EXHIBIT 2(b)
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "AMENDMENT")
amends and supplements the provisions of the Agreement and Plan of Merger
dated as of March 13, 1998 (the "MERGER AGREEMENT") by and among RUGGED
LINER, INC. ("RUGGED LINER"), AEROCOVER, INC. ("AEROCOVER"), GROUND FORCE,
INC. ("GROUND FORCE"), and TRIAD MANAGEMENT GROUP, INC. ("TRIAD"), THE
COLONELS' INTERNATIONAL, INC. (the "BUYER") and THE COLONEL'S RUGGED LINER,
INC. ("MERGERSUB"), MARK GERMAN ("MR. GERMAN") and the other Shareholders
of Rugged Liner, Aerocover, Ground Force and Triad (the "SHAREHOLDERS"),
and DONALD J. WILLIAMSON ("MR. WILLIAMSON") as follows:
Unless indicated to the contrary in this Amendment, terms defined in
the Merger Agreement shall have the same meanings when used herein.
1. AMENDMENTS TO MERGER AGREEMENT. The parties agree that the
Merger Agreement shall be amended as follows:
(a) SECTION 2.1. The firs paragraph of Section 2.1 of the
Merger Agreement shall be amended to read in its entirety as follows:
2.1 EFFECT ON SHARES AND MERGERSUB'S CAPITAL STOCK.
In the aggregate, the Shareholders are entitled to receive (a)
Four Million Two Hundred Fifty Thousand Dollars ($4,250,000) in
cash and (b) a number of shares of Buyer's Common Stock
determined by dividing Four Million Two Hundred Fifty Thousand
Dollars ($4,250,000) by the average of the per share closing
prices of Buyer's Common Stock on the Nasdaq SmallCap Market for
each of the thirty trading days immediately prior to April 2,
1998 (the "AVERAGE TRADING PRICE"), all as set forth below and
subject to adjustments in Sections 2.2, 2.3, 2.4 and 2.5 (the
"MERGER CONSIDERATION"). The parties agree that the Average
Trading Price is $8.203 per share of Buyer's Common Stock.
(b) SECTION 2.2. Section 2.2 of the Merger Agreement shall be
amended to read in its entirety as follows:
2.2 ADJUSTMENTS TO MERGER CONSIDERATION.
2.2.1 ACCOUNTS PAYABLE AND OTHER DEBT, AND RENTAL
PAYMENTS. The cash portion of the Merger Consideration set forth
in Section 2.1 shall be reduced, on a dollar-for-dollar basis, by
the following amounts: (i) the aggregate amount of the accounts
payable of the Rugged Liner Companies as of the Closing Date,
including without limitation all obligations of the Rugged Liner
Companies under the promissory notes payable to Mr. German
attached as Exhibit A to this Amendment (including principal and
accrued interest), (ii) the aggregate amount of the Rugged Liner
Companies' indebtedness to any financial institution as of the
Closing Date, and (iii) the aggregate unpaid rental amounts for
the remaining terms of all the tractor-trailer leases listed in
Exhibit 2.2-2. Accounts payable shall not include Inter-Company
Payables. As used herein, the term "Inter-Company Payables"
means all accounts payable by one of the Rugged Liner Companies
or any other corporation or entity in which Mr. German is a
shareholder or owner (each, a "RELATED ENTITY") to any other
Related Entity or Entities. The parties agree that all of these
adjustment amounts are set forth on the Closing Memorandum dated
April 23, 1998.
2.2.2 CASH ON HAND; TAX GROSS-UP. The cash portion
of the Merger Consideration set forth in Section 2.1 shall be
increased, (a) on a dollar-for-dollar basis, by the aggregate
amount of cash on hand of the Rugged Liner Companies as of the
Closing Date and (b) by Eight Hundred Twenty Thousand Dollars
($820,000), which amount the parties agree represents the
Shareholders' estimated additional tax liability resulting from
the 338 Election (as defined below). The parties agree that all
of these adjustment amounts are set forth on the Closing
Memorandum dated April 23, 1998.
