Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and among
ROUNDY'S, INC.
and
THE SHAREHOLDERS
of
PRESCOTT'S SUPERMARKETS, INC.
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Dated as of December 10, 2002
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TABLE OF CONTENTS
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ARTICLE I Purchase and Sale of the Shares....................................................1
ARTICLE II Purchase Consideration............................................................1
2.1 Purchase Consideration............................................................1
2.2 Payment of Purchase Price.........................................................4
2.3 Purchase Price Adjustment.........................................................4
2.4 Section 444 Deposit...............................................................6
2.5 Employment Matters................................................................7
2.6 Name..............................................................................8
2.7 Acknowledgements..................................................................8
ARTICLE III..................................................................................9
3.1 Time and Place of Closing.........................................................9
3.2 Deliveries........................................................................9
ARTICLE IV Representations and Warranties of the Shareholders...............................11
4.1 Corporate Organization...........................................................11
4.2 Authority of the Shareholders....................................................11
4.3 Title to the Subject Shares......................................................13
4.4 No Violation.....................................................................13
4.5 Capitalization of the Company....................................................13
4.6 Subsidiaries and Affiliates......................................................14
4.7 Financial Statements.............................................................14
4.8 Absence of Undisclosed Liabilities...............................................15
4.9 Absence of Certain Changes or Events.............................................15
4.10 Legal Proceedings................................................................16
4.11 Taxes............................................................................17
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4.12 Title to Properties and Related Matters..........................................18
4.13 Computer Software................................................................21
4.14 Licenses, Permits, Authorizations and Consents...................................21
4.15 Intellectual Property............................................................21
4.16 Contracts........................................................................22
4.17 Employees........................................................................23
4.18 Benefit Plans....................................................................24
4.19 Compliance with Applicable Law...................................................27
4.20 Ability to Conduct the Business..................................................27
4.21 Material Suppliers...............................................................27
4.22 Inventories......................................................................27
4.23 Accounts Receivable..............................................................27
4.24 Insurance........................................................................28
4.25 Bank Accounts; Powers of Attorney................................................28
4.26 Minute Books and Stock Records...................................................28
4.27 Books and Records................................................................28
4.28 Transactions with Related Parties................................................28
4.29 Environmental Matters............................................................29
4.30 Disclosure.......................................................................31
4.31 Reliance.........................................................................31
4.32 No Other Representations and Warranties..........................................31
ARTICLE V Representations and Warranties of Buyer...........................................31
5.1 Corporate Organization...........................................................31
5.2 Authorization....................................................................32
5.3 Consents and Approvals; No Violations............................................32
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5.4 Investment/Operational Intent....................................................32
5.5 Availability of Funds; Solvency..................................................33
5.6 No Other Representations and Warranties..........................................33
ARTICLE VI Covenants........................................................................33
6.1 Conduct of the Business of the Company...........................................33
6.2 Access to Personnel, Properties, Books and Records...............................36
6.3 Efforts..........................................................................36
6.4 Further Assurances...............................................................37
6.5 Transfer Taxes...................................................................37
6.6 Section 338(h)(10) Election......................................................37
6.7 Badger Limited Assortment LLC....................................................37
6.8 Stock Appreciation Rights........................................................37
6.9 Agreement Regarding Income Taxes and Income Tax Returns..........................38
6.10 Termination of Home Ownership Program and S.M.A.R.T. Scholarship Program.........39
6.11 Estoppels and SNDA's.............................................................39
ARTICLE VII Conditions to the Obligations of Buyer..........................................39
7.1 Representations and Warranties True..............................................39
7.2 Performance......................................................................39
7.3 Approvals, Permits, Etc..........................................................39
7.4 Delivery of Closing Documents....................................................40
7.5 Absence of Certain Events........................................................40
7.6 No Material Adverse Change.......................................................40
7.7 Consents.........................................................................40
7.8 Evidence of Title to Real Property...............................................40
7.9 Landlord Estoppel Certificates...................................................40
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7.10 [Intentionally Left Blank].......................................................40
7.11 Subordination, Nondisturbance and Attornment Agreements..........................40
ARTICLE VIII Conditions to the Obligations of the Shareholders..............................41
8.1 Representations and Warranties True..............................................41
8.2 Performance......................................................................41
8.3 Approvals, Permits, Etc..........................................................41
8.4 Delivery of Closing Documents....................................................41
8.5 Absence of Certain Events........................................................41
8.6 Personal Guarantees..............................................................41
ARTICLE IX Termination......................................................................42
9.1 Termination......................................................................42
9.2 Effect of Termination............................................................42
ARTICLE X Indemnification; Survival of Representations and Warranties.......................42
10.1 Indemnity Obligations of the Shareholders........................................42
10.2 Indemnity Obligations of Buyer...................................................43
10.3 Procedures Relative to Indemnification Claims....................................43
10.4 Duration.........................................................................45
10.5 Tax Effect of Losses.............................................................46
10.6 Certain Limitations..............................................................46
10.7 Definitively Resolved............................................................47
10.8 Claims Limited to Indemnification Escrow Amount, with Certain Exceptions.........47
10.9 Indemnification Rights Against Shareholders......................................47
ARTICLE XI Shareholders' Agents.............................................................48
11.1 Appointment of Shareholders' Agents..............................................48
11.2 Authority Granted to Shareholders' Agents........................................48
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11.3 Authorization....................................................................49
11.4 Reliance.........................................................................49
11.5 Acts of Shareholders' Agents.....................................................50
11.6 No Liability.....................................................................50
11.7 Expenses.........................................................................50
11.8 Claims, Actions or Suits.........................................................50
ARTICLE XII Miscellaneous Provisions........................................................51
12.1 Dispute..........................................................................51
12.2 Process..........................................................................51
12.3 Negotiations.....................................................................51
12.4 Mediation........................................................................51
12.5 Submission to Adjudication.......................................................52
12.6 General..........................................................................52
ARTICLE XIII Miscellaneous Provisions.......................................................53
13.1 Waiver of Compliance.............................................................53
13.2 Notices..........................................................................53
13.3 Expenses.........................................................................54
13.4 Public Announcements.............................................................54
13.5 Binding Effect...................................................................54
13.6 Assignment.......................................................................55
13.7 No Third Party Beneficiary.......................................................55
13.8 Captions and Paragraph Headings..................................................55
13.9 Entire Agreement.................................................................55
13.10 Modifications....................................................................55
13.11 Severability.....................................................................55
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13.12 Definition of Knowledge..........................................................55
13.13 Definition of Material Adverse Effect and Material Adverse Change................55
13.14 Counterparts.....................................................................56
13.15 Governing Law....................................................................56
13.16 Exclusive Jurisdiction...........................................................56
13.17 Directors, Officers and Fiduciary Indemnification................................56
13.18 Acknowledgment Regarding Trustee Status..........................................56
13.19 Specific Performance.............................................................57
13.20 Disclosure Schedule..............................................................57
13.21 Access; Retention of Records.....................................................57
13.22 Attorneys' Fees..................................................................58
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into this 10th day of December,
2002, by and among (i) Roundy's, Inc., a Wisconsin corporation (the "Buyer") and
(ii) the record owners of all of the issued and outstanding shares of capital
stock of Prescott's Supermarkets, Inc., a Wisconsin corporation (the "Company")
as identified on Section 4.3 of the Disclosure Schedule (defined hereinafter)
(the persons and entities described in this sub-clause (ii) being referred to
collectively as the "Shareholders").
WHEREAS, the Shareholders are the record owners of the number of shares of
the common stock, par value $1.00 per share, of the Company (the "Common Stock")
as set forth on Section 4.3 of the Disclosure Schedule;
WHEREAS, the shares of Common Stock constitute, in the aggregate, 100% of
the issued and outstanding shares of the capital stock of the Company
(collectively, the "Subject Shares"); and
WHEREAS, the Shareholders are willing to sell, and Buyer is willing to
purchase, all of the Subject Shares on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the promises and
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Purchase and Sale of the Shares
At the Closing (as hereinafter defined in Section 3.1), the Shareholders
shall sell, convey, transfer and deliver to Buyer, and Buyer shall purchase from
the Shareholders, all (but not less than all) of the Subject Shares, free and
clear of all claims, pledges, security interests, liens, mortgages, equities,
rights of first refusal, options, contractual commitments, conditional sales
contracts, reservations, restrictions, charges, or encumbrances of any nature
whatsoever (collectively, the "Encumbrances"), all on the terms and conditions
set forth in this Agreement.
ARTICLE II
Purchase Consideration
2.1 Purchase Consideration. Subject to the terms and conditions of this
Agreement, the aggregate price to be paid by Buyer for the Subject Shares (the
"Purchase Price") shall be (i) Forty-Eight Million Six Hundred Eighty-Four
Thousand Dollars ($48,684,000) less (ii) the sum of (A) the Closing Indebtedness
Amount and (B) the aggregate amount of Expenses of the Company and its
Subsidiaries, less (iii) the excess (if any) of (A) negative Nine Hundred
Sixteen Thousand Six Hundred Sixty Two Dollars (-$916,662.00) ("Benchmark
Working Capital"), over (B) the Closing Date Net Working Capital (as defined
below). If the amount described in subclause (iii)(B) of the preceding sentence
is greater than the amount described in subclause (iii)(A), then the adjustment
under clause (iii) shall be zero. For purposes of the preceding clause (ii)(B),
"Expenses" shall include only Expenses that have not been paid on or prior to
the Closing Date. Benchmark Working Capital has been determined based upon an
average of four
consecutive fiscal quarters, with the last ending October 26, 2002 (the
"Benchmark Date") in the manner described in Section 2.1 of the Disclosure
Schedule.
(a) Closing Indebtedness Amount. The "Closing Indebtedness Amount"
shall mean the amount of the outstanding balance of Indebtedness of the Company
and its Subsidiary as of the Closing Date (defined below); provided that, for
purposes of such calculation, all accrued interest, prepayment penalties,
premiums, fees and expenses (if any) which would be payable if such Indebtedness
was paid in full at the Closing (including, without limitation, any costs or
charges associated with the termination of any interest rate "swap" agreements
or similar instruments, shall be treated as Indebtedness.
(b) Indebtedness. Solely for purposes of this Article II,
"Indebtedness" shall mean, at a particular time, the sum of the following,
without duplication, (determined on a consolidated basis with respect to the
Company and its Subsidiaries): (i) any indebtedness for borrowed money or issued
in substitution for or exchange of indebtedness for borrowed money, (ii) any
indebtedness evidenced by any note, bond, debenture or other debt security,
(iii) any indebtedness for the deferred purchase price of property or services
(other than trade payables and other current liabilities incurred in the
ordinary course of business), (iv) obligations under capitalized leases (as
defined, and in the amount recorded as a liability, in accordance with GAAP),
(v) any indebtedness (other than trade payables and other current liabilities
incurred in the ordinary course of business) secured by any Lien (as defined in
Section 2.1(d) below) on the Company's or a Subsidiary's assets, (vi) any cash,
book or bank account overdrafts (other than those incurred in the ordinary
course of business consistent with past practice and custom), and (vii) any
accrued interest payable on the foregoing.
On the basis of the Company's Financial Statements as of the end of its
2001 fiscal year, the amount of "Indebtedness" determined under the foregoing
definition is $2,676,604, determined in the manner set forth in Section 2.1(b)
of the Disclosure Schedule hereto. The "Closing Indebtedness Amount" will be
determined in a manner consistent with the determination there set forth.
(c) Expenses. "Expenses" as used in this Agreement shall include all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, lenders, experts and consultants to
the party and its affiliates) incurred by a party or on its behalf in connection
with or related to the authorization, preparation, execution or performance of
this Agreement and the transactions contemplated hereby, the solicitation of
shareholder approvals and all other matters related to the closing of the
transactions contemplated hereby and thereby and, in the case of the Company,
any severance, bonus, incentive compensation, deferred compensation or other
similar amounts paid or for which the Company may be liable to any employee or
former employee of the Company as a result of the transactions contemplated
hereby (whether or not such employee's employment terminates in connection with
such transactions), or as a result of the termination of the employee's
employment coincident with the transactions contemplated hereby, in each case
whether or not such amounts are accrued as liabilities on the Financial
Statements or on the books of the Company.
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(d) Lien. "Lien" shall mean any lien, claim, pledge, security
interest, mortgage or charge of any kind, including, without limitation, any
conditional sale or other title retention agreement (or lease in the nature
thereof), any filing or agreement to file a financing statement as debtor under
the applicable Uniform Commercial Code or any similar statute other than to
reflect ownership by a third party of property leased to the Company or any of
its Subsidiaries under a lease which is not in the nature of a conditional sale
or title retention agreement, or any subordination arrangement in favor of
another Person (other than any subordination arising in the ordinary course of
business).
(e) Person. "Person" shall mean any individual, partnership,
corporation, limited liability company, association, joint stock company, trust,
estate, joint venture, unincorporated organization, governmental entity or any
department, agency or political subdivision thereof.
(f) Closing Date Net Working Capital. "Closing Date Net Working
Capital" shall mean the Company's current assets less its current liabilities
determined as of the Closing Date (which for this purpose shall include the
current assets and current liabilities of the Company and its Subsidiaries
determined on a consolidated basis with respect to the Company and its
Subsidiaries), in a manner consistent with the preparation of the Financial
Statements, and in any event in accordance with GAAP, but subject to the
following:
(i) inventory will be valued at its cost to the Company using the
first in first out method based on physical inventories taken as nearly as
practical to the Closing Date, in a manner consistent with that customary in the
industry, which inventories will be observed by representatives of both the
Company and Buyer;
(ii) if any Expenses paid or accrued by the Company or its
Subsidiaries which are taken into account in the calculation of the Purchase
Price under Section 2.1(ii)(B) have affected the Company's current assets or
current liabilities as of the Closing Date, the effects thereof on such current
assets and current liabilities will be reversed for purposes of determining
Closing Date Net Working Capital (it being the intent of the parties that
amounts that reduce the Purchase Price as Expenses shall not further reduce the
Purchase Price as a deficiency in Closing Date Net Working Capital);
(iii) the entire amount of the Company's Indebtedness shall be
excluded from the Company's current liabilities for purposes of computing the
Closing Date Net Working Capital;
(iv) any amount treated as Indebtedness under Section 2.1(b) and
taken into account as a reduction of the Purchase Price under clause (ii)(A) of
Section 2.1 will not be treated as a current liability for purposes of
determining Closing Date Net Working Capital;
(v) any asset or liability account that was excluded in
determining the Benchmark Working Capital amount will be similarly excluded for
purposes of determining Closing Date Net Working Capital;
(vi) except to the extent taken into account in determining
Benchmark Working Capital, Closing Date Net Working Capital shall not include
any money or the net book
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value of any other property of the Company, distributed or paid between the
Benchmark Date and the Closing Date, as described in Section 2.7 of this
Agreement;
(vii) the Company will not record any gain or loss on the
distribution or transfer of any of its assets as contemplated by Section 2.7,
based on a difference between the net book value and the market value of any
such asset; and
(viii) deposits-in-transit as of the Closing Date will be treated
as a part of the Company's cash balance.
2.2 Payment of Purchase Price. At the Closing, Buyer shall pay the Purchase
Price as follows:
(a) to Bank One Trust Company (the "Escrow Agent"), the sum of Five
Million and 00/100 Dollars ($5,000,000.00) (the "Indemnification Escrow Amount")
via wire transfer of immediately available funds to an account designated by the
Escrow Agent, which amount shall be held by the Escrow Agent in accordance with
the terms of an Indemnification Escrow Agreement (defined below) and shall be
used as a means of providing a limited fund from which Buyer may recover for
certain indemnification obligations of the Shareholders, as more fully provided
herein and therein;
(b) to the Escrow Agent, five percent (5%) of the Estimated Purchase
Price (the "Purchase Price Escrow Amount") via wire transfer of immediately
available funds to an account designated by the Escrow Agent, which amount shall
be held by the Escrow Agent in accordance with the terms of a Purchase Price
Adjustment Escrow Agreement (defined below) and shall be used as a means of
reconciling any adjustments to the Purchase Price pursuant to Section 2.3
hereof; and
(c) to the Shareholders, the Estimated Purchase Price (as defined
below) less the Indemnification Escrow Amount less the Purchase Price Escrow
Amount (the "Closing Payment"), which amount shall be subject to adjustment
post-closing as provided in Section 2.3 below. The Closing Payment shall be made
by a single wire transfer of immediately available funds to a single account to
be designated by the Shareholders Agents, which transfer shall be deemed for all
purposes to constitute delivery of the Closing Payment to all of the
Shareholders. The Closing Payment shall be allocated among the Shareholders in
the manner set forth on Section 4.3 of the Disclosure Schedule attached hereto
and incorporated herein by reference (the "Disclosure Schedule").
2.3 Purchase Price Adjustment. The Purchase Price shall be adjusted (the
"Purchase Price Adjustment") in accordance with this Section 2.3.
(a) Estimated Purchase Price. Prior to the Closing, the parties
jointly will prepare an estimate of the Purchase Price, which estimate will be
based on the interim financial statements of the Company as of the month end
next preceding the Closing Date (the "Estimated Purchase Price").
(b) Closing Calculations and Purchase Price Certificate. Within sixty
(60) days after the Closing Date, the Shareholders' Agents shall deliver to
Buyer a calculation of the
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actual Closing Indebtedness Amount, the Expenses of the Company, and the Closing
Date Net Working Capital measured as of the Closing Date (collectively, the
"Closing Calculations"), prepared from the books and records of the Company and
accompanied by a certificate of the Shareholders' Agents to the effect that such
statement has been prepared in accordance with the terms of this Agreement (the
"Closing Calculations Certificate").
(c) Buyer's Review. As soon as practicable after its receipt of the
Closing Calculations and the Closing Calculations Certificate, but in any event
not more than thirty (30) days thereafter, Buyer may deliver to the
Shareholders' Agents a notice of dispute relating to the Closing Calculations
setting forth in reasonable detail the basis for such dispute (a "Dispute
Notice").
(d) No Objection by Buyer. If the Buyer has no objection to the
Closing Calculations, the amount paid by the Buyer as set forth in Section 2.2
of this Agreement shall be adjusted in the manner set forth in Section 2.3(i) of
this Agreement.
(e) Bases for Objection. The only bases upon which the Buyer may
dispute any matter in the Closing Calculations are: (i) the inaccuracy of such
matter, whether factually or numerically; or (ii) the Closing Calculations are
not prepared as required by this Agreement.
(f) Access. After the Closing Date, Buyer shall allow the
Shareholders' Agents, the accountants for the Shareholders (the "Shareholders'
Accountants") and their respective representatives, during normal business
hours, to have reasonable access to, and to examine and make copies of, all
books and records of the Company, including but not limited to the books,
records, schedules, work papers and audit programs of Buyer and the accountants
for Buyer ("Buyer's Accountants") and to have reasonable access to and
assistance from the Company's employees to the extent such documents and access
are necessary to prepare the Closing Calculations in accordance with Section
2.3(b) and to respond to any Dispute Notice delivered by Buyer pursuant to
Section 2.3(c).
(g) Dispute Resolution. In the event Buyer delivers a Dispute Notice,
such dispute shall be resolved in accordance with the procedures set forth
below.
(i) Mutual Agreement. Buyer and the Shareholders' Agents shall
endeavor, through good faith negotiations, to resolve any such dispute on terms
mutually acceptable to them. Buyer's Accountants, on behalf of Buyer, and the
Shareholders' Accountants, on behalf of the Shareholders (such accountants being
hereinafter collectively referred to as the "Parties' Accountants"), may
participate in such negotiations to the extent requested by the parties.
(ii) Neutral Accountants. If such dispute or controversy is not
resolved by the mutual agreement of the parties or the Parties' Accountants
within thirty (30) days after the Shareholders' Agents' receipt of the Dispute
Notice, then PriceWaterhouseCoopers (the "Neutral Accountants") shall resolve
such dispute or controversy. The Neutral Accountants shall be instructed to make
their determination as to such dispute or controversy within thirty (30) days
after their appointment. The Neutral Accountants shall act as
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arbitrators, and their determination shall be final, binding and conclusive as
between Buyer and the Shareholders absent fraud or manifest error.
(h) Procedure. Each of the parties, at its own expense, shall furnish
the Neutral Accountants and the other parties with such documents and
information as the Neutral Accountants may request. Each party may also furnish
to the Neutral Accountants such other information and documents as such party
deems relevant with appropriate copies or notification being given to the other
party. The Neutral Accountants may, at their discretion, conduct a conference
concerning the disagreement with the Shareholders' Agent and the Buyer, at which
conference each party shall have the right to present additional documents,
materials and other information and to have present its advisors, counsel and
accountants. In connection with such process, there shall be no hearings, oral
examinations, testimony, depositions, discovery or other similar proceedings
conducted by any party or by the Neutral Accountants. The Neutral Accountants
shall determine the proportion of their fees and expenses to be paid by the
Shareholders and the Buyer, based primarily on the degree to which the Neutral
Accountants have accepted the positions of the respective parties.
