SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 16, 1999
Darling International Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-24620 36-2495346
(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification No.)
Incorporation)
251 O'Connor Ridge Blvd., Suite 300 Irving, Texas 75038
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (972) 717-0300
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Item 2. Disposition of Assets
On April 5, 1999, Darling International Inc. (the "Company") sold all of
the outstanding stock of its subsidiaries International Processing Corporation
("IPC") and International Transportation Service, Inc. ("ITS") to Scope
Products, Inc. (the "Buyer") in accordance with a Stock Purchase Agreement (the
"Agreement"), dated as of February 9, 1999, between the Company and the Seller.
Pursuant to the Agreement, the purchase price for the capital stock of IPC
and ITS (including a non-competition covenant) was twenty-two million dollars
($22,000,000). Twenty million dollars ($20,000,000) of the purchase price was
paid in cash at closing and two million dollars ($2,000,000) was deposited in an
escrow account to cover certain post-closing adjustments and indemnification
obligations under the Agreement.
The Agreement has been filed as Exhibit 10.1 to this report and is
incorporated herein by reference. The Escrow Agreement, dated April 5, 1999,
among the Company, Seller and Norwest Bank Minnesota, N.A., as escrow agent, has
been filed as Exhibit 10.2 to this report and is incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Not applicable.
(b) Pro forma Financial Information.*
(c) Exhibits
10.1 Stock Purchase Agreement, dated as of February 9,
1999, among Darling International Inc. and Scope
Products, Inc.
10.2 Escrow Agreement, dated as of April 5, 1999, among
Darling International Inc., Scope Products, Inc. and
Norwest Bank Minnesota, N.A., as escrow agent.
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* The Registrant intends to file such information on or before June 11, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
DARLING INTERNATIONAL INC.
Date: April 16, 1999 By: /s/ Dennis B. Longmire
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Name: Dennis B. Longmire
Title: Chief Executive Officer
By: /s/ John O. Muse
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Name: John O. Muse
Title: Chief Financial Officer
EXHIBITS INDEX
Exhibit
Number Description
- --------- ---------------------------------------------
10.1 Stock Purchase Agreement, dated as of February 9, 1999, among
Darling International Inc. and Scope Products, Inc.
10.2 Escrow Agreement, dated as of April 5, 1999, among Darling
International Inc., Scope Products, Inc. and Norwest Bank
Minnesota, N.A., as escrow agent.
Exhibit 10.1
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), is entered into as of
February 9, 1999, by and between Darling International Inc., a Delaware
corporation ("Seller"), and Scope Products, Inc., a California corporation
("Buyer").
RECITALS
A. Seller owns all of the issued and outstanding shares of common stock
(collectively, the "Shares") of International Processing Corporation, a Georgia
corporation ("IPC"), and International Transportation Service, Inc., a Delaware
corporation ("ITS"). ITS owns all of the issued and outstanding common stock of
Food By-Product Recycling, Inc., an Illinois corporation ("FBR").
B. IPC, ITS and FBR (collectively, the "Companies") are engaged in the
business of processing solids collected from bakeries, pasta manufacturers,
snack food producers and others to produce animal feed (the "Acquired
Business").
C. Seller desires to sell and Buyer desires to purchase the Shares upon
the terms and subject to the conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and undertakings contained in
this Agreement, Seller and Buyer hereby agree as follows:
Definitions. All terms in this Agreement having an initial capital
shall be defined as set forth in that Glossary which is attached hereto as
Exhibit A and incorporated herein by reference.
Sale and Purchase of the Shares. Subject to the terms and conditions
set forth in this Agreement, as of the Closing Date, Seller shall sell, transfer
and convey to Buyer, and Buyer shall purchase from Seller, all of the Shares
free and clear of all Liens.
PURCHASE PRICE.
Total Amount. The total purchase price for the Shares shall be $21,500,000,
subject to adjustment as provided in this Agreement, and the consideration for
the covenant not to compete set forth in Section 12 shall be $500,000
(collectively, the "Purchase Price") .
Payments. At the Closing, Buyer shall pay directly to Seller by wire transfer
$19,500,000 for the Shares and $500,000 for the covenant not to compete set
forth in Section 12 ("Payments at Closing"). The balance of $2,000,000
("Escrow") shall be deposited by Buyer with the Escrow Agent in accordance with
Section 8.2 and held and disbursed in accordance with that Escrow Agreement
attached as Exhibit B.
CLOSING.
"Closing.". The consummation of the purchase and sale of the Shares (the
"Closing") shall take place at 10:00 a.m. (California time) at the offices of
Arter & Hadden LLP, 725 South Figueroa Street, Suite 3400, Los Angeles,
California 90017, and shall be as of the last Saturday of the Companies' fiscal
month end following satisfaction of the conditions set forth in Sections 10 and
11, or at such other place or on such other date as Seller and Buyer may
mutually agree, but no later than April 5, 1999. The Closing shall be deemed to
take place at midnight on the Closing Date. Seller and Buyer, on or before the
close of business on the Monday immediately following the Closing Date, shall
exchange, in person or by overnight courier or by facsimile, all documents
required by Sections 10 and 11. As of the Closing Date, a physical inventory of
the Companies' inventories of raw materials, finished feed or other finished
products and miscellaneous inventories shall be taken by representatives of
Seller and Buyer at each of the Facilities in accordance with Section 8.2(b).
Delivery. At the Closing, Seller shall deliver to Buyer the certificates
representing all of the Shares, duly endorsed for transfer or accompanied by
duly executed stock powers, and Buyer shall deliver (i) to Seller the Payments
at Closing, subject to adjustment as provided in this Agreement, and (ii) to the
Escrow Agent the Escrow, and the parties shall deliver such other documents as
may be required by Sections 10 and 11 of this Agreement.
Facsimile Transmissions. Any agreements, documents or certificates transmitted
by one party to the other party by facsimile shall be deemed to have full force
and effect as if the facsimile signatures were originals. This Agreement and any
originally-executed documents required for the Closing may be transmitted by
facsimile, and the party so transmitting such documents shall promptly forward
the originals to the other party by overnight courier, no later than three
business days following the facsimile transmission.
REPRESENTATIONS AND WARRANTIES OF SELLER. Seller acknowledges and
confirms that Buyer is relying upon the representations and warranties of Seller
contained in this Agreement in connection with the execution, delivery and
performance of this Agreement and makes the following representations and
warranties to Buyer, which representations and warranties shall be true and
correct on the date of this Agreement and on the Closing Date:
Organization and Good Standing. Seller is a corporation duly organized, validly
existing and in good standing under the laws of Delaware; IPC is a corporation
duly organized, validly existing and in good standing under the laws of Georgia;
ITS is a corporation duly organized, validly existing and in good standing under
the laws of Delaware; and FBR is a corporation duly organized, validly existing
and in good standing under the laws of Illinois. Each of the Companies is duly
qualified to do business as a foreign corporation in each jurisdiction where the
nature of the business conducted by it or its ownership of property or assets or
its employment of employees requires that it be so qualified. IPC is qualified
as a foreign corporation in the States of Illinois, Indiana, Kansas, New Jersey,
North Carolina, Ohio and Texas; ITS is qualified as a foreign corporation in the
States of Illinois and Indiana, and FBR is not qualified as a foreign
corporation in any jurisdiction. Seller and the Companies each have the
corporate power and authority to own, lease and operate their respective assets,
properties and business and to carry on the Acquired Business and such other
business as is now being conducted. Seller and the Companies shall deliver to
Buyer or its counsel certified copies of their respective certificates or
articles of incorporation and bylaws, and all amendments or restatements
thereto, all of which are true, correct and complete.
Ownership of Shares; Capitalization. Seller is the only record and beneficial
owner of the Shares and the Shares are held free and clear of all Liens and
Liabilities, except that the Shares have been pledged, and the assets of IPC and
ITS are subject to a security interest under a Security Agreement, dated as of
January 22, 1999, with Bank Boston, N.A. as agent for the Secured Parties (as
defined therein) (collectively, the "Bank Liens"), all of which Bank Liens will
be released on or before the Closing. The Shares constitute all of the issued
and outstanding capital stock of IPC and ITS. The number of Shares issued by
each of the Companies is set forth on Schedule 5.2. Seller represents that it
has good and marketable title to the Shares, free and clear of all Liens, and
has the right, title, power and authority to sell, assign, transfer and deliver
the Shares to Buyer. Upon delivery to Buyer at the Closing of the certificates
representing the Shares, duly endorsed by Seller for transfer to Buyer, Buyer
shall be the lawful owner of the Shares, free and clear of all Liens, other than
Liens arising from Buyer's acts. IPC is authorized to issue 1,500,000 shares of
Class A common stock, $1.00 par value, of which 750,000 Class A shares, and
1,500,000 shares of Class B common stock, $1.00 par value, of which 750,000
Class B shares, together constituting the Shares shown as issued by IPC on
Schedule 5.2, are as of the date of this Agreement and will be on the Closing
Date all of the issued and outstanding shares of IPC. ITS is authorized to issue
50 shares of Class A common stock, $100.00 par value, and 50 shares of Class B
common stock, $100.00 par value, of which 7.5 Class A shares and 7.5 Class B
shares, together constituting the Shares shown as issued by ITS on Schedule 5.2,
are as of the date of this Agreement and will be on the Closing Date all of the
issued and outstanding shares of ITS. All of the Shares have been duly
authorized and validly issued and are fully paid and nonassessable, and none of
them was issued in violation of any preemptive or other similar right. Seller
represents that ITS owns 13,500 shares of the common stock of FBR, that ITS is
the only record and beneficial owner of all of the issued and outstanding shares
of FBR capital stock, and that all of the FBR shares are free and clear of all
Liens.
Consents, Authorizations, Binding Effect, Etc. Seller may execute, deliver and
perform this Agreement without the necessity of the Companies or Seller's
obtaining any consent, approval, authorization or waiver, giving any notice,
making any filings or disclosures or otherwise, except for the filing required
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the "HSR Act"). Seller and the
Companies have obtained, or shall have obtained prior to Closing, from the New
Jersey Department of Environmental Protection a "Letter of Non-Applicability"
stating that the Companies and the Facilities and other Property owned or leased
by the Companies in the State of New Jersey, and the transactions under this
Agreement, are not subject to the New Jersey Industrial Site Recovery Act, as
amended, and the rules and regulations promulgated thereunder ("ISRA") and shall
provide a copy of such letter to Buyer. Except as described on Schedule 5.3
hereto, no consent, approval, authorization or waiver and no giving of any
notice, making of any filings or disclosures or otherwise in connection with the
execution, delivery or performance of this Agreement is necessary to assure to
the Acquired Business the continuance of its relationships with its present
customers or suppliers or the right of Buyer and the Companies to continue to
receive the benefits under the contracts (including without limitation, leases,
agreements, instruments, licenses, permits, commitments, orders and quotations)
of the Acquired Business. This Agreement has been duly authorized, executed and
delivered by Seller, and this Agreement constitutes the legal, valid and binding
obligation of Seller, enforceable in accordance with its terms. The execution,
delivery and performance of this Agreement by Seller will not (whether with or
without notice or the passage of time or both):
(a) constitute a violation of the certificate or articles of incorporation
or the bylaws, as amended, of Seller or any of the Companies;
(b) except as described on Schedule 5.3 hereto, conflict with, result in
the breach of, constitute a default or result in the acceleration of any Lien,
Liability or obligation under any contract, lease, agreement, instrument,
license, commitment, order or quotation to which any of the Companies is a party
or is bound or to which Seller is a party or is bound and which would affect the
Acquired Business;
(c) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any court,governmental authority, administrative agency or
arbitrator applicable or relating to any of the Companies or Seller or their
respective assets or businesses, including, but not limited to, the Acquired
Business; or
(d) result in the creation of any Lien upon any of the assets of any of the
Companies or Seller or the Acquired Business.
Minute Books and Stock Records. Seller has made available to Buyer and its
counsel all of the minute books and stock records of each of the Companies that
are in the possession of Seller or any of the Companies, and such minute books
and stock records reflect in all Material respects the corporate actions of the
Board of Directors and the shareholders of the Companies.
Financial Statements and Financial Condition.
(a) Each of the Companies has maintained its books of account in accordance
with generally accepted accounting principles consistently applied, and such
books and records (i) are and, during the periods covered by the Financial
Statements were, correct and complete in all Material respects, fairly and
accurately reflect (or reflected as of the date therein) the income, expenses,
assets and Liabilities of the Companies and the Acquired Business required to be
reflected therein, including the nature thereof and the transactions giving rise
thereto, and (ii) provide (or provided as of or at the date therein) a fair and
accurate basis for the preparation of the Financial Statements. Without limiting
the generality of the foregoing, the assets, Liabilities, and financial
condition of the Companies and the Acquired Business are fairly described and
properly recorded in all Material respects in the financial and accounting
records of the Companies and the Acquired Business underlying the Financial
Statements.
The following unaudited financial statements of the Companies have been
delivered by Seller to Buyer:
(1) the combined consolidated balance sheet (the "1997 Balance Sheet")
of the Companies as of January 3, 1998, and the related combined
consolidated statements of income for the fiscal year ended on such date
(the 1997 Balance Sheet and related statements being herein together
referred to as the "1997 Financial Statements");
(2) the combined consolidated balance sheet (the "1996 Balance Sheet")
of the Companies as of December 28, 1996 and the related consolidating
statements of income for the fiscal period ended on such date; and
(3) the combined consolidated balance sheet (the "Interim Balance
Sheet") of the Companies as of October 3, 1998, and the related combined
consolidated statements of income for the nine months ended on such date.
(b) The Interim Financial Statements (i) have been reviewed by Seller's
accountants as part of Seller's Consolidated Financial Statements from September
1, 1996 to the end of Seller's 1996 fiscal year and for Seller's 1997 fiscal
year, but no separate audit reports were given, (ii) have been prepared in
conformity with generally accepted accounting principles consistently applied,
(iii) are correct and complete in all Material respects and (iv) present fairly
the combined consolidated financial position of the Companies as of the date of
such statements and the results of operations of the Companies for the periods
covered by such statements, subject in the case of the Interim Financial
Statements to normal year-end recurring adjustments, which are not Material in
the aggregate, and the absence of notes and schedules thereto.
(c) The Companies, on the Closing Date, will have no Liabilities or
obligations (absolute, contingent or otherwise) of a nature required by
generally accepted accounting principles applied on a basis consistent with the
Audited Financial Statements to be reflected in financial statements, other than
(i) those set forth or reserved against in the Audited Financial Statements; and
(ii) those incurred since the most recent date of the Audited Financial
Statements in the ordinary course of business in arm's-length transactions, and
which do not have and cannot reasonably be expected to have, in the aggregate,
an adverse effect on the Companies taken as a whole.