2.2.3 GAS CAN LITIGATION. The Merger Consideration
shall be reduced by $150,000, representing the amount that the
parties agree to be the Rugged Liner Companies' aggregate
liability resulting from or arising out of certain pending class
action lawsuits in which the Rugged Liner Companies (or any of
them) are named defendants (the "GAS CAN LITIGATION"). This
adjustment shall be made as follows: (i) 50 percent ($75,000) by
a decrease in the cash payable to the Shareholders, and (ii) 50
percent ($75,000) by a decrease in the number of shares of
Buyer's Common Stock issuable to the Shareholders, with the
number of shares of Buyer's Common Stock to be determined based
on the Average Trading Value.
(c) SECTION 2.3.1 Section 2.3.1(c) shall be amended to read in
its entirety as follows:
(c) "AGGREGATE ACCOUNTS RECEIVABLE VALUE" means the total
aggregate value of all of the Rugged Liner Companies' accounts
receivable outstanding as of the Closing Date (defined below),
net of allowances for doubtful accounts, as determined in
accordance with GAAP. As used herein, the term "Inter-Company
Receivables" means all accounts receivable of each Related Entity
from any other Related Entity or Entities.
(d) SECTION 2.3.2 Section 2.3.2 of the Merger Agreement shall
be amended to read in its entirety as follows:
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2.3.2 PHYSICAL INVENTORY; INSPECTION OF AGGREGATE
ACCOUNTS RECEIVABLE VALUE. On or before the Closing Date, Buyer
and the Rugged Liner Companies shall jointly conduct or cause to
be conducted (a) a physical inventory (the "PHYSICAL INVENTORY")
of the Merchandise Inventory and (b) an inspection or review of
the Aggregate Accounts Receivable Value (the "A/R INSPECTION").
The Physical Inventory and the A/R Inspection shall be conducted
in accordance with GAAP in a manner consistent with prior years.
Upon completion of the Physical Inventory and the A/R Inspection,
Buyer and the Rugged Liner Companies shall use their best efforts
to agree upon the Aggregate Inventory Value and the Aggregate
Accounts Receivable Value.
(e) SECTION 2.3.3. Section 2.3.3 of the Merger Agreement shall
be amended to read in its entirety as follows:
2.3.3 ADJUSTMENTS TO MERGER CONSIDERATION.
(a) ADJUSTMENT AMOUNT.
(i) If the Aggregate Inventory Value (as
determined pursuant to Section 2.3.2) is less than One Million
Eight Hundred Thousand Dollars ($1,800,000), the Merger
Consideration shall be decreased by the amount that the Aggregate
Inventory Value is less than such amount. If such Aggregate
Inventory Value is greater than One Million Eight Hundred
Thousand Dollars ($1,800,000), the Merger Consideration shall be
increased by the amount that the Aggregate Inventory Value is
greater than such amount.
(ii) If the Aggregate Accounts Receivable
Value (as determined pursuant to Section 2.3.2) is less than
Seven Hundred Fifty Thousand Dollars ($750,000), the Merger
Consideration shall be decreased by the amount that the Aggregate
Inventory Value is less than such amount. If such Aggregate
Accounts Receivable Value is greater than Seven Hundred Fifty
Thousand Dollars ($750,000), the Merger Consideration shall be
increased by the amount that the Aggregate Inventory Value is
greater than such amount.
(b) PAYMENT TERMS. If the aggregate Merger
Consideration for the Shares is increased pursuant to this
Section 2.3, the adjustment payment shall be paid by a cash
payment by Buyer to the Shareholders. If the aggregate Merger
Consideration for the Shares is decreased pursuant to this
Section 2.3, the adjustment payment shall be paid as follows:
(i) 50 percent by a cash payment from the Shareholders to Buyer,
and (ii) 50 percent by the cancellation of a portion of Buyer's
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Common Stock previously issued to the Shareholders, with the
number of shares of Buyer's Common Stock to be so canceled to be
determined based on the Average Trading Value.
