ASSET PURCHASE AGREEMENT
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THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of the 30th day of May, 1997, by and among PORT STOCKTON FOOD DISTRIBUTORS,
INC., a California corporation (the "Buyer"), and MALLARD'S FOOD PRODUCTS, INC.,
a California corporation (the "Company").
RECITALS
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A. The Company through its DAVIS LAY FOOD SERVICE division ("Davis Lay")
is engaged in the wholesale distribution of produce in northern California (the
"Business") and is interested in selling substantially all of the assets of
Davis Lay. The Company also operates a separate division that manufactures,
distributes and sells various food products. The parties understand,
acknowledge, and agree that the transaction contemplated by this Agreement
relates only to the Company's produce distribution business, and does not
include any of the assets or liabilities of the Company's food products
division.
B. Buyer desires to purchase and the Company desires to sell
substantially all of the Davis Lay assets, on the terms and conditions set forth
below. Buyer is also engaged and has substantial experience in the wholesale
distribution of produce in Northern California.
ACCORDINGLY, in consideration of the foregoing and the mutual covenants set
forth below, the parties agree as follows:
AGREEMENT
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1. PURCHASE AND SALE OF ASSETS.
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1.1 Transfer of Purchased Assets. In consideration of the payment of
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the purchase price set forth in Section 1.6 below, the Company shall sell,
assign and deliver to Buyer, on the Closing Date (as defined in Section 2.1
below), free and clear of any and all material liens, charges, claims,
encumbrances, pledges, security interests, community property rights,
liabilities, debts, obligations, restrictions on transfer or other defects in
title of any kind or nature, fixed or contingent, except as otherwise set forth
or identified, and except for the Assumed Liabilities (as defined in Section 1.3
below), and Buyer shall purchase and accept, all assets, properties, rights,
titles and interests of every kind and nature owned or leased by the Company and
used in connection with the Business, as specified in this Agreement, as of the
Financials Date (as defined below), whether tangible or intangible, real or
personal, and wherever located and by whomever possessed (the "Purchased
Assets"), including, without limitation, the following assets used exclusively
in connection with the Business, but excluding the Excluded Assets (as defined
in Section 1.2 below):
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(a) all deposits, cash and cash equivalents, securities and
investments, if any;
(b) all accounts receivable, whether or not evidenced by a note;
(c) all prepayments, prepaid taxes and expenses, credits and deferred
charges;
(d) all of Davis Lay's interest in its month-to-month lease in
the real property located at 1601 Cummins Drive in Modesto, Stanislaus County,
California;
(e) all raw materials, packaging, spare parts, work-in-process,
finished goods, inventories and supplies located at 1601 Cummins Drive;
(f) all machinery, equipment, computers, telephone systems, furniture,
automobiles, trucks, tractors, trailers, vehicles and other tangible personal
property located at 1601 Cummins Drive;
(g) all rights, title and interests in and to all patents, copyrights,
trademarks, trade names, service marks, service names, logos, and identifying
marks and styles, if any, including, without limitation, the name "Davis Lay
Food Service Distributors" and any variant thereof. Notwithstanding the
foregoing, Buyer understands, acknowledges and agrees that the Company may
continue to utilize existing packaging for sale of its manufactured food
products which include the language "MALLARD'S FOOD PRODUCTS, a Division of
DAVIS LAY, INC." until such currently existing packaging materials are
completely used up;
(h) all rights under the contracts, agreements, orders, leases,
licenses and arrangements, to the extent assignable;
(i) all rights under all permits, licenses, variances, approvals and
other authorizations obtained from foreign, federal, state or local governments
or governmental agencies or other similar rights, to the extent such exist and
are assignable;
(j) all claims, insurance, warranties, guarantees, refunds, causes of
action, rights of recovery, rights of set-off and rights of recoupment of every
kind and nature relating to the operation of the Business, and, other than those
relating exclusively to the Excluded Assets or the Excluded Liabilities;
(k) all insurance, warranty and condemnation proceeds received after
the Closing Date hereof with respect to damage, non-conformance or loss to the
Purchased Assets;
(l) all books, ledgers, files, documents, correspondence, brochures,
lists, studies, reports, data, business records and other printed or written
materials (including, without limitation, records pertaining to past and current
customer accounts, suppliers, distributors, personnel and agents) as such items
existed on the Financials Date, up to and through the Closing Date;
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(m) all rights to receive mail and other communications addressed to
Davis Lay (including, without limitation, the payments for accounts or notes
receivable)that relates exclusively to the Business, and not to the Company's
food products division, subject to Section 5.3 below;
(n) all rights, title and interests in and to all confidential
business and technical information, trade secrets and proprietary rights of the
Business; and
(o) the Business and all goodwill associated therewith.
1.2 Excluded Assets. Notwithstanding the foregoing, the following
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assets are expressly excluded from the purchase and sale contemplated hereby
(the "Excluded Assets") and, as such, are not included in the Purchased Assets:
(a) Any and all assets or property, whether tangible or intangible,
real or personal, of the Company's food products division, including, without
limitation, any property related to MALLARD'S FOOD PRODUCTS, MALLARD'S
RESTAURANTS, INC., and/or MALLARD'S COOKING MADE EASY, and any trademarks, trade
names, trade secrets, confidential information or contract rights relating
thereto;
(b) the Company's rights under or pursuant to this Agreement;
(c) all minute books, stock books, corporate seal and other corporate
records and property of any kind or character that relate exclusively to the
Company's organization, existence and capitalization;
(d) all contracts, agreements, orders, leases, licenses and
arrangements which are not expressly specified to be assumed by the Buyer or
which are not transferable to Buyer;
(e) all claims, insurance, warranties, guarantees, refunds, causes of
action, rights of recovery, rights of set-off and rights of recoupment that
relate exclusively to the Excluded Assets or the Excluded Liabilities; and
(f) the right to receive mail and other communications addressed to
the Company that relates exclusively to the Excluded Assets or the Excluded
Liabilities.
1.3 Limited Assumption of Liabilities. Subject to the terms and
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conditions of this Agreement, from and after the Closing Date, Buyer shall
assume and agree to pay, defend, discharge and perform as and when due only the
following specific liabilities and obligations of the Company which relate
exclusively to the Business (the "Assumed Liabilities") pertaining to Davis Lay
from the first day after the Closing Date and thereafter, subject to certain
limitations and rights as are set forth in Section 1.5 below:
(a) all liabilities and obligations under the contracts, agreements,
orders, leases, licenses and arrangements expressly assumed by and transferred
to Buyer on the Closing Date,
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but excluding any liabilities or obligations relating to or arising out of (i)
any breach or default occurring thereunder on or prior to the Closing Date, or
(ii) any violation of law, tort or infringement occurring with respect thereto
on or prior to the Closing Date; and
(b) all current liabilities of the Company, reflected on the Company's
balance sheet as of the Closing Date (as defined below) which have not been
discharged or paid and such additional liabilities of the same kind and type
which have subsequently arisen in the ordinary course of business consistent
with past business practices, including all accrued income tax relating to
profits earned by the Business after the Closing Date, vacation, sick pay and
other liabilities relating to employee benefit plans covering Davis Lay
employees.
(c) Notwithstanding any other provision in this agreement to the
contrary, any and all liabilities of the Business which arise after the Closing
Date.
(d) Subject to the terms and conditions of this Agreement, from and
after the Closing Date, Buyer shall assume and agree to pay, defend, discharge
and perform as and when due only the following specific liabilities and
obligations of the Company which relate exclusively to the Business (the
"Assumed Liabilities") pertaining to Davis Lay from the first day after the
Financials Date (as defined in Section 3.5 below) and thereafter, subject to
certain limitations and rights as are set forth in Section 1.5 below:
(i) Davis Lay's accounts payable as set forth in the Company's
aged trial balance dated as of the Closing Date, a copy of which has been
reviewed by Buyer;
(ii) accrued vacation pay allocable to the employees of Davis Lay
as of May 31, 1997; and
(iii) Davis Lay's payroll for the week ending May 31, 1997.