The Financial Statements do not include or reflect any assets, liabilities,
equity, results of operations or cash flows of any person, corporation,
partnership or other business other than the Companies. Except as set forth on
Schedule 5.5, there are, and as of the Closing Date there shall be, no existing,
undisclosed Liabilities of the Companies of any nature (absolute, accrued,
contingent or otherwise) that are not fully reflected or reserved against in the
Financial Statements except for those incurred in the ordinary course of
business consistent with past practice subsequent to the most recent date of any
of the Financial Statements and except for those incurred in connection with the
Corn Price Exceptions.
Title and Condition of Assets. This Section 5.6 does not apply to environmental
matters which are covered by Section 5.10. Seller has provided Buyer a list of
all personal property owned, leased or used by any of the Companies in
connection with the Acquired Business. Schedule 5.6 lists all real property
owned, leased or used by the Companies in connection with the Acquired Business.
Each of the Companies has good and marketable title to the real property (in fee
simple), and has good and unencumbered title to the interests (including without
limitation leasehold interests) in real property listed on Schedule 5.6 and to
the tangible personal property used by any of the Companies in connection with
the Acquired Business free and clear of Liens, other than Liens described on
Schedule 5.6 hereto, including, but not limited to, the Bank Liens which will be
released on or before the Closing. To the best knowledge of Seller, no
improvement or structure on any Real Property encroaches on any adjacent
property or conflicts with the rights of any owner thereof, and no improvement
or structure on any property owned or leased by any other person encroaches on
any property owned or leased by the Companies.
The improvements, fixtures and appurtenances on or to the Real Property or
owned or leased by the Companies, and the tangible assets of the Companies,
taken as a whole, are sufficient to operate the Companies and the Acquired
Business in the ordinary course consistent with past practice, except as
described on Schedule 5.6 hereto, subject to the need to effect ordinary course
repairs which, until effected, will not adversely affect the Companies or the
Acquired Business, or the financial condition, results of operations or
operations thereof, or require any cost to effect in excess of ordinary course
repairs reflected on the Financial Statements. Notwithstanding the foregoing,
Buyer acknowledges that Seller shall not be in any way liable under this
Agreement for any capital expenditures or other improvements that Buyer may make
or desire to make to the Facilities or any equipment therein after the Closing
Date other than as a result of Seller's breach of this representation.
Except as described on Schedule 5.6 hereto, all of the properties and
assets used by the Companies in the Acquired Business and the operations thereof
are owned or leased by the Companies, and Seller has no interest in such
properties and assets. The Acquired Business is not conducted under any specific
restriction imposed upon the Companies or the Acquired Business (but not imposed
upon other persons conducting similar businesses or operating similar assets for
similar purposes in the localities where its business and assets are located) by
any zoning, anti-pollution, health or other law, ordinance or regulation.
Except as described on Schedule 5.6 hereto, none of the assets owned or
leased by any of the Companies has been affected by any fire, accident, act of
God or any other casualty that Materially adversely impairs the Companies or the
Acquired Business, or the financial condition, results of operations or
operations thereof.
Schedule 5.6 hereto includes a complete and correct list of all Real
Property and all interests in Real Property (including without limitation leases
of real property) identifying such interests, showing also the present use of
such Real Property. Seller provided Buyer a complete and correct list of all
tangible personal property in the nature of machinery and equipment owned,
operated or leased by any of the Companies and used in connection with the
Acquired Business. Since September 1, 1996, the Companies have not owned, used,
operated or leased any real property other than the properties listed on
Schedule 5.6 hereto and do not own, use, operate or lease any personal property
other than that on the list provided by Seller to Buyer. Seller has provided
Buyer with copies of all lists of real and personal property provided to Seller
in connection with the IPC Acquisition Agreement
Inventories. The inventories of the Companies are merchantable and have been
valued at the lower of cost or market in accordance with generally accepted
accounting principles applied on a consistent basis. None of the Companies is
under any liability or obligation with respect to the return of inventory
shipped at any time prior to the Closing Date other than returns in the ordinary
course of business consistent with the amount of returns shown on the Financial
Statements for similar periods.
Receivables. The trade accounts and other receivables of the Companies, are bona
fide receivables, arose out of arm's-length transactions, are recorded correctly
on the applicable books and records of the Companies and, except as set forth on
Schedule 5.8 hereto, are collectible within one hundred eighty (180) days after
the Closing Date in an amount equal to the aggregate face amount of such
receivables, less the amount of any reserves against such receivables which are
reflected in the Interim Financial Statements. Except for those described on
Schedule 5.8 hereto, such trade accounts and other receivables are not subject
to any counterclaim or set-off, and no basis presently exists for the assertion
of any counterclaim or set-off (or the repayment of any receivables or payments
heretofore received by the Companies).
Insurance. Schedule 5.9 hereto contains a list of all policies of insurance
maintained by Seller under which the Companies are covered, including insurance
providing benefits for employees, in effect on the date hereof and generally
describing the coverage thereunder, all of which will be in effect on the
Closing Date. Except as described on Schedule 5.9 hereto, there are no claims
pending or, to the best knowledge of Seller, threatened under said policies or
disputes with underwriters, and all premiums due and payable have been paid, and
all such policies are in full force and effect in accordance with their
respective terms. Except for amounts deductible under policies of insurance
and/or as described on Schedule 5.9 hereto, none of the Companies has at any
time been subject to any liability as a self-insurer of the business and assets
of the Companies or is, or on the Closing Date shall be, liable for any premiums
becoming due and payable after the date hereof under any retrospective policies
except to the extent that such premiums are reflected on the Closing Financial
Statements.
Litigation and Compliance; Environmental Matters.
(a) Except as described on Schedule 5.10 hereto, there are no actions,
suits, claims or proceedings, whether in equity or at law, pending or, to the
best knowledge of Seller, threatened, and there are no governmental or
administrative investigations pending or, to the best knowledge of Seller,
threatened, against any of the Companies or which question or challenge the
validity of this Agreement or any action taken or to be taken pursuant to this
Agreement, or pending or, to the best knowledge of Seller, threatened against
any asset or property owned, leased or used by any of the Companies.
(b) Except as described on Schedule 5.10 hereto, each of the Companies is
in, and has conducted its operations in compliance with, and is not in default
or violation in any respect under, and has not conducted its operations in
violation in any respect of, any law, rule, regulation, decree or order
applicable to it where the failure to be in compliance or such default or
violation might result in the imposition upon any of the Companies, the Acquired
Business or Buyer of any penalty, liability, payment or obligation not reserved
for on the Interim Financial Statements which might have an adverse effect upon
any of the Companies taken as a whole, the Acquired Business or Buyer or the
business, financial condition, results of operations or operations thereof.
(c) Neither Seller nor any of the Companies nor any of the assets of the
Companies is subject to any judgment, order, decree, settlement or consent
agreement entered in any lawsuit or proceeding specifically against Seller or
any of the Companies or to which Seller or any of the Companies is a party,
which might continue to affect any of the Companies, the Acquired Business, or
the business, financial condition, results of operations or operations thereof
taken as a whole.
(d) Except as described on Schedule 5.10 hereto, each of the Companies has
duly filed all reports and returns required to be filed by it with governmental
authorities and has obtained all governmental permits and licenses and other
governmental consents which are required in connection with the Acquired
Business and the operations thereof, where the failure to file such reports and
returns or the failure to obtain such permits, licenses or consents
(individually or in the aggregate) might result in the imposition upon the
Companies or the Acquired Business of any penalty, liability, payment or
obligation not reserved for on the Interim Financial Statements or might have an
adverse effect upon the Companies or the Acquired Business taken as a whole, or
the business, financial condition, results of operations or operations thereof
taken as a whole; provided that this representation shall not extend to
Environmental Laws, with respect to which Seller makes the representations in
the following sentence. Except as described on Schedule 5.10 hereto, to the best
knowledge of Seller, each of the Companies has duly filed all reports and
returns required by Environmental Laws to be filed by it with governmental
authorities and has obtained all governmental permits and licenses and other
governmental consents which are required by Environmental Laws in connection
with the Acquired Business and the operations thereof, where the failure to
obtain such permits, licenses or consents (individually or in the aggregate)
might result in the imposition upon any of the Companies or the Acquired
Business of any penalty, liability, payment or obligation not reserved for on
the Interim Financial Statement or might have an adverse effect upon the
Companies or the Acquired Business taken as a whole, or the business, financial
condition, results of operations or operations thereof taken as a whole. All
permits, licenses and consents held by the Companies are set forth on Schedule
5.10 hereto, all of such permits, licenses and consents are in full force and
effect, and no proceedings for the suspension or cancellation of any of them is
pending or, to the best knowledge of Seller, threatened.
(e) Except as described in Schedule 5.10 hereto, neither Seller nor any of
the Companies has received any notice, citation, summons or order and, to the
best knowledge of Seller, no notice, citation, summons or order has been issued,
no complaint has been filed, no penalty has been assessed and no investigation
or review is pending or threatened by any governmental or other entity (i) with
respect to any alleged violation of any Environmental Laws by any of the
Companies or the Acquired Business; or (ii) with respect to any alleged failure
by any of the Companies to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with its
business; or (iii) with respect to any use, possession, generation, handling,
labeling, treatment, storage, recycling, transportation or disposal of any
Hazardous Substance by or on behalf of any of the Companies or the Acquired
Business.
(f) Except as described on Schedule 5.10 hereto, neither Seller nor any of
the Companies has received any request for information, notice of claim, demand
or notification that any of the Companies or any subsidiaries is or may be
potentially responsible with respect to any investigation or clean-up of any
threatened or actual release of any Hazardous Substance.
(g) Except as described on Schedule 5.10 hereto, none of the Companies has
used, generated, treated, stored, recycled or disposed of any Hazardous
Substance on any Real Property, nor, to the best knowledge of Seller, has anyone
else treated, stored, recycled or disposed of any Hazardous Substances on any
Real Property.
(h) Except as described on Schedule 5.10 hereto, to the best knowledge of
Seller, no Hazardous Substance has been released, spilled, leaked, discharged,
disposed of, pumped, poured, emitted, emptied, injected, leached, dumped or
allowed to escape (a "Release") originating at, on, about, under or from any
Real Property.
(i) Except as described on Schedule 5.10 hereto, no oral or written
notification of a Release or, to the best knowledge of Seller, threat of Release
of a Hazardous Substance has been filed by or on behalf of the Companies on any
Real Property. No such Real Property is listed or, to the best knowledge of
Seller, proposed for listing on the National Priority List promulgated pursuant
to CERCLA, on CERCLIS or on any similar state list of sites requiring
investigation or clean-up, except as disclosed on Schedule 5.10.
(j) Except as described on Schedule 5.10 hereto, there are no actions
pending or, to the best knowledge of Seller, threatened on any Real Property,
and no government actions have been taken or are in process or pending
specifically against any of the Companies which could subject any of such Real
Property to such Liens.
(k) Except as listed on Schedule 5.10 hereto, there have been no
environmental inspections, investigations, studies, audits, tests, reviews or
other analyses conducted by or on behalf of any of the Companies or in their
possession or control on any Real Property or the Acquired Business,
specifically excluding any inspections, investigations, studies, audits, tests,
reviews or other analyses conducted by or on behalf of Buyer on any Real
Property or the Acquired Business and any routine, periodic monitoring testing
reviews or analyses, with respect to which Seller has notified Buyer that they
exist and has provided to Buyer. Copies of all such reports, summaries,
analyses, test results, studies or other documents reflecting this information
have been provided to Buyer or made available to Buyer for review.
(l) Without limiting the generality of the foregoing, except as described
on Schedule 5.10 hereto, to the knowledge of Seller, there exists no
Environmental Condition affecting or with respect to the Companies or the
Acquired Business, or any Real Property, including without limitation any of the
foregoing (individually or in the aggregate) which might result in the
imposition, payment or obligation upon the Companies or the Acquired Business
not reserved for on the Interim Financial Statements or which might have a
Material adverse effect upon the Companies or the Acquired Business or the
business, financial condition, results of operations or operations thereof taken
as a whole.
Taxes.
(a) Each of Seller and the Companies has filed timely, or shall file
timely, all Federal, state, local and foreign Tax returns and information
returns of or related to the income of the Companies for all periods that they
are, or that they will be, required to file as of or prior to the Closing Date,
and such returns as filed are or shall be true and correct in all material
respects as of the date of filing. Seller has made available to Buyer all
Federal, state, local and foreign income or franchise Tax returns of the
Companies for the fiscal periods beginning on or after August 30, 1996 and
ending on January 3, 1998.
(b) All Taxes that the Companies were, or will be, required by law to pay,
withhold, deposit or collect prior to the Closing Date have been, or will be,
duly paid, withheld, deposited or collected and, to the extent required, have
been, or will be, paid to the relevant taxing authority or accrued.
(c) The Companies have not received notice of any Tax deficiency
outstanding, proposed or assessed nor have they executed any waiver or extension
of any statute of limitations on the assessment or collection of any Taxes nor
are there any powers of attorney in force with respect to Taxes of the
Companies.
(d) There are no Tax Liens upon, pending against or, to the best knowledge
of Seller, threatened against any asset of the Companies, other than Liens for
Taxes arising in the ordinary course and not yet due and payable.
(e) None of the Companies has filed a consent under Section 341(f) of the
Code.
(f) There is no contract, agreement, plan or arrangement covering any
Person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by reason of Section 280G of the Code.
Intangible Assets. Schedule 5.12 hereto sets forth:
(a) All patents, patent applications, trademarks, trademark registrations,
pending applications for trademark registrations, trade names and copyrights
which the Companies own or in which the Companies have any proprietary interest
which the Companies are presently using or operating under; and
(b) All license agreements with respect to any of the foregoing as to which
the Companies are licensor or licensee.
No patents, trademarks, trade names or copyrights not described on Schedule 5.12
are necessary in connection with the conduct of the Acquired Business. Except as
described on Schedule 5.12 hereto, there are no pending or, to the best
knowledge of Seller, threatened claims against the Companies by any person with
respect to any of the items, or their use, listed on Schedule 5.12 or claims of
infringement by the Companies of the rights of any person, and, to the best
knowledge of Seller, no valid basis exists for any such claims.
Employee Benefits.
(a) All employee pension benefit plans (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), welfare
benefit plans (as defined in Section 3(1) of ERISA), bonus, stock purchase,
stock ownership, stock option, deferred compensation, incentive, severance,
termination or other compensation plan or arrangement, and other material
employee fringe benefit plans, other than multiemployer plans as defined in
Section 3(37) of ERISA, presently maintained by, or contributed to by any of the
Companies or for which any of the Companies could have any liability are listed
in Schedule 5.13 (the "Benefit Plans"), and a true and complete copy of each of
which, and, where applicable, a copy of the most recent IRS Form 5500 filed with
respect to each such Benefit Plan, have been furnished to Buyer. The Companies
have no obligation to create any additional Benefit Plan, to modify any existing
Benefit Plan, or to make any contribution to any Benefit Plan not reflected or
reserved against in the Financial Statements.