(i) Final Purchase Price Adjustment. If the actual Purchase Price
based on the Closing Calculations as finally determined pursuant to this Section
2.3 ("Final Purchase Price") is greater than the sum of the Closing Payment plus
the Indemnification Escrow Amount plus the Purchase Price Adjustment Escrow
Amount (such sum being referred to as the "Closing Amount"), the Escrow Agent
shall pay to the Shareholders, in accordance with their respective percentages
set forth in Section 4.3 of the Disclosure Schedule, the entire amount of the
Purchase Price Adjustment Escrow Amount, and the Buyer shall pay to the
Shareholders the excess of the Final Purchase Price over the Closing Amount. If
the Final Purchase Price is less than the Closing Amount, the Escrow Agent shall
pay to Buyer the amount of such deficiency out of the Purchase Price Adjustment
Escrow Amount, and if the Purchase Price Adjustment Escrow Amount is
insufficient, out of the Indemnification Escrow Amount (subject to Section 10.9
below), and if any deficiency remains, George and Judith Prescott, jointly and
severally, shall pay to Buyer the amount of such remaining deficiency. Any
payment required to be made by the Buyer or the Shareholders or the Escrow
Agent, as the case may be, pursuant to this Section 2.3(i) shall be made
immediately by wire transfer of immediately available funds (i) if to Buyer, to
such account as is designated by Buyer, and (ii) if to the Shareholders, to the
account referred to in Section 2.2(c) hereof, which transfer shall be deemed for
all purposes to constitute delivery to all of the Shareholders. Any payments
pursuant to this Section 2.3(i) of this Agreement out of the Purchase Price
Adjustment Escrow Amount or the Indemnification Escrow Amount shall include a
proportionate share of the interest actually earned (net of the Escrow Agent's
fees and expenses) on the Purchase Price Adjustment Escrow Amount or the
Indemnification Escrow Amount, as applicable. Any additional payments pursuant
to this Section 2.3(i) of this Agreement beyond the Purchase Price Adjustment
Escrow Amount and the Indemnification Escrow Amount shall include interest at
the prime rate as established from time to time by Bank One, Wisconsin, from the
Closing Date to the date of payment.
2.4 Section 444 Deposit. The Company maintains a deposit with the Internal
Revenue Service pursuant to Section 444 of the Internal Revenue Code and the
current amount of such deposit is $1,575,000 (the "Deposit"). Promptly after the
Closing and in any event
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within 30 days after Closing, the Buyer shall cooperate with the Sellers and
provide such information and make such filings (if any) as may be necessary to
request a refund of the Deposit. The Buyer shall cause copies of all such
documents to be delivered to the Shareholders' Agent. Upon receipt of payment of
the Deposit by the Company, the Company shall immediately pay the amount of the
Deposit to the Shareholders' Agents for distribution to the Shareholders in
accordance with their percentage ownership interests in the Subject Shares.
2.5 Employment Matters.
(a) For purposes of all employee benefit plans contributed to by the
Buyer after the Closing Date in which any employees of the Company participate,
to the extent permitted by the terms of such plans and applicable law, the Buyer
shall cause each such plan to treat the prior service with the Company as
service rendered to the Buyer for purposes of eligibility and vesting under such
plan and for purposes of vacation pay, but, unless otherwise determined by the
Buyer, not for purposes of benefit accrual under such plan.
(b) Except with respect to any Benefit Plans terminated prior to the
Closing Date as described elsewhere in this Agreement, for the employees of the
Company and the Subsidiary and, to the extent required by applicable law or as
provided in this Agreement, the employees of Badger Limited Assortment LLC
("Badger"), the Company and the Subsidiary shall continue to be responsible for
the Benefit Plans identified in Section 4.18(a) of the Disclosure Schedule after
the Closing Date, and neither the Shareholders nor, except with respect to its
own employees, Badger, shall have any further responsibility or liability with
respect to any such Benefit Plans.
(c) Buyer shall be responsible for providing continuing health benefit
coverage pursuant to Section 601, et. seq. of ERISA and Section 4980B of the
Code and any applicable state law requirements ("COBRA continuation coverage")
under any health plan(s) maintained by the Company immediately prior to the
Closing Date with respect to all persons receiving or entitled to receive COBRA
continuation coverage under such health plan(s), including any person who
becomes a qualified beneficiary as a result of the transaction contemplated by
this Agreement, any person whose qualifying event occurred prior to the Closing
Date, and any other person receiving or entitled to receive COBRA continuation
coverage under such health plan(s) as of the Closing Date.
(d) Buyer shall allow Badger's employees participating in the
Company's health and life insurance plans immediately prior to the Closing Date
to continue participation in such health and life insurance plans for a period
of up to 30 days following the Closing Date. The Shareholders will cause Badger
to use reasonable commercial efforts to implement and make available to its
employees health and life insurance plans within that thirty-day period. Badger
will pay Buyer the COBRA cost for such employees' post-Closing Date health
coverage (for the entire period for which such employees remain as participants
in the Company's plan under COBRA, even if such period is greater than the
thirty days referred to above), and will pay the applicable premium for such
employees' post-Closing Date life insurance coverage (subject to the right of
Badger to seek reimbursement of such costs from its employees). Prior to the
Closing Date, Badger may, in its sole discretion, terminate the participation of
its employees in the Company's profit sharing 401(k) plan or spin-off that
portion of such plan covering its
7
employees in a transaction complying with Section 414(l) of the Internal Revenue
Code. If Badger determines to terminate the participation of its employees in
the Company's profit sharing 401(k) plan, then such employees shall be fully
vested in their plan accounts, and after the Closing Date the Buyer and the
Company shall take such steps as are necessary to enable employees of Badger to
receive distributions of their vested plan accounts, consistent with applicable
law.
2.6 Name. Promptly after the Closing, the Buyer shall cause the Company to
change its corporate name to a name that does not include the name "Prescott" in
any manner. On or before May 1, 2003, the Buyer shall cause the Company to cease
using the name "Prescott" on any of its supplies, business documents, letterhead
or in any other way.
2.7 Acknowledgements. Notwithstanding any other provision of this
Agreement, prior to the Closing, the Shareholders intend to cause the Company to
engage in the following transactions, to which the Buyer hereby consents:
(a) distribute or assign the collateral assignment of all life
insurance policies on the life of George Prescott and Judith Prescott to Badger
Limited Assortment LLC or the insured on such policy;
(b) distribute all member interests in Badger Limited Assortment LLC
to the Shareholders;
(c) make distributions of cash and third-party securities from time to
time to the Shareholders and incur indebtedness for borrowed money to fund the
same;
(d) pay cash to employees as "sale bonuses" or make cash payouts in
payment of the Company's obligations under the Home Ownership Program and the
S.M.A.R.T. Scholarship Program and terminate such programs and incur
indebtedness for borrowed money to fund the same;
(e) permit the Shareholders to remove from the Company's premises
those personal assets listed in Section 2.7(e) of the Disclosure Schedule;
(f) prepay to employees of the Company all bonuses and profit sharing
payments for the fiscal year of the Company ending on January 25, 2003; and
(g) forgive or cancel any and all amounts owed to the Company by
certain of the Shareholders and/or by Badger Limited Assortment LLC, as set
forth on Section 2.7(g) of the Disclosure Schedule.
2.8 Vehicle Leases. Prior to the Closing Date the Company will assign to
certain of the Shareholders, and the assignee Shareholders will assume from the
Company, those vehicle leases listed in Section 2.8 of the Disclosure Schedule
(or, at the option of the Shareholders, the
8
Company will purchase the vehicles subject to such leases, terminate the leases
and transfer the vehicles to the assignee Shareholders).
ARTICLE III
Closing; Closing Deliveries
3.1 Time and Place of Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Whyte Hirschboeck
Dudek S.C., Suite 2100, 111 East Wisconsin Avenue, Milwaukee, Wisconsin, 53202,
on January 21, 2003 at 9:00 A.M., or on such other date or at such other
location as the parties shall mutually agree in writing (the "Closing Date"),
and shall be effective for all purposes as of 12:01 A.M. on the Closing Date
(the "Effective Time").
3.2 Deliveries.
(a) Deliveries by the Shareholders. At the Closing, the Shareholders
shall deliver or cause to be delivered to Buyer the following:
(i) certificates representing all of the Subject Shares, free of
any restrictive legends and duly endorsed or accompanied by duly executed stock
powers;
(ii) certificates, dated as of the Closing Date and executed by
each of the Shareholders to the effect that (A) each of the representations and
warranties of the Shareholders made under Article IV hereof is true and correct
in all material respects on the Closing Date as though made on such date and (B)
the Shareholders have performed and complied in all material respects with all
covenants, conditions and obligations under this Agreement which are required to
be performed or complied with by them on or prior to the Closing Date;
(iii) a certified copy of the Articles of Incorporation and
Bylaws of the Company;
(iv) an amendment to Articles of Incorporation deleting Article
XII thereof to be effective on or prior to the Closing Date;
(v) all minute books, stock books, stock transfer records,
corporate seals and other corporate and shareholder records of the Company and
each Subsidiary (as hereinafter defined);
(vi) letters of resignation, dated as of the Closing Date, of all
of the directors and officers of the Company and the Subsidiaries;
(vii) the written opinion of Quarles & Brady, LLP or O'Meara,
Eckert, Pouros & Gonring, counsel for the Shareholders, dated the Closing Date,
substantially in the form of Exhibit A hereto;
(viii) acknowledgments by the Shareholders of their receipt of
the Closing Payment;
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(ix) executed counterparts of the following agreements:
(A) Noncompetition Agreements entered into between Buyer and
George E. Prescott and Judith A. Prescott, respectively, substantially in the
form of Exhibit B attached hereto and incorporated herein; and
(B) Indemnification Escrow Agreement entered into among
Buyer, the Shareholders and the Escrow Agent, substantially in the form of
Exhibit C attached hereto and incorporated herein (the "Indemnification Escrow
Agreement"); and
(C) Purchase Price Adjustment Escrow Agreement. entered into
among Buyer, the Shareholders and the Escrow Agent, substantially in the form of
Exhibit D attached hereto and incorporated herein ("Purchase Price Adjustment
Escrow Agreement").
(x) a certificate (executed in duplicate) of each of the
Shareholders in a form acceptable to Buyer certifying that such Shareholder is
not a "foreign person" within the meaning of Section 1445 of the Internal
Revenue Code of 1986, as amended;
(xi) certificates of status issued by the Wisconsin Department of
Financial Institutions dated within ten (10) business days of the Closing Date
certifying that the Company and each Subsidiary is a domestic corporation or
limited liability company organized under the laws of the State of Wisconsin and
has filed its annual report required under the Wisconsin Business Corporation
Law ("WBCL") or Wisconsin Limited Liability Company Act;
(xii) evidence, reasonably satisfactory to Buyer, as to the
termination of all stockholder agreements, voting trust agreements, nominee
arrangements, options, warrants, rights or other privileges with respect to any
shares of the Company's capital stock;
(xiii) all executed written consents of third parties to the sale
of the Subject Shares to Buyer hereunder which may be required pursuant to any
agreement or arrangement to which the Company, any Subsidiary or any Shareholder
is a party;
(xiv) evidence of termination of all rights of participants in
the Company's SAR Plans (as defined below);
(xv) the Letter Reports called for by Section 7.8 hereof;
(xvi) the Landlord Estoppel Certificates called for by Section
7.9 hereof;
(xvii) the SNDAs called for by Section 7.11 hereof; and
(xviii) such other duly executed documents and certificates as
may be reasonably requested by Buyer.
(b) Deliveries by Buyer. At the Closing, Buyer shall deliver to the
Shareholders or to the Escrow Agent, as applicable, the following:
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(i) payment of the Purchase Price in accordance with the
provisions of Section 2.2;
(ii) certificates, dated as of the Closing Date and executed by
proper officers of Buyer, to the effect that: (A) each of the representations
and warranties of Buyer made under Article V hereof is true and correct in all
material respects on the Closing Date as though such representations and
warranties were made on such date and (B) Buyer has performed and complied in
all material respects with all covenants and obligations under this Agreement
which are to be performed or complied with by it on or prior to the Closing
Date;
(iii) the written opinion of Whyte Hirschboeck Dudek S.C.,
counsel for Buyer, dated the Closing Date, substantially in the form of Exhibit
E hereto;
(iv) a copy, certified as of the Closing Date by a proper officer
of Buyer, of the resolutions of the Boards of Directors of Buyer authorizing the
execution, delivery and performance of this Agreement by Buyer; and
(v) executed counterparts of each of the agreements specified in
Section 3.2(a)(ix) above to which Buyer is a party.
ARTICLE IV
Representations and Warranties of the Shareholders
Each of the Shareholders makes the representations and warranties set forth
in this Article IV, each of which is true and correct as of the date hereof.
Such representation and warranties are made jointly and severally, except for
those set forth in Sections 4.2 and 4.3, which are made severally and
individually by each Shareholder only as to himself/herself/itself and the
Subject Shares sold by such Shareholder.
4.1 Corporate Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of Wisconsin. The Company is
current in all filings necessary to maintain its corporate existence under
Wisconsin law and no proceedings have been filed or are pending for its
dissolution or winding up. The Company has all requisite corporate power and
authority to own, lease and operate the properties and assets it now owns,
leases or operates and to carry on its business as presently conducted or
presently proposed to be conducted. The Company is duly qualified to do business
as a foreign corporation in all jurisdictions where it is required to be
qualified, except where the failure to be so qualified would not have a Material
Adverse Effect. The Company has, upon or prior to execution of this Agreement,
delivered to Buyer complete and correct copies of its Articles of Incorporation,
as amended to date (certified by the Wisconsin Department of Financial
Institutions as of a recent date), and its By-Laws, as amended to date
(certified by the Secretary of the Company). Except as expressly contemplated by
the Agreement, neither the Articles of Incorporation nor the By-Laws of the
Company have been amended since the dates of certification thereof, nor has any
action been taken for the purpose of effecting any amendment of such
instruments.
4.2 Authority of the Shareholders.
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(a) Except as set forth on Section 4.2(a) of the Disclosure Schedule,
each Shareholder has full right, power, legal capacity and authority to sell,
transfer and deliver to Buyer the full legal and beneficial ownership in the
Subject Shares to be sold by such Shareholder pursuant to this Agreement and to
consummate the transactions contemplated herein and in any documents to be
delivered in connection herewith ("Seller Ancillary Documents") to which such
Shareholder is a party.
(b) With respect to each Shareholder that is a trust, estate, or
entity other than a natural person or corporation (the "Entities"), the
representatives, trustees or other fiduciaries who have signed this Agreement
(and any relevant Seller Ancillary Document) on behalf of such Entities are the
duly appointed and acting representatives, trustees, or fiduciaries of such
Entities as of the date hereof (and will be such as of the Closing Date); the
representatives, trustees, or other fiduciaries of such Entities have all the
power and authority necessary to own and dispose of the Subject Shares held by
such Entity; no beneficiary or other party with any beneficial interest in any
of the Entities has heretofore in any way assigned, transferred or encumbered,
or permitted the assignment, transfer or other encumbrance of, the Subject
Shares (or any interest therein) held by the Entities; the execution and
delivery of this Agreement and any relevant Seller Ancillary Document by such
representatives, trustees, or other fiduciaries, and the performance by such
representatives, trustees, or other fiduciaries of their obligations hereunder
have been duly and validly authorized and approved by all actions required under
applicable law relating to the Entities and under the terms of the relevant
will, trust or other instruments; such representatives, trustees, and
fiduciaries have full power and authority under the terms of the applicable
instruments and under any document relating to or applicable to such Entities to
execute and deliver this Agreement and any relevant Seller Ancillary Document on
behalf of such Entities and to perform their respective obligations hereunder
and thereunder; and neither the execution of this Agreement or any relevant
Seller Ancillary Document, consummation of the transactions contemplated hereby
or thereby nor compliance with or fulfillment of the terms and conditions hereof
or thereof will violate or conflict with any provision of the applicable
instruments or any other document relating to Entities.
(c) This Agreement has been duly and validly executed and delivered by
each Shareholder and is the legal, valid and binding obligation of each
Shareholder enforceable in accordance with its terms, except that the
enforceability of this Agreement is subject to bankruptcy, insolvency,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and limitations on the availability of the remedy of
specific performance and other equitable relief. Except as set forth in Section
4.2(c) of the Disclosure Schedule, no action, consent or approval by or filing
with any federal, state, municipal, foreign or other court or governmental or
administrative body or agency or any other regulatory or self-regulatory body is
required in connection with the execution and delivery by any Shareholder of
this Agreement or the Seller Ancillary Documents or the consummation by such
Shareholder of the transactions contemplated hereby and thereby. No claim,
action, suit, proceeding, arbitration, investigation or inquiry before any
federal, state, municipal, foreign or other court or governmental or
administrative body or agency, any securities or commodities exchange, other
regulatory body or any private arbitration tribunal is now pending or, to the
knowledge of any Shareholder, threatened, against or relating to such
Shareholder which would adversely affect the ability of such Shareholder to
consummate the sale of the Subject Shares or the other transactions contemplated
by this Agreement or the Seller Ancillary Documents. Except as set
12
forth in Section 4.2(c) of the Disclosure Schedule, neither the execution and
delivery of this Agreement by any Shareholder, nor the consummation of the
transactions contemplated hereby, will breach, violate or constitute an event of
default (or an event which with the lapse of time or the giving of notice or
both would constitute an event of default) under, give rise to any right of
termination, cancellation, modification or acceleration under, or require any
consent or the giving of any notice under, any contract or instrument to which
such Shareholder is a party or by which such Shareholder or any of such
Shareholder's properties or assets may be bound.
4.3 Title to the Subject Shares. Each Shareholder is the beneficial and
record owner of the number of Subject Shares set forth opposite the name of such
Shareholder in Section 4.3 of the Disclosure Schedule. At the Closing, such
Shareholder will deliver to Buyer good and marketable title to such shares, free
and clear of any Encumbrances (except for the rights of Buyer arising under this
Agreement).
4.4 No Violation. Except as set forth in Section 4.4 of the Disclosure
Schedule, the execution, delivery and performance of this Agreement by the
Shareholders and the consummation of the transactions contemplated hereby will
not: (i) violate or conflict with any provision of the charter documents of the
Company or any Subsidiary; (ii) breach, violate or (whether immediately or with
the lapse of time or the giving of notice or both) constitute an event of
default under or an event which would give rise to any right of termination,
cancellation, modification, acceleration or foreclosure under, or require any
consent of or the giving of any notice to any third party under, any note, bond,
indenture, credit facility, mortgage, security agreement, lease, license,
franchise, permit or other agreement, instrument or obligation to which the
Company or any Subsidiary is a party, or by which the Company or any Subsidiary
or any of their properties or assets may be bound, or give rise to the creation
of any Encumbrance (as that term is defined above) upon the Subject Shares or
upon the properties or assets of the Company or any Subsidiary; (iii) violate or
conflict with any law, statute, rule, regulation, ordinance, code, judgment,
order, writ, injunction, decree or other requirement of any court or of any
governmental body or agency thereof applicable to the Company or any Subsidiary
or by which any of their properties or assets may be bound; or (iv) require any
registration or filing by the Company, the Subsidiaries or the Shareholders
with, or any permit, license, exemption, consent, authorization or approval of,
or the giving of any notice by the Company, any Subsidiary or any of the
Shareholders to, any governmental or regulatory body, agency or authority.
4.5 Capitalization of the Company. The authorized, issued and outstanding
shares of all classes of capital stock of the Company, and the record ownership
thereof, is set forth in Section 4.5 of the Disclosure Schedule. The Subject
Shares constitute 100% of the issued and outstanding shares of the capital stock
of the Company on a fully diluted basis (i.e., after giving effect to the
exercise of all options, warrants or similar rights to acquire shares of stock),
and there are no other shares of any class of capital stock authorized, issued
or outstanding as of the date hereof. All of the Subject Shares were duly and
validly authorized and issued and are fully paid and non-assessable, except as
provided in Section 180.0622(2)(b) of the Wisconsin Statutes. Except as
disclosed in Section 4.5 of the Disclosure Schedule, there are no agreements,
arrangements or understandings (including, without limitation, options or rights
of first refusal), to which any Shareholder, the Company or any Subsidiary is a
party, or by which any Shareholder, the Company or any Subsidiary is bound
relating to the ownership, acquisition or disposition of the Subject Shares or
any interest therein, and there are no agreements,
13
arrangements or understandings to which any Shareholder, the Company or any
Subsidiary is a party or by which they are bound relating to the repurchase or
redemption of any shares of the Company's capital stock. There are no
outstanding options, warrants or other rights to subscribe for or purchase, or
securities convertible into or exchangeable for, shares of the Company's capital
stock, there are no agreements, arrangements or understandings to which the
Company or any Subsidiary is a party or by which they are bound pursuant to
which the Company is or may be required to issue or sell additional shares of
the Company's capital stock, and no person other than the Shareholders owns or
holds any legal, equitable or beneficial interest in or right to any shares of
the Company's capital stock or other equity interest in the Company of any
nature whatsoever. Except as set forth on Section 4.5 of the Disclosure
Schedule, the Company does not have any stock appreciation rights, "phantom
stock" rights, performance share plans or similar equity-based compensation
plans (collectively, "SAR Plans").