1.4 Excluded Liabilities. Notwithstanding anything to the contrary
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contained in this Agreement and regardless of whether such liability or
obligation is disclosed herein or on any Exhibit or Schedule hereto, Buyer shall
not assume or in any way be responsible or liable for any other liabilities or
obligations of the Company or any other liabilities or obligations whatsoever
related to the operation of the Business or condition of the Purchased Assets at
any time on or prior to the Closing Date (the "Excluded Liabilities"), the
general nature of which is described in subsections (a) and (b) of Section 1.3
above. Without limiting the generality of the foregoing, the Excluded
Liabilities shall include, without limitation:
(a) all obligations, commitments or liabilities of or claims against
the Company , arising out of or in connection with the transfer and sale of the
Purchased Assets hereunder;
(b) all liabilities and obligations for transfer or sales taxes and
documentary fees imposed by virtue of the transfer and sale of the Purchased
Assets hereunder;
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(c) all liabilities and obligations for any damage or injury to person
or property arising from the ownership, possession or use of any products
manufactured or sold by the Company on or prior to the Closing Date to the
extent such liabilities and obligations are not covered by Buyer's (or, if
applicable, Seller's) insurance;
(d) all liabilities and obligations arising from the operation of the
Business on or prior to the Closing Date in connection with any law, statute,
rule, regulation, order or decree of any foreign, federal, state or local
governmental or regulatory authority (including, without limitation, those
relating to business conduct, public health and safety, occupational health and
safety and the environment);
(e) all liabilities and obligations of the Company whatsoever not
expressly assumed by Buyer in accordance with subsections (a) and (b) of Section
1.3 above, at the Closing Date.
1.5 Offset for Uncollected Receivables; Value of Net Assets. Buyer
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shall use good faith and reasonable diligence in seeking to collect all accounts
receivable. Any payments received from any debtor shall be applied first to the
oldest outstanding principal balance for such debtor. Buyer shall make its
relevant financial records available to the Company at reasonable times and upon
reasonable notice for purposes of auditing the accounts receivable collected by
Buyer. All accounts receivable listed in Section 1.3 which remain uncollected at
December 31, 1997, and all merchandise inventories which remain unsold as of
that date shall be deemed uncollectible and unsalable, and Buyer shall have the
right to offset the amount of such uncollectible accounts receivable and/or such
unsalable inventory up to a maximum amount of $500,000 against the promissory
note portion of the Purchase Price described in Section 1.6(b) below. The Buyer
shall, at the Company's request, assign any and all such uncollectible accounts
receivable and/or unsalable inventory back to the Company. Buyer's obligation to
assume liabilities dating from the day after the Financials Date up to and
including the Closing Date shall be limited to such liabilities which do not
allow the value of the Purchased Assets on a net basis to fall below the sum of
---
One Million Two Hundred Twenty-Two Thousand and No/100 Dollars ($1,222,000.00).
1.6 Purchase Price. The total purchase price (the "Purchase Price")
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for the Purchased Assets to be acquired by Buyer on the Closing Date is (i) the
assumption of certain liabilities as described in Section 1.3 above, and (ii)
payment of the sum of Five Million Five Hundred Thousand and no/100 Dollars
($5,500,000.00), payable as follows:
(a) Five Million Dollars ($5,000,000.00) payable by Buyer's check
at the Closing; and
(b) The balance of Five Hundred Thousand Dollars ($500,000.00) shall
be paid on January 2, 1998. Buyer's obligation to pay the balance of the
Purchase Price shall be evidenced by a Promissory Note in the form of Exhibit A
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attached hereto bearing interest at the rate of seven percent (7%) per annum,
payable in arrears.
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1.7 Allocation of Purchase Price. The parties agree negotiate in
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good faith to arrive at an agreement to allocate the Purchase Price among the
Purchased Assets for purposes of federal and state income and franchise taxes.
Buyer shall prepare a draft schedule for the allocation for the Company's review
within ten (10) days of the Closing Date.
1.8 Lease. Concurrently with the Closing, Buyer may, in its sole
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discretion, enter into a lease ("the Lease") for Davis Lay's facilities located
at 1601 Cummins Drive, Modesto, California (the "Real Property") which is owned
by a third party. Davis Lay's obligations to the lessor under its current
month-to-month rental arrangement shall be assumed by Buyer as of the Closing
Date.
1.9 Guarantee of Restaurant Business. Both Mr. Costa and Mallard's
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Restaurants, Inc., a California corporation and an affiliate of the Company,
will guarantee jointly and severally to Buyer a minimum of One Million Two
Hundred Fifty Thousand and No/100 Dollars ($1,250,000.00) in foodservice
purchases from businesses owned or controlled by Mr. Costa, each year of the
four (4) year period following the Closing Date (the "Continuing Guaranty"),
pursuant to a form of Continuing Guaranty substantially in the form attached as
Exhibit B hereto.
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1.10 Risk of Loss. Any and all risk of loss or damage to the
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Purchased Assets shall pass from the Company to the Buyer on the Closing Date.
2. The Closing.
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2.1 The Closing. The purchase and sale of the Purchased Assets shall
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take place at 10:00 a.m. (local time) on May 30, 1997, at the offices of counsel
for the Company or at such other time and place as may be mutually agreed upon
in writing by Buyer and the Company. The time and date of purchase and sale, as
the same may be postponed or accelerated from time to time, are referred to in
this Agreement as the "Closing" and the "Closing Date," respectively.
2.2 Deliveries to be Made at Closing. On the Closing Date, the
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Company shall deliver to Buyer such leases, warranty bills of sale,
assignments and other instruments reasonably satisfactory to Buyer and its
counsel as are necessary or desirable to transfer the Purchased Assets, such
assumption agreements satisfactory to the Company and its counsel as are
necessary or desirable to assume the Assumed Liabilities, and the parties shall
deliver the other items contemplated by Sections 6 and 7. All deliveries shall
be considered to have taken place simultaneously as a single transaction, and no
delivery shall be considered to have been made until all deliveries are
completed. With respect to any Purchased Assets sold hereunder which cannot be
physically delivered at the Closing because they are in the possession of third
parties, the Company shall give irrevocable instructions to such third parties
that all rights, title and interests in such Purchased Assets have been vested
in Buyer.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company, to the
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best of its knowledge, represents and warrants to Buyer as follows:
3.1 Ownership of the Purchased Assets. The Company has good title
---------------------------------
to all the Purchased Assets. The Purchased Assets are owned by the Company, and
at the Closing will be delivered to Buyer, free (except imperfections of title
that do not materially detract from the value of the properties, do not
interfere with the use of the property, and have arisen in the ordinary course
of business) and clear of any and all liens, charges, claims, encumbrances,
pledges, security interests, community property rights, equities, liabilities,
debts, obligations, restrictions on transfer or other defects in title of any
kind or nature, fixed or contingent, except for the Assumed Liabilities.
3.2 Authority to Enter Agreement; Enforceability. The Company has
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the right, power, legal capacity and authority to enter into and to carry out
the terms and provisions of this Agreement (including, without limitation, the
sale and delivery of the Purchased Assets being sold pursuant to this Agreement)
and the other agreements to be entered into by the Company in connection with
the consummation of this Agreement without obtaining the approval or consent of
any other party or authority, and this Agreement and such other agreements
constitute the legal, valid and binding agreements of the Company , enforceable
against it in accordance with their respective terms.
3.3 Organization and Standing. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California with full power and authority (corporate and other) to own, lease and
operate its property and carry on the Business as now conducted. The Company is
currently doing business in such jurisdiction, and is qualified to do business
in each such jurisdiction. The Company's books and records are complete and
correct in all material respects which relate to the Business and fairly reflect
the conduct of the Business.