(b) The Companies and each of the Benefit Plans are in compliance in all
Material respects with the applicable provisions of ERISA, and those provisions
of the Code applicable to the Benefit Plans. With respect to all Benefit Plans
intended to satisfy the requirements of Section 401(k) of the Code, all
non-discrimination tests under Section 401(k) have been satisfied for all plan
years or excess contributions have been distributed prior to the date any of the
Companies would incur a penalty under the Code.
(c) Except as may be disclosed in Schedule 5.13, all contributions to, and
payments from the, Benefit Plans which may have been required to be made in
accordance with the Benefit Plans and, when applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made. All such contributions to the
Benefit Plans for any period ending before the Closing Date that are not yet,
but will be, required to be made are properly accrued and reflected on the
Closing Balance Sheet.
(d) Except as indicated on Schedule 5.13, all reports, returns and similar
documents with respect to the Benefit Plans required to be filed with any
government agency or distributed to any Benefit Plan participant have been duly
and timely filed or distributed.
(e) The Companies have complied in all material respects with the notice
and continuation coverage requirements of Section 4980B of the Code and the
regulations thereunder with respect to each Benefit Plan that is, or was at any
time, a group health plan within the meaning of Section 5000(b)(1) of the Code.
(f) Except as disclosed in Schedule 5.13, all of the Benefit Plans which
are pension benefit plans have received determination letters from the Internal
Revenue Service ("IRS") to the effect that such plans are qualified and exempt
from federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code; and no determination letter with respect to any Benefit Plan has been
revoked nor, to the best knowledge of Seller, has revocation been threatened,
nor has any Benefit Plan been amended since the date of its most recent
determination letter or application therefor in any respect which would
adversely affect its qualification or increase its cost and no Benefit Plan has
been amended in a manner that would require security to be provided in
accordance with Section 401(a)(29) of the Code.
(g) Each of the Benefit Plans has been administered at all times in all
material respects in accordance with its terms except that in any case in which
any Benefit Plan is currently required to comply with a provision of ERISA or of
the Code, but is not yet required to be amended to reflect such provision, it
has been administered in accordance with such provision.
(h) There are no pending investigations by any governmental agency
involving the Benefit Plans, no termination proceedings involving the Benefit
Plans, and no threatened or pending claims (except for claims for benefits
payable in the normal operation of the Benefit Plans), suits or proceedings
against any Benefit Plan or asserting any rights or claims to benefits under any
Benefit Plan which could give rise to any liability, nor, to the best knowledge
of Seller, are there any facts which could give rise to any liability in the
event of any such investigation, claim, suit or proceeding.
(i) Neither the Benefit Plans, any of the Companies, nor any employee of
the foregoing, nor, to the best knowledge of Seller, any trusts created
thereunder, nor any trustee, administrator or other fiduciary thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section 4975
of the Code or Section 406 of ERISA) which could subject any thereof to the tax
or penalty on prohibited transactions imposed by such Section 4975 or the
sanctions imposed under Title I of ERISA. Neither the Benefit Plans nor any such
trust has been terminated nor has there been any "reportable events" (as defined
in Section 4043 of ERISA and the regulations thereunder) with respect to either
thereof.
(j) The Companies have not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") with respect to any Benefit Plan subject to Title
IV of ERISA, other than for the payment of premiums, all of which have been paid
when due. No Benefit Plan has applied for or received a waiver of the minimum
funding standards imposed by Section 412 of the Code. Seller shall furnish to
Buyer the most recent actuarial report with respect to each Benefit Plan that is
a defined benefit pension plan, as defined by Section 3(35) of ERISA. No event
has occurred since the date of any such actuarial report that had, or is likely
to have, a Material adverse effect on the ratio of plan assets to the actuarial
present value of plan obligations for accumulated benefits shown in such report.
Except to the extent disclosed on Schedule 5.13 hereto, with respect to each
Benefit Plan that is a defined benefit plan, in the event of the termination of
any such Benefit Plan and payment of the benefit liabilities thereof, there
would be no "amount of unfunded benefit liabilities" as defined in Section
4001(a)(18) of ERISA in any of the Benefit Plans subject to Title IV of ERISA,
as determined in accordance with the actuarial assumptions used by the PBGC to
determine the level of fund required in the event of such termination.
(k) For purposes of this Section 5.13, all references to the Companies
shall include any other employer (an "Affiliate") that is or was at any time,
together with any of the Companies, treated as a "single employer" under
Sections 414(b), 414(c) or 414(m) of the Code.
(l) Except as set forth on Schedule 5.13 hereto, at no time have the
Companies been required to contribute to, or incurred any withdrawal liability,
within the meaning of Section 4201 of ERISA to any multiemployer plan, within
the meaning of Section 3(37) of ERISA. All multiemployer plans, within the
meaning of Section 3(37) of ERISA, to which any of the Companies is, or has been
at any time within the past five (5) years, required to contribute or with
respect to which any of the Companies could have any liability are disclosed in
Schedule 5.13. The Companies will not incur any Liability as a result of the
termination of any multiemployer plans as of the Closing Date other than as
specifically shown on the Financial Statements.
(m) The Companies have not and will not incur any liability with respect to
any plan or arrangement that would be included within the definition of "Benefit
Plan" hereunder but for the fact that such plan or arrangement was terminated
before the date of this Agreement.
(n) Except as indicated on Schedule 5.13 or as otherwise required by law,
there are no obligations to provide health or welfare benefits to retired or
terminated employees.
Labor Relations. Except as described on Schedule 5.14 hereto:
(a) No employees of the Companies are covered by any collective bargaining
agreement.
(b) To the best knowledge of Seller, each of the Companies has complied in
all respects with applicable laws, rules and regulations relating to the
employment of labor, including without limitation those relating to wages,
hours, unfair labor practices, discrimination, immigration, payment of Social
Security and similar taxes where the failure to be in compliance (individually
or in the aggregate) might result in the imposition upon any of the Companies,
the Acquired Business or Buyer of any penalty, liability, payment or obligation
not reserved for on the Interim Balance Sheet or might have a Material adverse
effect upon any of the Companies, the Acquired Business or Buyer, or the
business, financial condition, results of operations or operations thereof.
(c) Neither Seller nor any of the Companies has received notice of and, to
the best knowledge of Seller, there are no complaints against any of the
Companies pending before the National Labor Relations Board or any similar state
or local labor agency by or on behalf of any employee of any of the Companies,
and none of the Companies has engaged in any unfair labor practice. There are no
representation questions, arbitration proceedings, labor strikes, slow-downs or
stoppages, grievances or other labor troubles pending or, to the best knowledge
of Seller, threatened with respect to the employees of any of the Companies.
Contracts, Etc.
(a) Except as described in Schedule 5.15 hereto, all contracts, leases,
agreements, instruments, licenses, commitments, orders and quotations with
respect to which any of the Companies is a party or by which any of the
Companies is bound (and all guarantees by third parties and all bonds and
letters of credit securing, supporting or relating to the obligations of the
Companies under any such contracts, leases, agreements, instruments, licenses,
commitments, orders and quotations) are valid and in full force and effect and
constitute the legal, valid and binding obligations of the Companies (and, to
the best knowledge of Seller, binding obligation of each guarantor and issuer of
such bonds and letters of credit) and, to the best knowledge of Seller, the
other parties thereto, and there are no existing defaults by any of the
Companies (or, to the best knowledge of Seller, such guarantors and issuers of
such bonds and letters of credit) or, to the best knowledge of Seller, by any
other party thereunder and no event, act or omission has occurred which (with or
without notice, lapse of time or the happening or occurrence of any other event)
would result in a default thereunder.
(b) Except as described on Schedule 5.15 hereto, no other party to any such
contract, lease, agreement, instrument, license, commitment, order or quotation
(or guarantee, bond or letter of credit) has asserted the right, and, to the
best knowledge of Seller, no basis exists for the assertion of any right, to
renegotiate the terms or conditions of any such contract, lease, agreement,
instrument, license, commitment, order or quotation (or such guarantee, bond or
letter of credit)
(c) All contracts, leases, agreements, instruments, licenses, commitments,
orders and quotations to which any of the Companies is a party or by which any
of the Companies is bound (and all guarantees by third parties and all bonds and
letters of credit securing, supporting or relating to the obligations of the
Companies under any such contracts, leases, agreements, instruments, licenses,
commitments, orders and quotations) are listed on Schedule 5.15 hereto except
the following:
(i) employment agreements terminable at will, and contracts for
miscellaneous services terminable at will, without the payment of any
penalty, bonus, severance payment or additional compensation;
(ii) purchase orders and contracts with suppliers, all of which have
provided to Buyer or to which Buyer shall have been provided access no
later than five business days prior to the Closing Date and provided that
all other conditions to the Closing set forth in Sections 10 and 11 shall
have been satisfied or waived (except for payment of the Purchase Price,
delivery of the Shares and delivery of other required documents);
(iii) miscellaneous contracts, leases, agreements, instruments,
licenses, commitments, orders and quotations involving aggregate
liabilities under all such contracts, leases, agreements, instruments,
licenses, commitments, orders and quotations of not more than $15,000
individually or $150,000 in the aggregate; and
(iv) contracts for the sale of finished goods inventory in the
ordinary course of business and not exceeding $15,000 individually or
$150,000 in the aggregate and for capital expenditures listed on the
capital expenditure budget for November and December 1998 and for the 1999
fiscal year, which have been provided to Buyer.
Seller has heretofore delivered to Buyer or its counsel true, correct and
complete copies of all contracts, leases, agreements, instruments, licenses,
commitments, orders and quotations (and all guarantees, bonds and letters of
credit) listed on Schedule 5.15 hereto, other than those excluded by
subparagraphs (i), (ii) and (iii) of this subsection (c).
Customers and Suppliers. Schedule 5.16 sets forth: (i) a list of the five
largest customers of the Companies at each Facility, the twenty largest
customers of the Companies across all facilities, and all customers accounting
for more than five percent (5%) of any of the Companies' revenues, in terms of
dollar sales for both the fiscal year ended January 3, 1998 and the interim
period from January 3, 1998 through October 3, 1998, showing the approximate
total sales by the Companies to each such customer at each such Facility or, in
the case of the twenty largest customers, in aggregate, during such fiscal year
and interim period; and (ii) a list of the five largest suppliers of the
Companies at each Facility, the twenty largest suppliers of the Companies across
all Facilities and all suppliers accounting for more than five percent (5%) of
any of the Companies' raw materials, in terms of purchases by tonnage amounts
(with corresponding dollar amounts) for both the fiscal year ended January 3,
1998 and the interim period from January 3, 1998 through October 3, 1998,
showing the approximate total purchases by the Companies from each such supplier
at each such location or, in the case of the twenty largest suppliers, in
aggregate, during such fiscal year and interim period. Not later than five
business days before the Closing Date, Seller shall provide Buyer access to the
names of all of the Companies' respective customers and suppliers; provided that
all other conditions to the Closing set forth in Sections 10 and 11 shall have
been satisfied or waived (except for payment of the Purchase Price, delivery of
the Shares and delivery of other required documents). Except as described on
Schedule 5.16 hereto, since October 3, 1998, there has not been any termination,
cancellation or Material limitation, modification or change in the business
relationship of the Companies with any such customer or supplier and the
Companies and, to the best knowledge of Seller, there is no threatened loss of
or substantial reduction in business from any such customer or supplier. Seller
shall have delivered to Buyer true and complete copies of all contracts,
commitments and other agreements between the Companies and each of the customers
and suppliers set forth on Schedule 5.16 (including summaries of any oral
agreements), other than purchases and sales orders entered into in the ordinary
course of business in arm's-length transactions and consistent in nature and
scope with past practice, true copies of which have been made available to Buyer
no later than five business days prior to the Closing Date; provided that all
other conditions to the Closing set forth in Sections 10 and 11 shall have been
satisfied or waived (except for payment of the Purchase Price, delivery of the
Shares and delivery of other required documents). Schedule 5.16 sets forth the
termination date of each such contract, commitment or other agreement with the
customers and suppliers set forth on Schedule 5.16 hereof.
Absence of Certain Changes, Etc.
(a) Except (i) as described on Schedule 5.17 hereto (which will contain the
capital expenditure budget for fiscal years 1998 and 1999) and (ii) any negative
impact resulting from continued low corn prices or further decline in corn
prices which could adversely affect the price which the Companies receive for
their products ("Corn Price Exceptions"), since the date of the Interim
Financial Statements, there has been no adverse change in the business, results
of operations, operations or financial condition of the Companies or the
Acquired Business taken as a whole, and there are no events with respect to any
of the foregoing, that threaten to disrupt, prevent or impair the conduct of the
Acquired Business in a Material adverse manner.
(b) Since the date of the Interim Financial Statements, except as described
on Schedule 5.17 hereto, none of the Companies has:
(i) made or agreed to make any capital expenditure or commitment for
additions to property, plant or equipment, except for expenditures and
commitments not exceeding $35,000 per individual expenditure and $175,000
in the aggregate for all the Companies above the amount budgeted for such
item as reflected in Schedule 5.17;
(ii) experienced any damage, destruction or loss to or of any of their
assets, whether or not covered by insurance, which might have a Material
adverse effect upon the Companies or the Acquired Business taken as a
whole, or the business, financial condition, results of operations or
operations thereof taken as a whole;
(iii) made or agreed to make any increase in the compensation payable
to any employee whose existing aggregate annual compensation equals or
exceeds $60,000 or any increase of greater than four percent (4%) in
aggregate annual compensation payable to all employees, except for
increases made in the ordinary course of business pursuant to presently
existing policies or agreements described on Schedule 5.17 hereto;
(iv) conducted its operations otherwise than in the ordinary due
course;
(v) entered into any transaction or contract, or amended or terminated
any transaction or contract, except normal transactions or contracts
consistent in nature and scope with prior practices and entered into in the
ordinary course of business in arms' length transactions, which transaction
or contract, or amendment or termination thereof, might have a Material
adverse effect upon the Companies or the Acquired Business taken as a
whole, or the business, financial condition, results of operations,
operations or the prospects thereof taken as a whole;
(vi) increased or experienced any Material adverse change in any
assumption underlying any method of calculating bad debts, contingencies or
other reserves from that reflected in the Interim Financial Statements;
(vii) canceled or waived any claim or right of substantial value, or
sold, transferred, distributed (except to the extent permitted by this
Agreement or otherwise agreed to by Buyer in writing) or otherwise disposed
of any of their assets, except for a fair consideration in the ordinary
course of business;
(viii) except in accordance with generally accepted accounting
principles applied on a basis consistent with the 1997 Financial
Statements, written down or written up the value of, or changed the method
of valuing, any inventory; changed the manner in which cost allocations are
made, written off as uncollectible any note, trade account or other
receivable except as required by the Corn Price Exceptions;
(ix) disposed of, permitted to lapse or, in the case of any trade
secret, disclosed to any third person any proprietary right (including
without limitation any licensed right) listed or described on Schedule 5.17
hereto;
(x) paid any management fee or made any distribution of its property
or assets to Seller as its shareholder, or declared, paid or set aside for
payment any dividend (of any kind or nature) or distribution with respect
to the Shares; or
(xi) agreed to do any of the foregoing.