4.6 Subsidiaries and Affiliates. Section 4.6 of the Disclosure Schedule
sets forth the name, jurisdiction of incorporation, capitalization, ownership,
officers and directors of each corporation or other entity (other than
publicly-traded corporations) in which the Company has any direct or indirect
equity interest or other ownership interest ("Subsidiary") and the
jurisdictions, if any, in which each Subsidiary is qualified or licensed to do
business as a foreign corporation. (The term "Subsidiary" and "Subsidiaries"
shall not include Badger Limited Assortment LLC.) Section 4.6 of the Disclosure
Schedule also describes briefly the business of and assets owned by each
Subsidiary. All of the outstanding shares of capital stock or other equity
interests of each Subsidiary owned by the Company are free and clear of any
security interest, restriction, option, voting trust or agreement, proxy,
encumbrance, claim or charge of any kind whatsoever, and are validly issued,
fully paid and non-assessable. The Company owns 100% of the issued and
outstanding shares of all classes of capital stock or other equity interests of
each Subsidiary. There are no options, warrants, conversion privileges or any
other rights, agreements, arrangements or understandings (including, without
limitation, rights of first refusal) with respect to any shares of capital stock
or other equity interests of any Subsidiary. Each Subsidiary (i) is a
corporation or limited liability company duly organized and validly existing
under the laws of its state of incorporation, (ii) is current in all filings
necessary to maintain its existence under such law and no proceedings have been
filed or are pending for its dissolution or winding up, (iii) has all requisite
power and authority to own, lease and operate the properties and assets it now
owns, leases or operates and to carry on its business as presently conducted or
presently proposed to be conducted, and (iv) is not required to be qualified to
transact business as a foreign entity in any jurisdiction other than the
jurisdictions listed in Section 4.6 of the Disclosure Schedule. The Company has,
upon or prior to the execution of this Agreement, delivered to Buyer complete
and correct copies of the Articles of Incorporation or Articles of Organization
(as applicable), as amended to date (certified by the secretary of state of the
state of incorporation) and By-Laws or Operating Agreement (as applicable), as
amended to date (certified by the Secretary of the Company as of a recent date)
of each Subsidiary. Neither the Articles of Incorporation, Articles of
Organization, Operating Agreement nor By-laws of any Subsidiary have been
amended since the dates of certification thereof, nor has any action been taken
for the purpose of effecting any amendment of such instruments.
4.7 Financial Statements. The Company has heretofore delivered to Buyer
copies of the reviewed financial statements of the Company for the fiscal years
ended January 26, 2002, January 27, 2001 and January 29, 2000, and non-reviewed
interim financial statements for the
14
period ended September 21, 2002. The aforesaid financial statements, including
all notes thereto, are hereinafter referred to collectively as the "Financial
Statements." Except as set forth on Section 4.7 of the Disclosure Schedule, the
Financial Statements (i) have been prepared from and are consistent with the
books and records of the Company, (ii) have been prepared in accordance with
U.S. generally accepted accounting principles ("GAAP") consistently applied
during the periods covered thereby, and (iii) fairly present the financial
condition, results of operations and cash flows of the Company as at the dates,
and for the periods, stated therein; provided, that the non-reviewed interim
financial statements do no reflect customary year end adjustments and accruals
and do not have footnotes.
4.8 Absence of Undisclosed Liabilities. Except as set forth on Section 4.8
of the Disclosure Schedule, the Company and the Subsidiaries do not have any
liabilities (whether known, unknown, absolute, accrued, contingent or
otherwise), except (i) to the extent reflected or reserved against in the
Financial Statements, (ii) for obligations incurred pursuant to contracts
entered into in the ordinary course of business and identified in an appropriate
section of the Disclosure Schedule hereto to the extent required by this
Agreement to be identified in the Disclosure Schedule, and (iii) for trade
payables and accrued expenses incurred in the ordinary course of business since
the date of the most recent of the Financial Statements, all of which
liabilities are properly reflected in the books and records of the Company or
the applicable Subsidiary.
4.9 Absence of Certain Changes or Events. Except as set forth in Section
4.9 of the Disclosure Schedule, since January 26, 2002, the Company and the
Subsidiaries have carried on their businesses in the ordinary course and
consistent with past practice. Except as set forth in Section 4.9 of the
Disclosure Schedule, or as expressly contemplated by this Agreement, since
January 26, 2002, the Company and the Subsidiaries have not:
(a) incurred any obligation or liability (whether absolute, accrued,
contingent or otherwise), except in the ordinary course of business and
consistent with past practice and not in any event consisting of indebtedness
for borrowed money (other than advances under existing credit facilities in the
ordinary course of business and consistent with past practice), nor guaranteed,
or agreed to act as surety, indemnitor, co-signer or accommodation party for,
any indebtedness, liability or obligation of any third party, except for
liability due to endorsement of checks in the normal course of collection;
(b) suffered any damage, destruction or loss, whether or not covered
by insurance, affecting their properties, assets or business, exceeding $25,000
individually or $50,000 in the aggregate;
(c) mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of their assets, tangible or intangible, except in the ordinary
course of business and consistent with past practice;
(d) sold or transferred any of their assets, except in the ordinary
course of business and consistent with past practice, or canceled or compromised
any material debts or waived any claims or rights of a material nature;
15
(e) leased, licensed or granted to any person or entity any rights in
any of their assets or properties outside the ordinary course of business and
inconsistent with past practice;
(f) experienced any material adverse change in their financial
condition, results of operations, cash flows, assets, liabilities, business or
operations;
(g) made any change in any accounting principle or practice or in
their method of applying any such principle or practice;
(h) issued any additional shares of capital stock or any options,
warrants or other rights to purchase, or any securities convertible into or
exchangeable for, shares of their capital stock;
(i) except as set forth on Section 4.9 of the Disclosure Schedule,
declared or paid any dividends on or made any other distributions (however
characterized) in respect of shares of their capital stock;
(j) except as set forth on Section 4.9 of the Disclosure Schedule,
repurchased or redeemed any shares of their capital stock;
(k) granted any general or specific increase in the salary, commission
rate or other compensation (including, without limitation, bonuses, profit
sharing or deferred compensation) payable or to become payable to any of their
employees whose total cash compensation for the Company's fiscal year 2001 or
whose annualized total cash compensation projected for the fiscal year 2002
exceeded or exceeds $50,000, except (A) in the ordinary course of business and
as disclosed in this Agreement or the schedules attached hereto or (B) as
required under existing contractual obligations of the Company or any
Subsidiary, or adopted any Benefit Plan (as defined below), or increased,
augmented or improved the benefits granted to or for the benefit of any Employee
(as defined below) under any Benefit Plan; or
(l) organized any new subsidiary, acquired any capital stock or other
equity security of any corporation or acquired any equity or other ownership
interest in any business;
(m) made any capital expenditure or commitment in excess of $50,000.00
in any one instance or $100,000.00 in the aggregate; or
(n) entered into any agreement or commitment to do any of the
foregoing.
4.10 Legal Proceedings. Except as set forth in Section 4.10 of the
Disclosure Schedule, there are no suits, actions, proceedings (including,
without limitation, arbitral and administrative proceedings), claims (including
without limitation, worker's compensation claims) or governmental investigations
or audits pending, nor to the Knowledge of the Shareholders, are any of the
foregoing threatened, against the Company or any Subsidiary or their properties,
assets or business (nor are any of the foregoing pending or, to the Knowledge of
the Shareholders, threatened against, relating to or involving any of the
Shareholders, officers, directors, employees or agents of the Company or any
Subsidiary in connection with the businesses of the Company or the
Subsidiaries). There are no such suits, actions, proceedings, claims, or
governmental investigations or audits pending, nor, to the Knowledge of the
16
Shareholders, are any of the foregoing threatened, challenging the validity or
propriety of, or otherwise relating to or involving, this Agreement or the
transactions contemplated hereby. There is no judgment, order, writ, injunction,
decree or award (whether issued by a court, an arbitrator, a governmental body
or agency thereof or otherwise) to which the Company or any Subsidiary is a
party, or involving the properties, assets or businesses of the Company or any
Subsidiary, which is unsatisfied or which requires continuing compliance
therewith by the Company or said Subsidiary.
4.11 Taxes.
(a) All returns and reports relating to Taxes (as hereinafter defined)
which are required to be filed with respect to the Company and the Subsidiaries
on or before the date hereof or which will be required to be filed on or before
the Closing Date or which will be required to be filed after the Closing Date in
respect of federal or state income taxes for periods ending on or prior to the
Closing Date, have been, or will be, duly and timely filed and all such returns
and reports are, or will be, complete and correct in all material respects.
Except (i) to the extent and in the dollar amounts set forth on the latest
Financial Statements, or (ii) for Taxes (other than income or franchise taxes)
incurred in the ordinary course of business since the date of the latest
Financial Statements (and attributable to time periods after that date), all of
which are accrued on the Company's books, or (iii) for Taxes payable solely by
the Shareholders (and for which the Company has no potential liability, whether
primary, secondary or contingent) with respect to the income of the Company or
any Subsidiary as a result of the Company's status as an "S" corporation: all
Taxes imposed or that may in the future be imposed on or with respect to the
Company or any Subsidiary for or relating to taxable periods prior to and
through the Closing Date or relating to the activities of the Company prior to
and through the Closing Date, whether or not they have been assessed prior to
the Closing Date, have been paid or will be paid prior to the Closing Date.
Except as set forth in Section 4.11 of the Disclosure Schedule, there are no
actions or proceedings currently pending or, to the Knowledge of the
Shareholders, threatened against the Company or any Subsidiary by any
governmental authority for the assessment or collection of Taxes, no claim for
the assessment or collection of Taxes has been asserted or, to the Knowledge of
the Shareholders, threatened, against the Company or any Subsidiary, and there
are no matters under discussion by the Company or any of the Shareholders with
any governmental authority regarding claims for the assessment or collection of
Taxes against the Company or any Subsidiary. There are no agreements, waivers,
or applications by the Company or any Subsidiary for an extension of time for
the assessment or payment of any Taxes. There are no Tax liens on any of the
assets of the Company or any Subsidiary (other than any lien for current Taxes
not yet due and payable). No issue has arisen in any examination of the Company
or any of the Subsidiaries by any taxing authority that, if raised with respect
to the same or substantially similar facts arising in any other Tax period not
so examined, would result in a deficiency for such other period, if upheld.
(b) For purposes of this Agreement, the terms "Tax" and "Taxes" shall
mean and include any and all foreign, national, federal, state, local, or other
taxes, charges, duties, fees, levies or other assessments, payments-in-lieu of
taxes, social security obligations, deficiencies, fees, export or import duties,
or other governmental charges, including, without limitation, income, excise,
property, sales, use, gross receipts, recording, insurance, value added,
profits, license, withholding, payroll, employment, net worth, capital gains,
transfer, stamp, social
17
security, environmental, occupation and franchise taxes, any installment payment
for taxes and contributions or other amounts determined with respect to
compensation paid to directors, officers, employees or independent contractors,
from time to time imposed by or required to be paid to any governmental
authority (and including any additions to tax thereon, penalties for failure to
pay any Tax or make any deposit or file any return or report, and interest on
any of the foregoing).
(c) None of the Shareholders is a foreign person, within the meaning
of Section 1445 of the Code.
(d) The Company and each of the Subsidiaries timely has withheld
proper and accurate amounts from its employees, customers, shareholders and
others from whom it is or was required to withhold Taxes in compliance with all
applicable Laws, and has paid or will pay such withheld amounts on a timely
basis to the appropriate taxing authorities.
4.12 Title to Properties and Related Matters.
(a) Owned Real Property. Section 4.12(a) of the Disclosure Schedule
contains a complete and correct list and description of all real property owned
by the Company or any Subsidiary (the "Owned Real Property"). Except as set
forth in Section 4.12(a) of the Disclosure Schedule, no ownership interest in
any Owned Real Property or other real property reflected in the most recent
Financial Statement has been disposed of, and no real property has been acquired
by the Company or any Subsidiary since the date of the most recent Financial
Statement. With respect to all such Owned Real Property, the Company or the
applicable Subsidiary, as the case may be, has good and marketable title in fee
simple thereto, including all structures, plants, improvements, systems and
fixtures thereon, free and clear of all Encumbrances whatsoever, except
(collectively, the "Permitted Liens") (i) as specifically disclosed in Section
4.12(a) of the Disclosure Schedule, (ii) liens for Taxes not yet delinquent or
due and payable, and (iii) municipal and zoning ordinances, recorded easements
and recorded building and use restrictions and covenants, which do not in any
material way impair the use of such property in the manner currently used or
proposed to be used pursuant to existing plans of the Company or the applicable
Subsidiary or (in the case of real property owned by the Company or any
Subsidiary) impair the Company's or the applicable Subsidiary's good and
marketable title to such Owned Real Property. None of the structures, plants,
buildings, improvements or systems located on any Owned Real Property encroaches
on any real property owned by others, and none of the structures, buildings,
improvements or systems owned by others encroaches on any Owned Real Property.
(b) Leased Real Property. Section 4.12(b)(i) of the Disclosure
Schedule sets forth a complete and correct list of all real property leases to
which the Company and each Subsidiary is a party, as tenant, and identifies
whether each parcel is leased or subleased by the Company or a Subsidiary from
an affiliate of the Buyer (the "Buyer-Leased Real Property") or from a third
party (the "Third Party Leased Real Property") (collectively, the "Leased Real
Property"). Section 4.12(b)(i) of the Disclosure Schedule also identifies the
owner and any sublessors and sublessees of the Third Party Leased Real Property
and the date and term of the lease and any renewal or purchase options. The
Company has previously made available to Buyer complete and correct copies of
each lease (and any amendments thereto) listed in Section
18
4.12(b)(i) of the Disclosure Schedule. Except as set forth in Section
4.12(b)(ii) of the Disclosure Schedule, (i) each such lease is in full force and
effect; (ii) all lease payments due to date on any such lease have been paid,
and neither the Company nor any Subsidiary nor, to the Knowledge of the
Shareholders, any other party is in default under any such lease, and no event
has occurred which constitutes, or with the lapse of time or the giving of
notice or both would constitute, a default by the Company, the applicable
Subsidiary or any other party under such lease; (iii) there are no disputes or
disagreements between the Company, the applicable Subsidiary and any other party
with respect to any such lease; and (iv) the lessor under each such lease has
consented or been given notice (where such consent or the giving of such notice
is necessary) sufficient that such lease shall remain in full force and effect
following the consummation of the transactions contemplated by this Agreement
without any modification in the rights or obligations of the lessee under any
such lease; provided, that clauses (ii) and (iv) of this sentence do not apply
to any defaults by or consents required of any affiliate of Buyer. Subject to
the terms of each applicable lease, the Company or the applicable Subsidiary has
good and marketable title to all leasehold improvements, fixtures and other
property located on or about any of the Leased Real Property which are owned by
the Company or the applicable Subsidiary, free and clear of any Encumbrances
(but subject to the interests of landlords under any applicable leases). Except
as set forth on Section 4.12(b)(i) of the Disclosure Schedule, none of such
Leased Real Property is subject to any sublease or other agreement, arrangement
or understanding for its use (in whole or in part) by any person other than the
Company or the applicable Subsidiary.
(c) Real Property Representations. Except as noted, the following
representations and warranties in this Section 4.12(c) apply to both the Owned
and Leased Real Property (the "Real Property"). Except as set forth in Section
4.12(c) of the Disclosure Schedule, no work has been performed on or with
respect to or in connection with any of the Real Property that would cause such
Real Property to become subject to any mechanics', materialmen's, workmen's,
repairmen's, carriers' or similar liens. The structures, plants, improvements,
systems and fixtures (including, without limitation, storage tanks or other
impoundment vessels, whether above or below ground) located on each such parcel
of Real Property, but in the case of Buyer-Leased Real Property, only such of
the foregoing as have been installed or constructed by or for the Company,
conform with all Federal, state and local statutes and laws and all ordinances,
rules, regulations and similar governmental and regulatory requirements and are
(with respect to each parcel of real property taken as a whole) in good
operating condition and repair, ordinary wear and tear excepted. Each such
parcel of Real Property (other than Buyer-Leased Real Property), in view of the
purposes for which it is currently used or for which it is proposed to be used
pursuant to existing plans, conforms with all covenants or restrictions of
record and conforms with all applicable building codes and zoning requirements,
and current, valid certificates of occupancy (or equivalent governmental
approvals) have been issued for each such item of Real Property to the extent
required by law; and the Shareholders have no Knowledge of any proposed material
change in any such governmental or regulatory requirements or in any such zoning
requirements. Except as set forth in Section 4.12(c) of the Disclosure Schedule,
all existing electrical, plumbing, fire sprinkler, lighting, air conditioning,
heating, ventilation, elevator and other mechanical systems located in or about
the Real Property are (with respect to each parcel of Real Property, taken as a
whole) in good operating condition and repair, ordinary wear and tear excepted.
The maintenance and operation of such items located in or about Third-Party
Leased Real Property is and has been conducted in compliance with the terms and
conditions of all leases to which the Company or any Subsidiary is a party.
Except with respect
19
to Buyer-Leased Real Property, the Company or the applicable Subsidiary has all
easements, rights-of-way and similar rights necessary to conduct its business as
currently conducted and to use the items of Real Property as currently used,
including, without limitation, easements and licenses for pipelines, power
lines, water lines, roadways and other access. All such easements and rights are
valid, binding and in full force and effect, any amounts due and payable thereon
to date have been paid or have been fully accrued for in the books and records
of the Company or the applicable Subsidiary neither the Company, the applicable
Subsidiary nor, to the Knowledge of the Shareholders, any other party thereto is
in default thereunder, and there exists no event or condition affecting the
Company, the applicable Subsidiary or any other party thereto, which, with the
passage of time or notice or both, would constitute a material default
thereunder. No such easement or right will be breached by, nor will any party
thereto be given a right of termination as a result of, the transactions
contemplated by this Agreement.
(d) Personal Property. All personal property of the Company (the
"Personal Property") is in good operating condition and repair, ordinary wear
and tear excepted, is physically located at or about the Company's owned or
leased premises, and is owned outright by the Company or the applicable
Subsidiary, or validly leased under one of the leases set forth in Section
4.12(e) of the Disclosure Schedule. No item of Personal Property is subject to
any agreement, arrangement or understanding for its use by any person other than
the Company or the applicable Subsidiary. The maintenance and operation thereof
has complied in all material respects with all applicable laws, regulations,
ordinances, contractual commitments and obligations. Except as set forth in
Section 4.12(d) of the Disclosure Schedule or as disclosed in the Financial
Statements, no item of tangible personal property owned or used by the Company
and any Subsidiary is subject to any conditional sale agreement, installment
sale agreement or title retention or security agreement or arrangement of any
kind. If any item of Personal Property is subject to any such agreement or
arrangement, Section 4.12(d) of the Disclosure Schedule sets forth a brief
description of the property in question and the amount and repayment terms of
the underlying obligation.
(e) Personal Property Leases. Section 4.12(e) of the Disclosure
Schedule sets forth a complete and correct list and summary description of all
personal property leases to which the Company or any Subsidiary is a party
(either as landlord or tenant) wherein the property leased has a fair market
value exceeding $5,000 or the total annual rental payments in any year exceed
$5,000 ("Material Personal Property Leases"). With respect to each Material
Personal Property Lease, Section 4.12(e) of the Disclosure Schedule also
provides a brief description of the property leased, identifying the date and
term of the lease, the amount and timing of lease payments and any renewal or
purchase options. The Company has previously made available to Buyer complete
and correct copies of each Material Personal Property Lease (and any amendments
thereto). Except as set forth in Section 4.12(e) of the Disclosure Schedule, (i)
each such lease is in full force and effect; (ii) all lease payments due to date
on any such lease have been paid, and neither the Company, nor the applicable
Subsidiary, nor, to the Knowledge of the Shareholders, any other party is in
default under any such lease, and no event has occurred which constitutes, or
with the lapse of time or the giving of notice or both would constitute, a
default by the Company, the applicable Subsidiary, to the Knowledge of the
Shareholders, or any other party under such lease; (iii) there are no disputes
or disagreements between the Company, the applicable Subsidiary and any other
party with respect to any such lease; and (iv) except as set forth in Section
4.12(e) of the Disclosure Schedule, the lessor under each such lease has
20
consented or been given notice (where such consent or the giving of such notice
is necessary) sufficient that such lease shall remain in full force and effect
following the consummation of the transactions contemplated by this Agreement
without any modification in the rights or obligations of the lessee under any
such lease.