3.4 Intentionally Omitted.
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3.5 Financial Statements. Schedule 3.5 to this Agreement contains
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the Company's consolidated balance sheets as of December 29, 1996. The foregoing
financial statements (i) are in accordance with the books and records of the
Company and were prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods and (ii) fairly
present the Company's financial condition and results of operations and cash
flows as of the dates and for the periods specified. The Company has no
liabilities or obligations, whether contingent or absolute, direct or indirect,
matured or unmatured, which are not shown or provided for on Schedule 3.5,
except those incurred in the ordinary course of business since December 29,
1996, and the Company knows of no basis for the assertion of any such
liabilities or obligations. December 29, 1996, which is the date of the most
recent audited balance sheet, is sometimes referred to below as the "Financials
Date". Buyer has inspected fully all financial statements and supporting records
provided or made available to Buyer for inspection, and hereby confirms its
understanding and agreement to the foregoing.
3.6 Absence of Certain Changes. To the best of the Company's actual
--------------------------
knowledge, since the Financials Date, except as disclosed on Schedule 3.6 to
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this Agreement, there has not been with respect to Davis Lay:
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(a) any material or significant change in the condition (financial or
other), net worth, assets, liabilities, capitalization, prospects, business,
properties or results of operations of Davis Lay other than changes (i)
described in the Schedules to this Agreement or (ii) made or incurred in the
ordinary course of business;
(b) any material employment or other contracts or commitments entered
into by the Company, except as described in the Schedules to this Agreement;
(c) any sale, assignment, transfer or other disposition of any assets
or properties, the latest cost of which on the accounting records of the Company
exceeds $10,000, excluding any inventory or supplies disposed of in the ordinary
course of business consistent with past practices;
(d) any capital expenditure, capital addition or capital improvement
involving an amount in excess of $10,000;
(e) any mortgage, lien, pledge, encumbrance, or security interest
created on any Purchased Asset, tangible or intangible, except purchase money
security interests created in the ordinary course of business consistent with
past practices;
(f) any material damage, destruction or loss (whether or not covered
by insurance) adversely affecting Davis Lay, the Business or prospects of the
Company;
(g) any material increase in the compensation payable or to become
payable by the Company to any officer, director or other employee, agent,
independent contractor or consultant or any shareholder, or any declaration,
payment, commitment or obligation of any kind for the payment by the Company of
any bonus, additional salary or compensation, any worker compensation claims or
any retirement, termination or severance benefits, to officers, directors,
employees, agents, independent contractors, consultants or shareholder, other
than pursuant to existing written commitments of the Company otherwise disclosed
in the Schedules to this Agreement, except in the ordinary course of business;
(h) any material change in the amount of any notes or other
obligations payable by the Company to officers, directors, employees, agents,
independent contractors, consultants or shareholder;
(i) any labor disturbances adversely affecting or threatening the
Business;
(j) any revocation or termination, or any notice of any threatened
revocation or termination, of any permit or license issued to the Company or, to
the extent the Company's Business or prospects may be materially and adversely
affected by such termination, to any of its employees, independent contractors,
consultants or agents;
8
(k) any guaranty by the Company with respect to the Business, or any
revocation or cancellation of any loan or guaranty made to the Company for the
benefit of the Business;
(l) any change or anticipated change in the relationship between the
Company and any of its customers, vendors, suppliers, employees, agents,
independent contractors or consultants which materially and adversely affects
the properties, prospects or business of the Business;
(m) any other event or condition which has adversely affected the
properties, business or prospects of the Business; or
(n) any agreement or commitment obligating the Company to do any
of the things set forth in this Section 3.7.
(o) Buyer understands, acknowledges, and agrees that since the
Financials Date, the Company has operated the Business in accordance with its
established past practices, and will continue to do so until the Closing Date.
Buyer also understands, acknowledges and agrees that since the Financials Date,
operation of the Business may have included the gain and loss of customers,
which gain and/or loss will continue up to and including the Closing Date.
Buyer acknowledges and agrees that it has knowledge and experience in the
produce business in Northern California, and, as a result of such knowledge and
experience, it understands these facts. Buyer further understands, acknowledges
and agrees that Buyer is knowingly purchasing the Business without any guarantee
whatsoever of future profitability of the Business. Having been made aware of
these circumstances, and subject to Buyer's completion of its due diligence,
Buyer shall purchase the Business from the Company on an "as-is" basis without
any warranty, express or implied, except as specifically set forth in this
Agreement.
3.7 Accounts Receivable. The Company has delivered to Buyer and
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Buyer hereby acknowledges receipt of a complete and accurate list of Davis Lay's
accounts receivable as of the Financials Date, together with an accurate aging
thereof. To the best of the Company's knowledge, said accounts receivable and
all accounts receivable which have arisen since the Financials Date (i) are
valid and enforceable claims for the sales and services which give rise to such
accounts, and (ii) are subject to no defenses or offsets and are fully
collectible in the ordinary course of business without resort to legal
proceedings, subject to any reserves contained in the financial statements
contained in Schedule 3.5 to this Agreement.
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3.8 Inventories. All inventories reflected on the Company's
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unaudited balance sheet belonging to Davis Lay as of the Financials Date and all
inventories which have been acquired since that date are stated on the Company's
books and records at the lower of average cost or market and are in good and
salable condition and are not obsolete.
3.9 Prepaid Items, Accounts Payable and Accrued Expenses. The
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Company's unaudited balance sheet as of the Financials Date presents fairly the
prepaid items, accounts payable and accrued expenses of the Company with respect
to Davis Lay as at and for the Financials Date. All prepaid items, accounts
payable and accrued expenses incurred after the Financials Date were incurred
9
in the ordinary course of business and are usual and normal in amount, both
individually and in the aggregate.
3.10 Tax Matters. With respect to Davis Lay, the Company has
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properly prepared and filed returns for and paid in full all federal, state,
local and foreign taxes, assessments, additions to taxes, penalties and interest
with respect thereto, to the extent such filings and payments are required prior
to the Financials Date and there is no known outstanding or proposed deficiency
or assessment known to the Company by any federal, state, local or foreign
government with respect to any tax period. Any amounts set up as reserves for
taxes on the financial statements contained in Schedule 3.5 with respect to
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Davis Lay are sufficient for the payment of all accrued and unpaid federal
income, accumulated earnings or other federal taxes, and state, local or foreign
income, franchise, real property, personal property, sales, use, withholding and
all other taxes imposed on the Company or its property or payable by it,
including interest, additions to taxes and penalties, if any, with respect
thereto, whether known or unknown and whether disputed or not, as of the Closing
Date, the dates of the respective financial statements and for all periods prior
thereto. The Company's federal, state and local tax returns have not been
audited with respect to Davis Lay and the Company is not aware of any proposed
audit by the Internal Revenue Service or any foreign, state or local taxing
authority with respect to Davis Lay.
3.11 Employees; Collective Bargaining Agreements. Schedule 3.11 to
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this Agreement contains a true and complete list of the employees of Davis Lay
as of the Closing Date. To the best of the Company's knowledge, the Company has
paid in full to all employees of Davis Lay all wages, salaries, commissions,
bonuses and other direct compensation for all services performed by them, except
for such accrued and unpaid amounts, including accrued sick pay and vacation pay
as listed on Schedule 3.5 hereto. To the best of the Company's knowledge, the
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Company is in compliance with all laws and regulations respecting employment and
employment practices, terms and conditions of employment, wages and hours,
employee benefit plans and taxes (including withholding taxes) relating to
employment or to personal services provided to Davis Lay. To the best of the
Company's knowledge, no employee of Davis Lay is in material violation of any
employment agreement, consulting agreement, proprietary information
nondisclosure agreement or any other contract or agreement with Davis Lay. To
the best of the Company's knowledge, there are no agreements, commitments or
other obligations of the Company, whether oral or written, which would prevent
or obstruct the dismissal of any of the Business's employees. With respect to
Davis Lay, the Company has no collective bargaining agreements nor any
obligations with respect to former collective bargaining agreements. To the best
of the Company's knowledge, the Business has no agents, independent contractors
or consultants to which the above-described obligations would apply.
3.12 Intentionally Omitted.
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3.13 Tangible Personal Property. Section 3.13A to this Agreement
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contains a true and complete list describing and specifying the location of all
vehicles, equipment, furniture, fixtures, leasehold improvements and all other
tangible personal property or assets, used, owned, possessed or leased by, or in
the possession of, Davis Lay in connection with the Business that have book
values of $10,000 or more. Except as set forth in Schedule 3.13B to this
--------------
Agreement, all personal property (except items of nominal value) owned, used,
possessed or leased by Davis Lay is owned, used,
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possessed or leased by Davis Lay or the Company free and clear of all material
liens, claims, charges, pledges, security interests, encumbrances, liabilities,
debts, equities, restrictions on transfer or other defects in title of any kind
or nature. All items of personal property owned, used, possessed or leased by
Davis Lay are in good operating condition and repair, normal wear and tear
excepted. All leases pursuant to which Davis Lay holds any items of personal
property are listed on Schedule 3.13B to this Agreement and are in full force
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and effect and are enforceable in accordance with their terms. Except as set
forth on Schedule 3.13B, none of such leases have been amended or modified.
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Neither the Company nor, to the best of the Company's knowledge, the other
parties thereto are in material breach or default under any of such leases; and
no event has occurred which with notice or lapse of time, or both, could
constitute a material breach or default by Company or, to the best of the
Company's knowledge, the other parties thereto under such leases or could
accelerate any obligation or create any lien or encumbrance under such leases.
The Company has not assigned any of its interest in such leases. No claim has
been asserted or, to the best of the Company's knowledge, exists that is adverse
to the rights of the Company to the continued possession of the leased property
under such leases.
3.14 Intangible Property. Schedule 3.14 to this Agreement contains a
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true and complete list of all patents, copyrights, trademarks, service marks,
trade names, logos and identifying marks and styles used by the Company in
connection with the Business (the "Intangible Property"). Except as disclosed on
Schedule 3.14 to this Agreement, and to the best of its knowledge, the Company
owns and has the full right to use the name "Davis Lay Food Service" and all the
Intangible Property in each jurisdiction in which it conducts business. Within
five (5) days of the Closing Date, the Company will record an Abandonment of
Fictitious Business Name Statement with regard to the name "Davis Lay Food
Service Distribution".
3.15 Contracts and Agreements. To the best of the Company's
------------------------
knowledge, Schedule 3.15 contains a true and complete list of the following
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material agreements, contracts, leases (other than the leases already listed on
Schedule 3.13 to this Agreement) or other obligations or commitments, whether
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written or oral (collectively "Contracts") pertaining to Davis Lay, to which the
Company is a party or by which it or Davis Lay's property is bound, including
(i) contracts with employees not cancelable at will without cost or other
liability by reason of such termination; (ii) contracts with customers; (iii)
contracts with suppliers or manufacturers of products sold by the Company in the
ordinary course of business; (iv) bonus, deferred or incentive compensation,
group insurance or other employee benefit plans; (v) collective bargaining
contracts; (vi) leases as lessor or lessee; (vii) advertising or public
relations contracts; (viii) conditional sales contracts, security agreements,
pledge agreements, trust receipts or any other agreements or arrangements
whereby any of the assets of the Company are subject to a lien, encumbrance,
charge or other restriction; (ix) mortgages, indentures, notes or other
instruments for or relating to any borrowing of money or the extension of credit
or the deferred purchase of property; (x) guarantees of any obligations for the
borrowing of money or otherwise, or any other agreements of guarantee or
indemnification (other than endorsements made for collection in the ordinary
course of business); (xi) agreements or arrangements for the purchase or sale of
any assets other than in the ordinary course of business; (xii) continuing
contracts for future purchase of materials, supplies or equipment; (xiii)
agreements, contracts or commitments relating to the issuance of any securities;
(xiv) agreements, contracts or commitments relating to the acquisition of
assets, capital stock or ownership interests of any business enterprise; (xv)
agreements, contracts, or commitments with any officer, director or shareholder
of the Company; (xvi)
11
contracts restricting doing business in any areas or in any way limiting
competition; and (xvii) any other contracts (other than contracts entered into
in the ordinary course of business) to be performed in whole or in part more
than 30 days from the date hereof calling for aggregate payments by Davis Lay or
the Company in excess of $3,000 per month and which are not terminable without
cost or liability on 30-days' notice. Except as set forth on Schedule 3.15, none
-------------
of the Contracts have been amended or modified. Each of the Contracts is in full
force and effect and is enforceable in accordance with its terms. Neither the
Company nor, to the best of the Company's knowledge, the other parties thereto
are in material breach or default under any such Contracts and no event has
occurred which with notice or lapse of time, or both, could constitute a
material breach or default under any such Contract or could accelerate any
obligation or create any lien or encumbrance under any such Contract. The
Company has not assigned any of its interest in the Contracts. No claim has been
asserted or, to the best of the Company's knowledge, exists that is adverse to
the rights of the Company under any of the Contracts.
3.16 Insurance. Within thirty (30) days of the Closing Date, the
---------
Company will deliver to Buyer a true and complete copy of all life, fire,
casualty, liability and all other insurance policies maintained by the Company
pertaining to the Business and the property located at 1601 Cummins Drive,
Modesto, California, for the purpose of identification of later claims which
may be forwarded to Buyer but responsibility for which has been retained by the
Company.
3.17 Litigation. Except as set forth on Schedule 3.17 to this
---------- -------------
Agreement, there is no suit, action or legal, administrative, arbitration
pending, filed or initiated by, against or affecting Davis Lay, and the Company
has no knowledge of any suit, action or legal, administrative, arbitration or
other proceeding threatened by, against or affecting Davis Lay, or, with respect
to matters arising out of the Business, pending or threatened by, against or
affecting any of the Company's officers or directors. To the best of the
Company's knowledge there is no event or circumstance which could form the basis
of any such suit, action, proceeding or investigation.
3.18 Compliance with Law and Other Instruments. To the best of
-----------------------------------------
Company's knowledge, the business and operations of the Company with respect to
Davis Lay have been and are being conducted in accordance with all applicable
laws, statutes, ordinances, rules and regulations of all authorities (including,
without limitation, those relating to business conduct, public health and
safety, occupational health and safety and the environment). To the best of the
Company's knowledge, the Company is not in violation, nor will entry into the
transaction contemplated by this Agreement result in a violation or breach of,
or default under, any term or provision of its Articles of Incorporation or its
Bylaws or of any order, judgment, writ, injunction, decree, license or permit of
any court or any governmental or regulatory authority or of any indenture,
mortgage, deed of trust, lease, contract, instrument, commitment or other
agreement or arrangement, or subject to any restriction of any kind or
character, which would materially and adversely affect Davis Lay, the Business
or its prospects.
3.19 Intentionally Omitted.
----------------------
3.20 Licenses and Permits. Schedule 3.20 to this Agreement contains
-------------------- -------------
a true and complete list of all material licenses, permits, orders, approvals
and other authorizations issued to Davis Lay or to the Company on behalf of
Davis Lay and its employees, which are in full force and effect and
12
which in any way relate to the Business. Davis Lay and its employees or agents
have all licenses, permits, orders, approvals and other authorizations required
for the conduct of the Business as presently conducted and, to the best of the
Company's knowledge, no suspension or cancellation of any of them is threatened.
3.21 Benefit Plans. Except as previously disclosed to Buyer, Davis
--------------
Lay does not have any employee benefit plans ("Plans") which are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") including,
but not limited to, pension, retirement, profit sharing and stock bonus plans or
any Employee Plan that is a multi-employer plan as defined in Section 3(37) of
ERISA. To the best of the Company's knowledge, to the extent that it may affect
employees or the Purchased Assets of, each Plan is now, and has always been,
established, maintained and operated in all material respects in accordance with
all applicable laws (including but not limited to ERISA and the Internal Revenue
Code of 1986, as amended, and regulations thereunder) and in accordance with the
Plan documents. There is no unfunded liability for vested or nonvested benefits,
or any pending or, to the best knowledge of the Company, threatened litigation
or arbitration concerning or involving any Davis Lay Plan which could subject
the Purchased Assets of Davis Lay to any claims.