Subsidiaries, Etc. None of the Companies owns, directly or indirectly any equity
securities of any entity or enterprise and does not conduct the Acquired
Business or any other business through any subsidiary, entity or enterprise,
other than, in the case of ITS, FBR, a directly wholly owned subsidiary of ITS.
Rights With Respect to Capital Stock. There are no, and on the Closing Date
there will not be any, authorized, outstanding or existing:
(a) proxies, voting trusts or other agreements or understandings with
respect to the voting of any capital stock of or other equity interests in the
Companies;
(b) securities convertible into or exchangeable for any capital stock of or
other equity interest in any of the Companies;
(c) options, warrants, rights of first refusal, sale or purchase agreements
or other rights to purchase or subscribe for any capital stock of or other
equity interests in the Companies or any securities convertible into or
exchangeable for any capital stock of or other equity interests in the
Companies;
(d) agreements of any kind relating to the issuance of any capital stock of
or other equity interests in the Companies, any such convertible or exchangeable
securities or any such options, warrants or rights;
(e) agreements of any kind which may obligate any of the Companies to
issue, purchase, register for sale, redeem or otherwise acquire any of the
securities or interests; or
(f) Liens or restrictions of any kind with respect to the capital stock or
other equity interest of the Companies.
All references to the capital stock of the Companies include, but are not
limited to, reference to the Shares.
Year 2000. Seller and the Companies have made or prior to the Closing will make
inquiries of their vendors and suppliers to identify any issues that may arise
on the advent of the year 2000 that could adversely affect the Companies or the
Acquired Business (the "Y2K Problem"), have made or will make the inquiries and
responses available to Buyer and, based on such responses, believe that the Y2K
Problem will not have a Material adverse effect on the Companies and the
Acquired Business taken as a whole.
"To the Best Knowledge of Seller". For purposes of this Agreement, any reference
to "to the best knowledge of Seller" when modifying any representation and
warranty of Seller shall mean that Seller has no knowledge that such
representation and warranty is not true and correct in all respects, and that
(a) Seller has made such investigations, and has made such inquiries of the
present executive officers of the Companies, legal counsel and independent
auditors who have performed services for the Companies and the Acquired
Business, as shall be reasonably necessary to determine the accuracy of such
representation and warranty, subject to the Schedules to this Agreement as the
same may be updated prior to the Closing Date, and (b) nothing has come to
Seller's attention in the course of such investigation and review or otherwise,
which would cause it, in the exercise of due diligence (in accordance with the
standards of what a reasonable person in similar circumstances would have done
to satisfy himself as to the accuracy of the representation and warranty), to
believe that such representation and warranty is not true and correct in all
respects. Seller has owned and operated the Companies since September 1996 and,
in connection with its acquisition of the Companies, Seller made certain due
diligence investigations and obtained certain representations and warranties
under the IPC Acquisition Agreement with the persons from whom Seller acquired
the Companies.
Disclosure. Each representation and warranty made by Seller in connection with
this Agreement, including those in this Agreement, the schedules and exhibits,
and all other information provided to Buyer by Seller, is true, accurate and
complete as of the date stated in such information, subject to the updating of
such representation or warranty prior to the Closing Date. No representation or
warranty made by Seller contains any untrue statement of a Material fact or
fails to state a Material fact necessary in order to make statements contained
therein not misleading. There is no fact relating to the operations of any of
the Companies or the Acquired Business that is known to Seller or any of the
Companies or any of their respective directors or officers and that Seller has
not disclosed to Buyer and which could reasonably be expected to have a Material
adverse effect on the Companies' operations, assets, properties, condition
(financial or otherwise), results or prospects.
REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Seller as follows, and acknowledge that Seller is relying upon such
representations and warranties in connection with the execution, delivery and
performance of this Agreement.
Organization and Good Standing. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
Consents, Authorizations and Binding Effect. Buyer may execute, deliver and
perform this Agreement without the necessity of Buyer obtaining any consent,
approval, authorization or waiver or giving any notice or otherwise, except for
notifications required under the HSR Act. This Agreement has been duly
authorized, executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement will not:
(a) constitute a violation of the Articles of Incorporation or the Bylaws,
as amended, of Buyer;
(b) conflict with, result in the breach of, constitute a default or result
in the acceleration of any liability or obligation under any contract, lease,
agreement instrument, license, commitment or order to which Buyer is a party; or
(c) constitute a violation of any statute, judgment, order, decree or
regulation or rule of any court, governmental authority or arbitrator applicable
or relating to Buyer.
Buyer's Ability to Pay the Purchase Price. Buyer hereby represents to Seller
that it intends to pay the Purchase Price from cash or its equivalent which it
has on hand.
CONDUCT OF BUSINESS. Seller hereby covenants and agrees with Buyer
that from the date hereof until the Closing Date:
Ordinary Course. Seller shall cause the Companies to conduct the Acquired
Business in its ordinary and usual course, and Seller shall cause the Companies
to maintain in full force and effect all licenses, permits, and insurance
policies currently in effect and/or required with respect to the operations,
assets and properties of the Companies. Seller shall cause the Companies to make
all payments to vendors in a manner consistent with past practices.
Preservation of Goodwill. Seller shall and shall cause the Companies to use
their respective best efforts to preserve intact the goodwill, business
organizations and relationships with third parties (including, but not limited
to, lenders, suppliers, customers, vendors, lessors, lessees, licensors and
licensees), as well as the books and records of the Companies (including, but
not limited to, the articles or certificate of incorporation, bylaws, and minute
books of the Companies, any Tax returns filed by the Companies, all journals,
accounts, ledgers or other financial records of the Companies) and to keep
available the services of their present officers, employees and agents. Without
limiting the generality of the foregoing, from October 3, 1998 until the Closing
Date, the Companies have not, except as disclosed on Schedule 7.2 or in the
ordinary course of business consistent with past practice, and shall not, except
with the consent of Buyer:
(a) Sell, lease, license, transfer or otherwise dispose of, or agree or
commit to sell, lease, license, transfer or otherwise dispose of, any of its
fixed assets;
(b) Change, amend or otherwise modify its articles or certificate of
incorporation or bylaws (including, but not limited to, any change in its
capital stock by reclassification, subdivision, reorganization or otherwise);
(c) Merge or consolidate with or into, or acquire all or substantially all
of the assets of, any Person, or agree or commit to do any of the foregoing;
(d) Issue, grant, sell or otherwise dispose of or agree or commit to issue,
sell or otherwise dispose of any shares of its capital stock or any options,
warrants, or securities convertible into or representing rights to purchase or
subscribe to any shares of capital stock;
(e) Declare, pay or make any dividends or distributions to any Person;
(f) Create, incur, assume, or guarantee, or agree, commit or obligate
itself to create, incur, assume, or guarantee, any Liabilities other than as
reflected in the balance sheets of the Companies contained in the Financial
Statements.
(g) Create or assume any lien, encumbrance, security interest, claim or
obligation on its capital stock or any of its Real Property or personal
property, except for the Permitted Exceptions;
(h) Increase, or agree to increase, the compensation payable or to become
payable to any of its directors, officers, employees, agents or consultants or
pay bonuses or make other payments or distributions of any kind to any such
Person (other than increases in the compensation of employees who are not
officers of the Companies or increases in fees of third-party consultants if
such increases are made in the ordinary course of its business and consistent
with past practices); provided that the Companies may pay accrued salaries and
bonuses arising in the ordinary course of business for periods prior to the
Closing Date;
(i) Create, make, change or adopt any bonus, profit sharing, pension or
other Employee Benefit Plan or similar payment, plan or arrangement to or for
the benefit of its directors, officers, employees, agents or consultants; or
(j) Enter into, make, change or commit itself to enter into or change any
agreement or arrangement with any Person, including, but not limited to, any
employment agreement or arrangement, with any of its directors, officers,
employees, agents or consultants, other than agreements with suppliers,
manufacturers, vendors, or customers in the ordinary course and scope of the
Companies' business.
Compliance. Seller shall cause the Companies to comply in all material respects
with all laws applicable in connection with their respective operations, and
Seller shall comply and shall cause the Companies to comply with all laws that
may be applicable for the valid and effective consummation of the transaction
contemplated hereby.
ADDITIONAL COVENANTS. Seller and Buyer hereby covenant and agree
to the following actions:
Tax Matters. Seller shall cause the Companies to prepare and timely file all
federal, state, local and foreign Tax returns, declarations of estimated Tax and
Tax reports for each Tax period ending prior to the Closing Date with respect to
the Companies and their respective income, assets, properties and operations and
to prepare and file appropriate Tax returns for the year ended January 2, 1999.
All Taxes shown on all such returns, declarations or reports shall be properly
and accurately determined, shall be accrued on the Companies' books to the
extent that such Taxes are not yet due and shall be paid by Seller or the
Companies to the extent that such Taxes are due. Prior to the Closing, Seller
shall furnish copies of all the Companies' Tax returns, declarations, reports
and financial statements for periods beginning after September 1, 1996 (and,
with respect to periods prior to September 1, 1996, any such returns,
declarations, reports or financial statements that are in the possession of
Seller or the Companies)to Buyer and its accountant for review. After the
Closing, the parties shall cooperate with one another and provide access to all
information, data and records as may be reasonably required in connection with
these matters.
Closing Financial Statements.
(a) Financial Statements. Seller shall promptly provide to Buyer monthly,
unaudited financial statements of the Companies as and when available, but no
later than twenty-five days after the close of each fiscal month. Not later than
ten business days before the Closing Date, Seller shall provide to Buyer audited
financial statements ("Audited Financial Statements") for the Companies on a
consolidated basis as at and for the years ending January 3, 1998 and January 2,
1999. The Audited Financial Statements shall be prepared in accordance with
generally accepted accounting principles applied consistently with past practice
and shall fairly present the financial condition and results of operations of
the Companies in all material respects and shall reflect any federal and state
Tax obligations of the Companies.
(b) Physical Inventory. On the day immediately following the Closing Date,
Buyer and Seller shall send representatives to each of the Facilities to take a
physical inventory, as of the Closing Date, of raw materials, finished feed,
other finished products, and miscellaneous other materials consistent with past
practices valued in inventory. Such representatives shall physically inspect and
agree on the quantities in the Companies' inventories of raw materials, finished
feed, other finished products and miscellaneous other inventories. The values of
the raw materials shall be equal to the quantity of raw materials times the
actual purchase price plus the actual transportation costs therefor, but shall
not exceed the market value of the finished feed, and the values of the other
inventories shall be calculated as the quantities times the lower of cost or
market price at each Facility (collectively, the "Actual Inventories"). The
market price shall be the average of the prices for contracts made or finished
products sold at each Facility within the week prior to the Closing Date. In the
event that the representatives at any Facility are unable to agree on the Actual
Inventories, the information shall be provided to John Muse and Meyer Luskin,
who shall make the final decision on behalf of Seller and Buyer, respectively.
Any disputes that are unresolved will be resolved in accordance with the
resolution provisions in subsection (d).
(c) Audit of Closing Financial Statements. Within sixty (60) days following
the Closing, Buyer shall prepare and deliver to Seller a balance sheet and
income statement as at and for the period ending as of the close of business on
the Closing Date (the "Closing Financial Statements"). Any bad debt reserve on
the Closing Financial Statements shall be consistent with bad debt reserves for
prior periods. If Buyer so elects, Buyer, at its expense, shall cause the
Companies to engage an independent certified public accountant to audit the
Closing Financial Statements. Seller, at its expense, may engage an independent
certified public accountant to review the Closing Financial Statements. The
Closing Financial Statements shall be prepared in accordance with generally
accepted accounting principles applied consistently with the Audited Financial
Statements and the notes thereto and shall fairly present the financial
condition and results of operations of the Companies in all material respects.
To the extent that the Closing Financial Statements disclose a Shortfall, the
Purchase Price shall be reduced by the Shortfall and the amount of the Shortfall
shall be deducted from the Escrow or, if greater than the Escrow, reimbursed by
Seller to Buyer within thirty (30) days after completion of the Closing
Financial Statements. All amounts due to the Companies from Seller or to Seller
from the Companies shall be canceled as of the Closing Date and the Closing
Financial Statements shall accurately reflect such canceled debt. All premiums
with respect to periods prior to the Closing Date which shall become due and
payable after the Closing on retrospective policies shall be reflected on the
Closing Financial Statements. Notwithstanding the foregoing, to the extent that
provisions for Taxes are reflected in the Closing Financial Statements for
periods prior to the Closing Date, such liabilities (or assets) shall not be
included in the calculation of any Shortfall to the extent that Seller assumes
prior to the Closing Date or has assumed in writing the payment obligation with
respect to any such liabilities or has received the benefit of any such assets;
provided that if Seller fails to make any payment as and when due Seller shall
indemnify Buyer for any liability therefor in accordance with Section 16.1.
(d) Review of Closing Financial Statements. Seller and Buyer shall review
the Closing Financial Statements no later than ten business days after the audit
or preparation, whichever is applicable, is completed, provided that the parties
shall use their best efforts to have the audit completed within sixty (60) days
after the Closing Date,. If there is any dispute over the computations or
amounts shown on the Closing Financial Statements, the disputing party shall so
notify the other party within such ten business days. If Seller and Buyer are
unable to agree on the computation of the Shortfall or any other item on the
Closing Financial Statements within twenty (20) days thereafter, then the
calculation of the Shortfall or any other unresolved item on the Closing
Financial Statements shall be submitted for resolution to a firm of independent
certified public accountants acceptable to both Buyer and Seller (the "Selected
Firm"), or, if Buyer and Seller are unable to agree upon a firm, the Selected
Firm shall be selected by the certified public accountants for Buyer and Seller.
If Buyer and Seller are unable to agree on the Selected Firm within thirty-five
(35) days after the Closing Financial Statements are completed, then, within two
business days thereafter Buyer's accountants shall select two of the "Big Five"
accounting firms and notify Seller and Seller's accountants shall have three
business days to select one of the two firms named and notify Buyer and Buyer's
accountants of their selection. If Seller's accountants fail to notify Buyer and
Buyer's accountants of their selection as required by the foregoing sentence,
the first of the two firms named by Buyer's accountants shall be the Selected
Firm. The Shortfall as computed by the Selected Firm shall be conclusive for the
purposes of this Section. Buyer and Seller shall each pay one-half of the fees
and expenses of the Selected Firm.
(e) Cooperation. Buyer and Seller shall cooperate with one another and
shall assist in the audit to the extent reasonably necessary.