The parties agree that all of these adjustment amounts are set forth
on the Closing Memorandum dated April 23, 1998.
(f) SECTION 2.11. Section 2.11 of the Merger Agreement is
amended to read in its entirety as follows:
2.11 STUB PERIOD. The Rugged Liner Companies shall be
required to file income tax returns for the period between the
end of their 1997 fiscal years and the Effective Time. Prior to
filing such tax returns, the Rugged Liner Companies shall allow
Buyer and its representatives a reasonable time to review and
comment on such filings.
(g) SECTION 3.7. Section 3.7 of the Merger Agreement is amended
to read in its entirety as follows:
3.7 FINANCIAL STATEMENTS. To the knowledge of Mr. German
and each of the Rugged Liner Companies, the audited financial
statements (the "FINANCIAL STATEMENTS") of the Rugged Liner
Companies and other related entities as of and for the fiscal
years ended December 31, 1997 and December 31, 1996, as reported
on by their independent accountants, Deloitte & Touche LLP,
including all schedules and notes relating to such statements,
are correct and complete in all material respects and fairly
present the Rugged Liner Companies' financial condition and
results of operation on the dates and for the periods indicated
and have been prepared in conformity with GAAP applied
consistently throughout the periods indicated. The Financial
Statements were not prepared exclusively for the Rugged Liner
Companies, but include related entities.
(h) SECTION 3.11 Section 3.11 of the Merger Agreement is
amended to read in its entirety as follows:
3.11 TAXES. Each of the Rugged Liner Companies is an S
corporation for both Federal and State tax purposes. As such,
the various items of income and expenses pass through to the
Shareholders for inclusion on their individual tax returns. The
Rugged Liner Companies are responsible for Pennsylvania Capital
Stock Tax (all) and California Franchise Tax (Rugged Liner and
Ground Force only) and have filed the appropriate returns and
paid the tax for all open years. Since the Rugged Liner
Companies are S corporations, no deferred taxes have been
provided for on the books of such Companies. To the knowledge of
the Rugged Liner Companies and Mr. German, except as discussed in
Section 3.11 of the Disclosure Schedule:
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3.11.1 FILINGS. Each of the Rugged Liner Companies
has filed on a timely basis since 1992 all federal, state,
local and other tax returns that are or were required to be
filed, except for tax returns that are currently on
extension until September 15, 1998. Each of the Rugged
Liner Companies has paid, or made provision for the payment
of, all taxes that have or may have become due pursuant to
those tax returns (including tax returns on extension) or
otherwise, or pursuant to any assessment received by it.
3.11.2 AUDITS. No Rugged Liner Company has ever had
an audit with respect to any of its tax returns in the past
six years. All tax returns are closed by the applicable
statute of limitations for all taxable years through 1992.
No Rugged Liner Company has given or been requested to give
waivers or extensions of any limitation period relating to
the payment of taxes.
3.11.3 RESERVES. The charges, accruals, and reserves
with respect to taxes on the books of each of the Rugged
Liner Companies are adequate (determined in accordance with
GAAP) and are at least equal to such Rugged Liner Company's
liability for taxes during fiscal year 1997. No deferred
taxes have been recorded on the books. There exists no
proposed tax assessment against any of the Rugged Liner
Companies. No consent to the application of Section
341(f)(2) of the Internal Revenue Code of 1986, as amended
(the "CODE") has been filed with respect to any property or
assets held, acquired, or to be acquired by any of the
Rugged Liner Companies. All taxes that the Rugged Liner
Companies are or were required to withhold or collect have
been duly withheld or collected and, to the extent required,
have been paid to the proper person or entity.
3.11.4 TRUE, CORRECT AND COMPLETE. All tax returns
filed by each of the Rugged Liner Companies are true,
correct, and complete. There is no tax sharing agreement
that will require any payment by any of the Rugged Liner
Companies after the date of this Agreement.
(i) SECTION 3.22. Section 3.22 of the Merger Agreement is
amended to read in its entirety as follows:
3.22 PRODUCT LIABILITIES AND WARRANTIES. Section
3.22 of the Disclosure Schedule sets forth (a) a copy of the form
of written warranties covering each product sold in the Business;
and (b) a summary of any modification of such warranty given to
any customer that is still in effect. During the past five
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years, the aggregate amount of expenses incurred by the Rugged
Liner Companies relating to warranty claims has not exceeded
$230,000. There have been no personal injury product liability
claims asserted against any Rugged Liner Company during the last
five years.
(j) SECTION 6.3. Section 6.3 of the Merger Agreement is amended
to read in its entirety as follows:
6.3 SECTION 338 ELECTION AND OTHER ACTIONS.
(a) SECTION 338 ELECTION. Buyer and the Rugged
Liner Companies and the Shareholders (for purposes of this
Section 6.3(a), the Rugged Liner Companies and the Shareholders
being referred to as the "Sellers") shall make an election under
Section 338(h)(10) of the Code (the "338 Election"), and any
comparable elections under state and local tax laws, with respect
to the purchase of the Shares hereunder pursuant to the Mergers.
Buyer and the Sellers shall cooperate fully with each other in
making the 338 Election, including but not limited to the joint
execution and filing of all necessary copies of IRS Form 8023 and
the attachments thereto on or before the due date thereof,
including extensions. Buyer and the Sellers agree that the
Merger Consideration shall be allocated to the assets acquired at
the fair market value, as the parties may agree, as of the
Closing Date with any excess Merger Consideration being treated
as goodwill. Buyer and the Sellers agree that this allocation
meets the requirements of Section 1060 of the Code.
(b) CONSENTS. All consents, approvals or
authorizations of, or declarations, filings or registrations
with, any third parties or governmental bodies required of the
Rugged Liner Companies in connection with the execution, delivery
and performance of this Agreement must have been obtained and
must be in full force and effect. In addition, the landlord
under the Lease shall have signed a reasonably acceptable consent
to the transactions contemplated by this Agreement.
(k) SECTION 6.8. Section 6.8 of the Merger Agreement is deleted in
its entirety.
2. POST-CLOSING IRS EXAMINATION. The Rugged Liner Companies are and
have been "S corporations" for all of the years which are not closed by the
applicable statute of limitations. Should any of the Rugged Liner
Companies be selected for audit by the Internal Revenue Service or any
state where returns have been filed, the Shareholders shall have the right
to participate in the handling of such audits and examinations. If such
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audits or examinations result in adjustments that create increases in
taxable income for the Shareholders and corresponding increases in tax
deductions for the Surviving Corporation, the Surviving Corporation, its
successors or assigns shall make a payment to the Shareholders equal to the
additional tax deductions for the Surviving Corporation, multiplied by
thirty seven percent (37%).
3. CONTINUED EFFECTIVENESS. As amended and supplemented hereby, the
provisions of the Merger Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties have executed this Amendment as of the 23rd day of April, 1998.
RUGGED LINER, INC.
By: /S/MARK GERMAN
Mark German
Title: President
AEROCOVER, INC.
By: /S/MARK GERMAN
Mark German
Title: President
GROUND FORCE, INC.
By: /S/MARK GERMAN
Mark German
Title: President
TRIAD MANAGEMENT GROUP, INC.
By: /S/MARK GERMAN
Mark German
Title: President
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THE COLONEL'S INTERNATIONAL,
INC.
By: /S/RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Title: Chief Financial Officer
THE COLONEL'S RUGGED LINER,
INC.
By: /S/RICHARD S. SCHOENFELDT
Richard S. Schoenfeldt
Title: President
/S/MARK GERMAN
Mark German
/S/JOHN GERMAN
John German
/S/LOUISE GERMAN
Louise German
/S/MICHELLE STEVENSON
Michelle Stevenson
/S/DONALD J. WILLIAMSON
Donald J. Williamson
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