3.22 Brokerage and Finders' Fees. Except as previously disclosed to
---------------------------
Buyer, the Company has not incurred any liability to any broker, finder or agent
for any brokerage fees, finders' fees or commissions with respect to the
transactions contemplated by this Agreement.
3.23 Suppliers and Customers. No single supplier who accounted for
-----------------------
more than 10% of Davis Lay's purchases, or customer who accounted for more than
10% of Davis Lay's sales, during its most recent complete fiscal year, or the
fiscal year to date, nor any supplier who is a material source of supply of any
goods essential to the Business, has (i) canceled or otherwise terminated, or
made any threat to cancel or otherwise terminate, its relationship with the
Company or (ii) materially decreased its sale of services or supplies to the
Company or its purchase of products therefrom or made any threat with respect
thereto.
3.24 Intentionally Omitted.
----------------------
3.25 Hazardous Materials. To the best of the Company's knowledge,
-------------------
for the approximately ten year period during which it has leased the facility
located at 1601 Cummins Drive, Modesto, California, it has not been made aware
of any storage, use, manufacture, generation, disposal, treatment or release of
any "Hazardous Materials" (as defined below) on, under, or about such premises.
Buyer has had the opportunity to perform its own investigation of the
environmental condition of the above-referenced premises, and has either done
so, or knowingly and voluntarily waived its right to do so. The Company makes no
other representations or warranties whatsoever regarding the physical condition
of the above-referenced premises, and, except for such warranties and
representations which Buyer may be able to obtain from the owner of such
premises, the Buyer shall take possession of and accept said premises in their
current "as-is" condition. For the purposes of this Section, the term "Hazardous
Materials" shall mean flammable explosives, radioactive materials, hazardous
wastes, toxic substances or any other materials which are included within the
definition of "hazardous materials", "hazardous substances", "hazardous wastes",
or "toxic substances", under the
13
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (42 U.S.C. (S)(S) 9601 et seq.) or any other federal, state and local
laws or ordinances pertaining to industrial hygiene, soil and ground water or
environmental conditions, including, without limitation, asbestos in any form
and urea formaldehyde insulation. The use of the premises is in compliance with
all local, state and federal statutes, laws, ordinances, rules and regulations
regarding Hazardous Materials.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
----------------------------------------
to the Company as follows:
4.1 Organization and Standing. Buyer is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
California, with full power and authority (corporate and other) to carry on its
business and to enter into and carry out the terms of this Agreement.
4.2 Authority to Enter Agreement; Enforceability. Except for the
--------------------------------------------
requirement that the terms and conditions of this Agreement and the other
agreements to be entered into by Buyer in connection with the consummation of
this Agreement be approved by Buyer's Board of Directors, which approval has not
yet been obtained, (i) Buyer has the right, power and authority to enter into
and to carry out the terms of this Agreement and such other agreements, without
obtaining the approval or consent of any other party or authority, and (ii) this
Agreement and such other agreements, including, without limitation, the
Promissory Note constitute the legal, valid and binding agreements of Buyer,
enforceable against it in accordance with their respective terms.
4.3 Compliance with Law and Other Instruments. Except for the
-----------------------------------------
requirement that the terms and conditions of this Agreement and the other
agreements to be entered into by Buyer in connection with the consummation of
this Agreement be approved by Buyer's Board of Directors, which approval has not
yet been obtained, neither the execution and delivery of this Agreement or such
other agreements, nor the consummation of the transactions contemplated by this
Agreement and such other agreements, will conflict with, or result in a
violation or breach of, or constitute a default under, any term or provision of
Buyer's Certificate of Incorporation or Bylaws or any order, judgment, writ,
injunction, decree, license, permit, law, statute ordinance, rule or regulation
of any court or any governmental or regulatory authority (including, without
limitation the bulk sales provisions of the California Commercial Code) or any
indenture, mortgage, deed of trust, lease, contract, instrument, commitment or
other agreement or arrangement to which Buyer is a party or by which it or its
properties are bound. Buyer is duly licensed as a produce dealer with the
California Department of Food and Agriculture, Market Enforcement Division.
4.4 Brokerage and Finders' Fees. Buyer has not incurred any
---------------------------
liability to any broker, finder or agent for any brokerage fees, finders' fees
or commissions with respect to the transactions contemplated by this Agreement.
4.5 Litigation. There is no suit, action or legal, administrative,
-----------
arbitration or other proceeding pending, filed or initiated by, against or
affecting the Buyer which would affect the Buyer's ability to consummate the
transactions contemplated by this Agreement.
14
4.6 No Misrepresentation. The representations, warranties and
---------------------
statements made by Buyer in or pursuant to this Agreement are true, complete and
correct in all material respects. None of such representations, warranties or
statements contains any untrue statement of material facts or omits to state any
material fact necessary to make any such representation, warranty or statement,
under the circumstances in which it is made, not misleading.
5. COVENANTS OF THE PARTIES.
-------------------------
5.1 Operation of the Business of the Company. During the period from
----------------------------------------
and after the date of this Agreement and until the Closing Date, the Company
covenants and agrees that, unless it obtains Buyer's prior written consent to
the contrary, or except as specifically authorized in this Agreement, the
Company shall, with respect to Davis Lay, to,:
(a) make, amend and terminate contracts only in the ordinary course of
business;
(b) refrain from suffering or refrain from creating any security
interest, encumbrance or restriction on its properties or assets, except in the
ordinary course of business consistent with past practices;
(c) refrain from disposing of any of Davis Lay's properties or assets,
except in the ordinary course of business consistent with past practices;
(d) refrain from entering into or becoming a party to any employment,
consulting or sales representation agreement, except in the ordinary course of
business consistent with past practices;
(e) refrain from increasing the rate of compensation paid or payable
by it to any of Davis Lay's officers, directors, employees, agents, independent
contractors or consultants, except pursuant to existing contractual obligations,
and from making loans or advances to officers, directors, agents, employees,
independent contractors, consultants or any shareholder, or any member of the
families of any of them, except for advances for reasonable business expenses in
accordance with past practices;
(f) refrain from paying or agreeing to pay any bonus, extra
compensation, pension or severance pay under any pension plan or otherwise,
except pursuant to existing contractual obligations;
(g) maintain its books accounts and records in the usual, regular and
ordinary manner and in compliance with all applicable laws;
(h) meet its obligations under all contracts and not become in default
thereunder;
15
(i) maintain all of its assets in good repair, order and condition,
ordinary wear and tear excepted;
(j) refrain from borrowing or agreeing to borrow any funds other than
under existing banking relationships, in the ordinary course of business
consistent with past practices;
(k) refrain from guaranteeing or agreeing to guarantee the obligations
of others;
(l) refrain from waiving or committing to waive any rights of
substantial value except for good and valuable consideration;
(m) refrain from canceling or materially amending any insurance policy
except in exchange for a new policy with at least the same coverage;
(n) refrain from entering into any transaction which would in any
significant respect change the character of the Business; and
(o) operate in such manner as to assure that the representations and
warranties of the Company set forth in this Agreement will be true, correct and
complete on and as of the Closing Date.
5.2 Access to Information and Records. The Company covenants and
---------------------------------
agrees to cause the Company, to give Buyer and its counsel, accountants and
other representatives (collectively, "Buyer's Representatives") full access,
during normal business hours, throughout the period prior to the Closing Date,
to all information concerning Davis Lay's assets, properties, contracts,
commitments, books and records, and to cause the Company to furnish Buyer and
Buyer's Representatives during such period with all information concerning Davis
Lay's affairs as they reasonably may request. No investigation or inquiry made
by Buyer or Buyer's Representatives hereunder shall in any way affect or lessen
the representations and warranties made by the Company r under this Agreement.
Buyer will make no contact with Davis Lay's hourly personnel except as may be
expressly authorized by the Company.
5.3 Best Efforts; Further Assurances. Each party to this Agreement
--------------------------------
shall use his or its best efforts to cause the satisfaction of all conditions to
the consummation of this Agreement which are in the control of such party and to
cooperate as necessary in the satisfaction of all other conditions to the
consummation of this Agreement. Each party hereto will, from time to time after
the execution and consummation of this Agreement, execute and deliver such
instruments, documents and assurances and take such further actions as the other
parties may reasonably request to carry out the purpose and intent of this
Agreement. The parties agree to cooperate in determining whether mail received
by the Company or the Buyer after the Closing Date belongs to the other party,
and both parties agree to forward mail belonging to the other party as soon as
is reasonably practicable upon receipt.
5.4 Publicity. All notices to third parties and all other publicity
---------
concerning this Agreement and the transactions contemplated by this Agreement
shall be jointly planned and
16
coordinated between Buyer, on the one hand, and the Company on the other hand.
No party shall make a unilateral press release or public announcement, or
announcement to employees, creditors, customers or others without the prior
written approval of the other parties except as may be required by law.
5.5 Trade Secrets, Non-Competition, Etc. As a material inducement to
-----------------------------------
Buyer to enter into and consummate this Agreement, the Company agrees that,
after the Closing Date:
(a) Trade Secrets. The Company shall not, without the prior written
-------------
consent of Buyer, except as may be required by law, governmental rules and
regulations or litigation between the parties, disclose or use, in any way, any
confidential business or technical information or trade secret of Davis Lay,
whether or not conceived of or prepared by the Company (the "Trade Secrets"),
including without limitation any information concerning any procedures,
operations, investments, techniques, data, compilations of information, records,
financing, costs, employees, purchasing, accounting, marketing, merchandising,
sales, customers, salaries, pricing, profits, plans for future development, and
the identity, requirements, preferences, practices and methods of doing business
of specific parties with whom Davis Lay transacts business, and all other
information which is related to the Business; all of which Trade Secrets will be
the exclusive and valuable property of Buyer.
(b) Tangible Items. All customer lists, , trade names, files,
--------------
records, documents, drawings, plans, specifications, manuals, books, forms,
receipts, notes, reports, memoranda, studies, data, calculations, recordings,
catalogues, compilations of information, correspondence and all copies,
abstracts and summaries of the foregoing and all physical items related to the
Business, other than a merely personal item, whether of a public nature or not,
and whether prepared by the Company or not, are and shall be the exclusive
property of Buyer and shall not be removed from the premises of Buyer, without
the prior written consent of Buyer. Upon delivery of reasonable prior notice to
Buyer, the Company shall have reasonable access to all of the above tangible
items for a period of seven (7) years following the Closing Date. Buyer agrees
to give the Company prior written notice of any proposed destruction of any of
the above tangible items sufficient to allow the Company to make necessary
copies of such items.
(c) Solicitation of Customers. During the period commencing on the
--------------------------
Closing Date and ending four years from that date (such period not to include
any period of violation hereof by the Company or period which is required for
litigation to enforce this Section 5.5(c)), the Company shall not directly or
indirectly, either for its or his own benefit or purposes or for the benefit or
purposes of any other person, solicit, call on, interfere with, accept any
business from, attempt to divert or entice away any person or firm who was or is
a customer of the Business prior to or on the Closing Date or is a customer of
Buyer after the Closing Date, if such business involves the wholesale
distribution of food or related equipment or supplies. The parties understand,
acknowledge and agree, however, that the Company may actively solicit and accept
business from any person who is or was a customer of Davis Lay for purposes of
selling the Company's manufactured food products.
(d) Solicitation of Employees. During the period commencing on the
-------------------------
Closing Date and ending four years from that date, the Company shall not,
directly or indirectly, call on, solicit, interfere with or attempt to entice
away any existing employee of Buyer. Buyer
17
understands, acknowledges and agrees that, provided the Company has complied
with the foregoing with respect to any employee of Buyer, the Company shall be
free to employ any person who first terminates his or her employment with Buyer,
subject to the terms of any non-competition agreement which may still be in
force between Buyer and such person.
(e) Noncompetition.
---------------
(i) As used herein, the term "Competitive Activity" shall mean
any participation in, assistance of business from, engagement in business with,
or assistance, promotion or organization of, any person, partnership,
corporation, firm, association or other business organization, entity or
enterprise by the Company which, directly or indirectly, is engaged in, or
hereinafter engages in the wholesale distribution of produce.
(ii) During the period commencing on the Closing Date and ending
on four years from that date (any such period not to include any period of
violation hereof by the Company or period which is required for litigation to
enforce this Section 5.5(e)), the Company shall not engage in any Competitive
Activity in the State of California;
(f) Injunctive Relief. The Company hereby acknowledges and agrees
-----------------
that it would be difficult to fully compensate Buyer for damages resulting from
the breach or threatened breach of the foregoing provisions and, accordingly,
that Buyer, shall be entitled to temporary and injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent injunctions,
to enforce such provisions. This provision with respect to injunctive relief
shall not, however, diminish the right of Buyer to claim and recover damages.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's
----------------------------------------------------
obligation to consummate this Agreement is expressly subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by Buyer in writing):
6.1 Representation and Warranties. Unless the Company agrees to cure
-----------------------------
any default, all representations and warranties of the Company contained in this
Agreement, or any certificate, schedule, exhibit, statement, report or other
document delivered or furnished by the Company pursuant this Agreement, shall be
true, correct and complete (except for changes in the ordinary course of
business or events beyond the Company's control) as of the Closing Date as if
made at and as of such date.
6.2 Covenants. The Company shall have performed and satisfied all
---------
covenants and conditions required by this Agreement to be performed or satisfied
by them on or prior to the Closing Date.
6.3 Intentionally Omitted.
---------------------
18
6.4 Material Errors. Buyer shall not have discovered any material
---------------
error, misstatement or omission in any of the representations or warranties made
by the Company in this Agreement, or any certificate, schedule, exhibit,
statement, report or other documents delivered or furnished by the Company
pursuant to this Agreement; or (ii) failure on the part of the Company to
perform or satisfy any covenants or conditions required to be performed or
satisfied by it or him under this Agreement.
6.5 Absence of Litigation. No action or proceeding shall have been
---------------------
instituted or threatened prior to or at the Closing Date before any court or
other governmental body, or instituted or threatened by any public authority,
the result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement or which could have a material adverse
effect the Company or its properties, Business or prospects.
6.6 Absence of Damage to Property. Davis Lay's tangible property
-----------------------------
shall not have suffered any substantial (meaning greater than $10,000 in value)
damage or destruction not covered by insurance, whether by fire or otherwise,
and whether or not covered by insurance, which could have a material adverse
effect on the Business or its prospects.
6.7 Consents. The Company shall have obtained the consent or
--------
approval of each person whose consent to or approval of the transactions
contemplated by this Agreement or the other agreements to be entered into in
connection with this Agreement is required in order to consummate this such
other agreements or to continue the operation of the Business as it is currently
conducted. Such consents and approvals shall include, without limitation, the
consent of Davis Lay's current landlord in regard to Buyer's assumption of the
Company's real property leasehold interest, in forms satisfactory to Buyer and
its counsel.
6.8 Intentionally Omitted.
----------------------
6.9 Execution of Non-Compete Agreements. Messrs. Dan Costa, Glenn
-----------------------------------
Davis and Jeffrey Sacchini shall have executed and delivered to Buyer, a Non-
Compete Agreement in the forms attached as Exhibit C-1, C-2 and C-3 to this
Agreement (a "Non-Compete Agreement").
6.10 Intentionally Omitted.
----------------------
6.11 Opinion of Counsel. The Company shall have furnished Buyer with
------------------
the opinion of Curtis & Arata, dated as of the Closing Date, in form and
substance reasonably satisfactory to Buyer and its counsel, covering the matters
specified in Exhibit D to this Agreement.
6.12 Due Diligence Review. On or prior to June 5, 1997, Buyer and
--------------------
Buyer's representatives shall have completed their due diligence review of the
Company, to their complete satisfaction.
19
6.13 Board Approval. Buyer's Board of Directors shall have approved
--------------
of the terms and conditions of this Agreement and the other agreements to be
entered into in connection with this Agreement.
6.14 Approval of Documentation. The form and substance of all
--------------------------
opinions, certificates, instruments of transfer and other documents to be
furnished by the Company and its counsel under this Agreement shall be
satisfactory in all reasonable respects to Buyer and its counsel.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND TO CLOSE.
--------------------------------------------------------------------
The obligation of the Company to consummate this Agreement is expressly subject
to the satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part in writing by all of the Company ):
7.1 Representations and Warranties. All representations and
------------------------------
warranties of Buyer contained in this Agreement shall be true, correct and
complete as of the Closing Date as if made at and as of such date.
7.2 Covenants. Buyer shall have performed and satisfied all
---------
covenants and conditions required by this Agreement to be performed or satisfied
by it on or prior to the Closing Date, including, without limitation, approval
by Buyer's Board of Directors of the terms and conditions of this Agreement and
the other agreements to be entered into in connection with this Agreement.
7.3 Intentionally Omitted.
7.4 Material Errors, Etc. The Company shall not have discovered any
--------------------
material (i) error, misstatement or omission in any of the representations or
warranties made by Buyer in this Agreement, or any certificate, schedule,
exhibit, statement, report or other document delivered or furnished by Buyer
pursuant to this Agreement; or (ii) failure on the part of Buyer to perform or
satisfy any covenants or conditions required to be performed or satisfied by it
hereunder.
7.5 Absence of Litigation. No action or proceeding shall have been
---------------------
instituted prior to or at the Closing Date before any court or other
governmental body, or instituted or threatened by any public authority, the
result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement.
7.6 Opinion of Counsel. Buyer shall have furnished the Company with
------------------
the opinion of Donald G. Alvarado, Esq., dated the Closing Date, in form and
substance reasonably satisfactory to the Company and its counsel, covering the
matters specified in Exhibit E to this Agreement.
7.7 Approval of Documentation. The form and substance of all
-------------------------
opinions, certificates and other documents to be delivered by Buyer and its
counsel under this Agreement shall be satisfactory in all reasonable respects to
the Company and its counsel.
20
8. TERMINATION AND ABANDONMENT.
----------------------------
8.1 Termination. This Agreement may be terminated on or before the
-----------
Closing Date without liability on the part of any party exercising such right of
termination:
(a) by the mutual consent of Buyer and the Company ;
(b) by any party hereto if there has been a material misrepresentation
or breach on the part of the other party of the warranties of such other party
as set forth in this Agreement or made pursuant hereto, or if there has been any
material failure on the part of the other party to perform its obligations or
comply with the covenants under this Agreement.
8.2 Procedure and Effect of Termination. In the event of termination
-----------------------------------
and abandonment by Buyer, as one party, or by the Company , as the other party,
or by both parties pursuant to Section 8.1 above, written notice thereof shall
be given to the other party and this Agreement shall terminate and be abandoned,
without further action by any of the parties hereto. If this Agreement is
terminated as provided in Sections 8.1(a) or 8.1(b) above or because a condition
to a party's obligation to consummate the transactions contemplated by this
Agreement has not been satisfied by July 1, 1997, and the other party is not in
default, no party hereto shall have any liability or further obligations to any
other party to this Agreement.
9. SURVIVAL AND INDEMNIFICATION.
-----------------------------
9.1 Survival of Representations, Warranties and Covenants. For a
-----------------------------------------------------
period commencing on the Closing Date and ending on the second anniversary
thereof, all representations, warranties and agreements made by Buyer and the
Company in this Agreement (including statements contained in any schedule,
certificate, exhibit, statement, report or other document delivered by or on
behalf of any party hereto or in connection with the transactions contemplated
hereby) shall survive the execution, delivery and performance of this Agreement
and any investigations, inspections, examinations, or audits made by or on
behalf of the parties. Nothing in this Section 9.1 shall affect the obligations
and indemnities of the parties with respect to the covenants and agreements
contained in this Agreement that are permitted or required to be performed, in
whole or in part, after the Closing Date.
9.2 Indemnification.
----------------
(a) Except for the limitations on indemnification regarding
uncollectible accounts receivable and unsold inventory as set forth in Section
1.5 herein, for a period commencing on the Closing Date and ending on the second
anniversary thereof, the Company agrees to indemnify Buyer and hold it harmless
against and in respect of any and all claims, losses, expenses, obligations and
liabilities, including court costs and reasonable attorneys' fees associated
therewith, which arise or result from or are incident or related to (i) the
inaccuracy of any representation or breach of any warranty of the Company , or
(ii) any default or failure of the Company's commitments or obligations under
this Agreement, or (iii) by reason of any act or omission of the Company which
constitutes a
21
breach or default under this Agreement, or (iv) the Excluded Liabilities. The
Company shall reimburse Buyer on demand for any payment made or loss suffered by
Buyer at any time after the execution of this Agreement, based upon the judgment
of any court of competent jurisdiction or pursuant to a bona fide compromise or
settlement of claims, demands or actions, in respect of any damages to which the
foregoing indemnity relates. Notwithstanding the foregoing, Buyer shall have the
right, but shall not be required, to offset or reduce the amount of any and all
payments made as part of the Purchase Price by the amount of any such payment or
loss up to a maximum of Five Hundred Thousand Dollars ($500,000.00). Any such
offset or reduction shall not be deemed a waiver of any right or remedy which
Buyer may have either under this Agreement or otherwise. Consummation of the
transaction contemplated under this Agreement shall not be deemed or construed
to be a waiver of any right or remedy of Buyer, nor shall this Section or any
other provision of this Agreement be deemed or construed to be a waiver of any
ground of defense by Buyer. The maximum amount of the Company's liability under
this Section shall be Five Hundred Thousand Dollars ($500,000.00).
(b) For a period commencing on the Closing Date and ending on the
second anniversary thereof, Buyer agrees to indemnify the Company and hold them
harmless against and in respect of any and all damages, claims, losses,
expenses, costs, obligations and liabilities, including court costs and
reasonable attorneys' fees, which arise or result from or are incident or
related to (i) the inaccuracy of any representation or breach of any warranty of
Buyer, or (ii) any default of the commitments or obligations of Buyer under this
Agreement, or (iii) by reason of any act or omission of Buyer which constitutes
a breach or default under this Agreement, or (iv) the Assumed Liabilities. Buyer
shall reimburse the Company on demand for any payment made or loss suffered by
it at any time after the execution of the Agreement, based on the judgment of
any court of competent jurisdiction or pursuant to a bona fide compromise or
settlement of claims, demands or actions, in respect of any damages to which the
foregoing indemnity relates. Consummations of the transaction contemplated under
this Agreement shall not be deemed or construed to be a waiver of any right or
remedy of the Company, nor shall this Section or any other provision of this
Agreement be deemed or construed to be a waiver of any ground of defense by
them. The maximum amount of Buyer's liability under this Section shall be Five
Hundred Thousand Dollars ($500,000.00).