(f) Escrow. The Escrow shall be deposited in escrow with the Escrow Agent
as of the Closing. In the event that the Liabilities of the Companies exceed the
current assets of the Companies as reflected on the Closing Financial
Statements, the Purchase Price shall be reduced by the amount of such Shortfall,
Seller shall execute joint instructions with Buyer and the Escrow Agent shall
immediately disburse to Buyer that portion of the Escrow equal to the Shortfall,
on a dollar-for-dollar basis. If, at the end of one hundred eighty-five (185)
days from the Closing Date, the Companies have not collected all of the accounts
receivable shown on the Closing Financial Statements, subject to any bad debt
reserve shown on the Closing Financial Statements, Buyer shall cause the
Companies to assign the unpaid accounts receivable to Seller and the Escrow
Agent shall pay to Buyer, on a dollar-for-dollar basis, the amount of such
accounts receivable from the Escrow, as an adjustment to the Purchase Price. If,
during that period of one hundred eighty (180) days following the Closing Date,
any Liens or Liabilities of the Companies arise with respect to periods prior to
the Closing Date that are not reflected in the Closing Financial Statements, the
amount of such Liens and Liabilities shall be paid to Buyer from the Escrow as
an adjustment to the Purchase Price. Any remaining portion of the Escrow shall
be paid to Seller no later than that date which is one hundred ninety (190) days
following the Closing, except for any portion that is subject to dispute which
may be retained in the escrow until resolution of the dispute in accordance with
the procedures set forth in the Escrow Agreement. The release of the remaining
Escrow shall not preclude Buyer from asserting any other claims as provided in
this Agreement.
Seller's Covenants. Seller covenants and agrees that:
(a) No later than ten business days after the date of this Agreement,
Seller shall provide to Buyer certified copies of Seller's certificate of
incorporation, and, from the date of this Agreement to the Closing Date, Seller
shall not sell, pledge, hypothecate, encumber or dispose of any of the Shares,
or permit the sale, pledge, hypothecation, encumbrance or disposition of any of
the Companies' assets other than in the ordinary course of business, or agree to
do so; provided that Seller may continue to pledge the Shares and the assets of
the Companies as set forth on Schedule 5.2, which pledges shall be released on
or before the Closing.
(b) As required by Section 8.2(a), Seller shall cause the Companies to
deliver to Buyer the unaudited combined balance sheet of the Companies as of the
end of each month which ends at least forty-five (45) days prior to the Closing
Date and the related unaudited combined consolidated statements of income for
each such month and on a cumulative basis for the entire period beginning as of
the date of the most recent audited financial statements then delivered. Such
unaudited financial statements shall be prepared:
(i) in a manner consistent with the manner in which the 1997 Financial
Statements and the Interim Financial Statements shall have been prepared;
and
(ii) in conformity with generally accepted accounting principles
consistently applied, be correct and complete in all material respects and
present fairly the combined consolidated financial position of the
Companies as of the dates of such statements and the results of operations
of the Companies for the period covered by such statements, subject to
normal year-end recurring adjustments which individually or in the
aggregate are not Material and the absence of notes and schedules thereto.
Notice of Certain Events. Seller promptly shall notify Buyer in writing
("Seller's Notice") of any adverse change in the business, operations, condition
(financial or other), Real Property or assets of the Companies (other than the
Corn Price Exceptions); the receipt of any notice or other communication from
any Person relating to the transactions contemplated by this Agreement or
affecting the operations, Real Property or assets of the Companies; and any
action, suit, claim, or legal, administrative or arbitration proceedings or
investigation commenced or threatened against, relating to or involving the
Companies or the Acquired Business. In the event of any Material adverse change
(other than the Corn Price Exceptions), Buyer may terminate this Agreement
within thirty (30) days following receipt of Seller's Notice by giving written
notice of such termination (the "Termination Notice") to Seller; provided that
if Buyer fails to deliver a Termination Notice with respect to any Seller Notice
within such thirty (30) day period, Buyer shall waive its right to terminate by
reason of that Seller's Notice and the changes specifically set forth therein.
Seller acknowledges and agrees that, if Seller fails to obtain acceptable title
to the real property located in Kansas City, Kansas as set forth on Schedule
5.6, such failure shall be deemed to be a Material adverse change, and Buyer
shall be entitled to terminate this Agreement under this provision, but shall
not be entitled to liquidated damages under Section 8.8.
No Shop and Confidentiality.
(a) Seller and its Affiliates shall not, and shall use their best efforts
to ensure that their respective officers, directors, employees, investment
bankers, attorneys, accountants and other agents do not, directly or indirectly,
initiate, solicit, encourage, participate in, or engage in discussions or
negotiations with or provide any information to or otherwise take any action to
facilitate the making of, any offer or proposal which constitutes or is
reasonably likely to lead to any Alternative Transaction with respect to the
Companies or cooperate with any other Person seeking to acquire or expressing an
interest in acquiring any of the Shares or any of the assets (other than
inventory in the ordinary course of the Acquired Business consistent with past
practices) or the Acquired Business or for the purpose of otherwise effecting a
transaction inconsistent with the transactions contemplated by this Agreement.
Seller shall notify Buyer in writing of any such inquiries, unsolicited offers
or proposals (including, but not limited to, the terms and conditions thereof
and the identity of the Person making such offer or proposal) within twenty-four
(24) hours of the receipt thereof.
(b) From the date hereof and continuing after the Closing Date or earlier
termination of this Agreement, Seller and Buyer and their representatives,
agents and employees will continue to hold in strict confidence any documents,
data or information obtained from the other party. If the transactions provided
for herein are not consummated for any reason, the party receiving such
documents, data or information shall return the same upon request to the Person
providing it, shall continue to hold in strict confidence all such documents,
data and information and shall not use any such documents, data or information.
This obligation and covenant shall survive the termination of this Agreement.
HSR Filing. Seller and Buyer shall cause their ultimate parents (as defined in
the HSR Act) to file a Notification and Report Form within ten business days
after the date hereof. Buyer and Seller shall each pay one-half of the filing
fee therefor. Buyer and Seller shall promptly respond to any requests for
additional information or documentation and shall cooperate and use their best
efforts to obtain early termination or to ensure expiration of the waiting
period on or before March 15, 1999.
Public Announcement. No party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement or public
disclosure of this Agreement or the transactions contemplated hereby without the
prior written approval of Buyer and Seller; provided, however, that any party
may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing party will use its
reasonable efforts to inform the other party prior to making the disclosure).
Liquidated Damages. IN THE EVENT THAT THE CLOSING AND THE CONSUMMATION OF THE
TRANSACTION CONTEMPLATED HEREIN DOES NOT OCCUR AS PROVIDED IN THIS AGREEMENT BY
REASON OF ANY DEFAULT OF EITHER SELLER OR BUYER, BUYER AND SELLER AGREE THAT IT
WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ASCERTAIN OR ESTIMATE THE
DAMAGES SUFFERED BY THE NON-DEFAULTING PARTY AS A RESULT OF THE DEFAULTING
PARTY'S FAILURE TO COMPLETE THE PURCHASE AND SALE OF THE SHARES PURSUANT TO THIS
AGREEMENT AND THAT UNDER THE CIRCUMSTANCES EXISTING AS OF THE DATE OF THIS
AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED FOR IN THIS SECTION REPRESENT A
REASONABLE ESTIMATE OF THE DAMAGES WHICH BUYER OR SELLER WILL INCUR AS A RESULT
OF SUCH DEFAULT BY SELLER OR BUYER, RESPECTIVELY. THEREFORE, BUYER AND SELLER DO
HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT THAT EITHER
PARTY WOULD SUFFER IN THE EVENT OF THE OTHER PARTY'S DEFAULT AND FAILURE TO
COMPLETE THE PURCHASE AND SALE OF THE SHARES IS THREE MILLION DOLLARS
($3,000,000). SUCH AMOUNT SHALL BE THE FULL, AGREED AND LIQUIDATED DAMAGES FOR
EITHER PARTY'S DEFAULT AND FAILURE TO CONSUMMATE THE TRANSACTION; PROVIDED THAT
THE PARTY CLAIMING THE RIGHT TO LIQUIDATED DAMAGES HAS SATISFIED ALL CONDITIONS
PRECEDENT TO CLOSING REQUIRED TO BE SATISFIED AS OF THE DATE OF THE DEFAULT AND
IS NOT OTHERWISE IN DEFAULT UNDER THIS AGREEMENT. THE PAYMENT OF SUCH AMOUNT AS
LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY, BUT IS INTENDED
TO CONSTITUTE LIQUIDATED DAMAGES TO THE NON-DEFAULTING PARTY. UPON DEFAULT BY
EITHER PARTY AND PAYMENT OF THE LIQUIDATED DAMAGES TO THE NON-DEFAULTING PARTY,
THIS AGREEMENT WILL TERMINATE AND NEITHER PARTY WILL HAVE ANY FURTHER RIGHTS OR
OBLIGATIONS HEREUNDER.
Buyer's Initials Seller's Initials
---- ----
ACCESS TO FACILITIES AND RECORDS.
Inspection. Seller has provided Buyer with all Material documents, facts and
information and has responded to Buyer's inquiries to the extent that such
information or documents was reasonably available. Buyer has reviewed the
Companies' books, records and assets provided or made available by Seller,
except with respect to that information that is to be provided by Seller prior
to the Closing. Buyer may continue to review, investigate and inspect the
Companies' business, operations, condition (financial and other), books and
records, Real Property, assets and the documents to be provided hereunder. In
the event that the Companies' business, operations, condition (financial or
other), Real Property or assets are not as represented by Seller, Buyer may
terminate this Agreement by written notice to Seller. Seller shall cooperate and
cause the Companies to cooperate with Buyer during such period and facilitate
the process as set forth herein. Buyer may, at its expense, obtain a Phase I
and/or Phase II environmental audit of the Real Property (provided that any such
Phase I report is obtained by March 15, 1999), provided that Buyer shall give
Seller ten days' written notice before commissioning any Phase II audit, during
which period Seller may object in writing to such Phase II audit or audits
(which objection shall not be deemed to be a breach of any representations,
warranty or covenant hereunder) and, if Seller does object in writing, Buyer may
terminate this Agreement without any liability or either party.
Access. Seller and the Companies shall give Buyer and Buyer's employees,
counsel, accountants, and other representatives or agents reasonable access
during normal business hours from the date hereof until the Closing Date to the
Facilities and to such of the Companies' Real Property, assets, properties,
personnel, books, contracts, commitments and records as relate to the Companies'
business, including, but not limited to, certified copies of the Companies'
charter documents, bylaws, and minute book and all amendments thereto, any Tax
returns filed by the Company, all books, records, financial statements,
accounts, budgets, contracts, reports, journals, ledgers or other financial
records of the Company, any sales, customer, inventory, credit, personnel and
other operational records, any contracts, agreements or commitments with
suppliers, manufacturers or any other Person, and any real or personal property
leases, licenses or options and other information or data of the Company. Buyer
or its representatives shall be entitled to copy any such information or
documents; provided that in the event of a termination of this Agreement for
whatever reason, Buyer shall promptly return or destroy all such copies, as
instructed by Seller, other that one copy to be retained by Buyer's counsel in
the event of litigation.
Additional Information. Seller shall furnish to Buyer and its representatives
all such additional documents and financial and other information concerning the
Companies and their respective businesses, operations, condition (financial or
other), Real Property and assets as Buyer or its representatives may from time
to time reasonably require and shall permit Buyer and such representatives to
examine all records and working papers relating to the preparation of the
financial statements or Tax returns of the Companies.
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. All of the obligations of
Buyer under this Agreement are subject to the satisfaction of each of the
following conditions on or before the Closing:
Accuracy of Representations and Warranties. The representations and warranties
of Seller contained in this Agreement or in any schedule or exhibit hereto shall
be true and accurate in all Material respects on and as of the Closing Date,
with the same force and effect as if made on the Closing Date, except as
affected by transactions contemplated or permitted hereby, and a duly authorized
officer of Seller shall so certify at the Closing.
Performance of Covenants. Seller shall have performed and complied in all
Material respects with all covenants, obligations and agreements to be performed
or complied with by Seller or the Companies on or before the Closing Date
pursuant to this Agreement or any schedule or exhibit hereto, and Seller and a
duly authorized officer of the Companies shall so certify at the Closing.
Approval of Agencies. All governmental approvals necessary for the consummation
of the transactions contemplated herein shall have been obtained, and the
waiting period under the HSR Act shall have been terminated or shall have
expired.
Consents. Buyer shall have received all required consents or approvals for the
sale, assignment and transfer of the Shares in a form satisfactory to Buyer and
its counsel. Prior to the execution of this Agreement, Seller's Board of
Directors approved this Agreement and the transactions contemplated hereby. No
provision of any applicable law, statute, rule, regulation or ordinance and no
judgment, injunction, order or decree shall prohibit the consummation of the
transactions contemplated by this Agreement in accordance with its terms.
No Material Adverse Change. There shall have been no Material adverse change in
the business, operations, financial condition or assets of the Companies taken
as a whole prior to the Closing Date; provided that the Corn Price Exceptions
shall not constitute a Material adverse change (but nonetheless the impact of
the Corn Price Exceptions shall be considered in determining the Shortfall), and
Buyer shall not have terminated this Agreement as permitted by Section 8.4.
Delivery of Documents. Seller shall provide, on or before the Closing, all
documents required to consummate the transactions contemplated by this
Agreement, including but not limited to:
(a) The certificates representing the Shares duly endorsed for transfer or
accompanied by duly executed stock powers;
(b) Termination statements or other evidences of satisfaction, cure or
remedy, in form to Buyer's reasonable satisfaction, duly endorsed by all
appropriate Persons, confirming that Liens against the Shares and the Companies'
assets have been terminated, cured or removed;
(c) Certified copies of resolutions of the Board of Directors of Seller, in
form to Buyer's reasonable satisfaction, authorizing the execution and delivery
of this Agreement and the consummation of the purchase and sale contemplated
hereby;
(d) Certificates of good standing or status issued by the Secretary of
State and, if available, appropriate taxing agency in Delaware with respect to
Seller and Delaware, Georgia, Illinois, Indiana, Kansas, New Jersey, North
Carolina, Ohio, Texas and any other state in which any of the Companies is
qualified to transact business confirming that Seller and the Companies are duly
incorporated or qualified to do business, as appropriate, validly existing and
in good standing in the states in which they are incorporated or transacting
business;
(e) Certificates required by Sections 10.1 and 10.2, as well as an
incumbency certificate confirming the officers of Seller and the Companies and
their authorized signatures, all in form to Buyer's reasonable satisfaction;
(f) An opinion of counsel for Seller and the Companies substantially in the
form attached hereto as Exhibit C, with such changes as may be mutually agreed
upon by the parties; and
(g) The resignation of the officers and directors of the Companies.
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. All of the obligations of
Seller under this Agreement are subject to the satisfaction of each of the
following conditions on or before the Closing:
Accuracy of Representations and Warranties. The representations and warranties
of Buyer contained in this Agreement or in any schedule or exhibit hereto shall
be true and accurate in all Material respects on and as of the Closing Date,
with the same force and effect as if made on the Closing Date, except as
affected by transactions contemplated or permitted hereby, and an officer of
Buyer shall so certify at the Closing.
Performance of Covenants. Buyer shall have performed and complied in all
Material respects with all covenants, obligations and agreements to be performed
or complied with by Buyer on or before the Closing Date pursuant to this
Agreement or any schedule or exhibit hereto, including, but not limited to, the
payment of the Purchase Price to Seller in the manner set forth herein, and an
officer of Buyer shall so certify at the Closing.