4.13 Computer Software. Except as disclosed in Section 4.13 of the
Disclosure Schedule, all computer programs and software owned by the Company or
used by the Company in the conduct of its business and material to the conduct
of such business (i) are regularly and commercially available without
restriction on an "over-the-counter" or "off-the-shelf" basis and have been so
acquired by the Company and (ii) have not been written or designed or materially
modified specifically for the Company. All computer software used by the Company
or installed on any computers owned or used by the Company is either (i) owned
by the Company or (ii) used pursuant to valid and effective licenses from the
owners thereof. The Company is not in breach or default under any of such
licenses, and has not received any notice suggesting or alleging that any such
breach or default has occurred or that the Company is using or has used any
computer software without an appropriate license therefor.
4.14 Licenses, Permits, Authorizations and Consents. Section 4.14 of the
Disclosure Schedule sets forth all approvals, authorizations, consents,
licenses, orders and permits of all governmental and regulatory authorities,
whether foreign, federal, state or local (collectively, "Licenses") held by or
granted to the Company and each Subsidiary, identified by store location. Each
of the Licenses is in full force and effect. The Company has complied with all
of the terms, conditions and requirements imposed by each of the Licenses,
except where the failure so to comply would not have a Material Adverse Effect.
Neither the Company, the Subsidiaries, nor the Shareholders have received any
notice of, and the Shareholders have no Knowledge of, any intention on the part
of any appropriate authority to cancel, revoke or modify, or any inquiries,
proceedings or investigations the purpose or possible outcome of which is the
cancellation, revocation or modification of any such permit, license, exemption,
consent, authorization or approval, except as set forth in Section 4.14 of the
Disclosure Schedule. The Licenses set forth in Section 4.14 of the Disclosure
Schedule include all Licenses which are required for the ownership of the
Company's or the applicable Subsidiary's assets or the conduct of its business
as it is currently conducted, except those the absence of which would not a
Material Adverse Effect.
4.15 Intellectual Property. Section 4.15 of the Disclosure Schedule sets
forth a complete and correct list of all patents, patent applications, material
unpatented inventions, trademarks and service marks, logos, trademark and
service mark registrations (and applications therefor), trade or business names
and copyrights owned by, registered in the name of or used by the Company and
each Subsidiary in the conduct of their businesses (other than those licensed to
the Company by Buyer or its affiliates) (collectively, the "Intangible Rights").
Except as set forth on Section 4.15 of the Disclosure Schedule, the Company or
the applicable Subsidiary owns the rights to use, in its markets, all of the
Intangible Rights, including, but not limited to the names "Prescott's
Supermarkets" and "Everix," free and clear of all Encumbrances, and the use of
such Intangible Rights in the conduct of the Company's or the applicable
Subsidiary's business, as currently conducted, does not conflict with the rights
of others in any manner. Except as set forth in Section 4.15 of the Disclosure
Schedule, there are no licenses, agreements or commitments outstanding or
effective granting any other person any right to use, operate under, license or
sublicense the Intangible Rights. Neither the Shareholders nor the Company
21
have received any notice or claim that any of the Intangible Rights infringes
upon or conflicts with the rights of any other person. No Shareholder owns any
interest in or rights to use any Intangible Rights, other than the name
"Prescott." Except as set forth in Section 4.15 of the Disclosure Schedule, to
the Knowledge of the Shareholders, there is no infringement or violation by any
other person of the Company's or any Subsidiary's rights in any of the
Intangible Rights.
4.16 Contracts.
(a) Except as set forth in Section 4.16(a) of the Disclosure Schedule
(or in Sections 4.12(a) through (e), 4.15 or 4.17(a) of the Disclosure
Schedule), and except for agreements between the Company and Buyer or its
affiliates, neither the Company nor any Subsidiary is a party to, or subject to:
(i) any contract, arrangement or understanding, or series of
related contracts, arrangements or understandings, other than Purchase Orders
(as hereinafter defined), which involves annual expenditures or receipts by the
Company or the applicable Subsidiary of more than $25,000;
(ii) any Material Personal Property Lease;
(iii) any lease of real property;
(iv) any license agreement other than software licenses described
in clause (i) of the first sentence of Section 4.13 hereof;
(v) any contract, arrangement or understanding not made in the
ordinary course of business and consistent with past practice;
(vi) any note, bond, indenture, credit facility, mortgage,
security agreement or other instrument or document relating to or evidencing
indebtedness for money borrowed or a security interest or mortgage in the assets
of the Company or any Subsidiary;
(vii) any warranty, indemnity or guaranty issued by the Company;
(viii) any contract, arrangement or understanding granting to any
person the right to use any material item of property or property right of the
Company or any Subsidiary;
(ix) any contract, arrangement or understanding restricting the
right of the Company or any Subsidiary to engage in any business activity or
compete with any business; or
(x) any outstanding offer or commitment to enter into any
contract or arrangement of the nature described in subsections (i) through (ix)
of this Section 4.16(a).
For purposes of this Agreement "Purchase Orders" shall mean those purchase
orders of the Company or Subsidiary and other contracts and commitments issued
or entered into by the
22
Company or Subsidiary to or with its suppliers and vendors for the purchase of
goods, products and supplies in the ordinary course of business.
(b) The Company previously has delivered to Buyer complete and correct
copies of each written contract (and any amendments thereto), listed in Section
4.16(a) or identified in Sections 4.12(a) through (e), 4.15 or 4.17 of the
Disclosure Schedule, and a complete and correct description of each oral
contract of the type described in Sections 4.12, 4.15 or 4.17 to which the
Company and each Subsidiary is a party or bound is contained on Section 4.16(a)
of the Disclosure Schedule. Except as set forth in Section 4.16(b) of the
Disclosure Schedule (and except for the real property leases, which are the
subject of Section 4.12(b) above), (i) each such contract is in full force and
effect; (ii) neither the Company nor, to the Knowledge of the Shareholders, any
other party is in material default under any such contract, and no event has
occurred which constitutes, or with the lapse of time or the giving of notice or
both would constitute, a default by the Company, the applicable Subsidiary or,
to the Knowledge of the Shareholders, by any other party under such contract;
(iii) there are no material disputes or disagreements between the Company, the
applicable Subsidiary and any other party with respect to any such contract; and
(iv) except as set forth in Section 4.16(b) of the Disclosure Schedule, each
other party to each such contract has consented or been given notice, where such
consent or the giving of such notice is necessary, sufficient that such contract
shall remain in full force and effect following the consummation of the
transactions contemplated by this Agreement without any modification in the
rights or obligations of the Company thereunder.
4.17 Employees.
(a) The Shareholders previously have delivered to Buyer a list setting
forth (i) the names of all current salaried employees of the Company and each
Subsidiary and their current salary rates and bonuses (if any) paid to them at
any time during the Company's fiscal year 2001 and its current fiscal year to
date, and (ii) the classes of all hourly employees of the Company and each
Subsidiary and their current salary rates by class, and bonuses (if any) paid to
any such hourly employees at any time during the Company's fiscal year 2001 and
its current fiscal year to date. The Company or the applicable Subsidiary has
accrued on its books and records all obligations for salaries, vacations,
benefits and other compensation with respect to its employees and any of its
Former Employees (as hereinafter defined), to the extent required by GAAP,
including, but not limited to, severance, bonuses, incentive and deferred
compensation. Except as disclosed in Section 4.17(a) of the Disclosure Schedule,
and except as may be required under COBRA (as defined below) or similar state
medical benefits continuation law, the Company and the Subsidiaries do not
currently offer, nor have they ever offered, retiree health or insurance
benefits to employees or Former Employees (as hereinafter defined), and the
Company and the Subsidiaries have no liabilities (contingent or otherwise) with
respect thereto. Complete and correct copies of all material written agreements
with or concerning any employee (or any Former Employee), including, without
limitation, union and collective bargaining agreements, and all employment
policies, employee handbooks, and the like, and all amendments and supplements
thereto, have previously been delivered to Buyer, and a list of all such
agreements, handbooks and policies is set forth in Section 4.17(a) of the
Disclosure Schedule. None of the Company's store managers, other than the
Shareholders, has indicated to any Shareholder an intent to terminate his or her
employment other than upon normal retirement age. Except as set forth in Section
4.17(a) of the Disclosure Schedule, since the latest Financial Statement, the
23
Company and the Subsidiaries have not (i) except in the ordinary course of
business and consistent with past practice, increased the salary or other
compensation payable or to become payable to or for the benefit of any of the
employees, (ii) provided any of the employees with any increased security or
tenure of employment, (iii) increased the amounts payable to any of the
employees upon the termination of any such person's employment or (iv) adopted,
increased, augmented or improved benefits granted to or for the benefit of any
of the employees under any Benefit Plan (as hereinafter defined).
(b) The Company and each Subsidiary have complied at all times in all
material respects with all laws, statutes, rules and regulations applicable with
respect to employees or employment practices in every one of the jurisdictions
in which they operate and/or do business. In particular, the Company and each
Subsidiary have complied at all times in all material respects with all laws and
statutes, and all rules and regulations applicable to and/or aiming at
discriminatory practices (including, without limitation, discrimination based on
race, age or gender), labor standards and working conditions, payment of minimum
wages and overtime rates, worker's compensation, the withholding and payment of
Taxes or any other kind of governmental charge from any kind of compensation, or
otherwise relating to the conduct of employers with respect to employees or
potential employees, and there have been no claims made or, to the Knowledge of
the Shareholders, threatened thereunder against the Company or any Subsidiary
arising out of, relating to or alleging any violation of any of the foregoing,
which claims, if resolved adversely to the Company or the applicable Subsidiary,
would have a Material Adverse Effect. The Company and each Subsidiary have
complied in all material respects with the employment eligibility verification
form requirements under the Immigration and Naturalization Act, as amended
("INA"), in recruiting, hiring, reviewing and documenting prospective employees
for employment eligibility verification purposes and the Company and each
Subsidiary has complied in all material respects with the paperwork provisions
and anti-discrimination provisions of the INA. The Company and each Subsidiary
have obtained and maintained the employee records and I-9 forms in proper order
as required by law. The Company and the Subsidiaries are not currently employing
any workers unauthorized to work. Except as set forth in Section 4.17(b) of the
Disclosure Schedule, there are no material controversies, strikes, work
stoppages, picketing or disputes pending or, to the Knowledge of the
Shareholders, threatened between the Company or any Subsidiary and any employees
or Former Employees (as hereinafter defined); no organizational effort by any
labor union or other collective bargaining unit is pending or, to the Knowledge
of the Shareholders, threatened with respect to any employees; and no consent of
or any other action by or negotiation with any labor union or other collective
bargaining unit is required in connection with or to consummate the transactions
contemplated by this Agreement.
4.18 Benefit Plans.
(a) For purposes hereof, the term "Benefit Plan" shall mean each and
every defined benefit and defined contribution plan, employee stock ownership
plan, consulting or employment agreement, executive compensation plan, bonus
plan, incentive compensation plan or arrangement (including SAR Plans), deferred
compensation agreement or arrangement, agreement with respect to temporary
employees, vacation pay, sickness, disability or death benefit plan (whether
provided through insurance, on a funded or unfunded basis or otherwise),
employee stock option or stock purchase plan, severance pay plan, arrangement or
practice,
24
employee relations policy, practice or arrangement, retiree medical or life
insurance benefits, and each other employee benefit plan, program or
arrangement, which at any time in the immediately preceding 7 (seven) fiscal
years (through and including the year ending in January 2003) has been
maintained or contributed to by the Company or any Subsidiary for the benefit of
or relating to any of the employees or to any former employee of the Company or
any Subsidiary ("Former Employee") or his/her dependents, survivors or
beneficiaries, whether written or oral. Section 4.18(a) of the Disclosure
Schedule contains a complete and correct list of all current Benefit Plans.
(b) Except as set forth on Section 4.18(b) of the Disclosure Schedule,
each Benefit Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), meets in all material respects the requirements of
Section 401(a) of the Code; the trust, if any, forming part of such plan is
exempt from U.S. federal income tax under Section 501(a) of the Code; a
favorable determination letter has been issued by the Internal Revenue Service
(the "IRS") with respect to each plan and trust; and nothing has occurred since
the date of such determination letter that would adversely affect the
qualification of such plan. No Benefit Plan is a "voluntary employees
beneficiary association" (within the meaning of Section 501(c)(9) of the Code)
and there are no current "welfare benefit funds" relating to Employees or Former
Employees within the meaning of Section 419 of the Code other than as set forth
in Section 4.18(b) of the Disclosure Schedule. No event or condition exists
which respect to any Benefit Plan that could subject the Company or any
Subsidiary to any material Tax under Section 4980B of the Code (or under its
predecessor statute, Section 162(k) of the Code). With respect to each Benefit
Plan listed in Section 4.18(a) of the Disclosure Schedule, the Company has
heretofore delivered to Buyer complete and correct copies of the following
documents, where applicable: (i) the most recent annual report (Form 5500
series), together with schedules, as required, filed with the IRS, and any
financial statements and opinions required by Section 103(a)(3) of ERISA, (ii)
the most recent determination letter issued by the IRS, (iii) the most recent
summary plan description and all modifications, as well as all other
descriptions distributed to employees or set forth in any manuals or other
documents, (iv) the text of the Benefit Plan and of any trust, insurance or
annuity contracts maintained in connection therewith, (v) the most recent
independent appraisal in the case of an employee stock ownership plan, and (vi)
the most recent actuarial report, if any, relating to the Benefit Plan.
(c) Neither the Company nor any corporation or other trade or business
under common control with the Company or any Subsidiary (as determined pursuant
to Section 414(b) or (c) of the Code) (a "Common Control Entity") has ever
maintained or contributed to or in any way directly or indirectly has any
withdrawal liability or other liability (whether contingent or otherwise) with
respect to any "multiemployer plan," within the meaning of Section 3(37) of
ERISA. No event has occurred or condition exists which constitutes grounds for
the Pension Benefit Guaranty Corporation ("PBGC") to terminate any Benefit Plan.
Neither the Company, the Subsidiaries nor any Common Control Entity is a party
to or has any liability under any agreement imposing secondary liability on it
as a seller of the assets of a business in accordance with Section 4204 of ERISA
or under any other provision of Title IV of ERISA or other agreement. None of
the Company, the Subsidiaries or any Common Control Entity has ever maintained
or contributed to any "defined benefit plan" within the meaning of Section 3(35)
of ERISA which plan is subject to Title IV of ERISA or Section 412 of the Code.
All contributions and payments required to be made to or with respect to each
Benefit Plan (including
25
contributions to union-sponsored pension or health and welfare plans) with
respect to the service of employees or other individuals with or related to the
Company or the Subsidiaries prior to the date hereof have been made or have been
accrued for in the Financial Statements to the extent required by GAAP, or, for
periods after the most recent of the Financial Statements and through the
Closing Date, will be accrued in the books and records of the Company or the
applicable Subsidiary to the extent required by GAAP, and will be accrued and
reflected as liabilities on the Closing Balance Sheet to the extent required by
GAAP and, except to the extent so accrued, the Company and the Subsidiaries
shall have no liability to or with respect to any Benefit Plan relating to such
prior period.
Except as set forth in Section 4.18(c) of the Disclosure Schedule, the
Company and the Subsidiaries do not provide, nor do they have any obligation to
provide, post-retirement medical, life insurance or other benefits to employees
or Former Employees or their survivors, dependents and beneficiaries, except as
may be required by the Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") or similar state medical temporary benefits continuation law. Except
as set forth in Section 4.18(c) of the Disclosure Schedule or as expressly
provided in this Agreement, the Company and the Subsidiaries will not incur any
liability under any severance agreement, deferred compensation agreement, SAR
Plan, employment agreement or other compensation agreement as a result of the
consummation of the transactions contemplated by this Agreement, nor will the
terms or the Company's or any Subsidiary's liability or obligations under any
such agreement be altered or increased as a result of such transactions.
(d) Except as set forth in Section 4.18(d) of the Disclosure Schedule:
none of the Benefit Plans has been subject to a "reportable event," within the
meaning of Section 4043 of ERISA (whether or not waived); there have been no
"prohibited transactions", within the meaning of Section 4975 of the Code or
Part 4 of Subtitle B of Title I of ERISA; there have been no breaches of
fiduciary responsibility within the meaning of Part 4 of Subtitle B of Title I
of ERISA; and no Benefit Plan is subject to Section 412 of the Code and no event
or set of conditions exist which could subject the Company to any material Tax
under Section 4971 of the Code or a lien under Section 412(n) of the Code.
(e) Each Benefit Plan has been administered to date in all material
respects in accordance with the applicable provisions of ERISA, the Code and
applicable law and with the terms and provisions of all documents, contracts or
agreements pursuant to which such Benefit Plan is maintained. Except as set
forth in Section 4.18(e) of the Disclosure Schedule, all reports and information
required to be filed with the Department of Labor, the IRS, the PBGC or plan
participants or beneficiaries with respect to any Benefit Plan have been timely
filed; there is no dispute, arbitration, claim, suit or grievance pending or to
the Knowledge of the Shareholders, threatened, involving a Benefit Plan (other
than routine claims for benefits). None of the Benefit Plans nor any fiduciary
thereof has been the direct or indirect subject of an order or investigation or
examination by a governmental or quasi-governmental agency and there are no
matters pending before the IRS, the Department of Labor, the PBGC or any other
domestic or foreign governmental agency with respect to a Benefit Plan. There
have been no claims, or notice of claims, filed under any fiduciary liability
insurance policy covering any Benefit Plan. Except as set forth in Section
4.18(e) of the Disclosure Schedule, the Company will incur no liability or
obligation to make any "parachute payment" (as that term is defined in Section
280G(b)(2) of the Code) to any of the employees prior to the Closing or in
connection with the transactions
26
contemplated hereby. No event or set of conditions exists which would subject
the Company or any Subsidiary to any material Tax under Sections 4972, 4974-76,
4979, 4980, 4999 or 5000 of the Code.
4.19 Compliance with Applicable Law. Except as set forth in Section 4.19 of
the Disclosure Schedule, the Company and the Subsidiaries have complied in all
material respects with all applicable foreign or domestic laws and statutes and
all ordinances, codes, rules, regulations, judgments, orders, injunctions, writs
or decrees of any Federal, state, local or foreign court or any governmental
body or agency thereof to which the Company or any Subsidiary is subject or
which are applicable to the operations, businesses or assets of the Company or
any Subsidiary. None of the Company, the Subsidiaries, or the Shareholders has
received any notice alleging any such violation, nor do the Shareholders have
any Knowledge of any inquiry, investigation or proceeding relating thereto.
4.20 Ability to Conduct the Business. Except as disclosed in Section
4.16(a) or Section 4.20 of the Disclosure Schedule, there is no agreement,
arrangement or understanding, nor any judgment, order, writ, injunction or
decree of any court or any governmental body or agency thereof that could
prevent the use by the Company or any Subsidiary of any of their material
properties and assets or the conduct by the Company or any Subsidiary of their
businesses in any material respect.
4.21 Material Suppliers. Section 4.21 of the Disclosure Schedule sets forth
a complete and correct list of all material supply contracts, arrangements and
understandings (other than Purchase Orders (as defined in Section 4.16(a) and
agreements between the Company and Buyer or Buyer's affiliates) currently in
existence between the Company or any Subsidiary and any supplier of merchandise
to the Company or the applicable Subsidiary wherein the aggregate volume of
purchases from such supplier by the Company and the Subsidiaries in any year
exceeds or can be expected to exceed $500,000.
4.22 Inventories. Except for inventory which has been written down on the
books of the Company or a Subsidiary to its net realizable value, and except as
set forth in Section 4.22 of the Disclosure Schedule, the merchandise inventory
of the Company (the "Inventory") is of merchantable and salable quality and is
not damaged or beyond its applicable date code. The quantities of Inventory on
hand are such that they can reasonably be expected (on the basis of the
Company's past experience) to be sold within the time period remaining prior to
the expiration of their applicable date codes. The Company's inventory is valued
on the basis of the lower of cost (determined on a LIFO basis) to the Company or
the applicable Subsidiary or fair market value, in the manner described in the
Financials Statements, and is fairly reflected in the Financial Statements and
in the books and records of the Company.
4.23 Accounts Receivable. Except as disclosed in Section 4.23 of the
Disclosure Schedule and except for accounts receivable due from Buyer or its
affiliates, all accounts receivable of the Company and each Subsidiary,
including, but not limited to all coupon receivables (i) arose from bona fide
sales of goods or services or payments related to the same (such as advertising
coop or coupon redemption payments) in the ordinary course of business and
consistent with past practice, (ii) are owned by the Company or the applicable
Subsidiary free and clear of any Encumbrances, (iii) are fairly reflected on the
Financial Statements or, with
27
respect to accounts receivable of the Company or the applicable Subsidiary
created after the date thereof and through the Closing Date, are and will be
fairly reflected in the books and records of the Company or the applicable
Subsidiary, and (iv) can reasonably be expected to be collected (based on the
Company's past experience), without resorting to litigation and without offset
or counterclaim (net of the allowance for doubtful accounts reflected in the
Financial Statements) in full within one hundred twenty (120) days of the
Closing Date.
