreement by any of
the parties, nor is it intended to, nor does it, create any rights with respect
to any third parties. Rather, this Letter of Intent is intended solely to
express the current intention of Buyer and Seller to proceed to negotiate,
prepare and, if acceptable to each party, execute a Purchase Agreement which, if
executed, will entirely supersede this Letter of Intent. This Letter of Intent
expresses only the parties' present understanding of terms to be included in the
Purchase Agreement and the terms and conditions of the foregoing must be
acceptable to each of the parties and their respective counsel, which Purchase
Agreement shall be binding in accordance with its terms only when and if duly
executed and delivered by each of the parties named therein. The parties to this
Letter of Intent acknowledge that there are terms and conditions which are not
included herein, but which are expected to be the subject of further
negotiations in connection with the Purchase Agreement. If the Purchase
Agreement has not been executed by all of the parties hereto, and the
transactions contemplated thereby have not been consummated, by April 15, 1997,
for any reason whatsoever, then no party shall have nay further obligation to
the other hereunder, and this Letter of Intent shall be deemed to be of no
further force and effect; provided, however, that the terms hereof relating to
confidentiality shall remain in full force and effect.
This Letter of Intent and the Purchase Agreement will be
governed by and construed in accordance with the internal laws of the state of
Wisconsin, without regard to conflicts of law principles.
12. Conduct of Business.
Unless and until the Purchase Agreement has been duly executed
and delivered by all of the parties, Seller will immediately notify Buyer of (i)
any material adverse change in the business of Seller, (ii) any conduct of
Seller outside of the ordinary course of business; and (iii) any extraordinary
transactions involving Seller.
13. Definitive Agreement.
The foregoing is subject to execution by Xxxxxx and Xxxxx of a
mutually acceptable definitive detailed Purchase Agreement. The Purchase
Agreement will contain, among other provisions, the customary representations,
covenants and indemnities, on terms and subject to limitations acceptable to the
parties, including without limitation, a representation and warranty that the
Purchased Assets will be conveyed to Buyer free and clear of any and all liens
or encumbrances. Notwithstanding the foregoing, the parties agree to minimize
the length, detail and complexity of the Purchase Agreement whenever possible.
14. Expenses.
Each of the parties hereto agrees to pay its own fees and
expenses and those of respective agents, advisors, attorneys and accountants
with respect to this Letter of Intent and the negotiation and execution of the
Purchase Agreement, and other ancillary agreements, and if the Purchase
Agreement is executed, the closing of the transactions contemplated by the
Purchase Agreement.
Please indicate your acceptance to the foregoing by signing in the space
provided below on the enclosed copy of this Letter of Intent and returning same
to the undersigned.
XXXXX CORP.
By: /s/ XXXXXX X. XXXXXX
--------------------------------------
Xxxxxx X. Xxxxxx, Chairman
AGREED AND ACCEPTED:
NONN'S FLOORING, INC.
By: /s/ XXX XXXX
--------------------------------
Xxx Xxxx, President
By: /s/ XXXXX XXXXX
--------------------------------
Xxxxx Xxxxx, Secretary/Treasurer