Approval of Agencies. All governmental approvals necessary for the consummation
of the transactions contemplated herein shall have been obtained and early
termination has been granted or the waiting period has expired under the HSR
Act.
Consents. Seller shall have received all required consents or approvals for the
sale, assignment and transfer of the Shares, in a form satisfactory to Seller
and its counsel. Prior to the execution of this Agreement, Seller's Board of
Directors and Buyer's Board of Directors shall have approved this Agreement and
the transactions contemplated hereby. No provision of any applicable law,
statute, rule, regulation or ordinance and no judgment, injunction, order or
decree shall prohibit the consummation of the transactions contemplated by this
Agreement in accordance with its terms.
Delivery at Closing. Buyer shall provide, on or before the Closing, all funds
and documents required to consummate the transactions contemplated by this
Agreement, including but not limited to:
(a) The Payments at Closing shall be paid and the Escrow shall be deposited
by Buyer as hereinabove provided, except that Buyer may pay all or a portion of
the Payments at Closing directly to Seller's lender for the release of the Liens
on the Shares;
(b) A certified copy of the resolutions of the Board of Directors of Buyer,
in form to Seller's reasonable satisfaction, that the execution of this
Agreement and the consummation of the purchase and sale contemplated hereby have
been duly authorized;
(c) Certificates required by Sections 11.1 and 11.2, as well as an
incumbency certificate confirming certain officers of Buyer and their authorized
signatures, all in form to Seller's reasonable satisfaction;
(d) An opinion of counsel for Buyer substantially in the form of Exhibit D
with such changes as may be mutually agreed upon by the parties;
(e) Such additional funds as may be required from Buyer for the payment of
the charges to be borne by it; and
(f) A certificate from Buyer confirming that Seller has provided Buyer and
its representatives and agents the opportunity to ask questions of the officers
and management of the Companies and to acquire such additional information about
the business and financial condition of the Companies as Buyer has requested and
that all such information has been received.
COVENANT NOT TO COMPETE.
Covenant of Seller. As a Material inducement to Buyer's entering into this
Agreement and in consideration of $500,000 paid at the Closing, for a period of
three (3) years from and after the Closing Date, Seller hereby covenants and
agrees that it shall not engage or participate, directly or indirectly, in any
business in competition with the Acquired Business within the United States.
Public Policy and Law. The parties to this Agreement expressly agree that it is
not their intention to violate any public policy or statutory or common law. The
parties intend that the covenants set forth above shall be construed as a series
of separate covenants, one for each Person and in each county or state within
the specified geographic area, each of which covenant shall be deemed to be
identical. If, in any judicial proceedings, a court shall refuse to enforce any
of the separate covenants deemed included in this Section 12, then such
unenforceable covenant shall be deemed to be eliminated therefrom or modified to
the extent necessary to permit it and the remaining separate covenants to be
enforceable. Without limiting the generality of the foregoing, if any court of
competent jurisdiction determines that either of the foregoing covenants not to
compete is invalid because of its length of time or geographic scope, then the
parties hereto agree that such covenant shall be reduced either or both in
length of time or geographic scope to the extent necessary to make such covenant
enforceable against Seller.
Remedy. The parties acknowledge and agree that the remedy at law for any breach
of the foregoing covenants not to compete will be inadequate and that Buyer and
the Companies shall be entitled, in addition to any remedy at law, to injunctive
relief. In addition to the amount paid to Seller, the consideration for the
foregoing covenants not to compete, which are hereby agreed to be a Material
element of this Agreement, is Buyer's agreement to purchase the Shares and pay
the Purchase Price provided herein, and Seller acknowledges the adequacy of such
consideration.
EXPENSES. Buyer and Seller shall each pay their own expenses incurred
in connection with this Agreement and the transactions contemplated herein,
whether or not the transactions contemplated herein are consummated.
BROKER. Except as set forth on Schedule 14, the fees for which shall be
the sole responsibility and obligation of Seller, no broker, finder or similar
agent has been employed by or on behalf of Seller, the Companies or Buyer in
connection with this Agreement or the transactions contemplated by this
Agreement, and no broker, finder or similar agent is entitled to any broker's or
finder's commission, fee, compensation or similar payment in connection with
this Agreement or the transactions contemplated by this Agreement based on any
agreement, arrangement or understanding with Seller, the Companies or Buyer or
any Affiliate thereof or any action taken by any such Person. Seller shall
indemnify and hold harmless Buyer from and against any claim of third parties
for any such commission, fee, compensation or payment in connection with the
transactions contemplated herein insofar as such claims are alleged to be due or
based on arrangements or agreements made by Seller or any of the Companies or as
a result of the actions of Seller or any of the Companies. Buyer shall indemnify
and hold harmless Seller from and against any claim of third parties for any
such commission, fee, compensation or payment in connection with the
transactions contemplated herein insofar as such claims are alleged to be due or
based on arrangements or agreements made by Buyer or as a result of the actions
of Buyer.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND RELATED AGREEMENTS.
Except as otherwise specifically provided, all of the terms, covenants,
representations and warranties and agreements contained in or made pursuant to
this Agreement shall survive the Closing Date and the investigation by or on
behalf of Buyer. All statements contained herein or in any certificate,
schedule, list or exhibit attached hereto or required to be delivered pursuant
hereto shall be deemed representations and warranties within the meaning of this
Section 15; provided that Seller may update the disclosures in the Schedules to
this Agreement as of the Closing Date and that, if in Buyer's opinion any such
updated Schedule constitutes a Material adverse change, Seller shall have no
liability with respect to such updated disclosure to the extent that the change
resulted from a cause beyond Seller's control and Buyer's sole remedy shall be
to terminate this Agreement. The representations, warranties, covenants and
agreements set forth in Sections 5.2, 5.11, and 5.13 shall survive the Closing
until the expiration of all applicable federal, state, local and foreign
statutory periods of limitations (after giving effect to any waiver, mitigation
or extension of any such statutory periods of limitations or any agreements made
in connection with the imposition, assessment, evaluation, audit or review of
any federal, state, local or foreign Taxes or Tax returns with respect to the
Companies or any of its income, properties, franchises or operations). All other
representations, warranties, covenants and agreements of Seller shall survive
the Closing for a period of two years. All representations, warranties,
covenants and agreements of Buyer shall survive the Closing for a period of two
years. Seller's liability under Section 16.1 shall terminate on that date which
is two years after the Closing Date for Losses resulting from misrepresentations
under this Agreement or the exhibits hereto or schedules attached (other than
5.2, 5.11, and 5.13), but, notwithstanding any disclosure set forth in the
disclosure schedules, Seller's liability under Section 16.1 with respect to
misrepresentations under Sections 5.2, 5.11 or 5.13 shall not terminate until
the expiration of all applicable federal, state, local and foreign statutory
periods of limitations (after giving effect to any waiver, mitigation or
extension of any such statutory periods of limitations or any agreements made in
connection with the imposition, assessment, evaluation, audit or review of any
federal, state, local or foreign Taxes or Tax returns with respect to the
Companies or any of its income, properties, franchises or operations) and
Seller's liability for Losses under Section 16.1(a)(d) shall not terminate until
the expiration of four years from the Closing Date. Buyer's liability under
Section 16.2 shall terminate on that date which is two years after the Closing
Date. Notwithstanding the preceding provisions, any representation, warranty,
covenant or agreement with respect to which Buyer may exercise its right to seek
recourse against the Escrow under this Agreement shall survive the time at which
such representation, warranty, covenant or agreement would otherwise terminate
pursuant to this Section, if notice of any proceeding or the event, circumstance
or state of facts giving rise to such right to seek recourse shall have been
given to Seller in accordance with this Agreement.
INDEMNIFICATION.
Seller's Indemnity.
(a) General. Seller shall indemnify, defend and hold harmless Buyer and the
Companies, and their respective officers, directors, employees and agents, from
and against any and all Losses, including reasonable attorneys' fees and court
costs, that shall arise with respect to: (a) the breach of or failure of Seller
to perform any covenant or agreement contained in this Agreement or required
hereunder (whether occurring before or after the Closing Date); (b) the breach
or failure of the Companies to perform any covenant or agreement contained in
this Agreement to be performed by any of the Companies on or before the Closing
Date; (c) any breach of any representation or warranty made by or on behalf of
Seller; and (d) any Loss arising from third party claims related to events
occurring prior to the Closing (other than relating to an Environmental
Condition) to the extent that such Loss, individually or in the aggregate with
all other such Losses, is Material, subject to the terms and conditions set
forth in this Agreement, including but not limited to the adjustment of the
Purchase Price as set forth in Section 8.2. Seller's obligations under this
Section 16.1 shall not be limited in any way by the amount of the Escrow or by
the Escrow Period, except to the extent that Buyer has been reimbursed for such
Losses from the Escrow.
(b) Environmental. Notwithstanding the above and regardless of the
representations made by Seller, Seller shall, for a period of three years
following the Closing, indemnify, defend and hold harmless Buyer and the
Companies, and their respective officers, directors, employees and agents, from
and against any and all Losses, including reasonable attorneys' fees, clean-up
or remediation costs and court costs, that arise or relate to any Environmental
Condition or the presence of any Hazardous Substances on either of the Georgia
Facilities.
Buyer's Indemnity. Buyer shall indemnify, defend and hold Seller, and its
officers, directors, employees and agents, harmless from and against any and all
Losses, including reasonable attorneys' fees and court costs, that shall arise
with respect to: (a) the breach of or failure by Buyer to perform any covenant
or agreement contained in this Agreement (whether occurring before or after the
Closing Date); and (b) any breach of any representation or warranty made by
Buyer under this Agreement or any schedule or exhibit hereto.
Procedures.
(a) Notice. The Indemnified Party shall promptly notify the Indemnifying
Party of the existence of any Loss to which the Indemnifying Party's obligations
under this section would apply. The Indemnifying Party shall have the right, but
not the obligation to defend the claim at the Indemnifying Party's own expense
and with counsel of its own selection; provided that the Indemnified Party shall
at all times have the right to obtain separate counsel and participate in the
defense at its own expense. If the Indemnifying Party shall, within a reasonable
time after this notice, fail to assume the defense, the Indemnified Party shall
have the right, but not the obligation, to undertake the defense of, and to
compromise or settle (exercising reasonable business judgment), the Loss on
behalf, for the account, and at the risk of the Indemnifying Party. If the Loss
is one that cannot by its nature be defended solely by the Indemnifying Party
(including, without limitation, any federal or state proceeding), then the
Indemnified Party shall make available all information and assistance that the
Indemnifying Party may reasonably request.
(b) Insurance and Other Third Party Claims. Seller and Buyer shall take or
cause the Companies to take all reasonable actions to make claims under any and
all applicable insurance policies for any Losses and to make claims against
manufacturers and any and all other third parties from whom a Loss could
reasonably be reimbursed or recovered. Seller and Buyer shall and shall cause
the Companies diligently to pursue such claims; provided that, if any Escrow
Period is about to expire, Buyer shall be reimbursed the amount of the Loss or
an estimate of such amount from the Escrow by the Escrow Agent pending
resolution of the third party claim in accordance with the Escrow Agreement and
provided further that the costs of making and pursuing such reimbursement shall
be included in the calculation of the Loss. If either party to this Agreement
receives any payment with respect to a Loss from any insurer or any third party,
the amount received shall be remitted to the Indemnifying Party to the extent it
is in excess of the actual Loss suffered or to reimburse the Indemnifying Party
for any amount previously deducted from the Escrow or previously paid by the
Indemnifying Party to the Indemnified Party; provided that Buyer shall not be
required to remit such amount to Seller until after the applicable Escrow Period
has expired. Neither Seller nor Buyer shall make any claims under this Agreement
for the amounts which any insurance carriers have reimbursed the Companies or
the Indemnified Party or with respect to which the Indemnified Party has
otherwise been reimbursed, such as by manufacturers for defective products.
Threshold; Limitations. For the initial one hundred eighty (180)
days immediately following the Closing and in connection with any Shortfall,
Seller's indemnification obligations shall not be limited by this provision.
Thereafter, however, neither Buyer nor Seller shall be entitled to assert any
claim for indemnification against the other party for any Loss resulting from an
Indemnifiable Matter until such time as all claims of such party against the
Indemnifying Party shall exceed $110,000 (the "Threshold"), at which time all
claims for indemnification against the Indemnifying Party may be asserted. The
Indemnifying Party's obligation under this Section 16 shall be after giving
effect to any federal and state tax benefits to the Indemnified Party
attributable to the Loss and any federal and state tax liability to the
Indemnified Party attributable to the indemnification proceeds of such Loss. The
parties agree that the applicable combined federal and state tax rate for such
purpose shall be 37%. Seller shall not be liable under Section 16.1(a)(d) after
that date which is four years from the Closing Date unless Buyer has notified
Seller of any such Loss prior to that date or such Loss is indemnifiable under
another provision of this Agreement which survives such four-year period.
Environmental Remedial Action Procedures. In the event that (i)
Seller breaches a representation or warranty with regard to an environmental
matter on any of the Real Property, (ii) Buyer asserts a claim under Section
16.1(b) as a result of the existence of an Environmental Condition or the
presence of Hazardous Substances on any of the Real Property or (iii) remedial
action is required by a governmental agency with jurisdiction, by a third party
or under mandatory provisions of applicable Environmental Law, Buyer and Seller
shall cooperate in implementing the remedial action as follows:
(a) Seller shall diligently and expeditiously perform or cause to be
performed the appropriate remedial actions and exercise its responsibilities in
such a manner as to avoid and minimize any damage to real or personal property
or harm to any Persons and to minimize any interference with or disruption of
Buyer's and any of the Companies' operations and business and shall indemnify
and hold Buyer harmless from any negligence or willful misconduct in performing
the remedial actions. Buyer and Seller shall each designate an individual
responsible for communication with the other party and the environmental
consultants (which shall be selected by Seller and reasonably acceptable to
Buyer) with respect to any remedial action and shall notify the other party of
the identity of such individual. All documents, test results, analyses, reports,
and proposals shall be provided to both Buyer and Seller.
(b) The remedial action shall meet the Appropriate Remediation Standard and
shall be deemed completed upon receipt by Buyer (or by Seller if Seller provides
a copy thereof to Buyer) from the appropriate governmental authority with
jurisdiction of a "no further action," "clean closure" or other similar letter
or written statement providing that such governmental authority will not require
further remedial action or, in the event such authority ceases to or does not
issue such letters, a certificate from the environmental consultant that
implemented the remedial action that such remedial action has been implemented
and the Appropriate Remediation Standard has been achieved.
(c) Upon completion of the remedial action, Seller shall restore any
adversely affected portions of the property to its pre-disturbed condition to
permit Buyer and the Companies to continue their respective operations.
BINDING. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective representatives, successors
and assigns. This Agreement may be assigned by Buyer without the written consent
of Seller to an Affiliate of Buyer, but may not be assigned by Seller without
the prior written consent of Buyer.