4.24 Insurance. Section 4.24 of the Disclosure Schedule is a complete and
correct list of all insurance (including, without limitation, worker's
compensation insurance) policies carried by, or covering, the Company and each
Subsidiary with respect to their businesses or employees. Complete and correct
copies of each such policy have previously been delivered to Buyer. All such
policies are in full force and effect, and no notice of cancellation has been
given with respect to any such policy. All premiums due thereon have been paid
in a timely manner.
4.25 Bank Accounts; Powers of Attorney. Section 4.25 of the Disclosure
Schedule sets forth a complete and correct list showing: all banks in which the
Company and each Subsidiary maintains a bank account or safe deposit box
(collectively, "Bank Accounts"), together with, as to each such Bank Account,
the account number, the names of all signatories thereof, and the authorized
powers of each such signatory and, with respect to each such safe deposit box,
the number thereof and the names of all persons having access thereto, and the
names of all persons holding powers of attorney from the Company and each
Subsidiary and a summary statement of the terms thereof.
4.26 Minute Books and Stock Records. Except as set forth in Section 4.26 of
the Disclosure Schedule, the minute books, stock certificate books and stock
ledgers of the Company and each Subsidiary are complete and correct in all
material respects and fairly reflect all transactions in shares of the Company's
or the applicable Subsidiary's capital stock. The minute books of the Company
and each Subsidiary contain accurate and complete records of all meetings or
written consents to action of the Board of Directors and shareholders of the
Company or the applicable Subsidiary and accurately reflect all material
corporate actions of the Company and the applicable Subsidiary which are
required by law to be passed upon by the Board of Directors (and all committees
thereof) or shareholders of the Company or the applicable Subsidiary
4.27 Books and Records. Except as set forth in Section 4.27 of the
Disclosure Schedule, all of the records, data, information, databases, systems
and controls maintained, operated or used by the Company or the Subsidiaries in
connection with the conduct or administration of their businesses (including all
means of access thereto and therefrom) are located on the premises of the
Company's principal place of business or have been delivered to Buyer and are
under the exclusive ownership and direct control of the Company or the
applicable Subsidiary
4.28 Transactions with Related Parties. Section 4.28 of the Disclosure
Schedule contains an accurate and complete list and description of all
agreements, arrangements and understandings relating to the provision of
services, use or transfer or property or assets, or outstanding indebtedness
which are currently in effect between the Company or the Subsidiaries and any of
the following (each, a "Related Party"): (i) each person who is now or at the
time in
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question was a shareholder, director or officer of the Company or any
Subsidiary; (ii) the spouses, children, grandchildren, siblings, parents,
grandparents, uncles, aunts, nieces, nephews or first cousins of any person
described in (i) (collectively, "near relatives"); (iii) any trust for the
benefit of any person described in (i) or any of their respective near
relatives; and (iv) any corporation, partnership, joint venture or other entity
owned or controlled by any person described in (i) or any of their respective
near relatives. Except as set forth in Section 4.28 of the Disclosure Schedule,
on the Closing Date there will be no outstanding indebtedness, liability or
obligation owed by the Company to the Shareholders, of any nature, with the
exception of accrued wages, salaries and related employee benefits due in the
ordinary course of business to those Shareholders who are also employees, for
services performed on or prior to the Closing Date.
4.29 Environmental Matters. Subject to subsection (e) of this Section 4.29:
(a) No Hazardous Substances. Except as set forth in Section 4.29(a) of
the Disclosure Schedule, and except for Hazardous Substances (as hereinafter
defined in Section 4.29(c)) generated, stored, treated, manufactured, refined,
handled, produced, disposed of or used by the Company or the Subsidiaries in the
ordinary course of their businesses, in compliance with the requirements of
currently applicable laws, rules and regulations or otherwise in a manner which
would not give rise to any liabilities or obligations under such laws, rules and
regulations (i) there are no Hazardous Substances in, on or under any of the
Real Property (as hereinafter defined in Section 4.29(d)); (ii) none of such
Real Property has been designated, restricted or investigated by any
governmental authority as a result of the actual or suspected presence,
spillage, leakage, discharge or other emission of Hazardous Substances; (iii) no
Hazardous Substances have been generated, used, stored, treated, manufactured,
refined, handled, produced or disposed of in, on or under, and no Hazardous
Substances have been transported, released or disposed of at, from or to, any of
such Real Property by the Company or any Subsidiary or by any persons or agents
operating under the control, direction and supervision of the Company or any
Subsidiary, including, without limitation, all employees, agents and contractors
of the Company or any Subsidiary; and (iv) the Company and the Subsidiaries have
not received any written or oral governmental notice, order, inquiry,
investigation, environmental audit or assessment or any lien, encumbrance,
decree, easement, covenant, restriction, servitude or proceeding concerning, or
arising by reason of, the actual or suspected presence, spillage, leakage,
discharge, disposal or other emission of any Hazardous Substance in, on, under,
around, about or in the vicinity of, or the transportation of any Hazardous
Substance at, from or to, any of such Real Property. Section 4.29(a) of the
Disclosure Schedule and any reports listed thereon describe the status of all
tanks, impoundments, vessels or other containers used for the storage of
Hazardous Substances on or below the surface of any Real Property.
(b) Compliance with Environmental Laws. Neither the Company, the
Subsidiaries nor any Real Property are in material violation of, or subject to
any material liabilities as a result of any past or current violations of, any
existing federal, state or local law (including common law), statute, ordinance,
rule or regulation of any federal, state or local governmental authority
relating to occupational health and safety or relating to pollution or
protection of the environment, including, without limitation, statutes, laws,
ordinances, rules and regulations relating to the emission, generation,
discharge, spillage, leakage, storage, off-site dumping, release or threatened
release of Hazardous Substances into ambient air, surface water,
29
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances (collectively, "Environmental Laws"), and no material
expenditures are required in connection with the operation of the Company's or
the Subsidiaries' businesses as currently conducted or as proposed to be
conducted in order to comply with any such Environmental Laws. Except as
disclosed in Section 4.29(b) of the Disclosure Schedule, the Company, the
Subsidiaries and the Real Property have in all material respects passed all
inspections conducted by applicable governmental authorities and regulatory
bodies in connection with the matters described in the preceding sentence. All
cleanup, removal and other remediation activities carried out by the Company or
the Subsidiaries or by agents of the Company or the Subsidiaries at the Real
Property have been conducted in material compliance with all applicable
Environmental Laws, and there is no basis for liability on the part of the
Company or any Subsidiary as a result of such activities.
(c) Definition of "Hazardous Substances". For purposes of this
Agreement, the term "Hazardous Substance" shall mean any product, substance,
chemical, contaminant, pollutant, effluent, waste or other material whose
presence, nature, quantity and/or concentration, use, manufacture, disposal,
transportation, emission, discharge, spill, release or effect, either by itself
or in combination with other materials located on any of the Real Property, is
either: (i) regulated or monitored by any governmental authority or (ii) defined
or listed in, or otherwise classified pursuant to, any statute, law, ordinance,
rule or regulation applicable to the Real Property as "hazardous substances,"
"hazardous materials," "hazardous wastes," "infectious wastes" or "toxic
substances". Hazardous Substances shall include, but not be limited to, (i)(A)
any "hazardous substance" as defined in the Comprehensive Environmental
Response, Compensation and Liability Act, (B) any "regulated substance" as
defined in the Solid Waste Disposal Act or (C) any substance subject to
regulation pursuant to the Toxic Substances Control Act, as such laws are now in
effect or may be amended through the Closing Date and any rule, regulation or
administrative or judicial policy statement, guideline, order or decision under
such laws, (ii) petroleum and refined petroleum products, (iii) asbestos and
asbestos-containing products, (iv) flammable explosives, (v) radioactive
materials, (vi) radon and (vii) any other substance that is regulated or
classified as hazardous or toxic under any federal, state or local law, statute,
ordinance, rule or regulation.
(d) Definition of "Real Property". For purposes of this Section 4.29,
the term "Real Property" shall be deemed to include all Real Property (as
defined in Section 4.12(c)) at which the operations of the Company or any
Subsidiary are currently conducted, together with all other locations (whether
leased or owned by the Company or the applicable Subsidiary) at which the
operations of the Company or any Subsidiary have previously been conducted (to
the extent that any prior activities of the Company, the Subsidiary or their
predecessors in interest give rise to any liabilities, claims or obligations
(including, without limitation, any obligations to investigate, cleanup or
remediate) with respect to the matters described in this Section 4.29).
(e) Notwithstanding any provision of this Section 4.29, no
environmental condition, circumstances, contamination, violation or
non-compliance (each a "Condition") on any Buyer-Leased Real Property will be
deemed to constitute a violation or breach of this Section 4.29 if and to the
extent that the same existed as of the date on which the Company's occupancy of
such Real Property commenced, provided that the Company has not, during its
occupancy of such Real Property, contributed in any material respect to such
Condition. The
30
foregoing is not intended to relieve the Shareholders from liability hereunder
for any breach or violation of this Section 4.29 that is attributable to
violations of or non-compliance with Environmental Laws by the Company; provided
that for this purpose the mere continuation of an existing Condition which
constitutes such a violation or non-compliance will not deemed to constitute a
violation or non-compliance by the Company, if the Company did not contribute in
any material respect to such Condition.
4.30 Disclosure. The disclosure of any matter in any schedule to this
Agreement shall be deemed to be a disclosure for all purposes of this Agreement
to which such matter could reasonably be expected to be pertinent.
4.31 Reliance. The representations and warranties of the Shareholders made
in this Agreement are made by such Shareholders with the knowledge and
expectation that Buyer is placing reliance thereon in entering into, and
performing its obligations under, this Agreement, and the same shall not be
affected or deemed waived in any respect whatsoever by reason of any
investigation heretofore or hereafter conducted or knowledge gained by or on
behalf of Buyer (including, without limitation, by any of its advisors,
consultants or representatives and any information contained in any Phase I or
Phase II or other environmental audit or investigation procured by or on behalf
of Buyer or otherwise) prior to the Closing, whether in contemplation of this
Agreement or otherwise, or by reason of the fact that Buyer or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate, or that any covenant or
undertaking has been or might have been breached, at or prior to the Closing,
and no claims by Buyer with respect thereto shall be waived or otherwise
affected as a result of such knowledge on the part of Buyer (or any of its
advisors, consultants or representatives) and none of the Shareholders shall
raise any such matter as a defense to any claim by Buyer for indemnification
hereunder, provided that such representations and warranties shall be qualified
to the extent set forth in the Disclosure Schedule.
4.32 No Other Representations and Warranties. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS ARTICLE IV (AS QUALIFIED BY THE
DISCLOSURE SCHEDULE), THE SHAREHOLDERS MAKE NO EXPRESS OR IMPLIED REPRESENTATION
OR WARRANTY AND THE SHAREHOLDERS HEREBY DISCLAIM ANY SUCH REPRESENTATION OR
WARRANTY WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
ARTICLE V
Representations and Warranties of Buyer
Buyer makes the representations and warranties set forth in this Article V,
each of which is true and correct as of the date hereof and will be true as of
the Closing Date:
5.1 Corporate Organization. Buyer is a corporation duly organized and
validly existing under the laws of the State of Wisconsin. Buyer is current in
all filings necessary to maintain its corporate existence under Wisconsin law
and no proceedings have been filed or are
31
pending for its dissolution or winding up. Buyer has all requisite corporate
power and authority to own, lease and operate the properties and assets it now
owns, leases or operates and to carry on its business as presently conducted or
presently proposed to be conducted.
5.2 Authorization. Buyer has full corporate power and authority to execute,
deliver and perform this Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
approved by the Board of Directors of Buyer, and no other corporate action on
the part of Buyer is necessary to approve and authorize the execution and
delivery of this Agreement by Buyer or the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Buyer and constitutes the valid and binding agreement of Buyer enforceable in
accordance with its terms, except that the enforceability of this Agreement is
subject to bankruptcy, insolvency, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and limitations on the
availability of the remedy of specific performance and other equitable remedies.
5.3 Consents and Approvals; No Violations. Except as set forth in Section
5.3 of the Disclosure Schedule, the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not: (i) violate
or conflict with any provision of the charter documents of Buyer, (ii) breach,
violate or constitute an event of default (or an event which with the lapse of
time or the giving of notice or both would constitute an event of default)
under, give rise to any right of termination, cancellation, modification,
acceleration or foreclosure under, or require any consent or the giving of any
notice under, any note, bond, indenture, mortgage, security agreement, lease,
license, franchise, permit, agreement or other instrument or obligation to which
Buyer is a party, or by which Buyer or any of its properties or assets may be
bound, or result in the creation of any Encumbrance or other right of any third
party of any kind whatsoever upon the properties or assets of Buyer pursuant to
the terms of any such instrument or obligation, (iii) violate or conflict with
any law, statute, ordinance, code, rule, regulation, judgment, order, writ,
injunction, decree or other instrument of any court or governmental or
regulatory body, administration, agency or authority applicable to Buyer or by
which any of its properties or assets may be bound or (iv) require any filing by
Buyer with, or any permit, license, exemption, consent, authorization or
approval of, or the giving of any notice by Buyer to, any governmental or
regulatory body, agency or authority.
5.4 Investment/Operational Intent.
(a) Buyer has sufficient knowledge and experience in financial and
business matters to enable it to evaluate the merits of the transactions
contemplated by this Agreement.
(b) Buyer has been given access to information regarding the Company
and has been given the opportunity to ask questions of and receive answers from
the officers of the Company concerning the present and proposed activities of
the Company and to obtain the information which Buyer deems necessary or
advisable in order to evaluate the merits and risks of the transactions
contemplated by this Agreement.
32
(c) Buyer is acquiring the Company for its own account, for investment
or operational purposes, and not with a view to resale or for distributions of
all or any portions of the Subject Shares.
5.5 Availability of Funds; Solvency. Buyer has cash available or has
existing borrowing facilities which together are sufficient to enable it to
consummate the transactions contemplated by this Agreement. The financing
required to consummate this Agreement is referred to as the "Financing." Buyer
has no reason to believe that any of the conditions to the Financing will not be
satisfied or that the Financing will not be available on a timely basis for the
consummation of the transactions contemplated by this Agreement. Upon the
consummation of the transactions contemplated by this Agreement, the Buyer and
the Company will each be solvent, be able to meet their debts as they become due
and have assets in excess of liabilities. The Purchase Price is not a dividend
or other transfer from the Company or account of the Company's capital stock.
5.6 No Other Representations and Warranties. EXCEPT FOR THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN THIS ARTICLE V, THE BUYER MAKES ANY EXPRESS OR
IMPLIED REPRESENTATION OR WARRANTY AND THE BUYER HEREBY DISCLAIMS ANY SUCH
REPRESENTATION OR WARRANTY WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS
AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
ARTICLE VI
Covenants
6.1 Conduct of the Business of the Company. The Shareholders covenant and
agree with Buyer that, between the date hereof and the Closing Date (except as
otherwise agreed in writing by Buyer, including transactions and other matters
specifically authorized by this Agreement):
(a) the business of the Company and each Subsidiary will be conducted
diligently and only in the ordinary course consistent with past practice,
including, without limitation, the payment of any Indebtedness (as defined in
Section 2.1), the collection of receivables, purchase of inventory, cash
management, provision of services, payment of payables and incurrence of and
payment or financing of capital expenditures;
(b) no change will be made in the Articles of Incorporation or
By-Laws, or other charter documents of the Company or any Subsidiary;
(c) the Shareholders and the Company shall use their commercially
reasonable efforts to preserve the assets, business and goodwill of the Company
and each Subsidiary, to keep available the services of the present employees of
the Company and each Subsidiary and to preserve the goodwill of the Company's
and each Subsidiary's customers, suppliers and others having business
relationships with the Company and the Subsidiaries, provided that the Company
and the Subsidiaries shall not be authorized (without the prior written consent
of Buyer) to make any commitment on behalf of Buyer;
33
(d) the Company and the Subsidiaries shall not announce or institute
any increase in the salary, commission or other compensation (including bonus)
rates payable or to become payable by the Company or any Subsidiary to any
employee or agent of the Company or any Subsidiary, or, except as set forth in
Section 4.17(a) of the Disclosure Schedule, approve, adopt, amend or modify any
Benefit Plan or similar plan, agreement or arrangement, except pursuant to the
terms of any contract or agreement to which the Company or the Subsidiaries are
a party and which is listed in any section of the Disclosure Schedule, or
pursuant to existing policies and practices of the Company and the Subsidiaries
as described in Section 6.1(d) of the Disclosure Schedule;
(e) the Company and the Subsidiaries shall not enter into any contract
or commitment, or series of related contracts or commitments (except for
Purchase Orders), unless such contract or commitment, or series of related
contracts or commitments, (i) arises in the ordinary course of business, and
(ii) involves expenditures or revenues of less than $20,000 in the aggregate;
(f) the Shareholders shall promptly advise Buyer in writing of the
commencement or threat of any suit, proceeding or investigation against,
relating to or involving the Company or any Subsidiary or which could otherwise
affect the assets or the business of the Company or any Subsidiary, whether or
not covered by insurance;
(g) the Shareholders shall promptly advise Buyer in writing of (i) any
material adverse change in the assets, liabilities, financial condition,
business, operations or prospects of the Company or any Subsidiary and (ii) any
event, condition or state of facts which will or may result in the failure to
satisfy any of the conditions in Article VIII hereof;
(h) the Company shall not create or permit to become effective any
Encumbrance on the assets, tangible or intangible, of the Company or any
Subsidiary, except in the ordinary course of business consistent with past
practice;
(i) the Company and the Subsidiaries shall maintain their current
liability, casualty, property and other insurance coverages in full force and
effect without reduction in coverage;
(j) the Company and the Subsidiaries shall not issue any additional
shares of capital stock or other equity interests or any options, warrants or
other rights to purchase, or securities convertible into or exchangeable for,
shares of capital stock of the Company or other equity interests or any
Subsidiary;
(k) except as contemplated by Section 2.7, the Company and the
Subsidiaries shall not declare or pay any dividends on or make any other
distributions (however characterized) in respect of shares of their capital
stock;
(l) the Company and the Subsidiaries shall not repurchase or redeem
any shares of their capital stock;
34
(m) the Company and the Subsidiaries shall not organize any new
subsidiary, acquire any capital stock or other equity security of any
corporation or acquire any equity or other ownership interest in any business;
(n) the Company and the Subsidiaries shall not make any change in the
accounting principles or practices reflected in the Financial Statements or in
their methods of applying such principles or practices;
(o) the Company and the Subsidiaries shall not incur any indebtedness,
liability or obligation (whether absolute, contingent or otherwise), except in
the ordinary course of business and consistent with past practice and not in any
event consisting of indebtedness for borrowed money (other than advances under
existing credit facilities in the ordinary course of business and consistent
with past practice), or guarantee, or act as surety, indemnitor, co-signer or
accommodation party for, any indebtedness, liability or obligation of any third
party, except for liability due to endorsement of checks in the normal course of
collection;
(p) the Company and the Subsidiaries shall not make any capital
expenditure or commitment in excess of $20,000.00 or make aggregate capital
expenditures or commitments in excess of $50,000.00;
(q) except as set forth on Section 6.1(q) of the Disclosure Schedule,
the Company and the Subsidiaries shall not cancel any debts or waive any claims
or rights of value;
(r) the Company and the Subsidiaries shall not sell, transfer or
otherwise dispose of any of their material properties or assets (real, personal
or mixed, tangible or intangible) except in the ordinary course of business and
consistent with past practices;
(s) the Company and the Subsidiaries shall not dispose of or permit to
lapse any right to the use of any patent, trademark or copyright (or application
therefor), trade name, service mark or brand name or permit to lapse any
material license, service mark or brand name permit or form of authorization, or
dispose of or disclose to any person any trade secret, formula, process or
know-how not theretofore a matter of public knowledge;
(t) the Company and the Subsidiaries shall not pay, loan or advance
any amount to, or sell, transfer or lease any properties or assets to, or enter
into any agreement or arrangement with, any Related Party, except for directors'
fees and compensation and expense advances and reimbursements to officers and
employees, in each case in the ordinary course of business and consistent with
past practices;
(u) the Company and the Subsidiaries shall not enter into any lease
(as lessor or lessee) of real property or enter into any contract, arrangement,
license or lease of personal property;
(v) the Company and the Subsidiaries shall not change any of their
current banking relationships;
(w) the Company and the Subsidiaries shall not terminate, amend or
fail to perform any obligation under any material contract, lease, commitment or
license;
35
(x) the Company and the Subsidiaries shall comply in all material
respects with all laws applicable to them and their properties, operations,
business and employees and shall file all required tax returns and other reports
required by any governmental agency or authority;
(y) neither the Company nor any of its Subsidiaries shall engage in
any activity which would accelerate or delay the collection of the accounts or
notes receivable of the Company or any of its Subsidiaries, accelerate or delay
the payment of the accounts payable of the Company or any of its Subsidiaries,
or reduce or otherwise restrict the amount of the inventory (including raw
material, packaging, work-in-process, or finished goods) of the Company or any
of its Subsidiaries on hand, in each case, other than in the ordinary course of
the conduct of the Company's business;
(z) except as specifically authorized by Section 2.7 of this
Agreement, neither the Company nor any of its Subsidiaries shall forgive, cancel
or waive any rights or any debts or other material obligations owed to the
Company or any of its Subsidiaries, except in the ordinary course of business
consistent with past practice in respect of (A) receivables owed by customers of
the Company or its Subsidiaries arising from the sale of goods sold by the
Company or its Subsidiaries to such customers in the ordinary course of
business, and (B) the cancellation or forgiveness of amounts due from employees
relating to advances, reimbursements and similar arrangements, the aggregate
amount of which does not exceed $150,000; and
(aa) the Company and the Subsidiaries shall not enter into any
agreement or commitment to take any action prohibited under this Section 6.1.