(c) The party indemnified hereunder (the "Indemnitee") shall promptly
notify the indemnifying party (the "Indemnitor") of the existence of any claim,
demand, or other matter involving liabilities to third parties to which the
Indemnitor's indemnification obligations would apply and shall give the
Indemnitor 30 days (or such shorter period as required by the contingencies of
such claim, demand or other matter involving liabilities to third parties) in
which to elect to defend the same at its own expense and with counsel of its own
selection (who shall be approved by the Indemnitee, which approval shall not be
unreasonably withheld); provided that the Indemnitee shall at all times also
have the right to fully participate in the defense at its own expense. If the
Indemnitor shall, within such 30-day period, fail to defend, the Indemnitee
shall have the right, but not the obligation, to undertake the defense of, and
to compromise or settle (exercising reasonable business judgment) the claim or
other matter on behalf, for the account, and at the risk and expense of the
Indemnitor. Notwithstanding the foregoing, if the matter might have an effect
on the ongoing Business or the Purchased Assets or Buyer's relationship with
customers or suppliers, Buyer shall have first right to defend the same on the
basis set forth in the preceding sentence. Except as provided above, the
Indemnitee shall not compromise or settle the claim or other matter without the
written consent of the
22
Indemnitor, such consent not to be unreasonably withheld. If the claim is one
that cannot by its nature be defended solely by the Indemnitor, the Indemnitee
shall make available all information and assistance that the Indemnitor may
reasonably request; provided that any associated expenses shall be paid by the
Indemnitor.
10. MISCELLANEOUS.
--------------
10.1 Notices. Any notice or other communication required or
-------
permitted hereunder shall be in writing, and shall be deemed to have been given
if personally delivered or 72 hours after being placed in the United States
mail, registered or certified-return receipt requested, postage prepaid,
addressed as follows:
If to the Company: Mallard's Food Products, Inc.
708 L Street
Modesto, CA 95354-2240
Phone: (209) 522-1018
Fax: (209) 577-8364
With a copy to: Ralph S. Curtis, Esq.
Curtis & Arata
P.O. Box 3030
Modesto, CA 95353
1300 K Street
Modesto, CA 95354
Phone: (209) 521-1800
Fax: (209) 572-3501
If to Buyer: Port Stockton Food Distributors, Inc.
4343 E. Fremont Street
P.O. Box 30
Stockton, CA 95201
Attn: John Goneau
Phone: (209) 944-4658
Fax: (209) 467-3640
With a copy to: Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attn: Donald G. Alvarado, Esq.
Phone: (213) 589-9726
Fax: (213) 589-0415
Each of the parties shall be entitled to specify a different address
by giving notice as aforesaid.
23
10.2 Entire Agreement. This Agreement, and the Exhibits and
----------------
Schedules hereto, which are incorporated into this Agreement by reference and
are made a part hereof, constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations, and discussions, whether oral or
written.
10.3 Amendment and Modification. No supplement, modification, waiver
--------------------------
or termination of this Agreement shall be binding unless executed in writing by
the party to be bound. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
10.4 Headings. Section and subsection headings are not to be
--------
considered part of this Agreement and are included solely for convenience and
reference and shall not be held to define, construe or limit the meaning of any
provision of this Agreement.
10.5 Successors and Assigns. All of the terms, provisions and
----------------------
obligations of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, representatives,
successors and assigns. Notwithstanding the foregoing, neither this Agreement
nor any rights or obligations hereunder shall be assigned, pledged, hypothecated
or otherwise transferred by a party without the prior written consent of all
other parties, except (i) by operation of law, or (ii) by Buyer to any entity
that Buyer controls (provided that such assignment shall not relieve Buyer of
its obligations hereunder, if such assignee does not perform such obligations).
10.6 Governing Law; Venue. The validity, construction and
--------------------
interpretation of this Agreement shall be governed by the internal laws of the
State of California applicable to contracts made and to be performed wholly
within that state. In the event the arbitration clause set forth herein does not
apply, any action commenced by the parties may be brought only in the Federal or
California state courts serving Stanislaus County. The parties expressly consent
to the jurisdiction of the foregoing courts, and waive any objection that such
courts constitute an inconvenient forum.
10.7 Third Parties. Nothing in this Agreement, expressed or implied,
-------------
is intended to confer upon any person other than the parties hereto any rights
or remedies under or by reason of this Agreement.
10.8 Expenses; Attorneys' Fees. Each party shall bear the expenses
-------------------------
(including, without limitation, attorneys' fees) incurred by him or it in
connection with the negotiation, execution and delivery of this Agreement and
the agreements contemplated by this Agreement. In the event any party takes
legal action to enforce any of the terms of this Agreement, the unsuccessful
party to such action shall pay the successful party's reasonable expenses,
including attorneys' fees for pretrial investigation, at trial, and on appeal,
incurred in such action.
10.9 Arbitration; Mediation. Any dispute concerning this Agreement
-----------------------
shall first be mediated by the parties. If the dispute is not settled by way of
mediation, the parties shall submit any and all disputes concerning the
interpretation of the enforcement of rights and duties under this
24
Agreement to final and binding arbitration pursuant to the California
Arbitration Act (CCP (S)(S) 1280-1294.2). At the request of any party, the
arbitrators, attorneys, parties to the arbitration, witnesses, experts, court
reporters, or other persons present at the arbitration shall agree in writing to
maintain the strict confidentiality of the arbitration proceedings. Arbitration
shall be conducted by a neutral arbitrator selected in accordance with the
statute and/or rules governing the arbitration. The award of the arbitrator
shall be enforceable according to the applicable provisions of the California
Code of Civil Procedure. The arbitrator may award damages, interest, attorneys'
fees and litigation costs, and/or permanent injunctive relief, but in no event
shall the arbitrator have the authority to award punitive or exemplary damages.
The prevailing party, as determined by the arbitrator, shall be entitled to
recover all of its reasonable litigation fees and costs. Notwithstanding the
foregoing, a party may apply to a court of competent jurisdiction for relief in
the form of a temporary restraining order or preliminary injunction, or other
provisional remedy pending final determination of a claim through arbitration in
accordance with this paragraph. If proper notice of any hearing has been given,
the arbitrator will have full power to proceed to take evidence or to perform
any other acts necessary to arbitrate the matter in the absence of any party who
fails to appear. THE PARTIES UNDERSTAND, ACKNOWLEDGE AND AGREE THAT THEY ARE
HEREBY WAIVING THEIR RESPECTIVE RIGHT TO A JURY TRIAL BY AGREEING TO SUBMIT ANY
AND ALL DISPUTES TO FINAL AND BINDING ARBITRATION.
10.10 Counterparts. This Agreement may be executed simultaneously
------------
and in two or more counterparts, each one of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
10.11 Intentionally Omitted.
----------------------
10.12 Severable Provisions. If any of the provisions of this
--------------------
Agreement may be determined to be illegal or otherwise unenforceable, in whole
or in part, the remaining provisions, and any partially unenforceable provisions
to be the extent enforceable, shall nevertheless be binding and enforceable. For
the purpose of determining the scope of the covenants set forth in Section
5.5(e)(ii) above, each of the subsections thereof shall be considered a separate
covenant such that if the geographic scope of any such subsections shall be
determined by a court of competent jurisdiction to be excessive and invalid,
such subsections shall be severed and the remaining subsections shall be deemed
enforceable and remain in full force and effect.
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in Modesto, California as of the date and year first set
forth above.
BUYER:
------
PORT STOCKTON FOOD DISTRIBUTORS, INC.,
a California corporation
By /s/ John R. Goneau, Jr.
-----------------------
Its President
By /s/ Michael R. LeMaster
-----------------------
Its Vice President
THE COMPANY:
------------
MALLARD'S FOOD PRODUCTS, INC., a
California corporation
By /s/ Dan J. Costa
----------------
Its CEO
26
EXHIBITS
--------
A - Promissory Note
B - Continuing Guaranty
C-1 Agreement Not to Compete for Dan Costa
C-2 Agreement Not to Compete for Glenn Davis
C-3 Agreement Not to Compete for Jeffrey Sacchini
D- Opinion of Company's Counsel
E- Opinion of Buyer's Counsel
27
SCHEDULES
---------
Schedule No. Description
- ------------ -----------
3.5 Balance Sheet as of December 29, 1996
3.6 Material or Significant Changes in Financial Position
3.11 Employees
3.13A List of Personal Property
3.13B Personal Property Leases
3.14 Intangible Property
3.15 Other Agreements
3.17 Litigation
3.20 Licenses and Permits
28