ENTIRE AGREEMENT. This Agreement and its exhibits, schedules and
attachments contain the full and complete understanding and the entire agreement
of the parties hereto with respect to the acquisition of the Shares and all
other transactions contemplated herein and, except as specifically set forth
herein, supersedes all prior agreements or understandings among the parties
hereto relating to the subject matter hereof.
AMENDMENT. This Agreement may be amended, modified or supplemented
only by written instruments signed by all parties hereto.
SEVERABLE. In the event any one or more of the provisions contained in
this Agreement or any application thereof shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement and any other application thereof shall
not in any way be affected or impaired thereby.
NOTICES. All notices, requests, demands and other communications under
this Agreement to the parties shall be in writing and shall be personally
delivered or sent by commercial courier, facsimile (with the original by mail)
or certified or registered mail, postage prepaid and return receipt requested,
to the following addresses:
Seller: Darling International Inc.
251 O'Connor Ridge Boulevard
Suite 300
Irving, Texas 75038
Attn: Chairman of the Board
Facsimile: (972) 717-3062
With a copy to: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Attn: Fredric J. Klink, Esq.
Facsimile: (212) 698-3599
Buyer: Scope Products, Inc.
233 Wilshire Boulevard
Suite 310
Santa Monica, California 90401
Attn: Meyer Luskin
Facsimile: (310) 451-5371
With a copy to: Arter & Hadden LLP
725 South Figueroa Street
Suite 3400
Los Angeles, California 90017
Attn: Kay Rustand, Esq.
Facsimile: (213) 617-9255
Any party may change its address for purposes of this Section
21 by giving the other parties notice of the new address in the manner set forth
herein. Any notice given as set forth herein shall be deemed to be received on
the earlier of actual receipt or four (4) business days after being sent.
ATTORNEYS' FEES. In any action or arbitration proceeding involving the
interpretation or enforcement of, or defense against, any provision of this
Agreement, the prevailing party in such action or proceeding shall be entitled
to reasonable attorneys' fees and all costs and expenses incurred in connection
with such action or proceeding. In addition, the non-prevailing party shall pay
all costs and expenses incurred in enforcing any arbitration award or judgment
or in connection with any appeal, and this obligation shall be severable from
the other provisions of this paragraph and shall survive any judgment, order or
award and shall not be deemed to be merged therewith.
TIME OF ESSENCE. Time is of the essence with respect to this Agreement
and the transactions contemplated hereby.
NO WAIVER. No failure or delay by any party in exercising any right,
power or privilege or enforcing any obligation under this Agreement shall
operate as a waiver of such right, power, privilege or obligation. No single or
partial exercise of any right, power or privilege under this Agreement shall
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege.
FURTHER ASSURANCES. Each party to this Agreement shall execute and
deliver such other documents, certificates, agreements or instruments and take
such other actions as may be necessary or desirable in order to consummate or
implement the transactions contemplated by this Agreement and to vest in Buyer
record and beneficial ownership of the Shares, free and clear of all Liens, or
other claims or interests other than those arising from Buyer's acts.
COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, and any federal or state
court having jurisdiction in the State of Delaware shall be the venue for any
action related hereto. Seller and Buyer hereby consent to the jurisdiction of
any federal or state court in such venue. Seller and Buyer hereby further agree
that service of process with respect to an action in any such court may be made
in accordance with the notice provisions under Section 21 hereof.
Waiver of Jury Trial. BY EXECUTING THIS AGREEMENT, THE PARTIES AGREE
THAT THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL. EACH PARTY HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL REPRESENTING THAT PARTY AND
CONSENTS TO SUCH WAIVER WITH FULL UNDERSTANDING OF THE CONSEQUENCES THEREOF.
Each party shall be responsible for its own expenses and costs of any witnesses
selected by such party
CAPTIONS. The captions of the various sections of this Agreement are
intended solely for convenience and are not to be used to interpret any of the
provisions hereof.
EXHIBITS. All exhibits and schedules attached to this Agreement are
incorporated herein by reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"SELLER"
DARLING INTERNATIONAL INC.,
a Delaware corporation
By: /s/ Dennis B. Longmire
---------------------------
Name: Dennis B. Longmire
Title: Chief Executive Officer
By: /s/ John O. Muse
---------------------------
Name: John O. Muse
Title: Chief Financial Officer
"BUYER"
SCOPE PRODUCTS, INC.,
a California corporation
By: /s/ Meyer Luskin
---------------------------
Name: Meyer Luskin
Title: Chief Executive Officer
By: /s/ John J. Crowley
---------------------------
Name: John J. Crowley
Title: Chief Financial Officer
EXHIBIT A
GLOSSARY
"Acquired Business" means the business of processing solids collected
from bakeries, pasta manufacturers, snack food producers and others to produce
animal feed.
"Actual Inventories" means the agreed value of the inventories of raw
materials, finished feed, other finished products and miscellaneous items that,
consistent with past practice, are valued as inventory determined by
representatives of Buyer and Seller in accordance with Section 8.2(b).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person.
"Agreement" means this Stock Purchase Agreement by and between Seller
and Buyer.
"Alternative Transaction: means any offer to purchase all or any
portion of the Shares or any proposal or offer to purchase substantially all of
the assets of any of the Companies or any merger, consolidation or other
business combination of any Person with any of the Companies or any proposal or
offer with respect to any other transaction similar to any of the foregoing with
respect to any Person and the Companies.
"Appropriate Remediation Standard" means publicly available or
routinely applied remediation standards, guidelines or policies, regulations,
ordinances, or other requirements of Environmental Laws imposed by any
applicable governmental agency with jurisdiction. In the even that no such
standard is imposed, then an applicable remediation standard which has been
published or promulgated by the governmental authority with jurisdiction as of
the date of the remedial actions shall be presumed to apply. In no event shall
the Appropriate Remediation Standard be at a level that would require imposition
or implementation of institutional or structural controls or access
restrictions, unless the only reasonable Appropriate Remediation Standard
applicable to the remedial action to be performed specifically requires such
controls or restrictions.
"Closing" means the consummation of the purchase and sale of the Shares.
"Closing Date" means midnight (California time) on the last Saturday of
the Companies' fiscal month end following satisfaction of the conditions set
forth in Sections 10 and 11, unless otherwise agreed by Seller and Buyer.
"Closing Financial Statements" means the financial statements of the
Companies prepared as of the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Companies" means IPC, ITS and FBR.
"Corn Price Exceptions" means any negative impact resulting from
continued low corn prices or further decline in corn prices, or any negative
impact on corn prices which could result from domestic or international economic
conditions, which could adversely affect the price which the Companies receive
for their products.
"Employee Benefit Plan" means any pension, profit-sharing, retirement,
deferred compensation, bonus, stock purchase, stock option, severance,
hospitalization, medical insurance, life insurance, payroll practice, fringe
benefit, vacation policy, permissible leave policy or other employee benefit
plan, agreement, arrangement or understanding (including, but not limited to,
any employee benefit plan as defined in Section 3(3) of ERISA) maintained as of
the date of this Agreement or as of the Closing Date, or with respect to which
the Companies as of the date of this Agreement or at any time in the future may
have some liability or obligation to contribute or make payments and that
relates to Persons employed by the Companies or any predecessor of the Companies
prior to the Closing Date.
"Environmental Condition" means (a) the presence, release or threat of
release of Hazardous Substances (i) at, on, in under or from any Real Property
or (ii) in connection with the Acquired Business or any business now or
heretofore conducted by any of the Companies (whether or not any such release is
into the air, soil, or ground or surface waters on or off-site) or (iii) arising
from the off-site transportation, storage, treatment, recycling or disposal of
Hazardous Substances; or (b) the violation of any Environmental Law by any of
the Companies or in connection with the acquired Business or any other business
now or heretofore conducted by any of the Companies on any Real Property.
"Environmental Law" means any federal, state or local statute, code, rule,
regulation, ordinance, order, judgment, decree, injunction or common law
pertaining in any way to the protection of human health or the environment,
including, but not limited to, the Resource Conservation and Recover Act (42
U.S.C. ss. 6901 et seq.), the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (42 U.S.C. ss.ss. 9601-9675), the Toxic Substance
Control Act (15 U.S.C. ss.ss. 2601-2671), the Hazardous Material Transportation
Act (49 U.S.C. ss.ss. 1801-1813), the Federal Water Pollution Control Act (33
U.S.C. ss.ss. 1251-1387), the Clean Air Act (42 U.S.C. ss.ss. 7401-7642), the
Safe Drinking Water Act (42 U.S.C. ss.ss. 300(f)-300(j)-26) the Solid Waste
Disposal Act (42 U.S.C. ss.ss. 6901-6992(k)), the Constitutional Zone Management
Act (16 U.S.C. ss.ss. 1451-1464), and the Occupational Safety and Health Act (29
U.S.C. ss. 651 et seq.) and any similar or comparable federal, state or local
law, all as supplemented or amended or as implemented through statutes or
regulations as of the date of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" means the $2,000,000 deposited with the Escrow Agent in
accordance with the Escrow Agreement for the Escrow Period and subject to the
terms and conditions set forth in this Agreement.
"Escrow Agent" means an independent escrow agent to be mutually agreed
upon by Seller and Buyer.
"Escrow Period" means one hundred eighty-five (185) days from the
Closing Date, unless extended as provided in the Escrow
Agreement.
"Facilities" or "Facilities" means each location at which any of the
Companies operates the Acquired Business, including, but not limited to, the
Companies' facilities located in Georgia, Illinois, Indiana, Kansas, New Jersey,
North Carolina, Ohio and Texas.
"FBR" means Food by-Product Recycling, Inc., an Illinois corporation.
"Financial Statements" means and includes (i) the Audited Financial
Statements of the Companies as of January 3, 1998, and January 2, 1999, and for
each of the periods of 12 months then ended, setting forth in comparative form
the financial information for the Companies' preceding fiscal year, and (ii) the
Interim Financial Statements of the Companies.
"Georgia Facilities" means those facilities of IPC located in Georgia.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hazardous Substance" means any hazardous, toxic, radioactive or
infectious substance, material, waste, pollutant or contaminant as defined,
listed or regulated under any Environmental Law, and specifically shall include,
but not be limited to, asbestos and petroleum.
"Indemnifiable Matter means, with respect to claims against Seller,
those items listed in Section 16.1 (a) and (b) and, with respect to claims
against Buyer, those items listed in Section 16.2(a) and (b).
"Indemnifying Party" means the party against which a claim of
indemnification is made under Section 16.
"Interim Financial Statements" means those financial statements
provided under Sections 5.5(a)(3) and 8.2(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"IPC" means International Processing Corporation, a Georgia corporation.
"IPC Acquisition Agreement" means that Stock Purchase Agreement
dated as of August 30, 1996 by and among Seller, IPC, ITS and the stockholders
party thereto.
"ITS" means International Transportation Service, Inc., a Delaware
corporation.
"Liability" or "Liabilities" means any liability or liabilities
(whether known or unknown, asserted or unasserted, absolute or contingent,
liquidated or unliquidated).
"Lien" or "Liens" mean any lien, encumbrance, mortgage, security
interest, third-party interest of any kind, pledge, lease, easement, covenant,
license, claim, defect of title, restriction, agreement or other right of any
nature whatsoever or of any Person other than the Person identified.
"Loss" means any and all losses, claims, demands, proceedings, damages
(including, but not limited to, punitive and consequential damages), injuries,
Liens, Liabilities, Taxes, fines, penalties, payments, obligations costs or
expenses incurred or suffered by Buyer or the Companies, including, but not
limited to, reasonable costs and expenses of attorneys, investigation or in
connection with a proceeding.
"Material" means, with respect to any fact, circumstance or event for
which a representation, warranty or covenant is given, any such item which would
reasonably be expected to result in a Loss equal to or greater than $100,000.
"Payments at Closing" means that portion of the Purchase Price Buyer is
to pay to Seller at the Closing.
"Person" means an individual, a partnership, a corporation (including a
business trust), a limited liability company, a joint stock company, a trust, an
unincorporated association, a joint venture or any other entity, or a government
or any political subdivision or agency thereof.
"Proceeding" means any claim, demand, action, suit, arbitration,
proceeding (whether civil, criminal, administrative, investigative or
otherwise), prosecution, hearing, inquiry, audit, examination, investigation or
dispute.
"Purchase Price" means the $21.5 million Buyer is to pay for the
Shares, subject to adjustment as provided in the Agreement, and the $500,000
that Buyer is to pay for the covenant not to compete.
"Real Property" means all real property that is owned in fee by any of
the Companies and all real property in which any of the Companies has any
interest as lessor or lessee under any lease, sublease or other agreement, all
of which is listed or identified in Schedules 5.6.
"Shares" means all of the issued and outstanding shares of capital stock
of IPC and ITS.
"Shortfall" means the amount, if any, by which the Liabilities as
reflected on the Closing Financial Statements as finally determined in
accordance with Section 8.2 exceed the Companies' current assets as shown on the
Closing Financial Statements, plus all known claims not disclosed or reserved
against determined in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the compiled financial
statements of the Companies as at January 2, 1999, as adjusted for any accounts
receivable of any of the Companies not collected within one hundred eighty (180)
days following the Closing.
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, capital, paid-up
capital, profits, green mail, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, government fee or like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any federal, state, local or
foreign governmental authority responsible for the imposition of any such tax.
"Total Actual Inventories" means the aggregate of all Actual Inventories
at all Facilities of all the Companies.
Exhibit 10.2
------------
ESCROW AGREEMENT
This Escrow Agreement (this "Escrow Agreement") is entered
into as of April 5, 1999, by and between Darling International Inc., a Delaware
corporation ("Seller"), and Scope Products, Inc., a California corporation
("Buyer").
RECITALS
A. Seller is the sole shareholder of International Processing
Corporation, a Georgia corporation ("IPC"), and International Transportation
Service, Inc., a Delaware corporation ("ITS"). Seller and Buyer entered into
that Stock Purchase Agreement (the "Purchase Agreement") dated as of February 9,
1999, providing for the purchase and sale of all of the issued and outstanding
shares of the capital stock of IPC and ITS. Any terms used in this Escrow
Agreement with initial capitals that are not otherwise defined shall have the
same meanings as ascribed to them in the Purchase Agreement.
B. Seller has agreed to adjust the Purchase Price and to
indemnify Buyer for certain Liabilities under Sections 8.2 and 16.1 of the
Purchase Agreement.
C. To ensure payment of certain obligations of Seller under
the Purchase Agreement, Seller and Buyer have agreed to enter into this Escrow
Agreement and to establish the Escrow Account (as defined below).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual undertakings and agreements set forth in the Purchase Agreement and in
this Escrow Agreement, Seller and Buyer hereby agree as follows:
1. Escrow Account.
(a) Amount. Upon the Closing, Buyer shall deposit $2 million
(the "Initial Contribution") in an interest-bearing escrow account (the "Escrow
Account") held by Norwest Bank Minnesota, N.A. (the "Escrow Agent"), for payment
in accordance with this Escrow Agreement. The amount of the Initial Contribution
and all interest earned thereon which is from time to time held in the Escrow
Account shall be referred to herein as the "Escrowed Funds". Seller shall
complete and provide to the Escrow Agent a Form W-9, and all interest earned on
the Escrow shall be attributed to Seller or Buyer pro rata based on their
respective rights to receive all or a portion of the Escrow as set forth herein.