6.2 Access to Personnel, Properties, Books and Records. From the date
hereof until the Closing Date, the Shareholders will, and will cause the Company
to, cooperate fully with Buyer in Buyer's investigation of the business, assets
and liabilities of the Company and each Subsidiary. Without limiting the
generality of the foregoing, the Shareholders will allow the employees,
attorneys, accountants, and other representatives of Buyer to meet with the
management of the Company and each Subsidiary and their representatives, to have
full and complete access to the books, records, properties, financial
statements, environmental records, and other documents and materials relating to
the Company's and the Subsidiaries' operations (including the right to make
extracts therefrom or copies thereof); provided that Buyer will endeavor to
conduct its examination at a location away from the Company's premises to the
extent it is practical to do so, and, with respect to its investigation of said
premises, such investigation will occur at such times and in such a manner as
the Shareholders reasonably determine to be appropriate to protect the
confidentiality of the transactions contemplated by this Agreement and avoid
unreasonable disruption of the Company's business operations. The information
furnished by the Company or the Shareholders or their representatives to Buyer
or its representatives pursuant to this Section 6.2 shall be subject to the
provisions of the Confidentiality Agreement among the parties hereto dated June
25, 2002.
6.3 Efforts. Subject to the terms and conditions herein provided, each of
the parties hereto agrees that it shall use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable to fulfill the
36
conditions to the parties' obligations hereunder and to consummate and make
effective the transactions contemplated by this Agreement.
6.4 Further Assurances. The Shareholders shall, at any time and from time
to time from and after the Closing Date, upon the request and at the expense of
Buyer but without further consideration, perform, execute, acknowledge, deliver
and file, or cause to be performed, executed, acknowledged, delivered and filed,
all such further acts, deeds, transfers, conveyances, assignments or assurances
as Buyer may reasonably request in order to ensure that Buyer is vested with
complete beneficial ownership and control of the Subject Shares.
6.5 Transfer Taxes. The Shareholders shall be responsible for, and shall
pay or reimburse promptly when and if due, all applicable sales, transfer,
excise, use, documentary stamps or any other similar taxes which may be imposed
in any jurisdiction, or by any authority, in connection with or arising from the
sale of the Subject Shares to Buyer. The Shareholders shall prepare and file all
appropriate sales, transfer, excise, use, documentary stamps and other tax
returns and other documents and shall make timely payment of any sales,
transfer, excise, use and other taxes due in any jurisdiction in connection with
the transactions contemplated hereunder.
6.6 Section 338(h)(10) Election. Shareholders and Buyer shall make an
election under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended, with respect to the sale and purchase of the Subject Shares, and shall
make analogous elections under applicable state law provisions (the "338
Election"). The parties shall jointly prepare IRS Forms 8023, 8594 and such
other forms and schedules as are necessary in connection with the 338 Election
and otherwise take such action as may be required in order to perfect the 338
Election. In connection therewith, the Shareholders and Buyer agree that the
Purchase Price and the liabilities of the Company (plus other relevant items)
will be allocated among the assets of the Company for all purposes (including
tax and financial accounting purposes) in the manner set forth on Exhibit F
attached hereto. Buyer, the Company and the Shareholders shall file all tax
returns and information reports in a manner consistent with such values.
6.7 Badger Limited Assortment LLC. On or before the Closing Date, the
Shareholders shall cause the Company to distribute to the Shareholders all of
the membership interests of the Company's subsidiary, Badger Limited Assortment
LLC. The Shareholders shall be solely responsible for, and shall indemnify and
hold Buyer and the Company harmless from and against, any and all costs and
expenses (including, but not limited to attorney's fees) and any and all income,
transfer or other taxes incurred by the Company in connection with or as a
result of such distribution.
6.8 Stock Appreciation Rights. Prior to the Closing Date, the Shareholders
shall cause the Company to pay to all of the participants in the Company's
Performance Share Plan and any other SAR Plans of the Company all amounts due to
such participants under such plans (including any amounts due as a result of the
transactions contemplated by this Agreement) (the "SAR Amount"). The Company may
borrow funds as necessary to pay out the SAR Amount, provided that any amounts
so borrowed shall be included in the Closing Indebtedness Amount. Upon a
participant's receipt of its applicable portion of the SAR Amount, all of the
participant's rights under the SAR Plans shall be canceled and the participant
shall release the Company and
37
Buyer of any and all rights he or she had or may have had under the SAR Plans,
and the Shareholders shall obtain and deliver to the Buyer at the Closing
appropriate written releases from SAR Plan participants to that effect, in form
and substance reasonably acceptable to Buyer and its counsel. The Shareholders
shall take all action necessary to terminate all SAR Plans, as of the day before
the Closing Date, and ensure that, following the Closing Date, no participant in
the SAR Plans shall have any right thereunder to any payment from the Company or
to acquire equity securities of the Company.
6.9 Agreement Regarding Income Taxes and Income Tax Returns.
(a) The Shareholders' Agents shall prepare and timely file or cause to
be prepared and timely filed with the appropriate taxing authority all Income
Tax Returns required to be filed on behalf of the Company and each of the
Subsidiaries for all taxable years, or short periods containing less than 12
months ("Short Periods"), ending on or prior to the Closing Date which are filed
after the Closing Date. "Income Tax Returns" shall mean all Tax Returns with
respect to Income Taxes. For purposes of this Section 6.9 "Income Taxes" shall
mean all Taxes based on income determined under provisions of the Code and
foreign, state and other Taxes based upon income or gross receipts, in each case
for which the Company has no potential liability, whether primary, secondary or
contingent. "Tax Returns" shall mean all returns, declarations, reports and
information returns and statements of any person required to be filed or sent by
or with respect to it in respect to any Taxes. The Shareholders' Agents shall
permit Buyer to review and comment on each such Income Tax Return prior to
filing. To the extent permitted by applicable law, the Shareholders shall
include any income gain, loss, deduction or other tax items for such periods on
their personal Income Tax Returns in a manner consistent with the Schedule K-1s
prepared by the Shareholders' Agents for such periods.
(b) The parties shall cooperate in connection with the filing of all
Tax Returns covering any period ending on or prior to the Closing Date. The
Shareholders and Buyer shall not destroy or permit the destruction of any books,
records or files pertaining to or used in preparing any such Income Tax Return
as long as the statute of limitations or any other statutory requirement to
preserve said books, records or files and any extensions thereof, as extended by
the parties, has not expired, and shall comply with all reasonable requests
regarding production of or access to documents or files, and to use reasonable
efforts to make personnel available for depositions, interviews or testimony
upon reasonable notice at reasonable times, provided that the same do not
interfere in any material respect with the time required for such person's
performance of his or her duties to the Company.
(c) With respect to S-corporation taxes payable by the Shareholders,
the Shareholders shall have the right to pursue, contest, appeal and settle, at
their own expense, any adjustments to income or deductions or other items of the
Company or any claims or assessments made against the Company by any taxing
authority for taxable years or Short Periods ending on or prior to the Closing
Date and the Buyer shall cause the Company to cooperate with the Shareholders
and shall not cause the Company to take any action with respect to any Income
Tax Return filed for these periods without the Shareholders' Agents' prior to
written consent, and shall comply with all reasonable requests regarding
production of or access to documents or files and to make personnel available
for depositions, interviews or testimony, upon reasonable notice at reasonable
times, provided that the same do not interfere in any material respect with the
time
38
required for such person's performance of his or her duties to the Company. The
Shareholders' Agents shall keep the Buyer reasonably informed as to any claims
or assessments and the management thereof.
6.10 Termination of Home Ownership Program and S.M.A.R.T. Scholarship
Program. Prior to the Closing Date, the Shareholders shall cause the Company to
pay to all of the participants in the Company's Home Ownership Program and
S.M.A.R.T. Scholarship Program (the "Programs") all amounts due to such
participants under such Programs (the "Program Amounts"), such that all
obligations of the Company thereunder are discharged in full. The Company may
borrow funds as necessary to pay out the Program Amounts, provided that any
amounts so borrowed shall be included in the Closing Indebtedness Amount. The
Shareholders shall take all action necessary to terminate all Programs, prior to
the Closing Date, and ensure that, following the Closing Date, no participant in
the Programs shall have any right or claim against the Company thereunder,
including any right to any payment from the Company or to acquire any equity
interest in the Company.
6.11 Estoppels and SNDA's. The Shareholders will, and will cause the
Company to, use commercially reasonable efforts to assist the Buyer in obtaining
the Landlord Estoppel Certificates and SNDA's called for by Sections 7.9 and
7.11, respectively, and in obtaining estoppel certificates, in such form as
Buyer may reasonably determine to be appropriate, from sublessees of the Leased
Real Property.
6.12 Repayment of Bank Debt. Simultaneously with the Closing, Buyer will
cause to be repaid in full all of that portion of the Closing Indebtedness
Amount that is owed to Bank One.
ARTICLE VII
Conditions to the Obligations of Buyer
The obligations of Buyer to consummate the transactions contemplated
hereunder shall be subject to the satisfaction of each of the following
conditions at or prior to the Closing, unless waived by Buyer in writing:
7.1 Representations and Warranties True. All of the representations and
warranties of the Shareholders contained in this Agreement (as qualified by the
Disclosure Schedule hereto) shall be true and correct in all material respects
on the Closing Date as though such representations and warranties were made on
such date, and the Shareholders shall have delivered certificates to that effect
at the Closing.
7.2 Performance. The Shareholders shall have performed and complied in all
material respects with all covenants and obligations under this Agreement which
are required to be performed or complied with by them on or prior to the Closing
Date.
7.3 Approvals, Permits, Etc. All consents, authorizations or approvals of
any governmental body or agency thereof that are required in order to consummate
the sale and transfer of the Subject Shares to Buyer pursuant to this Agreement,
and in addition, the liquor
39
license, food stamp permit and WIC permits required for Buyer's operation of the
Company's business, shall have been duly obtained in form and substance
reasonably satisfactory to Buyer and its counsel and shall be effective at and
as of the Closing Date.
7.4 Delivery of Closing Documents. The Shareholders shall have delivered to
Buyer the documents referred to in Sections 3.2(a)(i) through (xiv) hereof, in
form and substance reasonably satisfactory to Buyer and its counsel.
7.5 Absence of Certain Events. No statute, rule or regulation shall have
been enacted or promulgated which would make the sale and transfer of the
Subject Shares contemplated by this Agreement illegal or would otherwise prevent
the consummation thereof. No non-appealable order, decree, writ or injunction
shall have been issued and shall remain in effect, by any court or governmental
body or agency thereof, which restrains, enjoins or otherwise prohibits the
consummation of the sale and transfer of the Subject Shares contemplated hereby.
7.6 No Material Adverse Change. There shall have been no Material Adverse
Change in the financial condition, prospects, results of operations, cash flows,
assets, liabilities, business or operations of the Company or any Subsidiary
during the period between December 31, 2002 and the Closing Date.
7.7 Consents. Any restrictions or limitations on or rights of or consents
or approvals from third parties in relation to the sale of the Subject Shares to
Buyer that may be required pursuant to those agreements set forth as items 1 and
3 on Section 4.2(c) of the Disclosure Schedule to which the Company or any of
the Shareholders are parties or by which they are bound, shall have been duly
waived or released.
7.8 Evidence of Title to Real Property. The Shareholders shall have
obtained and delivered to Buyer, letter reports of title, including copies of
all easements, restrictions and covenants of record (the "Letter Reports"), for
the Owned Real Property (as defined in Section 4.12 herein) and the Third-Party
Leased Real Property issued by a title insurer reasonably satisfactory to Buyer
(the "Title Insurer"). The costs of the Letter Reports will be paid by the
Company and treated as "Expenses" for purposes of Section 2.1(c). Each such
Letter Report will be dated as of the date of closing and reflect title to the
applicable parcels of real estate and all recorded easements benefiting such
parcels, subject only to Permitted Liens and any mortgages and security
interests securing the Closing Indebtedness Amount (in the case of the Owned
Real Property) and Permitted Liens, the interests of the lenders referenced in
Section 7.11 below and the liens and encumbrances listed in Section 7.8 of the
Disclosure Schedule (in the case of Third-Party Leased Real Property).
7.9 Landlord Estoppel Certificates. Buyer shall have received certificates,
executed by the lessors of the Third-Party Leased Real Property in substantially
the form attached hereto as Exhibit G (the "Landlord Estoppel Certificates").
7.10 [Intentionally Left Blank].
7.11 Subordination, Nondisturbance and Attornment Agreements. Buyer shall
have received Subordination, Nondisturbance and Attornment Agreements from the
lenders of the
40
lessors of the Third-Party Leased Real Property in substantially the form
attached hereto as Exhibit H (the "SNDA's").
ARTICLE VIII
Conditions to the Obligations of the Shareholders
The obligations of the Shareholders to consummate the transactions
contemplated hereunder shall be subject to the satisfaction of each of the
following conditions on or prior to the Closing, unless waived by the
Shareholders' Agent in writing:
8.1 Representations and Warranties True. All of the representations and
warranties of Buyer contained in this Agreement (including, without limitation,
the Disclosure Schedule) shall be true and correct in all material respects on
the Closing Date as though such representations and warranties were made on such
date, and Buyer shall have delivered certificates to that effect at the Closing.
8.2 Performance. Buyer shall have performed and complied in all respects
with its payment covenants and obligations hereunder, and Buyer shall have
performed and complied in all material respects with all other covenants and
obligations under this Agreement which are required to be performed or complied
with by it on or prior to the Closing Date.
8.3 Approvals, Permits, Etc. All consents, authorizations or approvals of
any governmental body or agency thereof that are required in order to consummate
the sale and transfer of the Subject Shares to Buyer pursuant to this Agreement,
and in addition, the liquor license, food stamp permit and WIC permits required
for Buyer's operation of the Company's business, shall have been duly obtained
in form and substance reasonably satisfactory to the Shareholders and their
counsel and shall be effective at and as of the Closing Date.
8.4 Delivery of Closing Documents. The Buyer shall have delivered to the
Shareholders the payments and documents referred to in Section 3.2(b) hereof in
form and substance reasonably satisfactory to the Shareholders and their
counsel.
8.5 Absence of Certain Events. No statute, rule or regulation shall have
been enacted or promulgated which would make the sale and transfer of the
Subject Shares contemplated by this Agreement illegal or would otherwise prevent
the consummation thereof. No non-appealable order, decree, writ or injunction
shall have been issued and shall remain in effect, by any court or governmental
body or agency thereof, which restrains, enjoins or otherwise prohibits the
consummation of the sale and transfer of the Subject Shares contemplated hereby.
8.6 Personal Guarantees. All Shareholders shall be released by documents
reasonably satisfactory to the Shareholders and their counsel from all
obligations pursuant to the guarantees by such Shareholders of obligations of
the Company or any Subsidiary which are set forth on Section 8.6 of the
Disclosure Schedule.
41
ARTICLE IX
Termination
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by the mutual written consent of Buyer, on the one hand, and
Shareholders' Agents on the other hand;
(b) by Buyer, if any of the conditions specified in Article VII have
not been met or waived prior to such time as such condition can no longer be
satisfied; or
(c) by the Shareholders' Agents, if any of the conditions specified in
Article VIII shall not have been met or waived prior to such time as such
condition can no longer be satisfied.
9.2 Effect of Termination. In the event of termination of this Agreement
pursuant to the preceding Section 9.1, this Agreement shall forthwith become
null and void and there shall be no liability on the part of any party hereto or
their respective officers or directors, except for Sections 13.3 and 13.4
hereof, which shall remain in full force and effect, and except that nothing
herein shall relieve any party hereto from liability for a breach of this
Agreement prior to the termination hereof.
ARTICLE X
Indemnification; Survival of Representations and Warranties
10.1 Indemnity Obligations of the Shareholders. Subject to the conditions
and limitations set forth in this Article X, the Shareholders hereby agree,
individually and severally and not jointly and severally, to indemnify and hold
Buyer and the Company and their respective parents and subsidiaries, affiliates,
directors, officers, employees and agents (such parties being collectively
referred to herein as the "Buyer Indemnitees") harmless from, and to reimburse
each such Buyer Indemnitee for, on an after-Tax basis (within the meaning of
Section 10.5), any Buyer Indemnity Claims (as that term is hereinafter defined);
provided, that the indemnification obligation of each Shareholder with respect
to Buyer Indemnity Claims relating exclusively to a breach or alleged breach of
Section 4.2 or 4.3 of this Agreement by such Shareholder or with respect to
Subject Shares sold by such Shareholder hereunder shall be the exclusive
obligation of that Shareholder and the other Shareholders shall have no
responsibility or obligation therefor. "Buyer Indemnity Claim" shall mean any
loss, damage, deficiency, claim, liability, obligation, suit, action, fee,
penalty, fine, interest, surcharge, cost or expense of any nature whatsoever
(collectively, "Losses"), arising out of, based upon or resulting from:
(a) any inaccuracy in or any breach of any representation and warranty
of the Shareholders contained in this Agreement or any certificate delivered by
the Shareholders pursuant hereto;
42
(b) any breach or nonfulfillment of, or any failure to perform, any of
the covenants, agreements or undertakings of the Shareholders and the Company
(but only prior to the Closing for the Company) contained in or made pursuant to
this Agreement;
(c) any liabilities or obligations arising out of any and all actions,
claims, suits, proceedings, demands, assessments, judgments, recoveries,
damages, costs and expenses or deficiencies incident to the disposition of any
Buyer Indemnity Claim under this Section 10.1;
(d) all interest, penalties, costs and expenses (including, without
limitation, all out-of-pocket expenses, reasonable investigation expenses and
reasonable fees and disbursements of accountants and counsel) arising out of or
related to any such Buyer Indemnity Claims asserted under this Section 10.1; and
(e) any claims relating to the Company's Performance Share Plan, any
other SAR Plan, or the Programs.
10.2 Indemnity Obligations of Buyer. Buyer agrees to indemnify and hold
each of the Shareholders and their affiliates, employees and agents ("Seller
Indemnitees") harmless from, and to reimburse each such Seller Indemnitee for,
on an after-Tax basis (within the meaning of Section 10.5), any Shareholder
Indemnity Claims (as that term is hereinafter defined). "Shareholder Indemnity
Claim" shall mean any Losses arising out of, based upon or resulting from:
(a) any inaccuracy in or any breach of any representation and warranty
of Buyer contained in this Agreement certificate or other written instrument or
document delivered by Buyer pursuant hereto;
(b) any breach or nonfulfillment of, or failure to perform, any of the
covenants, agreements or undertakings of Buyer and the Company (but only after
the Closing for the Company) contained in or made pursuant of this Agreement;
(c) any obligations or liabilities arising out of any and all actions,
claims, suits, proceedings, demands, assessments, judgments, recoveries,
damages, costs and expenses or deficiencies incident to the disposition of any
Shareholder Indemnity Claim asserted under this Section 10.2; and
(d) all interest, penalties, costs and expenses (including, without
limitation, all out-of-pocket expenses, reasonable investigation expenses and
reasonable fees and disbursements of counsel and accountants) arising out of or
related to any Shareholder Indemnity Claims asserted under this Section 10.2.
10.3 Procedures Relative to Indemnification Claims.
(a) Claim Notice. In the event that any party hereto shall claim that
it is entitled to be indemnified pursuant to the terms of this Article X, it
(the "Claiming Party") shall provide written notice of such claim (a "Claim
Notice") to the party against which the claim is made (the "Indemnifying Party")
as promptly as reasonably practical after confirmation of the facts supporting
the claim or receipt of a written notice of any claim of a third party (a "Third
43
Party Claim") that may reasonably be expected to result in a claim by such party
against the party to which such notice is given, as the case may be. If the
Claiming Party is a Buyer Indemnitee, such Claim Notice shall be served upon the
Shareholders' Agents and the Escrow Agent. Each such Claim Notice shall specify
in reasonable detail, to the extent feasible or relevant, the breach of
representation, warranty, covenant or agreement claimed by the Claiming Party,
together with the Claiming Party's good faith estimate of the liability, loss,
cost or expense incurred by or imposed upon or expected to be incurred by or
imposed upon the Claiming Party on account thereof (including, without
limitation, such party's good faith estimate of the costs and expenses,
including reasonable attorney's fees, expected to be incurred in connection
therewith).
(b) Defense. Subject to the remaining provisions hereof, the
Indemnifying Party may, upon receipt of a Claim Notice relating to a Third Party
Claim and at its expense, defend such claim in its own name or, if necessary, in
the name of the Claiming Party. The Claiming Party will cooperate with and make
available to the Indemnifying Party such assistance and materials as may be
reasonably requested of the Claiming Party, and the Claiming Party shall have
the right, at its expense, to participate in but not control the defense
thereof. The Indemnifying Party shall have the right to settle and compromise
any such claim with respect to which it controls the defense only with the
consent of the Claiming Party, which consent shall not be unreasonably withheld.
If the proceeding involves a matter solely of concern to the Claiming Party in
addition to the claim for which indemnification under this Article X is being
sought, the Claiming Party shall have the right to control the defense and
settlement of such additional claim in its own discretion and with its own
counsel. If a firm written offer is made to settle any such Third Party Claim
which offer includes a complete release of the Claiming Party and its affiliates
from any further liability in respect thereof and the Indemnifying Party
proposes to accept such settlement and agrees in writing to indemnify the
Claiming Party for all Losses related thereto and the Claiming Party refuses to
consent to such settlement, then: (i) the Indemnifying Party shall be excused
from, and the Claiming Party shall be solely responsible for, all further
defense of such Third Party Claim; (ii) the maximum liability of the
Indemnifying Party relating to such Third Party Claim shall be the amount of the
proposed settlement if the amount thereafter recovered from the Claiming Party
on such Third Party Claim is greater than the amount of the proposed settlement;
and (iii) the Claiming Party shall pay all attorneys' fees and legal costs and
expenses incurred after the rejection of such settlement by the Claiming Party,
but if the amount thereafter recovered by such third party from the Claiming
Party is less than the amount of the proposed settlement, the Claiming Party
shall be reimbursed by the Indemnifying Party for such attorneys' fees and legal
costs and expenses up to a maximum amount equal to the difference between the
amount recovered by such third party and the amount of the proposed settlement.
(c) Defense of Claims Below Indemnification Threshold. Notwithstanding
anything to the contrary in the foregoing, Buyer shall have the right to control
the defense of any Third Party Claim (other than Zero-Threshold Claims (as
hereinafter defined)) if the potential loss or liability associated with such
claim, together with the aggregate amount of all previously settled claims, is
less than the Indemnification Threshold (as hereinafter defined); provided, that
Buyer shall keep the Shareholders' Agents reasonably informed as to the nature
and conduct of such claim and the Shareholders' Agents shall be afforded an
opportunity to monitor developments in connection therewith. Buyer shall have
the right to settle any such matter with
44
the consent of the Shareholders' Agents, such consent not to be unreasonably
withheld or delayed.
(d) Defense by Claiming Party. In the event the Indemnifying Party
shall fail or not have the right to assume the defense under Sections 10.3(b) or
10.3(c), above, or shall notify the Claiming Party that it shall refuse to
conduct a defense against a Third Party Claim, then the Claiming Party shall
have the right to conduct a defense against such claim and shall have the right
to settle and compromise such claim without the consent of the Indemnifying
Party (except as provided in Section 10.3(c)). Once the amount of such claim is
liquidated and the claim is finally determined, the Claiming Party shall be
entitled to pursue each and every remedy available to it at law or in equity to
enforce the indemnification provisions of this Article X, subject to the
provisions of this Agreement.
10.4 Duration. Except as otherwise provided in this Agreement, all
representations and warranties of the parties contained in or made pursuant to
this Agreement, and the rights of the parties to seek indemnification with
respect thereto, shall expire on the following dates (provided, however, that,
with respect to any claims for indemnification as to which a Claim Notice shall
have been duly given prior to the relevant expiration date set forth below, if
any, such notice shall preserve such claim pending resolution thereof pursuant
to the terms hereof):
(a) in the case of any claims for Tax Liabilities (including Costs and
Expenses) (as those terms are defined below), the date of expiration of the
relevant statute of limitations, including any extensions thereof (whether by
waiver or otherwise), provided that, notwithstanding anything to the contrary in
the foregoing, the indemnity obligations of the Shareholders hereunder shall
survive for an additional period of 12 months with respect to any and all Costs
and Expenses incurred by any Buyer Indemnitee in establishing or in seeking to
establish, whether in a judicial proceeding or otherwise, that the underlying
matter giving rise to such claim for indemnification is time-barred under the
applicable statute of limitations, whether or not such efforts are successful.
For purposes of this Agreement, the term "Tax Liabilities" shall mean and
include any and all liabilities for Taxes (as defined in Section 4.11(b)),
except liabilities for Taxes (not including income or franchise taxes) which are
(i) accrued for (and in the amounts included) on the latest Financial Statements
or (ii) incurred in the ordinary course of business after the latest Financial
Statements and relating to time periods after the latest Financial Statements
(all of which are properly accrued on the Company's books): (x) which are or
shall be incurred, with respect to any taxable year or any other period
beginning prior to the Closing by the Company or any predecessor of, or
transferor to, the Company, or (y) which are or shall be incurred by any
affiliated group, as defined in Section 1504(a) of the Code as in effect during
any relevant period (or any other group required to file or filing returns on a
consolidated or combined basis), of which the Company, or any predecessor of, or
transferor to, the Company has been a member at any time prior to the Closing
Date, in either case whether or not such Taxes were assessed prior to the
Closing Date; provided, however, that for purposes of computing the amount of
any Tax Liabilities subject to indemnification hereunder, any such taxable year
or other period which ends after the Closing Date shall be deemed to end at the
close of business on the Closing Date, and provided further, however, that in
the case of any ad valorem property tax imposed upon the ownership or holding of
real property or personal property, the term "Tax Liabilities" shall include
only that percentage of the liability therefor which equals the percentage of
the actual period to which such said liability relates which
45
precedes the Closing Date. "Costs and Expenses" shall mean any and all costs and
expenses which may be incurred in connection with contesting any claims for Tax
Liabilities, including, without limitation, reasonable fees and disbursements of
counsel, accountants and other experts (but not the costs of the services of
persons who are the in-house personnel or employees of Buyer or any Buyer
Affiliates).
(b) in the case of any Buyer Indemnity Claims with respect to any
breach of the representations and warranties set forth in Sections 4.2
[Authorization], 4.3 [Title to the Subject Shares] and 4.5 [Capitalization of
the Company] (the foregoing are collectively referred to herein as the "Special
Representations and Warranties"), indefinitely;
(c) in the case of any other Buyer Indemnity Claims, April 30, 2004;
and
(d) in the case of any Shareholder Indemnity Claims, April 30, 2004.
10.5 Tax Effect of Losses. In determining the amount of any Buyer Indemnity
Claim or Shareholder Indemnity Claim, for all purposes hereunder, there shall be
taken into account any income or other Tax benefit which the Claiming Party may
actually have received or be entitled to receive (if in the future, at its
present value) as a result of the Losses forming the basis of such claim, and
there shall also be taken into account any income or other Tax cost which the
Claiming Party would incur as a result of its receipt of any indemnification
payment from the Indemnifying Party (including any such indemnification payment
which the Claiming Party would be entitled to receive but for the provisions of
Section 10.6).
10.6 Certain Limitations.
(a) Indemnification Threshold and Cap. Notwithstanding anything to the
contrary herein, but subject to Section 10.6(b):
(i) any claim by the Buyer Indemnitees against the Shareholders
under this Agreement shall be payable by the Shareholders only in the event that
the accumulated amount of all claims that have been Definitively Resolved (as
hereinafter defined) (for purposes hereof, "Settled Claims") against the
Shareholders as a group shall exceed the amount of Two Hundred Fifty Thousand
and 00/100 Dollars ($250,000.00) in the aggregate (the "Indemnification
Threshold"); and
(ii) the maximum amount for which the Shareholders as a group
shall be obligated to provide indemnification hereunder shall not exceed Five
Million and 00/100 Dollars ($5,000,000.00) (the "Indemnification Cap").
At such time as the aggregate amount of Settled Claims against the
Shareholders as a group exceeds the Indemnification Threshold, the Shareholders
shall thereafter be liable for the amount of all claims in excess of the
Indemnification Threshold, but subject to the Indemnification Cap and the other
limitations set forth in this Article X, and subject to Section 10.6(b).
(b) Zero-Threshold and Uncapped Claims. Notwithstanding the preceding
Section 10.6(a), the following categories of claims for indemnification
("Zero-Threshold
46
Claims") shall not be subject to the Indemnification Threshold or the
Indemnification Cap, but shall be payable on a dollar-for-dollar basis without
such limitation thereon:
(i) any Buyer Indemnity Claims relating to the Special
Representations and Warranties;
(ii) any obligations on the part of the Shareholders to pay any
amounts due the Buyer under Section 2.3(i); and
(iii) any Buyer Indemnity Claims arising under Section 10.1(e)
with respect to the Company's Performance Share Plan or any other SAR Plan.
(c) Notwithstanding anything to the contrary in this Agreement, the
Buyer shall not be entitled to indemnification under this Article X:
(i) with respect to a claim for indemnification hereunder related
to the title of any real estate with respect to which there is a title insurance
policy in effect, except to the extent that the Company or the Buyer has first
unsuccessfully attempted to recover upon such title insurance;
(ii) to the extent of any insurance proceeds actually received by
the Company to the Buyer in connection with the facts giving rise to such
indemnification;
(iii) for any punitive damages;and
(iv) from any Shareholders other than George Prescott and Judith
Prescott, respectively, for violations of their Noncompetition Agreements.
10.7 Definitively Resolved. For purposes hereof, a Buyer Indemnity Claim or
Shareholder Indemnity Claim shall be deemed to have been "Definitively Resolved"
when any of the following events has occurred:
(a) a claim is settled by mutual agreement of Buyer and the
Shareholders' Agents; or
(b) a final judgment, order or award of a court of competent
jurisdiction deciding such claim has been rendered, as evidenced by a certified
copy of such judgment, provided that such judgment is not appealable or the time
for taking an appeal has expired.
10.8 Claims Limited to Indemnification Escrow Amount, with Certain
Exceptions. Buyer acknowledges and agrees that the Buyer Indemnitees' sole
rights and remedies, with respect to Buyer Indemnity Claims other than Zero
Threshold Claims, are its rights to distributions from the Indemnification
Escrow Amount as provided in this Agreement, subject to the provisions,
conditions and limitations contained herein and in the Indemnification Escrow
Agreement.
10.9 Indemnification Rights Against Shareholders. With respect to any Zero
Threshold Claims, a Buyer Indemnitee, in any case, shall have the option, in its
sole and absolute
47
discretion, to assert such claims against the Indemnification Escrow Amount
hereunder or against the Shareholders personally (which shall mean individually
and severally and not jointly and severally, and except as otherwise limited by
Section 10.1 and in this Section 10.9). Such option may be exercised separately
as to each such claim, and a Buyer Indemnitee's election to proceed hereunder,
in any case, shall not preclude such Buyer Indemnitee from also proceeding, in
the same case, against the Shareholders personally (and vice versa); provided
that the Buyer Indemnitee may not recover in any case, from all sources in the
aggregate, more than the total amount of its Losses. In the event any amounts
are paid from the Indemnification Escrow Amount for Buyer Indemnity Claims
consisting of Zero Threshold Claims, or for Purchase Price adjustments under
Section 2.3(i), such amounts shall be replenished promptly by the Shareholders
(subject to the proviso to the first sentence of Section 10.1) by additional
deposits of funds by them into the Indemnification Escrow Amount ("Replenishment
Deposits"). All Replenishment Deposits shall be a part of the "Indemnification
Escrow Amount" for all purposes, and shall be held by the Escrow Agent subject
to the terms and conditions of the Indemnification Escrow Agreement. In the
event a Buyer Indemnitee Asserts any Zero-Threshold Claims (other than for a
breach described in the proviso to the first sentence of Section 10.1) against a
Shareholder (other than George Prescott or Judith Prescott) personally hereunder
and is unable to recover the full amount of such Zero-Threshold Claim from such
Shareholder, then such Buyer Indemnitee may recover the unrecovered amount of
such Zero-Threshold Claim from George and/or Judith Prescott; and if any
Shareholder fails to make any Replenishment Deposit required hereunder, promptly
after written demand therefor is made by Buyer, then George and Judith Prescott
shall be jointly and severally liable to make such Replenishment Deposit.
ARTICLE XI
Shareholders' Agents
11.1 Appointment of Shareholders' Agents. Each Shareholder hereby
irrevocably constitutes and appoints George E. Prescott and Charles Benjamin as
such Shareholders' agents ("the Shareholders' Agents") for the purpose of
representing such Shareholder in connection with the following matters: (i)
consenting to, compromising or settling any Buyer Indemnity Claims and (ii)
resolving all matters arising under Section 2.1 of this Agreement, including,
without limitation, all matters pertaining to the calculation of the Closing
Indebtedness Amount. The appointment of George E. Prescott and Charles Benjamin
as the Shareholders' Agents is coupled with an interest and all authority hereby
conferred shall be irrevocable and shall not be terminated by any or all of the
Shareholders without the consent of Buyer, which consent may be withheld for any
reason. Such appointment shall be binding upon the heirs, executors,
administrators, estates, personal representatives, successors and assigns of
each Shareholder.
11.2 Authority Granted to Shareholders' Agents. In furtherance and not in
limitation of the authority granted to the Shareholders' Agents in Section 11.1
above, each of the Shareholders, for themselves and their respective heirs,
executors, administrators, successors and assigns, hereby authorizes the
Shareholders' Agents without notice to such Shareholder hereunder to:
(a) waive any provision of this Agreement;
48
(b) make and receive notices and other communications pursuant to this
Agreement, including any service of process in any legal action or other
proceeding arising out of or related to this Agreement or any of the
transactions hereunder (and to that effect, any notice to be given to any
Shareholder or Shareholders hereunder need not be given to each Shareholder
separately, but rather shall be effective, as provided in Section 13.2 below,
when given to the Shareholders' Agents);
(c) settle any dispute, claim, action, suit or proceeding arising out
of or related to this Agreement on behalf of all or any of the Shareholders,
including, without limitation, by consenting to the entry of any confession of
judgment in connection therewith, as further provided in Section 11.8, below;
(d) appoint or provide for successor agents, (provided that if a
successor agent is not a Shareholder, such appointment shall be subject to the
consent of Buyer, such consent not to be unreasonably withheld);
(e) pay any expenses incurred or which may be incurred by or on behalf
of the Shareholders in connection with this Agreement;
(f) execute and deliver the Indemnification Escrow Agreement and the
Purchase Price Adjustment Escrow Agreement, waive, modify or amend any provision
thereof, and give instructions to the Escrow Agents with respect to such Escrow
Agreements;
(g) receive payments under or pursuant to this Agreement and the
Indemnification Escrow Agreement and the Purchase Price Adjustment Escrow
Agreement and make disbursements thereof to the Shareholders as contemplated by
this Agreement and the Indemnification Escrow Agreement and the Purchase Price
Adjustment Escrow Agreement;
(h) administer the provisions relating to the matters described in
Articles II, X and XII of this Agreement.
11.3 Authorization. Notwithstanding Section 11.2, in the event that the
Shareholders' Agents, with the advice of counsel, are of the opinion that they
require further authorization or advice from the Shareholders, they shall be
entitled to seek such further authorization from the Shareholders prior to
acting on their behalf. In such event, each Shareholder shall have a number of
votes equal to the number of Subject Shares owned by the Shareholder on the
Closing Date and the authorization of a majority of such number of such shares
shall be binding on all of the Shareholders and shall constitute the
authorization by the Shareholders.
11.4 Reliance. Buyer and the Escrow Agent shall be fully protected in
dealing with the Shareholders' Agents under this Agreement and may rely upon the
authority of the Shareholders' Agents to act as the agents of the Shareholders
as set forth herein. Any payment by Buyer to the Shareholders' Agents under this
Agreement, the Indemnification Escrow Agreement and the Purchase Price
Adjustment Escrow Agreement shall be considered a payment by Buyer to the
Shareholders. The appointment of the Shareholders' Agents is coupled with and
interest and shall be irrevocable by any Shareholder in any manner or for any
reason. This power of attorney shall not be affected by the death, illness,
dissolution, disability, incapacity or other inability to act of the principal
pursuant to any applicable law.
49
11.5 Acts of Shareholders' Agents. Any act of the Shareholders' Agent shall
require the act of all Shareholders' Agents. Any of the Shareholders' Agents may
resign from his capacity as a Shareholders' Agent at any time by written notice
delivered to the other Shareholder's Agents and to Buyer. If there is a vacancy
at any time in any of the positions of Shareholders' Agents for any reason, the
remaining Shareholders' Agents may act with full power and authority until such
time as the remaining Shareholders' Agent shall select a successor to fill such
vacancy. If at any time there is no person acting as a Shareholders' Agent for
any reason, new Shareholders' Agents shall be specified by a Shareholder vote
pursuant to the voting provisions of Section 11.3 (provided that if a successor
agent is not a Shareholder, such appointment shall be subject to the consent of
Buyer, such consent not to be unreasonably withheld). If the Shareholders shall
fail to so act in a timely fashion, Buyer may appoint a Shareholders' Agent from
among the Shareholders.
11.6 No Liability. The Shareholders' Agents, in their capacity as such,
shall not be liable to Buyer, the Shareholders or the Escrow Agent for any error
of judgment, or any act done or step taken or omitted by them in good faith or
for any mistake in fact or law, or for anything which they may do or refrain
from doing in connection with this Agreement, in their capacity as agent, except
for their own bad faith or willful misconduct. The Shareholders' Agents may seek
the advice of legal counsel in the event of any dispute or question as to the
construction of any of the provisions of this Agreement or their duties
hereunder and they shall incur no liability to Buyer, the Shareholders or the
Escrow Agent and shall be fully protected with respect to any action taken,
omitted or suffered by them in good faith in accordance with the opinion of such
counsel, in their capacity as agent.
11.7 Expenses. Any reasonable expenses incurred by the Shareholders' Agents
in connection with the performance of their duties under this Agreement, the
Indemnification Escrow Agreement and the Purchase Price Adjustment Escrow
Agreement shall not be the personal obligations of the Shareholders' Agents but
shall be payable: (i) first, out of distributions to the Shareholders of the
Indemnification Escrow Agreement and the Purchase Price Adjustment Escrow
Agreement and earnings thereon, but only to the extent permitted by the
provisions of such Escrow Agreements; and (ii) thereafter, by the Shareholders
based on each Shareholder's percentage share of such expenses based upon the
number of Subject Shares owned by such Shareholder. The Shareholders' Agents may
from time to time submit invoices to the Shareholders covering such expenses
and, upon the request of any Shareholder, shall provide such Shareholder with an
accounting of all expenses paid out of distributions pursuant to subsection (i)
(of this Section 11.7)
11.8 Claims, Actions or Suits. Any claim, action, suit or other proceeding,
whether in law or equity, to enforce any right, benefit or remedy granted to the
Shareholders under this Agreement relating to a matter within the scope of the
Shareholders' Agents' authority specified in Section 11.1 may be asserted,
brought, prosecuted or maintained only by the Shareholders' Agents, and the
Shareholders hereby irrevocably waive any right to enforce such rights in their
own name. The Shareholders consent and agree that any claim, action, suit or
other proceeding, whether in law or equity, to enforce any right, benefit or
remedy granted to any Buyer Indemnitee under this Agreement relating to a matter
within the scope of the Shareholders' Agents' authority specified in Section
11.1, including, without limitation, any Buyer Indemnity Claim asserted under
Section 10.1, may be asserted, brought, prosecuted or maintained by any
50
Buyer Indemnitee against the Shareholders by service of process on the
Shareholders' Agents and without the necessity of serving process on, or
otherwise joining or naming as a defendant in such claim, action, suit or other
proceeding, any Shareholders. For this purpose, each Shareholder hereby
irrevocably stipulates and agrees that the Shareholders' Agents are proper party
defendants to represent its interests in any such proceeding and to appear on
its behalf for all purposes therein, and that service of process upon the
Shareholders' Agents shall be effective to bind such Shareholder for all
purposes of any such proceeding. Each Shareholder hereby irrevocably waives any
and all rights it may have to object to jurisdiction or venue in any proceeding
in which service of process is served upon the Shareholders' Agents on such
Shareholder's behalf, in each case as further provided in Section 13.16 below.
With respect to any matter within the scope of authority granted to the
Shareholders' Agents under this Section 11.8, the Shareholder shall be bound by
any determination in favor of or against the Shareholders' Agents or the terms
of any settlement or release to which the Shareholders' Agents shall become
parties, including, without limitation, any confession of judgment or other
stipulation or settlement granted or entered into by the Shareholders' Agents on
their behalf.
ARTICLE XII
Miscellaneous Provisions
12.1 Dispute. As used in this Agreement, "Dispute" shall: (a) mean any
dispute or disagreement between Buyer (for itself or on behalf of, following the
Closing, the Company or any other affiliate of Buyer) and the Shareholders or
the Shareholders' Agents concerning the interpretation of this Agreement, the
validity of this Agreement, any breach or alleged breach by any party under this
Agreement or any other matter relating in any way to this Agreement; (b) exclude
any dispute or disagreement between Buyer and the Shareholders concerning the
calculation of the Purchase Price which shall be resolved in accordance with the
provisions of Section 2.3(g) of this Agreement; and (c) exclude any breach or
alleged breach of and any proceeding to enforce, the Non-Competition Agreements.
12.2 Process. If a Dispute arises, the parties to the Dispute shall follow
the procedures specified in Sections 12.3, 12.4 and 12.5 of this Agreement.
12.3 Negotiations. The parties shall promptly attempt to resolve any
Dispute by negotiations between the Buyer and the Shareholders' Agents. Either
the Buyer or Shareholders' Agents may give the other party written notice of any
Dispute not resolved in the normal course of business. The Buyer and the
Shareholders' Agents shall meet at a mutually acceptable time and place within
ten (10) calendar days after delivery of such notice, and thereafter as often as
they reasonably deem necessary, to exchange relevant information and to attempt
to resolve the Dispute. If the Dispute has not been resolved by these persons
within thirty (30) calendar days of the disputing party's notice, or if the
parties fail to meet within such ten (10) calendar days, either the Buyer or the
Shareholders' Agents may initiate mediation as provided in Section 12.4 of this
Agreement. If a negotiator intends to be accompanied at a meeting by legal
counsel, the other negotiator shall be given reasonable notice of such intention
and may also be accompanied by legal counsel.
12.4 Mediation. If the Dispute is not resolved by negotiations pursuant to
Section 12.3 of this Agreement, the Buyer and the Shareholders' Agents shall
attempt in good faith to resolve
51
any such Dispute by mediation. Either the Buyer or the Shareholders' Agents may
initiate a mediation proceeding by a request in writing to the other party (the
"Request"), and both parties will then be obligated to engage in a mediation.
The proceeding will be conducted in accordance with the then current Center for
Public Resources ("CPR") Model Procedure for Mediation of Business Disputes,
with the following exceptions:
(a) if the parties have not agreed within thirty (30) calendar days of
the Request on the selection of a mediator willing to serve, CPR, upon the
request of either the Buyer or the Shareholders' Agents, shall appoint a member
of the CPR Panels of Neutrals as the mediator, and
(b) efforts to reach a settlement will continue until the conclusion
of the proceedings, which shall be deemed to occur upon the earliest of the date
that: (i) a written settlement is reached: or (ii) the mediator concludes and
informs the parties in writing that further efforts would not be useful; or
(iii) the Buyer and the Shareholders' Agents agree in writing that in impasse
has been reached; or (iv) is sixty (60) calendar days after the Request and none
of the events specified in Section 12.4(b)(i), (ii) or (iii) have occurred. No
party may withdraw before the conclusion of the proceeding.
12.5 Submission to Adjudication. If a Dispute is not resolved by
negotiation pursuant to Section 12.3 of this Agreement or by mediation pursuant
to Section 12.4 of this Agreement within 100 calendar days after initiation of
the negotiation process pursuant to Section 12.3 of this Agreement, such Dispute
and any other claims arising out of or relating to this Agreement may be heard,
adjudicated and determined in an action or proceeding filed in any state or
federal court sitting in Waukesha or Washington County, Wisconsin or the federal
courts for the Eastern District of Wisconsin.
12.6 General.
(a) Provisional Remedies. At any time during the procedures specified
in Sections 12.3 and 12.4 of this Agreement, a party may seek a preliminary
injunction or other provisional judicial relief if in its judgment such action
is necessary to avoid irreparable damage or to preserve the status quo. Despite
such action, the parties will continue to participate in good faith in the
procedures specified in this Article XII of this Agreement.
(b) Tolling Statute of Limitations. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled while the
procedures specified in this Article XII of this Agreement are pending. The
parties will take such action, if any, as is required to effectuate such
tolling.
(c) Performance to Continue. Each Party is required to continue to
perform its obligations under this Agreement pending final resolution of any
Dispute.
(d) Extension of Deadlines. All deadlines specified in this Article
XII of this Agreement may be extended by mutual agreement between the Buyer and
the Shareholders' Agents.
52
(e) Enforcement. The parties regard the obligations in this Article
XII of this Agreement to constitute an essential provision of this Agreement and
one that is legally binding on them. In case of a violation of the obligations
in this Article XII of this Agreement by either the Buyer or the Shareholders'
Agents, the other party may bring an action to seek enforcement of such
obligations in any court of law having jurisdiction thereof.
(f) Costs. The parties to the Dispute shall pay: (i) their own costs,
fees, and expenses incurred in connection with the application of the provisions
of this Article XII of this Agreement, and (ii) fifty percent (50%) of the fees
and expenses of CPR and the mediator in connection with the application of the
provisions of Section 12.4 of this Agreement.
(g) Replacement. If CPR is no longer in business or is unable or
refuses or declines to act to continue to act under this Article XII of this
Agreement for any reason, then the functions specified in the Article XII of
this Agreement to be performed by CPR shall be performed by another person
engaged in a business equivalent to that conducted by CPR as is agreed to by the
Buyer and the Shareholders' Agents (the "Replacement"). If the Buyer and the
Shareholders' Agents cannot agree on the identity of the Replacement within ten
(10) calendar days after a Request, the Replacement shall be selected by the
Chief Judge of the United States District Court for the Eastern District of
Wisconsin upon application by any party hereto. If a replacement is selected by
either means, this Article XII shall be deemed appropriately amended to refer to
such Replacement.
ARTICLE XIII
Miscellaneous Provisions
13.1 Waiver of Compliance. Any failure by any of the parties hereto to
comply with any obligation, covenant or agreement or to fulfill any condition
herein may be waived only by a written notice from the party entitled to the
benefits thereof. No failure by any party hereto to exercise, and no delay in
exercising, any right hereunder, shall operate as a waiver thereof, nor shall
any single or partial exercise of any right hereunder preclude any other or
future exercise of that right or any other right hereunder by that party.
13.2 Notices. All notices and other communications required or permitted
hereunder shall be deemed given if given in writing and delivered personally, by
commercial delivery service, by courier or by facsimile transmission, or mailed
by registered or certified mail (return receipt requested) fax, or postage fees
prepaid, to the party to receive the same at its respective address set forth
below, or at such other address as may from time to time be designated by such
party to the others in accordance with this Section (provided, that written
notice given in any other manner shall nonetheless be effective upon its actual
receipt by the party entitled to receive it):
If to the Shareholders' George E. Prescott
Agents, to: 806 Crestview Dr.
West Bend, WI 53095
with copies to: Quarles & Brady, LLP
53
411 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Patrick M. Ryan
Facsimile: (414) 271-3552
If to Buyer to: Roundy's, Inc.
23000 Roundy Drive
Pewaukee, WI 53072
Attention: Edward G. Kitz,
Vice President, Secretary and Treasurer
Facsimile: (262) 953-7989
with a copy to: Whyte Hirschboeck Dudek S.C.
111 East Wisconsin Avenue, Suite 2100
Milwaukee, WI 53202
Attention: John F. Emanuel
Facsimile: (414) 223-5000
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the acknowledgment of receipt issued with respect
thereto by the applicable postal authorities or the signed acknowledgment of
receipt of the person to whom such notice or communication shall have been
personally delivered, or other evidence of transmission.
13.3 Expenses. Each party hereto shall bear and pay its own expenses (and,
in the case of the Shareholders, the Company's expenses prior to the Closing) in
connection with the negotiation, execution and delivery of this Agreement and
the transactions contemplated hereby, whether or not the Closing occurs
hereunder. Without limiting the generality of the foregoing, the Shareholders
will be solely responsible for the payment of any fees or commissions due to any
investment banker, financial advisor, attorneys or accountants or the like
retained by the Company and/or the Shareholders, except to the extent such
expenses are included in the "Expenses" as defined in Section 2.1, and thereby
taken into account in determining the Purchase Price.
13.4 Public Announcements. No party hereto will issue any report, statement
or release to the general public, to the trade, to the general or trade press,
or to any third party (other than its advisors and representatives in connection
with the transactions contemplated hereby), relating to this Agreement and the
transactions contemplated hereby, except (i) as may be mutually agreed by the
parties hereto, (ii) as may be required by applicable securities laws, and (iii)
as may reasonably be deemed appropriate by Buyer for communications to its
lenders or investors.
13.5 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns and, in the case of the Shareholders, their heirs, beneficiaries,
remaindermen, personal representatives, executors, administrators, fiduciaries
and permitted assigns.
54
13.6 Assignment. Neither this Agreement nor any rights, duties or
obligations shall be assigned by any party hereto without the prior hereto
written consent of the other parties, and any attempted assignment or transfer
without such prior written consent shall be null and void.
13.7 No Third Party Beneficiary. Neither this Agreement nor any provision
hereof, nor any statement, schedule, certificate, instrument or other document
delivered or to be delivered pursuant hereto, nor any agreement entered into or
to be entered into pursuant hereto or any provision thereof, is intended to
create any right, claim or remedy in favor of, or impose any obligation upon,
any person or entity other than the parties hereto and their respective
successors and permitted assigns, and in the case of the Shareholders, their
heirs, beneficiaries, personal representatives, executors and permitted assigns.
13.8 Captions and Paragraph Headings. Captions and paragraph headings used
herein are for convenience only and are not intended to be a part of this
Agreement and shall not be used in construing it.
13.9 Entire Agreement. This Agreement embodies the entire agreement of the
parties pertaining to the subject matter hereof and supersedes all prior or
contemporaneous agreements or understandings, written or oral, of the parties
relating to the subject matter hereof.
13.10 Modifications. This Agreement may be amended or modified only by an
instrument signed by the parties or their duly authorized agents.
13.11 Severability. The invalidity, illegality or unenforceability for any
reason of any one or more provisions of this Agreement shall not affect the
validity, legality or enforceability of the remainder of this Agreement.
13.12 Definition of Knowledge. With respect to the representations and
warranties of the Shareholders set forth herein which are made subject to the
qualification "to the Knowledge of the Shareholders," or words of similar
import, the Shareholders shall be deemed to have knowledge of any matter, fact,
or thing that is, as of the date hereof or the Closing Date, actually known to
George E. Prescott, Judith Prescott, Charles Benjamin or Robert Melcher, in each
case after "due inquiry." For this purpose, "due inquiry" shall mean a review of
the accounting and financial records and books of account of the Company; a
review of the Company's regularly maintained files and records relating to its
assets, liabilities, and business; a review of the minute books and stock
records of the Company; a visual inspection of the Company's Real Property and
tangible personal property; an inquiry of the Company's Store Managers, General
Managers, Everix Bakery Manager, Human Resources Director, and Controller, and
an inquiry of the attorneys, accountants, and similar professionals retained or
engaged by the Company or any Shareholder at any time within the preceding two
(2) years.
13.13 Definition of Material Adverse Effect and Material Adverse Change.
The term "Material Adverse Effect" as used in this Agreement shall mean an
effect that is materially adverse to the business, financial condition,
prospects or results of operations of the Company and the Subsidiaries taken as
a whole; provided, that any impairment of the Company's ability to conduct
continuously any material aspect of its business at any one or at more than one
of its retail locations (other than the Johnson Street location) will be deemed
to constitute a Material
55
Adverse Effect. The term "Material Adverse Change" means a change or event that
gives rise to a Material Adverse Effect.
13.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.15 Governing Law. The parties hereby agree that this Agreement, and the
respective rights, duties and obligations of the parties hereunder, shall be
governed by and construed in accordance with the internal laws of the State of
Wisconsin, without giving effect to principles of conflicts of law thereunder.
13.16 Exclusive Jurisdiction. Each of the parties hereby (a) irrevocably
consents and agrees that any legal or equitable action or proceeding arising
under or in connection with this Agreement shall be brought exclusively in any
state court within Washington or Waukesha County, State of Wisconsin, or the
Federal District Court for the Eastern District of Wisconsin and any court to
which an appeal may be taken in any such litigation, and (b) by execution and
delivery of this Agreement, irrevocably submits to and accepts with respect to
any such action or proceeding, for such party's heirs, beneficiaries
remaindermen, personal representatives, executors, administrators, fiduciaries
and permitted assigns and in respect of such party's properties and assets,
generally and unconditionally, the jurisdiction of the aforesaid courts, and
irrevocably waives any and all rights such party may now or hereafter have to
object to such jurisdiction under the constitution or laws of the State of
Wisconsin or the Constitution or laws of the United States of America or
otherwise. Each of the Shareholders hereby irrevocably undertakes to designate
and appoint, and hereby does designate and appoint, the Shareholder's Agents, as
such Shareholder's authorized agent in Wisconsin to accept and acknowledge on
such Shareholder's behalf service of any and all process which may be served in
any such litigation in any such court, and agrees that service of process upon
such agent shall be deemed in every respective effective service of process upon
such party in any such litigation and shall be taken and held to be valid
personal service upon such party.
13.17 Directors, Officers and Fiduciary Indemnification. For a period of at
least eight (8) years after the Closing Date, to the extent permitted by
applicable law, the Buyer will, and will cause the Company to, maintain in
effect bylaw provisions and articles of incorporation provisions indemnifying
present or former directors and officers of the Company and its Subsidiaries who
serve or served as such at or prior to the Closing Date and former, present or
future fiduciaries of any employee benefit plan of the Company who serve or
served as such at or prior to the Closing Date no less favorable than such
articles of incorporation or bylaws of the Company as are in effect on the
Closing Date.
13.18 Acknowledgment Regarding Trustee Status. The Parties acknowledge and
agree that, to the extent a Person is executing and delivering this Agreement as
a trustee of a trust, such Person is executing and delivering this Agreement
solely in such Person's capacity as a Trustee and shall have no personal
liability in connection with the execution, delivery and performance of this
Agreement.
56
13.19 Specific Performance. The Parties agree that the assets and business
of the Company as a going concern constitute unique property. There is no
adequate remedy at law for the damage which any Party might sustain for failure
of the other Parties to consummate the transactions contemplated by this
Agreement and, accordingly, each Party shall be entitled, at its option, to the
remedy of specific performance to enforce the consummation of the transactions
described in this Agreement.
13.20 Disclosure Schedule.
(a) Disclosure Schedule. Contemporaneously with the execution and
delivery of this Agreement, the Shareholders' Agents, on behalf of Shareholders,
are delivering to Buyer the Disclosure Schedule. The Disclosure Schedule is
deemed to constitute an integral part of this Agreement and all representations
and warranties of the Shareholders are made subject to the exceptions which are
noted in the Disclosure Schedule and in any other schedules attached to this
Agreement, as supplemented from time to time by the Shareholders hereafter and
prior to the Closing Date (to the extent expressly permitted hereunder). The
inclusion of any item in the Disclosure Schedule shall constitute disclosure for
all purposes under this Agreement, and shall not be construed as an indication
of the materiality or lack of materiality of such item. The failure to disclose
a matter or item in one section of the Disclosure Schedule shall not constitute
a breach of any representation or warranty made in this Agreement so long as
such matter or item is fairly disclosed elsewhere in the Disclosure Schedule or
elsewhere in this Agreement or in any other schedule attached to this Agreement.
(b) Updates. Prior to the Closing Date, the Shareholders may update
and supplement the Disclosure Schedule from time to time by written notice from
the Shareholders' Agents to Buyer, but only with respect to events occurring or
circumstances arising between the execution of this Agreement and the Closing.
If requested by Buyer, the Shareholders' Agents shall meet and discuss with
Buyer any change in the Disclosure Schedule made by the Shareholders which has
had or will have, in the reasonable judgment of Buyer, a Material Adverse Effect
(a "Disclosure Schedule Change"). If the parties cannot resolve any differences
regarding the Disclosure Schedule Change within a reasonable period of time (not
to exceed ten (10) calendar days), Buyer may terminate this Agreement by written
notice from Buyer to the Shareholders' Agents given within five (5) calendar
days after the expiration of such ten-day period.
13.21 Access; Retention of Records. After the Closing Date for a period of
six (6) years thereafter, the Buyer shall cause the Company to retain all books
and records relating to tax, accounting, legal and similar matters pertaining to
the Company's business prior to the Closing Date, and to make such books and
records available to the Shareholders on the following conditions: (a) at the
request of the Shareholders' Agents; (b) upon reasonable advance notice to the
Company at reasonable times taking into account the business needs of the
Company; and (c) for purposes reasonably related to the Shareholder's ownership
of the Company prior to the Closing Date. The Shareholder requesting such access
shall pay all reasonable out-of-pocket expenses, excluding wages and salaries of
its own personnel, incurred by the Company in connection with the Company's
compliance with this Section 13.21.
57
13.22 Attorneys' Fees. In the event of litigation between the parties
hereto to enforce any provision of this Agreement, or for breach thereof, the
party or parties obtaining a final nonappeable judgment in their favor shall be
entitled to an award of their reasonable attorneys' fees and other expenses
incurred in prosecuting or defending such action, as the case may be.
[SIGNATURE PAGE FOLLOWS]
58
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first above written.
ROUNDY'S, INC. SHAREHOLDERS:
By: /s/ Edward G. Kitz /s/ George E. Prescott
----------------------------- -------------------------------------------
Edward G. Kitz, George E. Prescott
Vice President
Secretary and Treasurer
/s/ Judith A. Prescott
-------------------------------------------
Judith A. Prescott
Supermarket I Trust f/b/o Cheryl Miller
By: /s/ Charles F. Benjamin
---------------------------------------
Supermarket II Trust f/b/o Matthew Prescott
By: /s/ Charles F. Benjamin
---------------------------------------
Supermarket III Trust f/b/o Patrick Prescott
By: /s/ Charles F. Benjamin
---------------------------------------
Supermarket A Trust f/b/o Cheryl Miller
By: /s/ Charles F. Benjamin
---------------------------------------
Supermarket B Trust f/b/o Matthew Prescott
By: /s/ Charles F. Benjamin
---------------------------------------
Supermarket C Trust f/b/o Patrick Prescott
By: /s/ Charles F. Benjamin
---------------------------------------
/s/ Charles Benjamin
-------------------------------------------
Charles Benjamin
/s/ Ralph Prescott
-------------------------------------------
Ralph Prescott
59
LIST OF OMITTED EXHIBITS AND SCHEDULES TO STOCK PURCHASE AGREEMENT
BY AND AMONG ROUNDY'S, INC. AND THE SHAREHOLDERS OF PRESCOTT'S
SUPERMARKETS, INC. DATED AS OF DECEMBER 10, 2002
SCHEDULES
4.1 Corporate Organization
4.2 Authorization; No Violations
4.3 Title to the Subject Shares
4.4 Capitalization of the Company
4.5 Subsidiaries and Affiliates
4.6 Financial Statements
4.7 Absence of Undisclosed Liabilities
4.8 Absence of Certain Changes or Events
4.9 Legal Proceedings.
4.10 Taxes
4.11 Title to Properties and Related Matters
4.12 Computer Software
4.13 Licenses, Permits, Authorizations and Consents
4.14 Intellectual Property
4.15 Contracts
4.16 Employees
4.17 Benefit Plans
4.18 Compliance with Applicable Law
4.19 Ability to Conduct the Business
4.20 Material Suppliers
4.21 Inventories
4.22 Accounts Receivable
4.23 Insurance
4.24 Bank Accounts; Powers of Attorney
4.25 Minute Books, etc.
4.26 Books and Records
4.27 Transactions with Related Parties.
4.28 Environmental Matters
4.29 Disclosure
4.30 Reliance
EXHIBITS
Exhibit A Shareholder's Counsel's Legal Opinion
Exhibit B Noncompetition Agreement
Exhibit C Indemnification Escrow Agreement
Exhibit D Purchase Price Adjustment Escrow Agreement
Exhibit E Buyer's Counsel's Legal Opinion
Exhibit F Allocation of Purchase Price
Exhibit G Landlord Estoppel Certificate
Exhibit H Subordination, Nondisturbance and Attornment Agreement
THE ABOVE-DESCRIBED EXHIBITS AND SCHEDULES ARE OMITTED FROM THIS FILING
PURSUANT TO ITEM 601(B)(2) OF REGULATION S-K. THE REGISTRANT, ROUNDY'S, INC.,
HEREBY AGREES TO FURNISH A COPY OF SUCH EXHIBITS AND SCHEDULES TO THE COMMISSION
UPON REQUEST.