(b) Losses; Shortfall. The Escrowed Funds shall be available
for payment of any Shortfall, the existence of which shall be determined in
accordance with the provisions of Section 8.2(f) of the Purchase Agreement, and
any and all Losses which Buyer, IPC or ITS incurs as a result of, or with
respect to, those items set forth in Section 16.1 of the Purchase Agreement,
subject to the terms, conditions and Escrow Period set forth in the Purchase
Agreement and this Escrow Agreement.
2. Escrow.
(a) Appointment. Seller and Buyer hereby appoint Norwest Bank
Minnesota, N.A., as the Escrow Agent. This Escrow Agreement shall constitute
escrow instructions to the Escrow Agent. The Escrow Agent shall deposit the
Escrowed Funds in an interest-bearing money-market account at Norwest Bank
Minnesota, N.A. or shall be invested in obligations of the United States or its
agencies and shall retain or release the Escrowed Funds solely in accordance
with this Escrow Agreement.
(b) Disbursements. If Buyer submits (i) the Closing Financial
Statements of the Companies as finally determined in accordance with the
Purchase Agreement showing current assets to be less than all Liabilities,
thereby creating a Shortfall; (ii) an affidavit confirming the amount of the
accounts receivable of the Companies that were not collected within 180 days
following the Closing, (iii) a certificate to the Escrow Agent in the form
attached hereto as Schedule 1, which has been acknowledged by Seller, or (iv) an
arbitration award or order of a court of competent jurisdiction in Delaware, the
Escrow Agent shall release promptly, but in any event within three business
days, the stated amount, plus interest from the date hereof, to Buyer, IPC or
ITS, as Buyer shall direct, with no further instructions or authorizations
required from Seller. The Escrow Agent is entitled to rely on the Closing
Financial Statements, Buyer's affidavit with respect to item (ii) or any
arbitration award or order of a court presented to it regardless of any rights
of the parties to proceed at law or challenge such award. If any funds remain in
the escrow as of the expiration of the Escrow Period as provided herein, the
Escrow Agent shall, within two business days after the expiration of such Escrow
Period, release to Seller, or as Seller otherwise directs, the balance of the
Escrowed Funds, plus any accrued interest; provided that if any amounts remain
in dispute such disputed amount plus interest thereon shall be retained until
the dispute is resolved.
(c) Costs; Termination. The escrow fees, costs and expenses
payable to the Escrow Agent pursuant to Schedule 2 attached hereto shall be paid
one-half by Seller and one-half by Buyer upon opening of the escrow. The escrow
shall terminate when all Escrowed Funds are released as set forth herein or upon
written instructions from Seller and Buyer.
3. Disputes.
(a) Notice. Buyer shall promptly provide notice to Seller of
any claim, proceeding, damage, loss, liability, obligation, injury or action
("Claim"), pending or threatened, that could result in a Loss, as required under
Sections 8.2 and 16.1 of the Purchase Agreement. Within 10 days after the date
of such notice, Seller may elect in a written notice sent to Buyer and the
Escrow Agent (if any portion of the Escrowed Funds is then retained by the
Escrow Agent) to participate in or to assume the defense of any such Claim;
provided that Seller must respond within a shorter time period (but not less
than two business days) after the date of notice from Buyer if Buyer or IPC and
ITS is required by law to respond or otherwise take action within 10 or fewer
days or if the Escrow Period is scheduled to expire in 10 or fewer days. If
Seller fails to provide notice of such an election, such failure shall be deemed
to be an election not to participate in or to assume the defense and shall be
deemed to be consent to any settlement approved by Buyer, and Buyer may defend
or settle any such Claim in its absolute discretion. If the Claim is settled,
the amount of the Loss set forth in any settlement agreement or other document
shall be paid from the Escrowed Funds held by the Escrow Agent upon delivery to
the Escrow Agent of the certificate described in Section 2(b).
(b) Release of Funds. In the event that Buyer submits a
certificate to the Escrow Agent in the form attached hereto as Schedule 1
without the acknowledgment of Seller or the Closing Financial Statements,
affidavit or court order required by Section 2(b) hereof, the Escrow Agent shall
within five (5) business days send a copy of the notice to Seller by overnight
courier. If the Escrow Agent thereafter receives from Seller within the
following ten (10) business days (i) a certificate which has been acknowledged
by Seller, then the Escrow Agent shall disburse that portion of the Escrowed
Funds set forth in the certificate; (ii) a statement acknowledging that part of
the Escrowed Funds claimed by Buyer are due and owing but disputing the amount,
then the Escrow Agent shall release to Buyer the amount of Escrowed Funds which
are not in dispute together with a copy of Seller's statement, and the
difference shall be held in the Escrow Account until resolved as provided in
this Escrow Agreement; or (iii) a statement disputing the entire amount claimed
in such certificate, then the Escrow Agent shall not release any Escrowed Funds
to Buyer until the dispute is resolved as provided in this Escrow Agreement. If
Seller fails to respond to such notice within ten (10) days following the date
on which such notice was delivered, Seller shall be deemed to have fully
consented to the disbursement of the Escrowed Funds as requested in such
certificate. This Section 3 shall not be applicable to any claims with respect
to any Shortfall amount, which shall be determined solely in accordance with
Section 2(b)(i) and the applicable provisions of the Purchase Agreement.
(c) Retention of Funds. Except as provided in Section 2(b), in
the event that the Escrow Agent has received conflicting instructions for
disbursement of any Escrowed Funds or either Buyer or Seller shall have notified
the Escrow Agent of any items in dispute (other than amounts relating to the
Shortfall), the Escrow Agent shall not make any payment to Buyer or Seller of
the Escrowed Funds in dispute or interest thereon until receipt of a court order
or arbitration award related thereto.
4. Escrow Period. The Escrowed Funds shall be available to Buyer for
the Shortfall or Losses for a period of 185 days from the Closing Date (the
"Escrow Period"), unless extended as provided below. To the extent that any
portion of the Escrowed Funds remains in escrow on that date which is 185 days
from the date of this Escrow Agreement, the Escrow Agent shall release the
remainder of the Escrowed Funds to Seller or as Seller directs on such date,
except that, to the extent that any Claim(s) for indemnification for any Loss or
for the Shortfall is then pending, Buyer shall notify the Escrow Agent of the
estimated amount of any such pending Claim(s) prior to such expiration, and the
estimated aggregate amount of all such pending Claims shall remain in escrow
until finally resolved as provided herein.
5. Cooperation. The parties shall cooperate with one another, provide
all necessary or appropriate information or documents and keep one another
informed regarding any contest, dispute or proceeding with respect to any Claim
or Loss.
6. Additional Instructions. The parties hereto agree to sign additional
or supplementary instructions reasonably required by the Escrow Agent that are
not inconsistent with the terms of this Escrow Agreement, including, but not
limited to those set forth below:
(a) Disbursements. Unless Escrow Agent is otherwise instructed
in writing prior thereto, all disbursements of funds and/or instruments and/or
documents deposited into this escrow shall be by United States mail to the
designated parties in accordance with these Escrow Instructions, at their
respective addresses shown herein.
(b) Deposit of Funds. Escrow Agent is authorized and directed
to deposit any and all funds deposited in this Escrow Account in an "Escrow
Trust Account" with Norwest Bank Minnesota, N.A. in the name of Escrow Agent
pending the completion of this escrow. Until otherwise directed by the party
entitled thereto, all disbursements shall be made by check of Escrow Agent on
said account. Thereafter, upon written instructions from Seller, Escrow Agent
shall invest the Escrow in an interest-bearing money-market account that invests
in securities backed by the full faith and credit of the United States Treasury
Department with maturities of no more than 90 days in the name of Escrow Agent
as Trustee for the benefit of Seller. The parties acknowledge that one or more
account(s) shall not be opened until a completed and fully executed Form W-9 is
received.
(c) Disposal of Documents. Provided that Escrow Agent first
gives Seller and Buyer thirty (30) days' prior written notice and furnishes upon
request therefor copies of such materials, Escrow Agent is authorized to destroy
or otherwise dispose of any and all documents, papers, instructions,
correspondence and other material pertaining to this escrow at the expiration of
five years from the Closing Date or the cancellation of this escrow, whichever
is earlier, without liability and without further notice to the parties hereto.
(d) Conflicting Demands. If conflicting demands are made on
Escrow Agent or notice is served upon Escrow Agent in connection herewith or any
legal action is taken in connection with this escrow, Escrow Agent shall not be
required to determine the same or take any action, but shall withhold and stop
all further proceedings without liability therefor. In addition, Escrow Agent
may file suit in interpleader or for declaratory relief. If Escrow Agent is
required to respond to any legal summons or proceedings or if any action in
interpleader or declaratory relief is brought by Escrow Agent, the other parties
to this escrow jointly and severally, agree to pay all costs, expenses and
reasonable attorneys' fees expended or incurred by Escrow Agent in connection
therewith.
(e) Attorneys' Fees. Should any legal action be brought for
the interpretation or enforcement of these Instructions to Escrow Agent or any
term hereof, or due to any alleged dispute, breach, default or misrepresentation
in connection with any provisions herein contained, the prevailing party shall
be entitled to its reasonable attorneys' fees and costs and other costs incurred
in any such action or proceeding and including any such action which results in
an arbitration of the matters herein, in addition to such other relief as may be
granted by the courts or arbitration proceedings.
(f) Further Assurances. Each of the parties agrees that it
will, without further consideration, execute, acknowledge and deliver such other
documents and take such other actions as may be reasonably requested by the
other party in order to consummate the purposes and subject matter hereof.
(g) Assignment. No party hereto shall have any right
whatsoever to voluntarily assign its rights or delegate its duties hereunder to
any third party without the written consent of the other parties to this Escrow
Agreement, which may be withheld in the other parties' sole discretion.
(h) Validity. If any provision of these Instructions to Escrow
Agent may be prohibited by law or otherwise held invalid, such prohibition or
invalidity shall be effective only to the extent of such prohibition or
invalidity and shall not invalidate or otherwise render ineffective the
remaining provisions of these Instructions to Escrow Agent.
(i) Survival. The covenants contained in the Escrow Agreement
shall survive the Closing.
(j) Notices. All notices, requests, demands and other
communications under this Agreement to the parties shall be in writing and shall
be personally delivered or sent by commercial courier, facsimile (with the
original by mail) or certified or registered mail, postage prepaid, to the
following addresses:
Seller: Darling International Inc.
251 O'Connor Ridge Boulevard
Suite 300
Irving, Texas 75038
Attn: Chairman of the Board
Facsimile: (972) 717-3062
With a copy to: Dechert Price & Rhoads
30 Rockefeller Plaza
New York, New York 10112
Attn: Fredric J. Klink, Esq.
Facsimile: (212) 698-3599
Buyer: Scope Products, Inc.
233 Wilshire Boulevard
Suite 310
Santa Monica, California 90401
Attn: Meyer Luskin
Facsimile: (310) 451-5371
With a copy to: Arter & Hadden LLP
725 South Figueroa Street
Suite 3400
Los Angeles, California 90017
Attn: Kay Rustand, Esq.
Facsimile: (213) 617-9255
Any party may change its address for purposes of this Section by giving the
other parties notice of the new address in the manner set forth herein. Any
notice given as set forth herein shall be deemed to be received on the earlier
of actual receipt or four (4) business days after being sent.
(k) Facsimile Deliveries. The signatures of any party hereto
shall be deemed delivered to Escrow Agent when Escrow Agent receives a signed
facsimile from the signatory. The party sending such a fax shall within a
reasonable period of time thereafter follow up the fax signature by sending an
originally executed copy of the faxed material to Escrow Agent. Escrow Agent
shall have no liability and/or responsibility to obtain such originally executed
document of the faxed material if it is not received by Escrow Agent.
The parties hereto agree to sign additional or supplementary
instructions customarily required by the Escrow Agent that are not inconsistent
with the terms of this Escrow Agreement.
7. The Escrow Agent's Agreement. By signing below, the Escrow Agent
agrees to act as the Escrow Agent and to open an escrow in accordance with this
Escrow Agreement.
8. Governing Law. The rights and obligations of Buyer, Seller, IPC and
ITS with regard to the Escrowed Funds shall be governed by and construed in
accordance with the laws of the State of Delaware. The duties and
responsibilities of the Escrow Agent pursuant to this Escrow Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware.
The parties to this Agreement agree that any federal or state court having
jurisdiction in the State of Delaware shall be the venue for any action with
respect to this Agreement. Each party consents to the jurisdiction of any
federal or state court in such venue.
Each party also agrees that service of process with respect to an action in any
such court may be made in accordance with the notice provisions of Section 6(j)
of this Agreement.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Escrow
Agreement as of the date first set forth above.
"BUYER"
SCOPE PRODUCTS, INC.,
a California corporation
By: /s/ Meyer Luskin
---------------------------
Meyer Luskin
Chief Executive Officer
By: /s/ John J. Crowley
---------------------------
John J. Crowley
Chief Financial Officer
"SELLER"
DARLING INTERNATIONAL INC.
By: /s/ Dennis B. Longmire
---------------------------
Dennis B. Longmire
Chief Executive Officer
By: /s/ John O. Muse
---------------------------
John O. Muse
Chief Financial Officer
ACKNOWLEDGED, AGREED AND ACCEPTED BY ESCROW AGENT:
NORWEST BANK MINNESOTA, N.A.
By: /s/ Curtis D. Schwegman
Name: /s/ Curtis D. Schwegman
Title: /s/ Assistant Vice President
Address: Norwest Center
Six Marquette Avenue
Minneapolis, Minnesota 55479-0069
Telephone: 612-667-2245
Telecopy: 612-667-9825
Escrow No. _________________
Schedule 1
CERTIFICATE OF SCOPE PRODUCTS, INC.
To:
The undersigned hereby certifies that he is the President,
Chief Executive Officer or Chief Financial Officer of Scope Products, Inc.
("Scope") and further certifies that, under Section 3 of that Escrow Agreement
dated April 5, 1999, by and among Darling International Inc., a Delaware
corporation, ("Seller"), and Scope, Scope or International Processing
Corporation, a Georgia corporation ("IPC"), or International Transportation
Service, Inc., a Delaware corporation ("ITS") has incurred a Loss/Shortfall in
the amount of $__________. The total of all Losses incurred to date is
$__________. Scope is entitled to payment. Please forward $__________ from
Escrow No. __________ to :
SCOPE PRODUCTS, INC.
By:
Name:
Title:
Dated:
ACKNOWLEDGED:
DARLING INTERNATIONAL INC.
By:
Name:
Title:
By:
Name:
Title: