UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 23, 1998
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Dakota Growers Pasta Company
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(Exact name of registrant as specified in its charter)
North Dakota 33-99834 45-0423511
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(State or other jurisdiction (Commission IRS Employer
of incorporation) File Number) Identification No.)
One Pasta Avenue, P.O. Box 21, Carrington, North Dakota 58421
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (701) 652-2855
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Not Applicable
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(Former name or former address, if changed since last report.)
Item 2. Acquisition or Disposition of Assets.
On February 23, 1998, Dakota Growers Pasta Company (the "Company")
acquired all of the issued and outstanding shares of common stock of Primo
Piatto, Inc. ("Primo"). Primo was a closely-held Minnesota corporation owned
by a total of seventeen shareholders. The shares of Primo were acquired for
an aggregate consideration consisting of (i) a cash payment of $11,000,000 and
(ii) the issuance of a total of 30,000 shares of the Company's convertible
preferred stock. (Each such share is convertible into ten (10) shares of the
Company's common stock.) In the event that Primo's "Net Debt" (defined as the
amount by which Primo's Long-term Debt exceeds its Net Working Capital as of
February 23, 1998) is determined to have been less than $8,000,000, the cash
portion of the purchase price shall be increased by such difference; in the
event that the "Net Debt" is determined to be greater than $8,000,000, the
total number of shares of convertible preferred stock issued by the Company
will be reduced by one share for each $160.00 of Net Debt in excess of
$8,000,000.
Primo's physical assets consist of two pasta production facilities and a
distribution center located in the Minneapolis, Minnesota metropolitan area.
At those facilities, Primo produces a range of pasta products for distribution
under a variety of retail private labels. Primo does not distribute any
products under brands of its own. The larger of the two production
facilities, located in New Hope, Minnesota, contains 6 production lines,
capable of producing approximately 170,000 of pasta per year. The smaller
production facility, located in Minneapolis, Minnesota, contains 4 production
lines and is capable of producing approximately 30,000 of pasta per year. The
distribution center is also located in New Hope Minnesota and is a 100,000
square foot facility. The Company intends to operate the newly acquired
facilities as part of its own business of producing pasta for private label
distribution.
Prior to the completion of the Company's purchase of the stock of Primo,
the Company and Primo had participated in a "co-packing" arrangement,
resulting from arms'-length negotiations, under which Primo produced modest
quantities of pasta for distribution by the Company.
The acquisition was funded by a loan from the St. Paul Bank for
Cooperatives, in a total amount of approximately $29,000,000. In addition to
use of the proceeds of that loan to pay the cash consideration described
above, the Company used approximately $14,000,000 to refinance certain debt
arrangements to which Primo was a party. The remaining portion of the loan
proceeds was used for other Company purposes, including capital expenditures
at the Company's original pasta production plant in Carrington, North Dakota.
The loan arrangement carries quarterly debt payments and a seven (7) year
repayment term. The interest rate on the loan is variable but may be fixed by
the Company in its discretion; the interest rate is currently 8.14% per annum.
Item 7. Financial Statements and Exhibits.
(a) FINANCIAL STATEMENTS OF ACQUIRED BUSINESS. Financial statements
for Primo Piatto are not included with this filing on Form 8-K. Pursuant to
the requirements of this item, such financial statements will be filed by
amendment no later than May 8, 1998.
(b) PRO FORMA FINANCIAL INFORMATION. Pro forma financial information
reflecting the acquisition of Primo Piatto is not included with this filing on
Form 8-K. Pursuant to the requirements of this item, such pro forma financial
information will be filed by amendment no later than May 8, 1998.
(c) EXHIBITS
Exhibit 2 Stock Purchase Agreement, dated February 20, 1998, to be
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effective February 23, 1998, between and among the Company
and the various shareholders of Primo Piatto, Inc.
Pursuant to Item 601(b)(2), the Company hereby undertakes
to furnish supplementally to the Commission a copy of any
exhibits or schedules omitted from this filing.
Exhibit 10.1 Loan Agreement in the aggregate amount of $29,000,000,
dated February 13, 1998, between the Company and the St.
Paul Bank for Cooperatives.
Exhibit 10.2 Nonnegotiable Note of Dakota Growers Pasta Company in the
Principal amount of $29,000,000.00 dated February 13, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dakota Growers Pasta Company
Date: March 10, 1998 /s/ Timothy J. Dodd
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Timothy J. Dodd (President and
General Manager, and Principal
Executive Officer)
Date: March 10, 1998 /s/ Thomas P. Friezen
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Thomas P. Friezen (Vice President,
Finance and Principal Financial
and Accounting Officer)
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EXHIBIT 2
STOCK PURCHASE AGREEMENT
This Agreement ("Agreement") is entered into this 20th day of February,
1998, by and among Dakota Growers Pasta Company, a North Dakota cooperative
association ("Purchaser"), Primo Piatto, Inc., a Minnesota corporation
("Corporation") and all of the shareholders of Corporation, namely Peter Lytle
and Vivian Lezcano Lytle, Patrick Lytle, John C. Lawrie, Stuart Lawrie,
Christy Lawrie, Susan M. Clemens, Jim Cochran, Radwan Ibrahim, Marwa Ibrahim,
Mona Ibrahim, Ola Ibrahim, Eldon Buschbom, Mike Cunningham, Levon Perkins,
Damien L. Bass, Paul Easterday and Kenneth Zigrino (collectively referred to
herein as "Sellers" or "Shareholders").
RECITALS
A. The Corporation presently has outstanding a single class of common
stock ("Shares"), of which Four Million One Hundred Fifty Thousand (4,150,000)
shares have been issued to the Shareholders as follows:
1. That Shareholders Peter Lytle, Vivian Lezcano Lytle, and
Patrick Lytle, whose mailing address is 2065 Webber Hills Road, Wayzata,
Minnesota 55391, own in the aggregate Four Hundred Eighteen Thousand Seven
Hundred Fifty (418,750) Shares;
2. That Shareholders John C. Lawrie, Stuart Lawrie and Christy
Lawrie, whose mailing address is 13960 90th Place North, Maple Grove,
Minnesota 55369 own in the aggregate Six Hundred Seventy-Five Thousand One
Hundred Forty-One (675,141) Shares;
3. That Shareholder Susan M. Clemens, whose mailing address is
9400 Old Cedar Ave. South, Bloomington, MN 55425, owns Four Hundred Sixty-Six
Thousand Nine Hundred Seventeen (466,917) Shares;
4. That Shareholder Jim Cochran, whose mailing address is 1438
Pondview Circle, Lino Lakes, Minnesota 55038, owns Five Hundred Eighty
Thousand Four Hundred Four (580,404) Shares;
5. That Shareholders Radwan Ibrahim, Marwa Ibrahim, Mona
Ibrahim and Ola Ibrahim, whose mailing address is 3715 Independence Avenue
North, New Hope, Minnesota 55427, own in the aggregate Five Hundred Sixty
Thousand One Hundred Three (560,103) Shares;
6. That Shareholder Eldon Buschbom, whose mailing address is
16927 Stodola Road, Minnetonka, Minnesota 55345, owns Three Hundred Ninety
Thousand Nine Hundred Thirty (390,930) Shares;
7. That Shareholder Mike Cunningham, whose mailing address is
1328 Pondview Court, Shakopee, Minnesota 55379, owns Three Hundred Eighty-Four
Thousand One Hundred Sixty-Four (384,164) Shares;
8. That Shareholders Levon Perkins and Damien L. Bass, whose
mailing address is 7124 Douglas Drive North, Brooklyn Park, Minnesota 55429,
own in the aggregate Three Hundred Eighty-Four Thousand One Hundred Sixty-Four
(384,164) Shares;
9. That Shareholder Paul Easterday, whose mailing address is
1414 Sherman Lake Road, Lino Lakes, Minnesota 55038, owns One Hundred Eighty-
Seven Thousand Nine Hundred Twenty-Three (187,923) Shares; and,
10. That Shareholder Kenneth Zigrino, whose mailing address is
2360 Jordan Avenue, Minnetonka, Minnesota 55305, owns One Hundred One Thousand
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Five Hundred Four (101,504) Shares.
B. Sellers desire to sell, and Purchaser desires to purchase, all of
the outstanding Shares of the Corporation for the consideration and on the
terms set forth in this Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
herein specified. Certain other capitalized terms used herein are defined
elsewhere in this Agreement.
1.1 "Agreement" shall mean this Stock Purchase Agreement among
Sellers, Purchaser and Corporation.
1.2 "Closing Documents" shall mean all of the documents to be executed
and delivered at closing as set forth in Sections 8.3 and 9.6.
1.3 "Contract" shall mean any agreement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or
implied) that is legally binding.
1.4 "Corporate Assets" shall collectively mean the following assets
used in the Corporation's operations:
(a) "Accounts Receivable" shall mean those accounts receivable shown
on the financial records of Corporation as of the Time of Closing, with no
further adjustment for bad debts.
(b) "Equipment and Fixtures" shall mean the fixtures and equipment
which are currently used in the operation of the Corporation and which are
generally listed on Exhibit "D".
(c) "General Intangibles" and "Intellectual Property" shall mean the
trade name, "Primo Piatto", and the customer records, trade secrets and other
intellectual property and proprietary information used in the operation of the
Corporation, and which are listed on Exhibit "F".
(d) "Inventory" shall mean the raw materials, work in progress,
finished goods, packaging materials and other supplies considered to be
inventory, as determined by a physical count and as shown on the financial
records of the Corporation as of the Time of Closing.
(e) "Real Estate" shall mean the Corporation's real estate
described in Exhibit "C", together with all improvements, hereditaments and
appurtenances.
(f) "Spare Parts Inventory" shall mean the spare parts inventory owned
by the Corporation which is generally listed on Exhibit "E".
1.5 "Corporation" shall mean Primo Piatto, Inc., a corporation
organized under the laws of the State of Minnesota, whose mailing address and
street address is 7300 36th Avenue North, New Hope, Minnesota 55427.
1.6 "Environment" shall mean soil, land surface or subsurface strata,
surface waters (including navigable waters, ocean waters, streams, ponds,
drainage basins, and wetlands), groundwaters, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life, and any
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other environmental medium or natural resource.
1.7 "Environmental, Health, and Safety Liabilities" shall mean any
cost, damages, expense, liability, obligation, or other responsibility arising
from or under Environmental Law or Occupational Safety and Health Law and
consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any governmental body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial," and "response action," include
the types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section
9601 et seq., as amended ("CERCLA").
1.8 "Environmental Law" shall mean any Legal Requirement that requires
or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting self-
appointed representatives of the public interest to recover for injuries done
to public assets.
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1.9 "ERISA" shall mean the Employee Retirement Income Security Act of
1974 or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
1.10 "Equity Stock" shall mean the equity stock of the Purchaser as
described in its Articles of Association and owned by its member growers.
1.11 "Financial Statements" shall have the meaning set forth in Section
3.6.
1.12 "GAAP" shall mean generally accepted United States accounting
principles, applied on a basis consistent with the basis on which the
Corporation's financial statements have been prepared by the Corporation's
accounting firm.
1.13 "Hazardous Activity" shall mean the distribution, generation,
handling, importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment, or use
(including any withdrawal or other use of groundwater) of Hazardous Materials
in, on, under, about, or from the facilities or any part thereof into the
Environment, and any other act, business, operation, or thing that increases
the danger, or risk of danger, or poses an unreasonable risk of harm to
persons or property on or off the facilities, or that may affect the value of
the facilities of the Corporation.
1.14 "Hazardous Materials" shall mean any waste or other substance that
is listed, defined, designated, or classified as, or otherwise determined to
be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution
thereof, and specifically including petroleum and all derivatives thereof or
synthetic substitutes therefor and asbestos or asbestos-containing materials.
1.15 "HSBC" shall mean HSBC Business Loans, Inc., the primary lender to
the Corporation, including without limitation the affiliates of HSBC, such as
Marine Midland Bank and the Hong Kong Shanghai Bank.
1.16 "HSBC Loan Documents" shall mean the Corporation's Loan Agreement
and related loan documents dated on or about August 15, 1997, with HSBC, and
any amendments thereto, the receipt of which is acknowledged by Purchaser.
1.17 "Legal Requirement" shall mean any federal, state, local,
administrative or foreign order, constitution, law, ordinance, principle of
common law or regulation.
1.18 "Long-Term Debt" shall mean all of the long term debt (and any
current portion of such debt) of the Corporation as determined as of the Time
of Closing in accordance with GAAP including but not limited to the debt owed
to HSBC (the "HSBC Loan") and to Archer Daniels Midland Co. ("ADM")(the "ADM
Loan").
1.19 "Net Debt" shall mean the amount by which the Corporation's Long-
Term Debt exceeds its Net Working Capital at the Time of Closing.
1.20 "Net Working Capital" shall mean the difference between current
assets and current liabilities (excluding the current position of Long-Term
Debt) as determined at the Time of Closing in accordance with GAAP; provided,
that Inventory shall be valued at its net realizable value in accordance with
GAAP for agricultural cooperatives.
1.21 "Occupational Safety and Health Law" shall mean any Legal
Requirement designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards.
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1.22 "Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or governmental body.
1.23 "Percentage Ownership" shall mean each Seller's percentage equity
ownership in the Corporation as calculated by dividing such Seller's number of
shares owned by all Shares outstanding as of the Time of Closing.
1.24 "Preferred Stock" shall mean the Purchaser's series D non-voting
convertible preferred stock, par value of $100.00 per share, each share of
which shall contain and be subject to the following rights, preferences, terms
and conditions:
(a) CONVERSION RIGHTS; DIVIDENDS; OTHER RIGHTS. Each share of the
Preferred Stock shall be convertible into ten (10) shares of the Purchaser's
Equity Stock. Said conversion ratio shall be proportionately adjusted in the
event Purchaser shall at any time in the future increase or decrease the
number of shares of its Equity Stock outstanding without the payment of
consideration by or to Purchaser or Purchaser's members (e.g., by stock split,
stock dividend, or other similar action or reverse stock split or other share
combination). In addition, in the event Purchaser at any time in the future
undergoes a capital reorganization or other similar event in which the Equity
Stock is replaced by or converted into other securities or interests or in the
event of a merger, consolidation, conversion to another legal entity, or other
similar event in which other securities (either alone or together with other
consideration) are received in exchange for the Equity Stock, then the Sellers
shall receive the same consideration as other Equity Stockholders upon such
event (as if the Preferred Stock were converted prior to such event), or the
Preferred Stock shall be proportionately convertible into such other
securities or interests. Purchaser shall provide to Sellers no less than
thirty (30) days written notice of any such event. In addition, the Preferred
Stock shall have the registration rights set forth on Schedule 2.
Each share of the Preferred Stock shall receive payment of non-
cumulative dividends at a rate of 6% per annum calculated on the par value of
the Preferred Stock. Purchaser agrees that such dividends shall be declared
and paid for each year prior to any patronage dividend or other dividends or
distributions (other than redemption of unit retains) being paid to the
members of Purchaser. Moreover, the dividends shall be paid prior to any
dividends being paid on Series B of the Purchaser's preferred stock. Said
dividends shall be payable annually to the extent Purchaser has sufficient
earnings. Purchaser agrees that in the future it will not issue any securities
(other than straight debt) that have preference on payment of dividends or
liquidation rights over the Preferred Stock. If, as a result of limitations
placed by law, Purchaser is unable to pay such dividends for a particular
year, then each Seller shall at his or her sole discretion have such unpaid
dividends credited toward any loan advanced by the Purchaser for the Seller's
tax payments pursuant to Section 2.4. Each share of the Preferred Stock shall
carry such other rights and preferences (including priority in liquidation) as
may be established or provided by the Purchaser's Articles of Association,
applicable law, this Agreement, and as set forth on Schedule 2 attached hereto
and by this reference incorporated herein. There shall be no change to the
terms, conditions, rights or preferences of the Preferred Stock of a Seller
without the express written consent of that Seller. The certificates for the
Preferred Stock shall be in the form attached hereto as Exhibit "A".
(b) TRANSFER OF PREFERRED STOCK. The Preferred Stock may be
transferred in resales or other transfers that (in the opinion of counsel for
the transferring Seller) qualify for exemption from securities registration
under state and federal law. Each transfer of Preferred Stock is subject to
approval by the Purchaser's Board of Directors. The Seller shall provide
written notice of the proposed transfer at least ten (10) days in advance of
Purchaser's next regularly-scheduled board meeting. Purchaser shall act on the
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transfer request at such board meeting; provided, that in the event that the
Board fails to act on such request at the board meeting, the request will be
deemed approved. In advance of said board meeting, the Seller shall provide
such details regarding the proposed transfer as may be reasonably requested by
Purchaser so that it may evaluate whether the proposed transfer represents a
bona fide transaction and whether there exists any legitimate business reason
to deny such transfer. If the proposed sale is a bona fide transaction to a
prospective purchaser with the financial ability to consummate the purchase
and there is no legitimate business reason for denying approval of the
transfer, then Purchaser shall approve of the transfer or immediately purchase
the Preferred Stock from the transferring Seller on the same price and terms
as the prospective purchaser. Notwithstanding the foregoing, the Purchaser
agrees to approve of the following transfers of Preferred Stock: (i) by a
Seller to another Seller, (ii) by a Seller to his spouse or children, or to a
trust for the benefit of same, (iii) by the laws of descent or distribution,
or (iv) by a Seller for the purpose of complying with Internal Revenue Code
Section 1045, so long as there does not exist a legitimate business reason for
the denial of such a transfer.
(c) CONVERSION. In all events, any issuance of Equity Stock by
Purchaser upon conversion of the Preferred Stock shall be only to persons
eligible for membership and approved by the Purchaser's Board of Directors,
which approval shall not be unreasonably withheld. In the event that a person
is eligible for membership and there does not exist a legitimate reason for
denial of membership, and Purchaser nevertheless denies such person the right
to convert the Preferred Stock purchased (or to be purchased) from Seller into
Equity Stock, then Purchaser agrees to indemnify, defend and hold said Seller
harmless from any loss, suit or liability therefor. The parties agree that as
of the date hereof, none of the Sellers are eligible for membership in the
Purchaser. Any conversion of the Preferred Stock into Equity Stock shall be
upon written notice to Purchaser's Vice-President of Finance at least 45 days
prior to the end of the then current trimester marketing period; the approved
buyer of such Equity Stock shall then be entitled to participate as member
growers in delivering durum in the following marketing period.
(d) WAIVER OF PURCHASER'S RIGHT TO REDEEM PREFERRED STOCK. Purchaser
hereby waives its right to redeem any part of the outstanding Preferred Stock
of a Seller without the express written consent of that Seller.
(e) NO LIMITS ON PURCHASER'S FUTURE ISSUANCE OF STOCK. There are no
restrictions on Purchaser's ability to issue additional shares of Equity Stock
or Preferred Stock in the future, and Sellers shall have no preemptive or
other rights to maintain their proportional ownership interest in Purchaser in
connection with any such issuance of stock by Purchaser.
1.25 "Purchase Price" shall mean the consideration for the purchase of
the Shares as set forth in Section 2.2.
1.26 "Purchaser" shall mean Dakota Growers Pasta Company, a cooperative
association organized under the laws of the State of North Dakota, whose
mailing address and street address is One Pasta Avenue, P.O. Box 21,
Carrington, ND 58421.
1.27 "Release" shall mean any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional.
1.28 "Sellers" or "Shareholders" shall mean the individuals described
in Recital A hereto, who together constitute the sole shareholders of the
Corporation.
1.29 "Shares" shall mean all of the common stock in the Corporation as
described in Recital A hereto, which common stock constitutes the only class
of issued and authorized capital stock in the Corporation with the shares
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described in Recital A constituting all issued and outstanding shares of such
class of common stock. Purchaser acknowledges that the Corporation is
authorized to issue Three Million (3,000,000) shares of preferred stock, none
of which is issued and outstanding.
1.30 "Time of Closing" shall mean 7:00 o'clock a.m. on February 23,
1998 or such other date and time as may be agreed upon by the parties hereto.
1.31 "Transaction" shall mean the sale of the Shares from Sellers to
Purchaser and Purchaser's exercise of control over the Corporation as
contemplated by this Agreement.
1.32 "Options" shall mean the options to purchase the Corporation's
common stock issued pursuant to the Primo Piatto, Inc. 1997 Employee Incentive
Stock Option Plan and such other options specified on Schedule 1 hereto.
1.33 "Appraisals" shall mean the three (3) market value appraisals of
the Corporation's facilities dated July 11, 1997 and conducted by Shenehon
Company, the receipt of which is acknowledged by Purchaser.
1.34 "Asset Purchase Documents" shall mean the Asset Purchase Agreement
and related documentation executed between Corporation and Borden Foods
Corporation ("Borden") from approximately May 28, 1997 through August 18, 1997
pursuant to which the Corporation purchased from Borden all of the Corporate
Assets as of August 18, 1997, the receipt of which is acknowledged by
Purchaser.
1.35 "Environmental Reports" shall mean the Phase I Environmental Site
Assessment and Material Compliance Assessment, and Occupational Safety and
Health Act Assessment prepared for Borden, Inc. by Dames & Moore dated June
11, 1997, for the Corporation's New Hope facility and Fourth Street,
Minneapolis facility, the receipt of each of which is acknowledged by
Purchaser.
1.36 "Title Documents" shall mean the title commitments and Policy of
Title Insurance for the Real Estate issued by Lawyer's Title Insurance
Corporation, the receipt of which is acknowledged by Purchaser.
1.37 "Due Diligence Documents" shall mean the documentation and
descriptions submitted to Purchaser by Corporation in response to Purchaser's
due diligence request dated December 31, 1997, the receipt of which is
acknowledged by Purchaser.
1.38 "Disclosure Documents" means the Asset Purchase Documents, HSBC
Loan Documents, Appraisals, Environmental Reports, Title Documents and Due
Diligence Documents.
ARTICLE II.
PURCHASE OF SHARES
2.1 PURCHASE OF SHARES. Subject to the terms and conditions set forth
herein, the Sellers shall sell the Shares to the Purchaser and the Purchaser
shall purchase the Shares from Sellers, said Shares constituting One Hundred
percent (100%) of the issued and outstanding capital stock of the Corporation
as of the Time of Closing.
2.2 PURCHASE PRICE. The Purchase Price that Purchaser shall pay to
Sellers for the Shares, subject to the adjustments as set forth in Sections
2.3 and 2.4, shall be paid at the Time of Closing as follows:
(a) CASH. Purchaser shall pay to the Sellers cash in the sum of
Eleven Million Dollars ($11,000,000.00). This payment shall be in the form of
wire transfer payable to each of the Sellers in proportion to his or her
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Percentage Ownership.
(b) PREFERRED STOCK. Purchaser shall issue to Sellers Thirty Thousand
(30,000) shares of Preferred Stock. The number of shares of Preferred Stock
issued to each Seller shall be in proportion to his or her Percentage
Ownership.
2.3 NET DEBT ADJUSTMENT TO PURCHASE PRICE.
(a) ADJUSTMENT AMOUNT. The Purchase Price described in Section 2.2 is
based on the Corporation's Net Debt being equal to $8.0 million determined as
of the Time of Closing. Any positive or negative variance from $8.0 million
of Net Debt as of the Time of Closing shall result in an adjustment to the
Purchase Price as follows:
(1) NET DEBT OF LESS THAN $8.0 MILLION. The cash payment
portion of the Purchase Price shall be increased by the amount by which Net
Debt is less than $8.0 million; or
(2) NET DEBT OF MORE THAN $8.0 MILLION. The number of shares of
Preferred Stock granted to the Sellers shall be reduced on the basis of one
(1) share of Preferred Stock for each One Hundred Sixty Dollars ($160.00) of
such Net Debt in excess of $8.0 million.
Any adjustments hereunder shall be applied to each of the Sellers
based on his or her Percentage Ownership. However, any individual Seller may
elect to receive a reduced cash payment, in lieu of having his or her shares
of Preferred Stock reduced, equal to that Seller's share of the excess Net
Debt.
(b) DEPOSIT OF PREFERRED STOCK IN ESCROW PENDING FINAL DETERMINATION
OF NET DEBT ADJUSTMENT AMOUNT.
(1) DISAGREEMENTS OR UNCERTAINTIES TO ADJUSTMENT AMOUNT
RESOLVABLE BY PASSAGE OF TIME. If either party disagrees on the calculation
of the Net Debt adjustment amount at the Time of Closing, and the issue
underlying the disagreement will be resolved through the occurrence of
specified events expected to occur within a specified period of time (e.g.,
collectability of an account receivable, etc.), then the Purchaser shall place
into escrow that number of shares of Preferred Stock as follows: one (1) share
for each $160.00 of the amount in dispute or subject to uncertainty. Such
Preferred Stock shall continue to be held in escrow until the issue has been
resolved, or at a mutually agreeable date certain, at which time the shares
will be either released to Sellers or returned to Purchaser. Prior to the Time
of Closing, the parties shall appoint an escrow agent and execute an escrow
agreement as appropriate under the circumstances.
(2) DISAGREEMENTS TO ADJUSTMENT AMOUNT NOT RESOLVABLE BY PASSAGE
OF TIME. If either party disagrees on the calculation of the Net Debt
adjustment amount at the Time of Closing, and such disagreement relates to
matters that will not be resolved through the occurrence of specified events
within a specified period of time, then the matter in dispute shall be
presented to a neutral Certified Public Accounting firm for final and
conclusive resolution. Sellers and Purchaser will each bear 50% of the fees
of the accountants for such determination, provided such fees do not exceed
$5,000.00; if such fees are greater than said amount, then Corporation will
pay the Sellers' 50% and the Corporation's portion will increase Net Debt.
Pending final determination of the matter in dispute, the Purchaser shall
place into escrow that number of shares of Preferred Stock as follows: one (1)
share for each $160.00 of the amount in dispute. At such time as the neutral
accounting firm makes its final decision, the escrowed shares will be either
delivered to Sellers or returned to Purchaser. Prior to the Time of Closing,
the parties shall appoint an escrow agent and execute an escrow agreement as
appropriate under the circumstances.
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(3) RIGHTS ON ESCROWED PREFERRED STOCK. For the purpose of
calculating any dividends to be paid on the Preferred Stock, and for the
purpose of calculating any increase in the number of shares of Preferred Stock
or increase in conversion ratio to which a Seller may be entitled to
hereunder, the Sellers shall be deemed to own as of the Time of Closing the
shares ultimately released to Sellers from escrow. Any dividends declared and
paid on the shares of Preferred Stock held in escrow shall be deposited with
the escrow agent and released to the Sellers (or returned to Purchaser) at the
same time and consistent with the disposition of the underlying stock.
2.4 LOAN TO SELLERS. Each Seller shall have the right to elect to
receive a loan from Purchaser for the payment of taxes attributable to the
Preferred Stock portion of the Purchase Price. Such election shall have been
made by each Seller on or before March 31, 1998 (provided Purchaser timely
provides all necessary information for such valuation), by written notice to
Purchaser. (The Sellers electing such option are referred to hereafter as the
"Electing Seller(s)"). The Electing Sellers shall be responsible for
obtaining a valuation of their Preferred Stock for tax purposes no later than
March 31, 1998 (provided Purchaser timely provides all necessary information
for such valuation), and shall provide to Purchaser a written computation of
each Electing Seller's projected tax liability arising from the Preferred
Stock (the "Computed Tax Liability"). The Purchaser shall loan to such
Electing Seller the lesser of (i) the Computed Tax Liability or (ii) an amount
equal to the Seller's Percentage Ownership multiplied by $900,000.00. Advances
on said loan shall be made to each Seller at such times and in such minimal
amounts (respecting quarterly payments) as are necessary to avoid penalties
under federal and state income tax laws.
Each amount advanced by Purchaser shall be evidenced by a promissory
note executed by the Electing Seller as of the date of such advance ("Note").
Each Note shall provide for the payment of simple interest at the rate of six
percent (6%) per annum payable annually, on the outstanding principal balance
thereof. All outstanding principal and interest shall be due and payable on a
date three (3) years from the date of the Note. Each Electing Seller shall
have the option to reduce any amounts payable under his Note(s) by the amount
of any unpaid dividends owed on the Preferred Stock pursuant to Section 1.24
hereof. Each Note shall be secured by a pledge of that number of shares of
Preferred Stock equal to the amount of indebtedness divided by the greater of
par value or 75% of the market value of the pledged shares of Preferred Stock.
Sellers agree that they shall sell the pledged shares first and shall
use the proceeds (less amounts necessary to pay any taxes) to reduce the
outstanding balance on the Note.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF CORPORATION AND SELLERS
As a material inducement to the Purchaser to enter into this Agreement
and purchase the Shares, each Seller for himself/herself and for the
Corporation, and the Corporation, make the following representations and
warranties subject to the following qualifications and limitations. Any
exceptions to these representations and warranties are set forth in the
Schedule 1 hereto. Purchaser further acknowledges that it has received
substantial disclosure of documentation relating to the Corporation and the
Sellers as part of its due diligence in connection with the Transaction,
including but not limited to the Disclosure Documents. Except as expressly
set forth herein, all of the following relate solely to matters relating to
the period beginning May 29, 1997. Accordingly, subject to the exceptions
contained in Schedule 1, the Corporation and Sellers (each Seller warrants
only as to his or her own representations and warranties and not to the
representations or warranties of any other Seller) warrant and represent to
Purchaser that:
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3.1 ORGANIZATION AND CORPORATE POWER. The Corporation is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota and is qualified to do business and is in good
standing in every jurisdiction in which its ownership of property or conduct
of business requires it to qualify. The Corporation has all requisite
corporate power and authority and all material licenses, permits, and
authorizations necessary to own and operate its properties and to carry on its
business as now conducted. The copies of the Corporation's articles of
incorporation and bylaws have been furnished to the Purchaser and such copies
reflect all amendments made thereto at any time prior to the date of this
Agreement and such copies will be correct and complete as of the Time of
Closing.
3.2 AUTHORITY.
(a) SELLERS. Each of Sellers has the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement and the
Sellers' Closing Documents and to perform their obligations under this
Agreement and the Sellers' Closing Documents. Other than as set forth on
Schedule 1, no approvals or consents of any other Person are necessary in
connection with each Seller's execution and performance of this Agreement and
the consummation of the Transaction. Provided that Purchaser is an
"accredited investor" as that term is defined under applicable securities
laws, and provided further that all of Purchaser's representations and
warranties are true and correct, each of the Sellers may sell the Shares to
the Purchaser in the Transaction without the requirement of registration of
said Shares under applicable federal and state securities laws. The parent
Seller of each minor Seller, hereby warrants that such minor has legal
capacity and the right to execute this Agreement and agrees to indemnify
Purchaser for any claims, liabilities, damages, or losses that Purchaser ever
suffers as a result of legal problem arising from the minor entering into this
Transaction.
(b) CORPORATION. Corporation has the right, power, legal capacity,
and authority to enter into and perform Corporation's obligations under this
Agreement. Other than as set forth on Schedule 1, no approvals or consents of
any Person other than Corporation are necessary in connection with this
Agreement. The execution and delivery of this Agreement by Corporation has
been duly authorized by its Board of Directors and Shareholders.
3.3 NO BREACH OR VIOLATION. Other than as set forth in Schedule 1,
the execution of this Agreement and the consummation of the Transaction will
not result in or constitute any of the following:
(a) a default or an event that, with notice or lapse of time, or both,
would be a default, breach, or violation of the Articles of Incorporation or
By-Laws of Corporation or any Contract, instrument or arrangement to which
Corporation or any Seller is a party or by which Corporation, the Sellers, or
the Corporate Assets (or any of them) is bound, or any resolution adopted by
the Board of Directors or Shareholders of the Corporation;
(b) an event that would permit any party to terminate any Contract or
to accelerate the maturity of any indebtedness or other obligation of
Corporation;
(c) the creation or imposition of any lien, charge or encumbrance on
any properties of Corporation;
(d) violation of any of the terms or requirements of, or give any
governmental entity the right to revoke, withdraw, suspend, cancel, terminate,
or modify, any permit, license, or authority that is held by the Corporation
or that otherwise relates to the business of, or any of the assets owned or
used by the Corporation; or
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(e) a breach or violation of any constitution, statute, regulation,
rule, injunction, order, decree, ruling, or other restriction of any
government, governmental agency or court to which either the Sellers or the
Corporation are subject.
3.4 CAPITAL STOCK AND RELATED MATTERS. The authorized capital stock
of the Corporation consists of Fifteen Million (15,000,000) Shares, Four
Million One Hundred Fifty Thousand (4,150,000) of which are issued and
outstanding and are owned, beneficially and of record, by the Sellers and no
other shares, common or otherwise, of the Corporation are issued and
outstanding. The Corporation does not have outstanding and has not agreed,
orally or in writing, to issue any shares or securities convertible or
exchangeable for any shares, nor does it have outstanding nor has it agreed,
orally or in writing, to issue any options or rights to purchase or otherwise
acquire its shares, other than the Options. The Options are callable at the
sole discretion of the Corporation at a minimum price of Fifty Cents ($.50)
per share subject to the option, under the terms of the Stock Option Agreement
under which the Options were issued. The Corporation will use its best efforts
to have such Options redeemed within two (2) days of closing. The amount owed
or paid pursuant to such redemption shall be a liability of the Corporation as
of the Time of Closing and, therefore, shall be considered in determining the
Net Debt of the Corporation. Upon such payment of the call price to each
option holder, the Option shall be completely redeemed and the redeeming or
cancelled option holders shall have no further legal rights in connection
therewith. The Corporation has not violated any applicable securities laws or
regulations in connection with the offer or sale of its securities other than
violations that have been, or before the Closing will be, corrected by post-
issuance filings or other appropriate actions. All of the outstanding shares
of the Corporation's capital stock are validly issued, fully paid and
nonassessable. Each of the Sellers warrants that he has, and upon purchase
thereof pursuant to the terms of this Agreement the Purchaser will have, good
and marketable title to the Shares, free and clear of all security interests,
liens, encumbrances or other restrictions or claims, subject only to
restrictions as to marketability imposed by securities laws. Neither any of
the Sellers nor the Corporation are parties to any option, warrant, purchase
right or other contract or commitment that could require either any of the
Sellers or the Corporation to sell, transfer or otherwise dispose of the
Shares to any party other than the Purchaser. Neither any of the Sellers nor
the Corporation are parties to any voting trust, proxy or other agreement or
understanding with respect to the voting of any of the Corporation's shares.
3.5 SUBSIDIARIES. The Corporation has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation or entity.
3.6 FINANCIAL STATEMENTS. The Financial Statements include the
following:
(a) The balance sheet of Corporation as of September 30, 1997, and the
related statements of income and retained earnings for the period then ended,
audited by Coopers & Lybrand, Corporation's independent certified public
accountant.
(b) The interim monthly financial statements of Corporation subsequent
to September 30, 1997, certified by the treasurer of Corporation.
(c) Closing financial statements as of the Time of Closing (but
prepared after the Time of Closing), certified by the treasurer of
Corporation.
(d) The Financial Statements have been and, as to the closing
financial statements will be, prepared in accordance with generally accepted
accounting principles consistently applied by Corporation throughout the
period indicated and fairly present the financial position of Corporation as
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of the respective dates of the Financial Statements.
3.7 LIABILITIES. Exhibit "B" to this Agreement contains a true and
complete schedule of all material liabilities and obligations of Corporation
(material is defined herein as liabilities or obligations in excess of
$1,000). Corporation has no material debts, liabilities, guarantees or
obligations of any nature, whether accrued, absolute, contingent or otherwise
and whether due or to become due, that are not set forth in Exhibit "B".
Exhibit "B" shall be updated as of the Time of Closing, including a schedule
of all accounts payable.
3.8 ABSENCE OF CHANGES. Since September 30, 1997, there has not been
any:
(a) material transaction by Corporation except in the ordinary course
of business, other than transactions relating to this Transaction;
(b) material adverse changes in the financial condition, liabilities,
assets, or business of Corporation;
(c) destruction of, damage to, or loss of any asset of Corporation
(whether or not covered by insurance) that materially or adversely affects the
financial condition, business, assets or prospects of Corporation;
(d) labor trouble or other event or condition of any character
materially and adversely affecting the financial condition, business, assets
or prospects of Corporation;
(e) change in accounting methods or practices (including, without
limitation, a change in depreciation or amortization policies or rates) by
Corporation;
(f) revaluation by Corporation of any of the Corporate Assets;
(g) declaration, setting aside, or payment of a dividend or other
distribution in respect to the Shares or any direct or indirect redemption,
purchase or other acquisition by Corporation of any of the Shares;
(h) increase in the salary or other compensation payable by
Corporation to any of its officers, directors or employees, or the
declaration, payment, or commitment or obligation of any kind for the payment
by Corporation of a bonus or other additional salary or compensation to such
person; or the adoption of any plan intended to provide a financial benefit to
the Corporation's officers, directors or employees, except as disclosed in
writing to the Purchaser prior to the date hereof.
(i) sale or transfer of any assets by Corporation, except in the
ordinary course of business;
(j) amendment or termination of any Contract, to which Corporation is
a party, except in the ordinary course of business;
(k) loan by Corporation to any person or entity, or guaranty by
Corporation of any loan;
(l) mortgage, pledge or other encumbrance of any of the Corporate
Assets;
(m) waiver or release of any right or claim of Corporation, except in
the ordinary course of business;
(n) other event or condition of any character that has or might
reasonably have a material adverse effect on the financial condition, business
or assets of Corporation;
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(o) issuance or sale by Corporation of any Shares, or of any other of
its securities; or,
(p) agreement by Corporation to do any of the things described in this
Section 3.8.
3.9 REAL ESTATE. Exhibit "C" to this Agreement is a complete and
accurate legal description of the Real Estate which also constitutes a
complete and accurate description of each parcel of real property owned by or
leased to Corporation, together with either a true and correct survey or a
substantially true and correct plat of each parcel. Exhibit "C" indicates all
buildings, fixtures and other improvements located on the Real Estate. All of
the leases listed in Exhibit "C" are valid and in full force, and there does
not exist any default or event that with notice or lapse of time, or both,
would constitute a default under any of these leases.
The zoning of the Real Estate permits the presently existing
improvements and a continuation of the business presently being conducted on
the Real Estate.
3.10 INVENTORY. At the Time of Closing, the Corporation shall provide
a complete and accurate description and valuation (calculated at net
realizable value, in accordance with GAAP for agricultural cooperatives) of
the Inventory of the Corporation certified by the treasurer of the
Corporation. All Inventory listed shall be saleable and in good condition.
3.11 ACCOUNTS RECEIVABLE. At the Time of Closing, the Corporation
shall provide a complete and accurate listing of the Accounts Receivable and
valuation (determined in accordance with GAAP) of the Corporation, certified
by the treasurer of the Corporation. The Accounts Receivable constitute all of
the customer obligations of the Corporation as of the Time of Closing and all
arose from valid sales in the ordinary course of business.
3.12 EQUIPMENT AND FIXTURES. Exhibit "D" to this Agreement is a
substantially complete and accurate description of the Equipment and Fixtures
of the Corporation.
3.13 SPARE PARTS INVENTORY. Exhibit "E" to this Agreement is a
substantially complete and accurate description of the Spare Parts Inventory
of the Corporation.
3.14 GENERAL INTANGIBLES AND INTELLECTUAL PROPERTY. Exhibit "F" to
this Agreement is a complete and accurate description of general intangibles
and intellectual property of the Corporation. Such property is free and clear
of liens, charges, claims and restrictions. The Corporation, has not infringed
upon nor is it infringing upon any patent, trademark, service mark, trade
name, copyright or other intellectual property of any third party. The
Corporation is not aware of any violation by a third party of any of the
Corporation's patents, licenses, trademarks, service marks, trade names,
copyrights, trade secrets or other proprietary rights.
3.15 CONDITION OF PROPERTY. All properties listed in Exhibits "C", "D"
and "E" are generally in good operating condition and repair (ordinary wear
and tear excepted), are performing satisfactorily, and are available for
immediate use in the conduct of the business and operations of the
Corporation. The properties described in this Section 3.15 constitute all of
the items necessary for the operation of the business of the Corporation in
the manner operated as of the date hereof.
3.16 TITLE AND RELATED MATTERS. Subject to the exceptions contained in
the Title Documents, the Corporation has good and marketable title to all of
its Corporate Assets, free and clear of all security interests, mortgages,
liens, pledges, charges, claims, or encumbrances of any kind or character,
except (i) statutory liens for property taxes not yet delinquent or payable
16
subsequent to the date of this Agreement and statutory or common law liens
securing the payment or performance of any obligation of the Corporation, the
payment or performance of which is not delinquent, or that (other than
pursuant to the HSBC Loan Documents) is payable without interest or penalty
subsequent to the date on which this representation is given, or the validity
of which is being contested in good faith by the Corporation; (ii) the rights
of customers of the Corporation with respect to inventory under orders or
contracts entered into by the Corporation in the ordinary course of business;
(iii) minor imperfections in title to real property, none of which detracts
from the value or impairs the use of the property subject thereto. All
buildings, plants and structures owned by the Corporation lie wholly within
the boundaries of the real property owned by the Corporation and do not
encroach upon the property of, or otherwise conflict with the property rights
of, any other Person. The Corporation does not occupy any real estate in
violation of any law, regulation, decree or ordinance.
3.17 LITIGATION. There are no material actions, suits, proceedings,
orders, investigations, or claims pending or, to the best of the Sellers' and
the Corporation's knowledge, threatened against the Corporation or any
property of either, at law or in equity, or before or by any governmental
department, commission, board, bureau, agency, or instrumentality; the
Corporation is not subject to any arbitration proceedings under collective
bargaining agreements or otherwise or, to the best of the Sellers' and the
Corporation's knowledge, any governmental investigations or inquiries; and, to
the best knowledge of the Sellers' and the board of directors and responsible
officers of the Corporation, there is no basis for any of the foregoing.
3.18 HSBC LOAN DOCUMENTS. Other than as disclosed to Purchaser in the
HSBC Loan Documents and Environmental Reports, Corporation is in material
compliance with all terms and covenants of the HSBC Loan Documents. All
representations and warranties set forth in the HSBC Loan Documents were true
and correct when made.
3.19 TAX MATTERS. The Corporation has prepared in a substantially
correct manner and has filed all federal, state, local, and foreign tax
returns and reports heretofore required to be filed by them and have paid all
taxes shown as due thereon; and no taxing authority has asserted any
deficiency in the payment of any tax or informed the Corporation that it
intends to assert any such deficiency or to make any audit or other
investigation of the Corporation for the purpose of determining whether such a
deficiency should be asserted against the Corporation. The charges, accruals
and reserves with respect to taxes of the Corporation are adequate (as
determined in accordance with GAAP) and are at least equal to the
Corporation's liability for taxes.
3.20 COMPLIANCE WITH LEGAL REQUIREMENTS. To the best of Corporation's
and each Seller's knowledge, the Corporation is, in the conduct of its
business, in substantial compliance with all Legal Requirements (other than as
disclosed to Purchaser in Schedule 1). Neither the Sellers nor the
Corporation have received any notice of any asserted present or past failure
by the Corporation to comply with such Legal Requirements, nor are such
parties aware of any facts or circumstances which would lead a governmental
authority to claim that the Corporation or any of the Sellers have violated
any Legal Requirements.
3.21 CUSTOMERS. Neither Corporation nor Seller has any information,
nor is aware of any facts, indicating that any of Corporation's customers
intend to cease doing business with Corporation, or materially alter the
amount of business that they are presently doing with Corporation. Purchaser
acknowledges and is aware that Corporation has no contracts with customers
providing for any set purchases (other than those entered into with Borden for
contract packaging) and that such customers may elect to increase or decrease
orders from time to time, or cease doing business with Corporation, without
notice to Corporation.
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3.22 INSURANCE. Exhibit "G" contains a list of each insurance policy
maintained by the Corporation with respect to its properties, assets, and
businesses, and each such policy is in full force and effect. The Corporation
is not in material default with respect to its obligations under any such
policy maintained by it. Neither the Sellers nor the Corporation have been
notified of the cancellation of any of the insurance policies listed on
Exhibit "G" or of any material increase in the premiums to be charged for such
insurance policies.
3.23 EMPLOYEES AND LABOR RELATIONS MATTERS. Exhibit "H" to this
Agreement is a correct and accurate list of:
(a) all employment contracts and collective bargaining agreements;
(b) all employee benefits including loans, retirement plans,
insurance, vacation, sick leave, stock option plans, severance pay agreements,
or any similar benefit;
(c) all scheduled or contemplated increases in compensation or
bonuses; and
(d) all scheduled or contemplated employee promotions.
All of these contracts and arrangements are in full force and effect and
neither Corporation nor any other party is in default under them. There are
no claims of defaults and, to the best knowledge of Corporation, there are no
facts or conditions which if continued, or on notice will result in a default
under these contracts or arrangements. There is no pending or, to
Corporation's or any Seller's knowledge, threatened labor dispute, strike, or
work stoppage affecting or threatening to affect the Corporation. The
Corporation has in all material respects complied with all applicable state
and federal laws related to employment and has not been involved in any
proceeding involving the Federal Labor Relations Board.
3.24 ADM CONTRACT. There are no oral or written contracts with ADM,
whether for the borrowing of money or purchase of semolina or any other
matter, other than the contracts of the Corporation with ADM dated
approximately August 1997(the "ADM Contracts"). To the best of Corporation's
and each Seller's knowledge, there are no prohibitions to the Corporation's
right to terminate the ADM Contracts without penalty provided all liabilities
to ADM are paid in full.
3.25 FULL DISCLOSURE. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates, or other items
prepared or supplied to the Purchaser by or on behalf of the Corporation or
the Sellers with respect to this purchase or at Time of Closing contain any
untrue statement of a material fact or omit a material fact necessary to make
each statement contained herein or therein not misleading. No Seller or any
responsible officer or director has intentionally concealed any fact known by
such person to have a material adverse effect upon the Corporation's existing
or expected financial condition, operating results, assets, customer
relations, employee relations, or business prospects taken as a whole. Sellers
and Corporation agree to supplement its disclosure up to the Time of Closing
in order for such disclosure to be true and correct in all material respects.
3.26 POWER OF ATTORNEY. No material power of attorney or similar
authorization given by the Corporation is presently in effect.
3.27 CONTRACTS. Exhibit "I" contains a complete and accurate list of
each Contract to which the Corporation is a party. Except as otherwise set
forth in Exhibit "I", the Corporation is not in material default under any
Contract, nor, to the Sellers' and the Corporation's best knowledge, does
there exist any event that, with notice or the passage of time or both, would
constitute a material default or event of default by the Corporation under any
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Contract.
3.28 ERISA AND RELATED MATTERS. Exhibit "J" sets forth a description
of all "Employee Welfare Benefit Plans" and "Employee Pension Benefit Plans"
(as defined in Sections 3(1) and 3(2), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) existing on the
date hereof that are or have been maintained or contributed to by the
Corporation. Except as listed on Exhibit "J", the Corporation does not
maintain any retirement or deferred compensation plan, savings, incentive,
stock option or stock purchase plan, unemployment compensation plan, vacation
pay, severance pay, bonus or benefit arrangement, insurance or hospitalization
program or any other fringe benefit arrangement for any employee, consultant
or agent of the Corporation, whether pursuant to contract, arrangement, custom
or informal understanding, which does not constitute an "Employee Benefit
Plan" (as defined in Section 3(3) of ERISA), for which the Corporation may
have any ongoing liability after Closing. Except as disclosed on Exhibit "J",
the Corporation does not maintain nor has it ever contributed to any Multi-
employer Plan as defined by Section 3(37) of ERISA. The Corporation does not
currently maintain any Employee Pension Benefit Plan subject to Title IV of
ERISA. There have been no "prohibited transactions" (as described in
Section 406 of ERISA or Section 4975 of the Code) with respect to any Employee
Pension Benefit Plan or Employee Welfare Benefit Plan maintained by the
Corporation as to which the Corporation has been party a party. As to any
employee pension benefit plan listed on Exhibit "J" and subject to Title IV of
ERISA, there have been no reportable events (as such term is defined in
Section 4043 of ERISA), The Purchaser has received or had the opportunity to
review and examine all material documents embodying any plans intended for the
benefit of the Corporation's employees, including all trust agreements,
annuity contracts, insurance policies, funding agreements, annual reports or
reviews and all other material documentation with regard to any such plan or
arrangement. All benefits, expenses and other amounts due and payable under
or with respect to any plan or arrangement intended for the benefit of the
Corporation's employees have been paid or made or accrued; the Corporation's
financial statements accurately reflect the maximum liability of the
Corporation under or related to any such plan or arrangement.
3.29 OPERATING RIGHTS. The Corporation has all operating authority,
licenses, franchises, permits, certificates, consents, rights and privileges
(collectively "Licenses") as are necessary or appropriate to the operation of
its business as now conducted and as proposed to be conducted and which the
failure to possess would have a material adverse effect on the assets,
operations or financial condition of the Corporation. Such Licenses are in
full force and effect, no violations have been or are expected to have been
recorded in respect of any such licenses, and no proceeding is pending or, to
the knowledge of the Corporation, threatened that could result in the
revocation or limitation of any such Licenses. The Corporation has conducted
its business so as to comply in all material respects with all such Licenses.
3.30 TRANSACTIONS WITH AFFILIATES. Except for regular salary payments
and fringe benefits under an individual's compensation package with the
Corporation, neither the Sellers nor any of the officers, employees,
directors, or other affiliates of the Corporation, or members of their
families is a party to any agreements, understandings, or proposed
transactions with the Corporation. The Corporation has not guaranteed or
assumed any obligations of the Sellers or the Corporation's officers,
directors, or employees.
3.31 BOOKS AND RECORDS. The books of account, minute books, stock
record books and other records of the Corporation, all of which have been made
available to Purchaser, are complete and correct and have been maintained in
accordance with sound business practices. The minute books of the Corporation
contain a complete summary of all meetings of directors and shareholders since
the time of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
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3.32 ENVIRONMENTAL MATTERS. Except as disclosed to Purchaser in the
HSBC Loan Documents and the Environmental Reports:
(a) The Corporation is, and at all times has been, in full compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. No Seller or the Corporation has any basis to expect, nor
has any of them or any other Person for whose conduct they are or may be held
to be responsible received, any actual or threatened order, notice, or other
communication from (i) any governmental body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of the
Corporation's facilities, of any actual or potential violation or failure to
comply with any Environmental Law, or of any actual or threatened obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the facilities or any other properties or
assets (whether real, personal, or mixed) in which the Corporation has had an
interest, or with respect to any property or facility at or to which Hazardous
Materials were generated, manufactured, refined, transferred, imported, used,
or processed by Sellers, the Corporation or any other Person for whose conduct
they are or may be held responsible, or from which Hazardous Materials have
been transported, treated, stored, handled, transferred, disposed, recycled,
or received.
(b) There are no pending or, to the knowledge of Sellers and the
Corporation, threatened claims, encumbrances, or other restrictions of any
nature, resulting from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or
affecting any of the facilities or any other properties and assets (whether
real, personal, or mixed) in which the Corporation has or had an interest.
(c) No Seller or the Corporation has knowledge of any basis to expect,
nor has any of them or any other Person for whose conduct they are or may be
held responsible, received, any citation, directive, inquiry, notice, order,
summons, warning, or other communication that relates to Hazardous Activity,
Hazardous Materials, or any alleged, actual, or potential violation or failure
to comply with any Environmental Law, or of any alleged, actual, or potential
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the facilities or any other
properties or assets (whether real, personal, or mixed) in which the
Corporation had an interest, or with respect to any property or facility to
which Hazardous Materials generated, manufactured, refined, transferred,
imported, used, or processed by Sellers, the Corporation, or any other Person
for whose conduct they are or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(d) No Seller or the Corporation, or any other Person for whose
conduct they are or may be held responsible, has any Environmental, Health,
and Safety Liabilities with respect to the facilities or with respect to any
other properties and assets (whether real, personal, or mixed) in which the
Corporation (or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the facilities or any such other
property or assets.
(e) There are no Hazardous Materials present on or in the environment
at the facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the facilities or such
adjoining property, or incorporated into any structure therein or thereon.
Neither the Corporation nor the Sellers have permitted or conducted, or is
aware of, any Hazardous Activity conducted with respect to the facilities or
any other properties or assets (whether real, personal, or mixed) in which the
Corporation has had an interest except in full compliance with all applicable
20
Environmental Laws.
(f) There has been no release or, to the knowledge of Sellers and the
Corporation, threat of release, of any Hazardous Materials at or from the
facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used, or
processed from or by the facilities, or from or by any other properties and
assets (whether real, personal, or mixed) in which the Corporation has or had
an interest, or to the knowledge of Sellers and the Corporation any
geologically or hydrologically adjoining property.
(g) Sellers have delivered to Purchaser true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Sellers or the Corporation pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by Sellers, the Corporation, or any other Person for whose conduct they are or
may be held responsible, with Environmental Laws.
3.33 INVESTMENT REPRESENTATIONS. The Shares are being purchased for
Subscriber's own account and for investment and without the intention of
reselling or redistributing the Shares, and Subscriber has made no agreement
with others regarding the Shares and Subscriber's financial condition is such
that it is not likely that it will be necessary to dispose of the Shares in
the foreseeable future. Subscriber is aware that, in the view of the
Securities and Exchange Commission, a purchase of the Shares with an intent to
resell by reason of any foreseeable specific contingency or anticipated change
in market values, or any change in the condition of the Company, or in
connection with a contemplated liquidation or settlement of any loan obtained
for the acquisition of the Shares and for which the Shares were pledged, would
represent an intent inconsistent with the representations set forth above.
That Subscriber is in a financial position to hold the Shares for an
indefinite period of time and is able to bear the economic risk and withstand
a complete loss of Subscriber's investment in the Shares.
That Subscriber, either alone or with the assistance of Subscriber's own
professional advisor, has such knowledge and experience in financial and
business matters that Subscriber is capable of evaluating the merits and risks
of the prospective investment in the Shares.
That Subscriber has obtained, to the extent Subscriber deems necessary, the
Subscriber's own personal professional advice with respect to the risks
inherent in the investment in the Shares, and the suitability of an investment
in the Shares in light of Subscriber's financial condition and investment
needs.
That Subscriber believes that the investment in the Shares is suitable for the
Subscriber based upon the Subscriber's investment objectives and financial
needs, and the Subscriber has adequate means for providing for his or her
current financial needs and personal contingencies and has no need for
liquidity of investment with respect to the Shares.
That Subscriber has been given access to information regarding the Company and
has utilized such access to the Subscriber's satisfaction for the purpose of
obtaining information regarding the Company, has received copies of the
Company's most recent annual report on Form 10-K and copies of all quarterly
reports on Form 10-Q filed since the filing of such Form 10-K, and has either
attended or been given reasonable opportunity to attend a meeting with
representatives of the Company for the purpose of asking questions of, and
receiving answers from, such representatives concerning the Company.
3.34 WARRANTIES AT CLOSING. All representations and warranties of
Corporation and Sellers set forth in this Agreement, and in any written
statements delivered to Purchaser by Corporation and Sellers under this
21
Agreement, shall also be true and correct as of the Time of Closing, as if
made on that date.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As a material inducement to the Sellers to enter into this Agreement and
sell the Shares, the Purchaser hereby represents and warrants to the Sellers
as follows:
4.1 ORGANIZATION; POWER. The Purchaser is a corporation duly
incorporated and validly existing under the laws of the State of North Dakota,
and has all requisite corporate power and authority to enter into this
Agreement and perform its obligations hereunder.
4.2 AUTHORIZATION. The execution, delivery, and performance by the
Purchaser of this Agreement and all other agreements contemplated hereby to
which the Purchaser is a party have been duly and validly authorized by all
necessary corporate action of the Purchaser, and this Agreement and each such
other agreement, when executed and delivered by the parties thereto, will
constitute the legal, valid, and binding obligation of the Purchaser
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, and similar statutes
affecting creditors' rights generally and judicial limits on equitable
remedies.
4.3 NO CONFLICT WITH OTHER INSTRUMENTS OR AGREEMENTS. The execution,
delivery, and performance by the Purchaser of this Agreement and all other
agreements contemplated hereby to which the Purchaser is a party will not
result in a breach or violation of, or constitute a default under, its
Articles of Association or Bylaws or any material agreement to which the
Purchaser is a party or by which the Purchaser is bound.
4.4 GOVERNMENTAL AUTHORITIES. Except for reporting requirements under
applicable securities laws, the Purchaser is not required to submit any
notice, report, or other filing with any governmental or regulatory authority
in connection with the execution and delivery by the Purchaser of this
Agreement and the consummation of the Transaction and no consent, approval, or
authorization of any governmental or regulatory authority is required to be
obtained by the Purchaser or any affiliate in connection with the Purchaser's
execution, delivery, and performance of this Agreement and the consummation of
this purchase.
4.5 LITIGATION. There are no actions, suits, proceedings, or
governmental investigations or inquiries pending or, to the knowledge of the
Purchaser, threatened against the Purchaser or its properties, assets,
operations, or businesses that might delay, prevent, or hinder the
consummation of this purchase.
4.6 INVESTMENT REPRESENTATIONS. The Purchaser is acquiring the Shares
for investment for the Purchaser's own account, not as a nominee or agent, and
not with the view to, or for resale in connection with, any distribution
thereof. The Purchaser understands that the Shares to be purchased have not
been, and will not be, registered under the Securities Act or the securities
laws of any state by reason of a specific exemption from the registration
provisions of the Securities Act and the applicable state securities laws, the
availability of which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of the Purchaser's representations
as expressed herein. The Purchaser is acquiring the Shares without
expectation, desire, or need for resale and not with the view toward
distribution, resale, subdivision, or fractionalization of the Shares, except
for the possibility that, as a wholly-owned subsidiary, the Purchaser may
elect to liquidate the Corporation and merge same into Purchaser. Purchaser
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is an "accredited investor" as that term is used in state and federal
securities laws, and can thus purchase the Shares without registration with
any governmental authority. Purchaser has had the opportunity to receive and
review all documentation, including without limitation the Disclosure
Documents, and to ask questions of and receive answers from Corporation's
management, regarding the Corporation and its business; Purchaser has
sufficient information and business sophistication to make an informed
decision as to the suitability of an investment in the Shares and the terms
and conditions thereof, and is in need of no further information or
investigation.
4.7 TAX LIABILITY. To the extent the Purchaser deems necessary, the
Purchaser has reviewed with the Purchaser's own tax advisors the federal,
state, local and foreign tax consequences of this Transaction on the
Purchaser. The Purchaser relies solely on such advisors and not on any
statements or representations of the Sellers or any of its agents. The
Purchaser understands that the Purchaser (and not the Sellers) shall be
responsible for the Purchaser's own tax liability that may arise as a result
of this investment or the transactions contemplated by this Agreement.
4.8 DISCLOSURE. To the Purchaser's knowledge, this Agreement, with
the Exhibits hereto, and all other materials provided to Sellers in connection
with the transaction, when taken as a whole, do not contain any untrue
statement of a material fact concerning the Purchaser or omit to state a
material fact necessary in order to make the statements concerning the
Purchaser contained herein not misleading in light of the circumstances under
which they were made.
4.9 NO ADVERSE CIRCUMSTANCES. Other than as expressly set forth in
Section 1.24, Schedule 1, or in the due diligence information disclosed to or
made available to Sellers, Purchaser is not aware of any facts, circumstances
or matters, and does not intend to take or enter into any actions or
transactions, which (i) would adversely affect, limit or restrict the Sellers'
ownership, rights or interests in the Preferred Stock (ii) would adversely
affect the transferability or marketability of the Preferred Stock; or (iii)
would cause the Preferred Stock, as a class of equity ownership, to not have
substantially the same prospects for an increase in valuation as the
Purchaser's outstanding Equity Stock and Series C Preferred Stock.
4.10 RECEIPT OF DISCLOSURE DOCUMENTS. Without limiting the warranties
and representations of the Corporation and Sellers contained herein, Purchaser
acknowledges that it has received the Disclosure Documents and that it has had
sufficient opportunity to review the same and to have its attorneys,
accountants and advisors review same, and that the foregoing have supplemented
such disclosure and made inquiries to Sellers and Corporation where necessary
and appropriate.
ARTICLE V.
CONDUCT OF CORPORATION'S BUSINESS PENDING THE CLOSING
From the date hereof until the Time of Closing, and except as otherwise
consented to or approved by the Purchaser, the Sellers and the Corporation
covenant and agree with the Purchaser as follows:
5.1. ACCESS TO INFORMATION. Purchaser and Purchaser's counsel,
accountants, and other representatives shall have full access during normal
business hours to all properties, books, accounts, records, contracts, and
documents of or relating to Corporation. Corporation shall furnish or cause
to be furnished to Purchaser and Purchaser's representatives all data and
information concerning the business, finances, and properties of Corporation
that may be reasonably requested. Purchaser and its advisors shall be entitled
to perform whatever procedures are deemed necessary in connection with their
review of the Corporation and to be satisfied with their results.
23
5.2 CONDUCT OF BUSINESS. Corporation shall carry on its business
activity diligently and in substantially the same manner as it has previously
been carried on and shall not institute or use any unusual or novel methods of
management, accounting or operation that will vary materially from those
methods used by Corporation as of the date of this Agreement.
5.3 BUSINESS RELATIONSHIPS. Corporation shall use its best efforts to
preserve the business relationships with suppliers, customers and others doing
business with Corporation.
5.4 INSURANCE. Corporation shall continue to carry all existing
insurance, subject to variations and amounts required by the ordinary
operation of the Corporation.
5.5 EMPLOYEES. Corporation shall not do, nor agree to do, any of the
following acts:
(a) grant any increase in salaries payable or to become payable, to
any employee or representative;
(b) increase benefits payable to any employee or representative under
any bonus or pension plan or other contract or commitment; or,
(c) modify any labor agreement to which Corporation is a party or by
which Corporation may be bound.
5.6 NEW BUSINESS. Corporation shall not, without Purchaser's written
consent, enter into any contract, commitment, or transaction not in the usual
and ordinary course of Corporation's business.
5.7 LIABILITY AND WAIVER. Corporation shall not do, or agree to do,
any of the following acts:
(a) pay any obligation or liability, fixed or contingent, other than
current liabilities (except that Corporation is specifically authorized to
redeem the Options or otherwise provide for their redemption and to pay such
bonuses as are described on Schedule 1 hereto);
(b) waive or compromise any right or claim; or,
(c) cancel, without full payment, any note, loan, or other obligation
owing to Corporation.
5.8 CONTRACTS. Corporation shall not modify, amend, cancel or
terminate any of Corporation's Contracts or agree to do any of those acts.
5.9 CORPORATE MATTERS. Corporation shall not take any of the
following actions, nor shall any of the Sellers vote any shares held by them
for any of the following:
(a) amendment of the Corporation's Articles of Incorporation or By-
Laws;
(b) issuance of any additional shares of the Corporation's capital
stock;
(c) issue or create any warrants, obligations, subscriptions, options,
convertible securities, or other commitments under which any additional Shares
of any class might be directly or indirectly authorized or issued; or,
(d) agree to do any of the foregoing acts.
5.10 DISTRIBUTIONS AND SHARES. Corporation shall not:
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(a) declare, set aside, or pay any dividend or make any distribution
in respect to the Shares;
(b) directly or indirectly purchase, redeem or otherwise acquire any
of its Shares; or,
(c) enter into any agreement obligating it to do any of the foregoing
acts.
5.11 EXCLUSIVITY. None of the Sellers will (and the Seller shall not
cause or permit the Corporation to) (i) solicit, initiate, or encourage the
submission of any proposal or offer from any Person relating to the
acquisition or any Shares or other voting securities or any substantial
portion of the assets of the Corporation, including any acquisition structured
as a merger, consolidation or share exchange, or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect to
or assist or participate in any manner in any effort or attempt by any Person
to do or seek any of the foregoing. None of the Sellers will vote their
Shares in favor of any such acquisition structured as a merger, consolidation,
or share exchange. The Sellers will notify Purchaser immediately if any
Person makes any proposal, offer, inquiry or contact with respect to any of
the foregoing.
5.12 SATISFACTION OF CONDITIONS. The Corporation and Sellers will
each use reasonable efforts to obtain as promptly as practicable the
satisfaction of the conditions to Closing described in this Agreement and any
necessary consents or waivers under or amendments to agreements by which the
Corporation or Purchaser is bound.
ARTICLE VI.
PURCHASER'S OBLIGATIONS PRIOR TO CLOSING.
Purchaser agrees that prior to the Time of Closing:
6.1 RELEASE OF PERSONAL GUARANTEES. Purchaser shall use Purchaser's
best efforts to assist Corporation in obtaining the consent of HSBC to release
the personal guarantees of the Sellers. Purchaser shall in addition use its
best efforts to assume the HSBC Loans and ADM Loans or find substitute
financing therefor and pay off said loans in their entirety (and in no event
shall Sellers be liable for any penalties or costs in connection therewith,
nor shall such termination charges affect the Net Debt calculation).
6.2 SATISFACTION OF CONDITIONS. The Purchaser will use reasonable
efforts to obtain as promptly as practicable the satisfaction of the
conditions to Closing described in this Agreement and any necessary consents
or waivers under or amendments to agreements by which the Corporation or
Purchaser is bound.
6.3 COOPERATION IN TRANSITION. Through the Time of Closing, Purchaser
will cooperate fully with Corporation and Sellers to bring about an effective,
prudent and orderly transition of the business of Corporation. Accordingly,
through the Time of Closing, Purchaser will not undertake any action that
would have the effect of damaging the business or prospects of Corporation.
ARTICLE VII
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Time of Closing:
7.1 GENERAL. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the parties will take such further action (including the execution and
25
delivery of such further instruments and documents) as any other party
reasonably may request, all at the sole cost and expense of the requesting
party (unless the requesting party is entitled to indemnification therefor
under the provisions of this Agreement.)
7.2 TRANSITION. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Corporation from
maintaining the same business relationships with the Corporation after the
closing of the Transaction as is maintained with the Corporation prior to the
Time of Closing. Each of the Sellers will refer all customer inquiries
relating to the businesses of the Corporation to the Corporation from and
after the Closing.
7.3 CONFIDENTIALITY. For purposes of this Agreement, any information
concerning the business and affairs of the Corporation that is not already
known to the public shall be deemed to be Confidential Information. Each of
the Sellers will treat and hold as such all of the Confidential Information,
refrain from using any of the Confidential Information except in connection
with this Agreement, and the enforcement thereof. In the event that any of
the Sellers is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any Confidential
Information to a third party, that Seller will notify the Purchaser promptly
of the request or requirement so that the Purchaser may seek an appropriate
protective order or waive compliance with the provisions of this Section 6.3.
If, in the absence of a protective order or the receipt of a waiver hereunder,
any of the Sellers is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt,
that Seller may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Seller shall use his or its best
efforts to obtain, at the reasonable request of and at the sole cost of the
Purchaser (which costs shall be advanced where necessary), an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Purchaser shall
designate. Purchaser shall provide to Sellers a written description of what
it considers to be Confidential Information subject to this Section 7.3.
7.4 REINVESTMENT OF CASH PROCEEDS OF SALES PRICE. Each of the Sellers
agrees that he or she will not directly or indirectly invest the cash portion
of the purchase price in any North American business that manufactures or
markets dry pasta products in direct competition with Purchaser for a period
of two (2) years from the Time of Closing.
7.5 ACCESS TO INFORMATION. Purchaser acknowledges that Sellers may
require information regarding Purchaser and its business from time to time in
connection with Sellers' investment in the Preferred Stock. Each Seller and
such Seller's counsel, accountants, and other representatives shall have
access during normal business hours to properties, books, accounts, records,
contracts, and documents of or relating to Purchaser and Corporation, so long
as any of the Preferred Stock is outstanding to the same extent and in the
same manner as provided or made available to other shareholders of the
Purchaser. Sellers shall agree to such confidentiality agreements or
restrictions to the use of such information in the same manner as required of
all other shareholders.
7.6 WRONGFUL ADVERSE ACTION. Purchaser agrees that it will not
knowingly take action that is intentionally and selectively calculated to
adversely affect the Sellers' ownership rights and value of the Preferred
Stock. Nothing herein creates a greater duty on Purchaser, or any of its
directors, in carrying on its business and exercising their business judgment
than exists under applicable law. Moreover, the Sellers acknowledge the
possibility that Purchaser may engage in an Equity Stock offering in the
future as further described in Schedule 1 hereto.
26
7.7 MISCELLANEOUS OBLIGATIONS OF PURCHASER. Purchaser agrees that it
will take all actions to ensure that sufficient Equity Stock is reserved for
issuance in connection with the conversion of the Preferred Stock, as may be
required from time to time. To the extent Purchaser is not prohibited from
doing so by any Legal Requirement or its organizational documents, Purchaser
will provide reasonable assistance to Sellers with respect to the sale of the
Preferred Stock; provided, however, that Purchase shall have no obligation to
(i) take any actions or engage in any activities which might require Purchaser
to register as a broker, dealer or agent with the Securities and Exchange
Commission or any state securities agency or (ii) to register as a broker,
dealer or agent with the Securities and Exchange Commission or any state
securities agency. Subject to applicable Legal Requirements and Purchaser's
public disclosure obligations under federal and state securities laws.
Purchaser will use reasonable efforts to keep confidential those details of
the Transactions (and the benefits thereof to the Sellers) which Sellers may
request be treated as confidential information. However, the Sellers are
aware of Purchaser's disclosure obligations and realize that applicable
securities laws will require the disclosure of significant information
regarding the Transaction and Sellers' ownership of the Preferred Stock.
Purchaser agrees to keep in full force and effect all existing insurance
policies until the expiration of such policies, including but not limited to
so-called "errors and omissions insurance" covering any Seller who is or has
been acting as an officer or director of Corporation. Purchaser agrees to
include such officers or directors of Corporation in any replacement policy to
the extent available.
ARTICLE VIII.
CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE.
The obligations of Purchaser to purchase the Shares under this Agreement
are subject to the satisfaction, at or before the Time of Closing, of all of
the conditions set out in this Article. Purchaser may waive any or all of
these conditions in whole or in part without prior notice. However, no such
waiver of a condition shall constitute a waiver by Purchaser of any of
Purchaser's other rights or remedies, at law or in equity, if Corporation or
Seller shall be in default of any of their representations, warranties or
covenants under this Agreement. Purchaser acknowledges and agrees that, due to
the nature of Corporation's business, much of the financial information to be
determined as of the Time of Closing will not actually be completed in a final
and accurate form until after the Time of Closing and, in many instances, with
Purchaser's participation and assistance; accordingly, Purchaser agrees that
the fact that any such financial information is inaccurate or incomplete at
the Time of Closing will not excuse Purchaser from its obligations to
consummate the Transaction at the Time of Closing.
8.1 CERTIFICATE OF CORPORATION AND SELLERS. Purchaser shall have
received a certificate, effective as of the Time of Closing, signed and
verified by Corporation and each of the Sellers, certifying, in such detail as
Purchaser may reasonably request, that the following conditions have been
fulfilled:
(a) ACCURACY OF REPRESENTATIONS. All representations and warranties
by Corporation and Sellers in this Agreement, or in any written statement that
shall be delivered to Purchaser by Corporation and Sellers under this
Agreement, shall be true at the Time of Closing as though made at that time.
(b) PERFORMANCE OF SELLERS AND CORPORATION. Corporation and Sellers
shall have performed, satisfied and complied with all covenants, agreements
and conditions required by this Agreement to be performed or complied with by
Corporation and Sellers on or before the Time of Closing.
(c) NO MATERIAL CHANGES. Prior to the Time of Closing:
27
(1) There shall not have been any material adverse change in the
financial condition or the results of operations of Corporation.
(2) Corporation shall not have sustained any material loss or
damage to any Corporate Asset, whether or not insured, that materially affects
Corporation's ability to conduct a material part of Corporation's business.
(3) At the time of Closing, the Shares will represent one
hundred percent (100%) of the issued and outstanding stock of the Corporation.
(d) ABSENCE OF LITIGATION. No action, suit or proceeding before any
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened on or before the Time of Closing.
8.2 OPINION OF COUNSEL. Purchaser shall have received from the
Sellers' and Corporation's legal counsel, an opinion effective as of the Time
of Closing, in form and substance satisfactory to Purchaser, that: other than
as set forth in this Agreement or its Exhibits and Schedules, (and with
respect to the following matters concerning Sellers, based on the information
and belief of such legal counsel):
(a) Corporation's legal counsel does not know of any suit, action,
arbitration or legal, administrative or other proceeding or governmental
investigation pending or threatened against or affecting Corporation or any of
Corporation's businesses or properties, or financial or other condition.
(b) Corporation has good and marketable title to the Corporate Assets,
free and clear of all liens, encumbrances, equities, conditional sales
contracts, security interests, charges, and restrictions, except as set forth
in this Agreement or its Exhibits and Schedule, and any other exceptions,
defects and qualifications that do not, in the opinion of Corporation's legal
counsel, materially affect the title of Corporation to the Corporate Assets or
Corporation's right to use the Corporate Assets in the conduct of
Corporation's business.
(c) This Agreement, when executed and delivered by Corporation and
Sellers, shall be valid and binding on Corporation and (on information and
belief) Sellers and shall be enforceable in accordance with its terms, except
as limited by bankruptcy and insolvency laws and by other laws affecting the
rights of creditors generally.
(d) Corporation is a corporation duly organized and validly existing
and in good standing under the laws of the State of Minnesota and has all
necessary corporate power to own the Corporate Assets as now owned and to
operate the business as now operated.
(e) The authorized capital stock of Corporation consists of Three
Million (3,000,000) shares of preferred stock and Twelve Million (12,000,000)
shares of common stock, no par value, of which Four Million One Hundred Fifty
Thousand (4,150,000) shares of common stock are issued and outstanding. All
outstanding shares are validly issued, fully paid, and non-assessable. To the
best knowledge and belief of Corporation's legal counsel and except as
described on the Schedule, there are no outstanding subscriptions, options,
rights, warrants, convertible securities, or other agreements or commitments
obligating Corporation to issue or transfer from the treasury any additional
shares of its capital stock of any class. The Corporation was entitled to
claim an exemption from registration under all applicable securities laws with
respect to the issuance of any securities issued prior to the date of this
Agreement and each of the Sellers is entitled to transfer the Shares to the
Purchaser without registration under applicable federal and state securities
laws.
(f) Sellers own, beneficially and of record, the Shares, which
28
constitute all of the issued and outstanding shares of the capital stock of
Corporation, on information and belief free and clear of all liens,
encumbrances, equities, options, claims, charges and restrictions. On
information and belief, Sellers have full power to transfer such Shares to
Purchaser without obtaining the consent or approval of any other Person.
(g) The Transaction will not constitute a default under or breach of
any of the Corporation's contracts and, to the extent required, the
Corporation has obtained all necessary consents to the consummation of the
Transaction from any Person who is a party to a Contract with the Corporation.
(h) Although counsel cannot guarantee the accuracy and completeness of
the representations and warranties provided by the Corporation or the Sellers,
on the basis of counsel's discussions and meetings with officers of the
Corporation and the Sellers in connection with the preparation of this
Agreement and such counsel's other representation of the Corporation and the
Sellers, nothing has come to the attention of counsel that leads counsel to
believe that the representations contained in this Agreement contained an
untrue statement of a material fact or omitted a material fact required to
make the representations contained in this Agreement, in the circumstances and
context in which made by the Corporation and Sellers, not misleading.
8.3 DOCUMENTS TO BE DELIVERED AT CLOSING. At the Time of Closing, the
Sellers and Corporation shall provide the following:
(a) Certificates representing the Shares, duly endorsed by Sellers for
transfer and accompanied by an assignment of the Shares duly executed by
Sellers;
(b) The corporate charter, articles and all amendments thereto;
(c) The current bylaws, stock books, stock ledgers, minute books and
corporate seal;
(d) Each certificate of qualification to do business as a foreign
corporation of the Corporation;
(e) Written resignations of all officers and directors of the
Corporation;
(f) Legal Opinion in the form described in Section 8.2;
(g) Certificate of Corporation and Sellers as described in Section
8.1;
(h) Any other such documents as Purchaser may reasonably request for
the purpose of (i) evidencing the accuracy of any of Sellers' representations
and warranties, (ii) evidencing the performance by any Seller of, or the
compliance by any Seller with, any covenant or obligation required to be
performed or complied with by such Seller.
8.4 APPROVAL OF DOCUMENTS. The form and substance of all
certificates, instruments, opinions and other documents delivered to Purchaser
under this Agreement shall be satisfactory in all reasonable respects to
Purchaser and to Purchaser's legal counsel.
8.5 DEBT FINANCING. Purchaser shall have obtained adequate and
satisfactory debt financing as necessary to consummate the Transaction and to
provide working capital; provided that Purchaser has received a commitment for
financing as of the date of this Agreement and will use its best efforts to
insure that such commitment results in actual funding.
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ARTICLE IX.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS
The obligations of Sellers to sell and transfer the Shares under this
Agreement are subject to the satisfaction, at or before the Time of Closing,
of all of the following conditions:
9.1 PURCHASER'S WARRANTIES. All representations and warranties by
Purchaser contained in this Agreement, or in any written statement delivered
by Purchaser under this Agreement, shall be true at the Time of Closing as
though such representations and warranties were made on and as of that date.
9.2 PURCHASER'S PERFORMANCE. Purchaser shall have performed and
complied with all covenants and agreements and shall have satisfied all
conditions that Purchaser is required by this Agreement to perform, comply
with or satisfy, before or at the Time of Closing.
9.3 OPINION OF PURCHASER'S LEGAL COUNSEL. Purchaser shall have
furnished Sellers with an opinion, effective as of the Time of Closing, from
Purchaser's legal counsel, in a form and substance satisfactory to Sellers, to
the effect that:
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Dakota and has all
requisite corporate power to perform its obligations under this Agreement.
(b) All corporate proceedings required by law or by the provisions of
this Agreement to be taken by Purchaser on or before the Time of Closing, in
connection with the execution and delivery of this Agreement and consummation
of the transactions contemplated by this Agreement, have been duly and validly
taken.
(c) Every consent, approval, authorization, or order of any court or
governmental agency or body that is required for the consummation by Purchaser
of the transactions contemplated by this Agreement has been obtained and will
be in effect at the Time of Closing.
(d) The consummation of the transactions contemplated by this
Agreement does not violate or contravene any of the provisions of any charter,
by-law or resolution of Purchaser or any indenture, agreement, judgment or
order to which Purchaser is a party or by which Purchaser is bound.
(e) Although counsel cannot guarantee the accuracy and completeness of
the representations and warranties provided by Purchaser, on the basis of
counsel's discussions and meetings with officers of Purchaser in connection
with the preparation of this Agreement and such counsel's other representation
of Purchaser, nothing has come to the attention of counsel that leads counsel
to believe that the representations contained in this Agreement contained an
untrue statement of a material fact or omitted a material fact required to
make the representations contained in this Agreement, in the circumstances and
context in which made by the Purchaser, not misleading.
9.4 AUTHORIZATION. Purchaser's Board of Directors shall have duly
authorized and approved the execution and delivery of this Agreement and all
corporate action necessary or proper to fulfill the obligations of Purchaser
to be performed under this Agreement on or before the Time of Closing.
9.5 RELEASE OF SELLERS' PERSONAL GUARANTEES TO HSBC. Sellers and
Purchaser shall have obtained the release of the Sellers' personal guarantees
to HSBC, and the Validity Agreement of Peter Lytle, effective upon
consummation of the Transaction.
9.6 PURCHASER'S OBLIGATIONS. At the Time of Closing, Purchaser shall
30
provide to Sellers:
(a) Legal opinion in the form set forth above;
(b) A certificate executed by Purchaser, as of the Time of Closing,
certifying that the representations and warranties of Purchaser in this
Agreement are true and correct at the Time of Closing, as though each
representation and warranty had been made on that date.
(c) Wire transfers of the cash portion of the Purchase Price.
(d) Certificates made out in the names of Sellers representing the
Preferred Stock portion of the Purchase Price.
(e) Any other such documents as Corporation or Sellers may reasonably
request for the purpose of (i) evidencing the accuracy of any of Purchaser's
representations and warranties, and (ii) evidencing the performance by
Purchaser of, or the compliance of Purchaser with, any covenant or obligation
required to be performed or complied with by Purchaser.
9.7 PURCHASER'S RETIREMENT OR ASSUMPTION OF LOANS. Purchaser shall
have assumed in full the HSBC Loan and the ADM Loan, or retired same or made
other arrangements for the release of any of Sellers' liabilities in
connection therewith. The release of any of Sellers' liabilities in
connection with such debts shall be satisfactory to Sellers. Any penalty
payments associated with the retirement of the HSBC Loan made by the
Corporation prior to closing, net of any related tax benefit, will not be used
in the determination of Net Debt.
ARTICLE X.
TERMINATION
10.1 TERMINATION FOR CAUSE. Any party having the right to terminate
this Agreement due to a failure of a condition precedent contained in Articles
VIII or IX hereto may terminate this Agreement by delivering to the other
party written notice of termination, and thereupon, this Agreement will be
terminated without obligation or liability of any party.
10.2 TERMINATION WITH MUTUAL CONSENT. Anything herein or elsewhere to
the contrary notwithstanding, this Agreement may be terminated and abandoned
at any time without further obligation or liability on the part of any party
in favor of any other by mutual consent of the Purchaser and the Sellers.
ARTICLE XI.
INDEMNITY OBLIGATIONS OF SELLERS
11.1 SELLERS' INDEMNITY. Sellers (only to the extent of said Seller's
percentage of the Purchase Price) shall jointly and severally indemnify, and
hold harmless Purchaser against and in respect of any and all claims, demands,
losses, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties and reasonable attorney's fees,
that Purchaser shall incur or suffer, which arise out of, result from, or
relate to any breach of, or failure by Corporation or Sellers to perform, any
of Corporation's or Sellers' representations, warranties, covenants, or
agreements in this Agreement or in any schedule, certificate, Exhibit or other
instrument furnished or to be furnished by Corporation or Sellers under this
Agreement.
11.2 NOTIFICATION BY PURCHASER OF THIRD PARTY CLAIMS. Purchaser shall
notify Sellers of the existence of any claim, demand, or other matter to which
Sellers' indemnification obligations would apply, and shall give Sellers a
reasonable opportunity to defend the same at Sellers' own expense and with
31
counsel of Sellers' own selection. However, Purchaser shall at all times also
have the right to fully participate in the defense at Purchaser's own expense.
If the claim is one that cannot by its nature be defended solely by Sellers
(including, without limitation, any federal or state tax proceeding), then
Purchaser shall make available, and cause Corporation to make available, all
information and assistance that Sellers may reasonably request.
ARTICLE XII.
INDEMNITY OBLIGATIONS OF PURCHASER.
12.1 PURCHASER'S INDEMNITY. Purchaser agrees to indemnify and hold
harmless each of Sellers against, and in respect of, any and all claims,
demands, losses, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties and reasonable attorney's fees,
that Seller may incur or suffer, which avail out of, result from, or relate to
any breach or failure of Purchaser to perform, any of Purchaser's
representations, warranties, covenants, or agreements in this Agreement or in
any schedule, certificate,
Exhibit or other instrument furnished or to be furnished by Purchaser under
this Agreement.
12.2 NOTIFICATION BY SELLERS OF THIRD PARTY CLAIMS. Sellers shall
notify Purchaser of the existence of any claim, demand, or other matter to
which Purchaser's indemnification obligations would apply, and shall give
Purchaser a reasonable opportunity to defend the same at Purchaser's own
expense and with counsel of Purchaser's own selection. However, Sellers shall
at all times also have the right to fully participate in the defense at
Sellers' own expense. If the claim is one that cannot by its nature be
defended solely by Purchaser (including, without limitation, any federal or
state tax proceeding), then Sellers shall make available all information and
assistance that Purchaser may reasonably request.
ARTICLE XIII.
MISCELLANEOUS PROVISIONS
13.1 COSTS.
(a) BROKER. Each of the parties represents and warrants that it has
dealt with no broker or finder in connection with any of the transactions con-
templated by this Agreement. Insofar as each of the parties knows, no broker
or other person is entitled to any commission or finder's fee in connection
with any of these transactions.
(b) EXPENSES. Each of the parties shall pay all of the costs and
expenses incurred or to be incurred by that party in negotiation and
preparation of this Agreement and in closing and carrying out the transactions
contemplated by this Agreement.
13.2 SURVIVAL OF REPRESENTATIONS AND OBLIGATIONS. All representations,
warranties, covenants and agreements of the parties contained in this
Agreement, or in any instrument, certificate, opinion, or other writing
provided for in it, shall survive the closing.
13.3 ADMINISTRATION AND CONSTRUCTION. This Agreement shall be
administered and construed in accordance with the following provisions:
(a) TIME. Time is of the essence of this Agreement.
(b) ATTORNEY'S FEES AND COSTS. In connection with any litigation,
including appellate proceedings, arising out of this Agreement, the prevailing
32
party shall be entitled to recover reasonable attorney's fees and costs.
(c) NOTICES. Any and all notices or other communication provided for
in this Agreement shall be given in writing by registered or certified mail
which, unless otherwise designated by a party, shall be addressed to the
addresses shown in Recital A of this Agreement. As to registered mail, notice
shall be deemed served when properly addressed and duly accepted for mailing
as registered mail in a branch of the United States Postal Service. As to
certified mail, notice shall be deemed served when duly deposited in a United
States Postal Service mailbox or at a branch of the United States Postal
Service.
(d) EXECUTION IN COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be considered as an original of the
Agreement. All executed counterparts shall constitute, and shall have the
force and effect, of one and the same document, and shall be binding upon
those who execute the Agreement, regardless of whether all parties execute the
same document.
(e) CAPTIONS. The captions on the paragraphs and subparagraphs of
this Agreement are inserted only for the purpose of convenient reference. The
captions shall not be used to construe or interpret the Agreement nor to
prescribe the scope or intent of the Agreement.
(f) SPECIFIC PERFORMANCE. The parties stipulate that it is impossible
to measure in money the damages which will accrue to a party to this Agreement
by reason of a failure to perform any of the obligations under this Agreement.
Therefore, if any party to this Agreement shall institute any action or
proceeding to enforce the provisions of this Agreement, any person against
whom such action or proceeding is brought hereby waives the claim or defense
that such party has an adequate remedy at law. Such person shall not urge in
any such action or proceeding the claim or defense that such remedy at law
exists.
(g) SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect its other provisions.
The Agreement shall be construed in all respects as if such invalid or
unenforceable provision was omitted.
(h) ENTIRE AGREEMENT. This Agreement constitutes the complete and
entire understanding of the parties concerning the conveyance of the Shares.
Neither party shall be bound by or be liable for any statements, warranties,
guarantees, or representations not set forth in this Agreement which may have
been made by any broker, agent, employee or other person representing or
purporting to represent a party to this Agreement.
(i) MODIFICATION. No change or modification of this Agreement shall
be valid unless the same be in writing and signed by all of the parties to
this Agreement.
(j) PERSONS BOUND BY THIS AGREEMENT. This Agreement shall be binding
upon the parties and their successors in interest. The rights and obligations
of any party to this Agreement may be exercised or satisfied by that party's
legal representative.
(k) GOVERNING LAW. The provisions of this Agreement shall be governed
by the laws of the State of Minnesota.
(l) CONSTRUCTION. The parties to this Agreement have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
33
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation. The parties intend that each representation, warranty, and
covenant contained herein shall have independent significance and must be true
on their own terms.
(m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedule identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the parties hereto and their
respective successors and permitted assigns.
34
IN WITNESS WHEREOF, the undersigned parties have executed this Stock
Purchase Agreement effective as of the date set forth above.
PRIMO PIATTO, INC. DAKOTA GROWERS PASTA COMPANY
/s/ Peter Lytle /s/ Tim Dodd
- ----------------------------- -------------------------------
Peter Lytle, Chairman and CEO Tim Dodd, President
SHAREHOLDERS:
/s/ Peter Lytle
-------------------------------
Peter Lytle
/s/ Patrick Lytle
-------------------------------
Patrick Lytle
/s/ Vivian Lezcano Lytle
-------------------------------
Vivian Lezcano Lytle
/s/ John C. Lawrie
-------------------------------
John C. Lawrie
/s/ Stuart Lawrie
-------------------------------
Stuart Lawrie
/s/ Christy Lawrie
-------------------------------
Christy Lawrie
/s/ Susan M. Clemens
-------------------------------
Susan M. Clemens
/s/ Jim Cochran
-------------------------------
Jim Cochran
/s/ Radwan Ibrahim
-------------------------------
Radwan Ibrahim
/s/ Marwa Ibrahim
-------------------------------
Marwa Ibrahim
/s/ Mona Ibrahim
-------------------------------
Mona Ibrahim
/s/ Ola Ibrahim
-------------------------------
Ola Ibrahim
/s/ Eldon Buschbom
------------------------------
Eldon Buschbom
35
/s/ Mike Cunningham
------------------------------
Mike Cunningham
/s/ Levon Perkins
------------------------------
Levon Perkins
/s/ Damien L. Bass
------------------------------
Damien L. Bass
/s/ Paul Easterday
------------------------------
Paul Easterday
/s/ Kenneth Zigrino
------------------------------
Kenneth Zigrino
36
INDEX OF ATTACHMENTS
I. SCHEDULE:
1. Describing any exceptions to Sellers', Corporation's and
Purchaser's Representations and Warranties.
2. Describing any other terms of Preferred Stock other than as
described in Section 1.24.
II. EXHIBITS:
"A" - Form of Preferred Stock Certificate
"B" - Liabilities
"C" - Real Estate
"D" - Equipment and Fixtures
"E" - Spare Parts Inventory
"F" - General Intangibles and Intellectual Property
"G" - Listing of Insurance Policies
"H" - Employee and Labor Relations Agreements
"I" - Complete and Accurate List of each Contract to Which
Corporation is a Party
"J" - Description of all Employee Welfare Benefit Plans and
Pension Plans
37
SCHEDULE 1
A. EXCEPTIONS TO THE REPRESENTATIONS AND WARRANTIES OF CORPORATION AND
SELLERS
This portion of Schedule 1 contains the exceptions to the representations and
warranties made by the Sellers and the Corporation to the Purchaser in Article
III of the Stock Purchase Agreement. Purchaser acknowledges that the
liability of Sellers and Corporation for such warranties and representations
is limited by the limitations and exceptions contained and referred to herein.
Certain warranties and representations in the Agreement are made solely
upon knowledge and belief, each warranting Seller and the Corporation not
being aware of any facts or circumstances which would tend to make such
statements misleading. All warranties and representations of a Seller are
made solely on his own behalf, and a warranting Seller shall not be liable for
the breaches, inaccuracies or misrepresentations of another Seller.
All warranties and representations in the Agreement are limited to such
material matters not already disclosed to Purchaser or brought to its
attention in the Disclosure Documents specified in this Schedule 1 (and as to
all of said matters Purchaser relies upon its own due diligence) as well as
limited by the exceptions hereinafter set forth and the disclosures made in
the Agreement and its Schedules and Exhibits. Each exception to a warranty
and representation in the Agreement is stated below following the heading of
that warranty and representation as it is set forth in the Agreement:
3.1 ORGANIZATION AND CORPORATE POWER. The Corporation has all
requisite corporate power and authority and all material licenses, permits,
and authorizations necessary to own and operate its properties and to carry on
its business as now conducted, except that the Coproration lacks certain
licenses and permits with respect to Environmental matters as set forth in the
Environmental Reports.
3.2 AUTHORITY.
(a) SELLERS. Each seller warrants that no approvals or consents of
any other person are necessary in connection with his own execution and
performance of this Agreement and the consumption of the Transaction, except
that under the Seller's personal guarantees with HSBC and the covenants in the
HSBC Loan Documents, the Seller may be required to obtain such approval and
consent. The consent of ADM may also be required to prevent a breach of the
ADM Contracts, insofar as Purchaser does not intend to repay the ADM Loan in
full. Provided that Purchaser is an "accredited investor" as that term is
defined under applicable securities laws, and provided further that all of
Purchaser's representations and warranties are true and correct, each Seller
agrees that he may sell the Shares to the Purchaser in the Transaction without
the requirement of said Shares under applicable federal and state securities
laws.
(b) CORPORATION. Pursuant to the HSBC Loan Documents, the
approval of HSBC would be required in connection with this Agreement and the
consumption of the Transaction in order to prevent a breach of the
Corporation's covenants therein. To the extent that the HSBC Loans are
retired or assumed by Purchaser, or if such breaches are waived by HSBC, such
approvals may not be necessary. Furthermore, if Purchaser in consummating
this transaction contravenes the ADM Contracts by obtaining flour from another
source, without paying off the ADM Loan in full, the consent of ADM may be
required to prevent a breach thereof.
3.3 NO BREACH OR VIOLATION. The execution of this Agreement and the
consummation of the Transaction will result in one or more breaches and/or
violations of the HSBC Loan Documents and the ADM Contracts as set forth in
38
Section 3.2 (b) above, which breaches would entitle HSBC and ADM to accelerate
the maturity of their indebtedness, cancel their contracts and impose liens,
encumbrances and penalties as set forth in such documents. In addition, if
the Purchaser's representation that it is an "accredited investor" is untrue,
then the sale of the Shares may contravene state federal securities laws.
3.4 CAPITAL STOCK AND RELATED MANNERS. The Corporation does have the
Options (covering 318,500 shares) outstanding, as set forth in the Disclosure
Documents; other than this, no options exist at Time of Closing, or have been
committed to be issued after the Time of Closing. Neither any of the Seller's
nor the Corporation are parties to any voting trust, proxy or other agreement
or understanding with respect to the voting of any of the Corporation's
shares, except as guarantors of the Corporation's obligations to HSBC, the
Sellers are restricted in their ability to consummate the Transaction without
the approval of HSBC.
3.5 SUBSIDIARIES. No exceptions.
3.6 FINANCIAL STATEMENTS. The Financial Statements will not include
the financial statements as of the Time of Closing, since these must be
prepared after the Time of Closing. Accordingly, there can be no guarantee as
to when these will be finalized, especially since Purchaser will participate
in the preparation of same.
3.7 LIABILITIES. Exhibit "B" to this Agreement contains a true
and complete schedule of all material and obligations of Corporation, except
for liabilities (i) referred to in the Disclosure Documents already disclosed
to Purchaser, which latter liabilities are only referred to by mentioning the
contracts containing such liabilities; (ii) referred to elsewhere in this
Schedule and the other Exhibits to the Agreement; (iii) arising out of the
normal course of business of the Corporation on an ongoing basis such as the
ordering of materials, inventories and supplies and the like; and (iv)
liabilities to be disclosed on the financial statements to be prepared after
the Time of Closing. Other than as limited by the foregoing, Corporation has
no material debts, liabilities, guarantees or obligations of any nature,
whether accrued, absolute, contingent, or otherwise and whether due or to
become due, that are not set forth in Exhibit "B". Exhibit "B" shall be
updated as of the Time of Closing and thereafter, including a schedule of all
accounts payable.
3.8 ABSCENCE OF CHANGES. Material changes since September 30,
1997 other than as already disclosed to Purchaser are as follows:
(a) the transactions comprising and relating to the Transaction and
the dealings with Purchaser leading up to the signing of the letter of intent
and the Agreement;
(b) no change in accounting methods or practices (including, without
limitation, a change in depreciation or amortization policies or rates) by
Corporation, except for the lease of certain computer items sold to the lessor
by the Corporation;
(c) no revaluation by Corporation of any of the Corporate Assets,
except for revaluation of Inventory according to net realizable value;
(d) no declaration, setting aside, or payment of a dividend or other
distribution in respect to the Shares or any direct or indirect redemption,
purchase or other acquisition by Corporation of any of the Shares, other than
the Options;
(e) there have been increases in the salary or other compensation
payable by Corporation to certain of its employees as follows: (i) members of
the Baker's Union are scheduled for a $0.30 per hour pay raise effective in
July of 1998; (ii) pay raises of 5% for reviews done on or before February of
39
1998 have been authorized for Josef A. Niedermayr, John A. Johnson, Gary L.
Anderson, Kenneth Koehler, and Augustine Maysa (7%); the Corporation has also
given raises to other non-Seller employees and has hired new employees in the
normal cause of business; (iii) there have been declarations of the following
bonuses: bonus plan for employees who remained with the Corporation after the
asset purchase from Borden in the amount of $750.00 per employee payable
August 18, 1998, provided all such employees remain with the Corporation until
that time; and bonuses for employees of the Corporation hired subsequent to
purchase of Borden assets in the amount of $500 per employee, payable upon
anniversary of all subsequent hires who remain employees the full year; and
(iv) the Corporation's Board of Directors has authorized the redemption of the
Options for a redemption price of $1.00 for each share of Corporation's stock
subject to the Options. Other than the foregoing, there is no plan calling
for the increase in payment to any of its officers, directors or employees, or
the declaration, payment, or commitment or obligation of any kind for the
payment by Corporation of a bonus or other additional salary or compensation
to such person; or the adoption of any plan intended to provide a financial
benefit to the Corporation's officers, directors or employees, except as to as
disclosed in writing to the Purchaser prior to the date hereof.
(f) no sale or transfer of any assets by Corporation, except in the
ordinary course of business, except (b) above;
(g) no amendment or termination of any Contract, which Corporation is
a party. Except in the ordinary course of business, except that the
Corporation's Warehouse Agreement with Borden amended to become a pallet
storage agreement;
(h) On or about August 22, 1997, the Corporation loaned Bill Lamb the
amount of $10,000, which amount has been repaid in full. The Corporation also
loaned Deb Maron the amount of $2,000, which amount has been repaid in full.
And the Corporation loaned Ron Odensee the amount of $2,000, which amount has
been repaid in full.
(i) no mortgage, pledge or other encumbrance of any of the Corporate
Assets, except to the extent that a mortgage, pledge or encumbrance to either
HSBC or ADM took place or was filed after such date;
(j) on or about February 1, 1998, the Corporation received notice that
one of its customers, Bruno's, Inc., filed for reorganization under Chapter 11
of the Bankruptcy laws. To date, Bruno's owes the Corporation the amount of
approximately $70,000. The Corporation cannot now determine how much of said
receivable will be paid or when; and
(k) as shown in the Disclosure Documents, the Corporation has issued
the options to certain of its employees and consultants. The Corporation is
in the process of redeeming said options, as has been disclosed to the
Purchaser, which redemption process will be begun immediately after closing.
3.9 REAL ESTATE. Exhibit "C" to this Agreement contains the legal
description of the Real Estate which was used in connection with the
Corporation's purchase of same from Borden on August 18, 1997, and was
prepared by Lawyer's Title Insurance Corporation. The Title Documents show
that this legal description was certified to by Lawyer's Title Insurance
Company. Although neither Corporation nor Sellers warrant the legal accuracy
or completeness of such legal description, and relies totally on Lawyer's
Title, neither Corporation nor Sellers have any reason to believe this legal
description is inaccurate except as may be disclosed in the Title Documents.
The survey indicates the position of all buildings, fixtures and other
improvements located on the Real Estate. The zoning of the Real Estate
permits the presently existing improvements and a continuation of the business
presently being conducted on the Real Estate, subject to any zoning variances
set forth in the title documents.
40
3.10 INVENTORY. All Inventory listed is saleable and in good
condition, with the exception of certain Non-Folic Acid packaging which needs
to be used up by July of 1998 unless another extension is given by
authorities, and except for items noted on the inventory to be taken by
Purchaser and Corporation on the weekend of February 21, 1998
3.11 ACCOUNTS RECEIVABLE. The Accounts Receivable constitute all of
the customer obligations of the Corporation as of the time of closing and all
arose from valid sales in the ordinary course of business, subject to any
obligations which Bruno's may be relieved by virtue of the Bankruptcy laws.
3.12 EQUIPMENT AND FIXTURES. Exhibit "D" to this Agreement is the
description of Equipment and Fixtures of the corporation purchased from Borden
on August 18, 1997, as generated by Borden's computer programs at the time,
together with other lists referring to other equipment and fixtures owned by
the Corporation. Neither the corporation not the Sellers have reason to
believe said lists are inaccurate or incomplete in any respect.
3.13 SPARE PARTS INVENTORY. Exhibit "E" to this Agreement is the
description of Spare Parts Inventory of the Corporation purchased from Borden
on August 18, 1997, as generated by Borden's computer programs at the time,
together with other lists referring to other equipment and fixtures owned by
the Corporation. Neither the corporation nor the Sellers warrant or that
these lists are complete or accurate. Neither the Corporation nor the Sellers
have reason to believe said lists are inaccurate in any respect.
3.14 GENERAL INTANGIBLES AND INTELLECTUAL PROPERTY. To the best of the
knowledge and belied of Corporation and Sellers, the property listed on
Exhibit "F" is free and clear of liens, charges, claims and restrictions. To
the best of the knowledge and belied of Corporation and Sellers, the
Corporation has not infringed upon nor is it infringing upon any patent,
trademark, service mark, trade name, copyright or other intellectual property
of any third party, though the Corporation is aware that there is another
pasta company allegedly called "Primo Pasta Company" or such similar name.
3.15 CONDITION OF PROPERTY. The warranties in this section are made
solely on information and belief of Sellers and Corporation, neither being
aware of any facts that would make the statements herein misleading. This
property was purchased "as is" from Borden, and Purchaser has had ample
opportunity to investigate and assess same. Purchaser has been made aware of
items that may need repair in the ordinary course of business, such as
patching or replacing asbestos tiles, tanks and leaks in the roof over the
packaging floor. While Sellers and Corporation believe the properties listed
in Exhibits "C", "D", and "E" generally constitute all of the items necessary
for the operation of the business of the Corporation in the manner operated as
of the date hereof, no warranty can be made that such items will be everything
necessary to conduct the business of the Corporation in the hands of the
Purchaser, since Purchaser has not disclosed its intentions as to any changes
in the business of the Corporation.
3.16 TITLE AND RELATED MATTERS. The Corporation has good and
marketable title to all of its corporate Assets, free and clear of all
security interest, mortgages, liens, pledges, charges, claims, or encumbrances
of any kind or character, except the mortgages and liens granted to HSBC
pursuant to the HSBC Loan Documents and to ADM pursuant to the ADM contracts,
and except for any title defects shown on the title Documents. All buildings,
plants and structures owned by the corporation lie wholly within the
boundaries of the real property owned by the Corporation and do not encroach
upon the property of, or otherwise conflict with the property rights of, any
other Person, except such encroachments shown on the Title Documents.
3.17 LITIGATION. Currently, the only matters affecting the Corporation
is (i) a title registration proceeding being undertaken by Borden to register
title to one of the parcels of the Corporation's real estate, which proceeding
41
is being paid for and under the direction of Borden pursuant to the Asset
Purchase Documents; and (ii) Company is a creditor in the bankruptcy
proceeding involving Bruno's.
3.18 HSBC LOAN DOCUMENTS. The Corporation is not in compliance with
all terms and covenants of the HSBC Loan Documents. As already disclosed to
the Purchaser, the Corporation needs to comply with certain provisions
regarding Environmental Liabilities as set forth in the HSBC Loan Documents
and the Environmental Reports, and the consummation of the Transaction will
cause the Corporation to be in breach of certain other covenants contained
therein.
3.19 TAX MATTERS. The Corporation cannot determine whether the
charges, accruals and reserves with respect to taxes of the Corporation are
adequate (as determined in accordance with GAAP) or are at least equal to the
Corporation's liability for taxes, until the returns therefor have been filed.
However, the Corporation currently knows of no facts or circumstances which
would tend to make inadequate such reserves and accruals as have been made to
date.
3.20 COMPLIANCE WITH LEGAL REQUIREMENTS. As set forth in the Schedule
1, the Corporation is not in compliance with certain legal requirements,
including but not limited to Environmental law, Occupational Safety and Health
Law and contractual requirements; other than as set forth herein, neither
Corporation nor Sellers are aware of any material non-compliance with any
legal Requirements.
3.21 CUSTOMERS. Neither corporation nor Sellers have any information,
or are aware of any facts indicating that any of Corporation's customers
intend to cease doing business with Corporation, or materially alter the
amount of business that they are presently doing with Corporation. Purchaser
acknowledges and is aware that Corporation has not contracts with customers
providing for any set purchases (other than purchases Borden may have
committed to under its Contract Packaging Agreement) and that such customers
may elect to increase or decrease orders from time to time, or cease doing
business completely with Corporation, without notice to Corporation.
3.22 INSURANCE. No Exceptions.
3.23 EMPLOYEES AND LABOR RELATIONS MATTERS. Exhibit "H" to this
Agreement is a correct and accurate list of the following, other than matters
already disclosed to Purchaser, and other than that the Corporation has not
formally adopted severance guidelines, but had anticipated adopting one based
on Borden severance policies, which were disclosed to Purchaser.
3.24 ADM CONTRACT. Neither the Corporation nor Sellers make any
warranties or representations regarding the lawfulness of terminating any
contracts with ADM, as the documents speak for themselves. If such contracts
are terminated while any liabilities to ADM remain outstanding and while the
Corporation still performs contract packaging for ADM (the Corporation
contracts for the packaging of ADM's Gooch brand pasta), or if the Corporation
fails to continue to purchase semolina from ADM while the contracts remain in
force, the Corporation expects significant liabilities.
3.25 FULL DISCLOSURE. No exceptions.
3.26 POWER OF ATTORNEY. No exceptions
3.27 CONTRACTS. Exhibit "I" contains a complete and accurate list of
each material Contract to which the Corporation is a party, other than any
contracts which are disclosed elsewhere in the Schedule or on other Schedules
and Exhibits to the Agreement. Except as otherwise set forth in Exhibit "I"
or elsewhere in this Schedule and said Exhibits and the Agreement, the
Corporation's best knowledge, does there exist any event that, with notice or
42
the passage of time or both, would constitute a material default or event of
default by the Corporation under any Contract.
3.28 ERISA AND RELATED MATTER. The Corporation does currently maintain
an employee bonus plan for employees who stayed with the Corporation after its
purchase of the Corporate Assets from Borden. Under this plan, the
Corporation has already paid said employees $250 each on signing. The
Corporation owes each of said employees (who stay on as employees through
August of 1998) an additional amount of $750 each, payable at the end of the
first year of employment. In addition, the Corporation maintains an incentive
bonus plan whereby it has agreed to pay $500 each employee who started working
with the Corporation after the Borden purchase. The Corporation also plans to
redeem all Options (though this cannot be quaranteed) outstanding or to
provide for such redemption. The Corporation has agreed to quarantee certain
liabilities of Borden to Phil Dorholt pursuant to a letter dated October 30,
1997. Pursuant to a letter agreement dated December 30, 1997, the Corporation
has agreed to continue to pay rent for an office in Tennessee occupied by
Robert Cantrell on behalf of the Corporation; the lease runs through April of
1998 and rent is $480.00 per month.
The Corporation may in fact have incentive bonus, stock option and
unemployment compensation plans, vacation pay, severance pay, bonus or benefit
arrangements, insurance or hospitalization programs and/or other fringe
benefit arrangements for its employees, consultants or agents of the
Corporation (as already disclosed to Purchaser), whether pursuant to contract,
arrangement, custom or informal understanding, which may not constitute an
"Employee Benefit Plan" (as defined in Section 3(3) of ERISA), for which the
corporation may have any ongoing liability after Closing, and neither
Corporation nor Sellers may any representations or warranties to the contrary.
The corporation does maintain and has in fact contributed to a Multi-employer
Plan as defined by Section 3(37) of ERISA, which plan is the Teamster's
Central States Pension Plan. The corporation makes no warranties regarding
whether or not it does currently maintain any employee pension Benefit plan
subject to Title IV or ERISA, but directs Purchaser's attention to the
contracts disclosed on Exhibit "J".
There have been (i) no "prohibited transactions" (as directed in Section 406
of ERISA or Section 4975 of the Code) with respect to any Employee Pension
Benefit Plan or Employee Welfare Benefit Plan maintained by the corporation as
to which the corporation has been a party; and (ii) as to any employee pension
benefit plan listed on Exhibit "J" and subject to Title IV or ERISA, there
have been no reportable events (as such terms is defined in Section 4043 of
ERISA).
The Purchaser has received or had the opportunity to review and examine all
material documents embodying any plans intended for the benefit of the
Corporation's employees, including all trust agreements, annuity contracts,
insurance policies, funding agreements, annual reports or reviews and all
other material documentation with regard to any such plan or arrangement, and
agrees to make its own determination as to the impact and consequences of same
on Corporation or its business. To the best of Corporation's and Seller's
knowledge (i) all benefits, expenses and other amounts due and payable under
or with respect to any plan or arrangement intended for the benefit of the
Corporation's employees have been paid or made or accrued; and (ii) the
Corporation's financial statements accurately reflect the maximum liability of
the Corporation under or related to any such plan or arrangement.
3.29 OPERATING RIGHTS. The Corporation does not have the requisite
Licenses with respect to certain Environmental, Health and Safety Laws, as set
forth elsewhere herein.
3.30 TRANSACTIONS AND AFFILIATES. Tim Becker, the Chief Financial
Officer of the Corporation, is a consultant of the Corporation and not an
43
employee. Mr. Becker is the recipient of options to purchase up to 10,000
shares of the Corporation's common stock, which options the Corporation
intends to redeem in the same manner as the other options. Kenneth Zigrino,
one of the Sellers, is legal counsel to the Corporation and receives
compensation for legal services rendered on an hourly basis, but is not an
employee of the Corporation.
3.31 BOOKS AND RECORDS. No exceptions.
3.32 ENVIROMENTAL MATTERS. As disclosed to Purchaser in the HSBC
Loan Documents and the Environmental Reports and the Agreement and its
Schedules and Exhibits, the corporation is not in compliance with certain
Legal Requirements regarding the Environmental Laws and Occupational Safety
and health Laws and may have certain Environmental, health and Safety
Liabilities in connection therewith
3.33 WARRANTIES AT CLOSING. No exceptions.
B. EXCEPTIONS TO THE REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.9 is qualified as follows:
(a) The transferability and marketability of the Preferred Stock is
limited by all applicable state and federal securities laws;
(b) General business conditions and the competitive environment will
affect the Purchaser's business, and Purchaser does not know how such matters
may affect the value of the Preferred Stock in the future;
(c) The Purchaser may engage in any equity securities offering in the
future. Purchaser does not know when or is such an offering will occur or any
of the terms of such offering. The Purchaser does not know how such an
offering may affect the value of the Preferred Stock and makes no warranty
thereto. Purchaser is unencumbered by any duty to the Sellers in connection
with such offering and is free to establish the offering price in its business
judgement, except as respecting the limitations set forth in the Agreement.
44
SCHEDULE 2
REGISTRATION RIGHTS. If, as long as Preferred Stock is held by Sellers,
the Company shall propose to file any Registration Statement (other than any
registration on Forms S-4, S-8, or any other similarly inappropriate form)
under the Securities Act of 1933, as amended (the "Act"), covering a public
offering of the Company's shares of Equity Stock or Preferred Stock, or if it
qualifies for a public distribution of either of the same under Section 3(b)
of the Act, it will notify the holders of Preferred Stock at least thirty (30)
days prior to each such filing or qualification and will include in the
Registration Statement or cover by qualification (to the extent permitted by
applicable regulation), the Preferred Stock purchased by the holder or the
Equity Stock purchasable by the holder upon the conversion of the Preferred
Stock, to the extent requested by a majority of the Preferred Stock issued in
connection with the Transaction. Notwithstanding the foregoing, the number of
shares of the holders of the Preferred Stock proposed to be registered thereby
shall be reduced pro rata with any other selling shareholder (other than the
Company) upon the reasonable request of the Company or the managing
underwriter of such offering, if any.
All expenses of any such registrations referred to in this Schedule 2,
except the fees of special counsel or accountants to such holders and
underwriting commissions or discounts and any transfer or other taxes
applicable to such Preferred Stock or Equity Stock, shall be borne by the
Company (which expenses of the Company shall include all registration, filing,
and NASD fees, Nasdaq fees, printing expenses, fees and disbursements of
counsel and accountants for the Company, all internal expenses, blue sky fees
and disbursements, and, if the offering is underwritten and the Company is
required to do so, fees and disbursements of counsel for the underwriter of
such securities). The Company will mail to each record holder, at the last
known post office address, written notice of any exercise of the rights
granted under this Schedule 2, by certified or registered mail, return receipt
requested, and each holder shall have twenty (20) days from the date of
deposit of such notice in the U.S. Mail to notify the Company in writing
whether such holder wishes to join in such exercise. The Company will furnish
the holder hereof with a reasonable number of copies of any prospectus
included in such filings and will amend or supplement the same as required
during the period of required use thereof. The Company will maintain, at its
expense, the effectiveness of any Registration Statement or the Offering
Statement filed by the Company, whether or not at the request of the holder
hereof, for a time sufficient to allow for the disposition of the Preferred
Stock or Equity Stock, but not to exceed one hundred eighty (180) days,
following the effective date thereof.
In the case of the filing of any Registration Statement, and to the
extent permissible under the Act, and controlling precedent thereunder, the
Company and the holders of the Preferred Stock shall provide cross
indemnification agreements to each other in customary scope covering the
accuracy and completeness of the information furnished by each. The holders
of the Preferred Stock agree to cooperate with the Company in the preparation
and filing of any such Registration Statement or Offering Statement, and in
the furnishing or information concerning the holder for inclusion therein, or
in any efforts by the Company to establish that the proposed sale is exempt
under the Act as to any proposed distribution. Preferred Stock and any Equity
Stock into which such Preferred Stock may be converted shall cease to be
entitled to the registration rights set forth in this Schedule 2 when they (i)
shall have been disposed of pursuant to an effective registration statement
under the Act or (ii) they shall have been distributed to the public pursuant
to Rule 144 promulgated under the Act.
45
EXHIBIT A
SERIES D PREFERRED STOCK CERTIFICATE
This exhibit shows the face of the Series D Preferred Stock of Dakota Growers
Pasta Company (Non-voting, Noncumulative, 50,000 Shares Authorized, $100.00
Par Value). The back of the certificate outlines the Statement of Series D
Preferred Share Rights as follows:
STATEMENT OF SERIES D PREFERRED SHARE RIGHTS
The Series D Preferred Shares were originally issued to certain individuals
pursuant to a Stock Purchase Agreement, dated February 20, 1998, (the "Stock
Purchase Agreement"), between said individuals and the Cooperative. The
following represents a summary of the material rights, preferences and
limitations of the Series D Preferred Shares. The above referenced Stock
Purchase Agreement should be referred to for a full discussion of the
attributes of the Series D Preferred Shares. In the event any of the rights,
preferences, terms or conditions set forth herein conflict with those set
forth in the Stock Purchase Agreement, those set forth in the Stock Purchase
Agreement control.
1. VOTING. All Series D Preferred Shares issued by the Cooperative are non-
voting shares.
2. CONVERSION RIGHTS. Each share of Series D Preferred Stock is convertible
into ten (10) shares of Equity Stock. If the Cooperative increases or
decreases the number of shares of its Equity Stock outstanding without the
payment of consideration by or to the members (e.g., by stock split, stock
dividend, or other similar action or reverse stock split or other share
combination), the conversion ratio shall be proportionately adjusted. The
Series D Preferred Stock carries no preemptive rights.
3. DIVIDENDS. The holders of record of the Series D Preferred Shares shall
be entitled to receive out of earnings legally available, cash dividends at
the rate of $6.00 per share, per annum, computed from the issue date.
Dividends on the Series D Preferred Shares shall not accumulate, provided that
such dividends shall be declared and paid to the extent of earnings prior to
any payment of patronage dividends or other dividends or distributions (other
that redemption of unit retains) on the Equity Stock of the Cooperative or
payment of dividends on the Series B Preferred Stock.
4. REDEMPTION. The Series D Preferred Shares may not be redeemed by the
Cooperative.
5. LIQUIDATION. In the event of liquidation or dissolution of the
Cooperative, the holders of the Series D Preferred Shares shall be entitled to
receive out of the assets of the Cooperative the amount of the $100.00 par
value per share, plus any unpaid dividends thereon to the date fixed for
distribution, in preference to and in priority over any liquidation
distribution upon the Equity Stock or Membership Stock of the Cooperative.
6. TRANSFER. The Series D Preferred Shares represented by the within
Certificate:
a. Were acquired in a transaction intended to be exempt from
registration under the Federal and State Securities Laws under an investment
representation made by the purchaser to the issuer. The Series D Preferred
Shares may not be sold, transferred, pledged or hypothecated except pursuant
to an effective registration statement under the Federal and State Securities
Laws, or except in a transaction which, in the opinion of counsel for the
Seller, is exempt from registration; and,
b. May be transferred in resales or other transfers that qualify for
46
exemption for securities registration under state and federal law, subject to
approval by the Cooperative's Board of Directors as further described in the
Stock Purchase Agreement.
The holder of the Series D Preferred Shares shall, in connection with a
transfer of said Shares, provide to any purchaser the applicable portions of
the Stock Purchase Agreement which more fully describes the attributes of the
Series D Preferred Shares.
47
EXHIBIT B
LIABILITIES OF CORPORATION
The following lists the liabilities and obligations of the Corporation, both
liquidated and contingent. These liabilities are supplemented by the
liabilities shown on the Corporation's balance sheets and other financial
information, which will be updated after the Time of Closing with the
assistance of Purchaser. Capitalized terms have the same meaning as used in
the Stock Purchase Agreement.
CONTRACTS
Liabilities to HSBC relating to HSBC Loan and HSBC Loan Documents.
Liabilities to ADM relating to ADM Loan and ADM Contracts (including without
limitation the Subordination Agreement, Promissory Note and Security Agreement
and semolina purchase agreement.
Liabilities to Borden relating to Asset Purchase Documents.
Liabilities to employees and contractors relating to the Options.
Liabilities to E. Philip Dorholt for reimbursements relating to the Letter
Agreement dated October 30, 1997.
Liabilities to Robert Cantrell for rents relating to the Letter Agreement
dated December 30, 1997 (runs through April of 1998 at $480.00 per month).
Liabilities to employees relating to incentive bonuses, ERISA and other
similar benefit plans (see, e.g., Exhibit H to Agreement).
Liabilities for defects in title as set forth in the Title Documents (see
Exhibit C to Agreement).
Tax liabilities for current fiscal year, which are unknown and will be
determined in the financial statement as of the Time of Closing.
Liabilities to State of Minnesota and others for Environmental, Health and
Safety Liabilities relating to matters set forth in the Environmental Reports.
Liabilities disclosed on Schedule 1 and the Exhibits to the Agreement.
Liabilities to brokers for contracts relating to sales and marketing of pasta
(see Exhibit I to Agreement).
LEASES
'95 Volvo Tractor. Terms: 36 months beginning Dec 1, 1997, $1,525 per month
plus $.09 per mile over 16,000 annually. Lessor: Koch National Lease.
Mailing system. Terms: 51 months beginning 11/21/97, $373.10 per quarter.
Lessor: Pitney Bowes Credit Corporation.
Fax Machine. Terms: 36 months beginning 1/29/98, $37.00 per month. Lessor:
Pitney Bowers Credit Corporation.
VAX I & Support: Services are $12,179 per month to reSource Partners, Inc.,
cancelable with 90 day notice. Automatic six month renewal occurs on
anniversary unless otherwise notified. Note: Anniversary date is not
specified and the signatures are not dated. The only date in the document is
July 29, 1997.
48
OTHER LIABILITIES
Salary increases: Baker's Union workers will be getting an increase of $0.30
per hour on July 1, 1998.
Coopers & Lybrand tax work. Estimate $6,200.00
Non-Folic Acid packaging: Six month extension has been granted, and none is
expected to remain after six months. If not managed correctly, this could
become a liability of the Corporation.
Lurie, Besikoff, Lapidus stock valuation, estimated $15,000 (retainer already
paid).
Remove & replace flooring in lunchroom & two locker rooms and insulation
repair at 4th St. (estimated $10,000)
4th St. Fuel tank lining to December 1998 MPCA standards (estimated $7,500)
4th St. Spill containment, level alarm, tank monitor & probe (12/98
MPCA)(estimated $8,800).
New Hope fuel tank upgrade, spill containment, Shut-Off Monitor (12/98
MPCA)(estimated $10,800)
Liabilities recorded on Corporation's books as of February 22, 1998, prepared
in accordance with GAAP, as attached hereto.
Pending lease of computer equipment with Matrix Funding Corporation.
NOTE: Financial statements reflecting liabilities referenced to above will be
filed upon completion within the extension period allowable.
48
EXHIBIT C
REAL ESTATE OF CORPORATION
Parcel 1:
Lot 1, Block 1, Creamette Addition, according to the recorded plat thereof,
Hennepin County, Minnesota
Parcel 2:
All of Lots 1 to 5, inclusive, Block 16, Bradford and Lewis' Addition to
Minneapolis except the following portions of said lots: The rear 11 feet of
said Lots 1, 2, 3 and of the Southeasterly 35.22 feet of said Lot 4 and the
rear 12 feet of said Lot 5 and of the Northwesterly 15 feet of said Lot 4.
Also all that part of Lot 6, Block 16, Bradford and Lewis' Addition to
Minneapolis lying Southeasterly of a line drawn from a point in the
Southwesterly line of said Lot, 299.99 feet Northwesterly, measured along said
line from the most Southerly corner of said Block to a point in the
Southwesterly line of the Northeasterly 12 feet of said lot a a point 299.99
feet Northwesterly from the Southeasterly line of Block 16, Bradford and
Lewis' Addition to Minneapolis as measured along an extension of said
Southwesterly line of the Northeasterly 12 feet of said Lot 6, according to
the plat thereof on file or of record in the office of the Registrar of Deeds
in and for said County.
Parcel 3:
Lot 1, Block 2, Winnetka Industrial Park, EXCEPT that part of said Lot 1,
lying West of a line described as being 650 feet East and parallel to the West
line of the Northwest 1/4 of Section 20, Township 118, Range 21, from the
Northwest corner thereof, and EXCEPT that part of Lot 1, Block 2, Winnetka
Industrial Park, according to the plat thereof on file and of record in the
office of the County Recorder, Hennepin County, Minnesota described as
follows: Beginning at the Northeast corner of said Lot 1; thence Westerly
along the North line of said Lot 1, 654.08 feet to the Westerly line of said
Lot 1; thence Southerly along the Westerly line of said Lot 1 and its
Southerly extension, 672.50 feet; thence Easterly, parallel with the North
line of said Lot 1, 653.61 feet to the Easterly line of said Lot 1; thence
Northerly along the Easterly line of said Lot 1 to the point of beginning,
according to the recorded plat thereof, Hennepin County, Minnesota.
49
EXHIBIT D
EQUIPMENT AND FIXTURES OF CORPORATION
This Exhibit consists of 14 pages detailing the individual components of
equipment and fixtures which are voluminous in nature, the detail of which is
not material to the transaction and not included in the filing.
The major components are three (3) long goods and three (3) short goods lines
at the New Hope facility and two (2) long goods and two (2) short goods lines
at the Minneapolis facility, along with the related flour handling and
packaging equipment.
50
EXHIBIT E
SPARE PARTS INVENTORY OF CORPORATION
This Exhibit consists of 138 pages detailing the individual components of
spare parts inventory which are voluminous in nature, the detail of which is
not material to the transaction and not included in the filing.
51
EXHIBIT F
GENERAL INTANGIBLES AND INTELLECTUAL PROPERTY OF CORPORATION
Name and trademark: "Primo Piatto"
Copyright: Primo Piatto logo and artwork, brochures and promotional materials
Miscellaneous other trademarks and copyrights, if any, associated with above
All of the foregoing previously disclosed to Purchaser
52
EXHIBIT G
LISTING OF INSURANCE POLICIES
Property G-1
Boiler & Machinery G-2
Crime G-3
General Liability G-4
Automobile G-5
Uninsured/Underinsured Motorist G-6
Umbrella G-7
Workers' Compensation G-8
Directors & Officers G-9
Title G-10
53
EXHIBIT H
EMPLOYEES AND LABOR RELATIONS MATTERS OF CORPORATION
1. 401(K)
Minnesota Mutual 401(k) Plan Document
2. Pension
Central States Pension Document
Borden Pension Booklet
Cap Account Plan
3. Healthcare
Blue Cross/Blue Shield Summary Booklets
4. Dental
Canada Life Booklets
5. Long/Short Term Disability
Summary Plan Descriptions
Salary Continuation Plan
6. Flexible Spending
Summary Plan Description
7. Attendance Policy
Union Attendance Policy
8. Vacation Policy
Union Vacation Policy (in contracts)
Salaried Vacation Policy
9. Life Insurance
Union Life Insurance Policy (in contracts)
Salaried Life Policy
10. Supplemental Life Insurance
Summary Plan Description Booklets
11. Stock Option Plan
12. Severance Pay Agreements - Salaried
Pay Agreement (generic)
Severance calculation guide (see Schedule 1)
ALL OF THE ABOVE HAVE BEEN RECEIVED BY PURCHASER
55
EXHIBIT I
CONTRACTS OF CORPORATION
This Exhibit I contains a complete and accurate list of each material contract
to which the Corporation is a party, except as may be disclosed elsewhere in
the Agreement or the Schedules or Exhibits thereto.
See attached for listing of Asset Purchase Documents, HSBC Loan Documents and
ADM Contracts, Brokerage Agreements and Employee Benefit Agreements.
Purchaser acknowledges receipt of the Appraisals, Environmental Reports, Title
Documents and Due Diligence Documents (which include copies of the Options,
the Corporation's 1997 Guarantor option plan and agreements, as well as
corporate records such as subscription agreements and the like).
Employment-related contracts and commitments, and pension and other benefit
contracts are listed on Exhibit H.
Schedule 1 contains certain other commitments and contracts of Corporation.
Contractor agreement (verbal) with Tim Becker, Corporation's CFO.
Retainer agreement with Lurie, Besikoff and Lapidus, for accounting services.
Retainer agreement with Kenneth D. Zigrino, for legal services.
Contractor agreement (verbal) with Coopers & Lybrand for accounting services.
Contractor agreement (verbal) with Bechamp Software.
Leases, as shown on Exhibit B and Schedule 1.
Contractor agreements (provided to Purchaser) for brokerage services.
Contracts with E. Philip Dorholt and Bobby Cantrell as disclosed on Exhibit B
and Schedule 1.
55
EXHIBIT J
ERISA EMPLOYEE PLANS OF CORPORATION
See Exhibit H
56
Exhibit 10.1
Date Approved 2/13/98
ST. PAUL BANK FOR COOPERATIVES
Loan Agreement
Borrower: Application No. S-26918
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
New Loan Present Loans
$29,000,000.00 - Term Loan
$11,000,000.00 - Seasonal
18,409,007.58 - Term Loan
18,000,000.00 - Construction Term Loan
-------------
$47,409,007.58
Total Loans
------------
$11,000,000.00 - Seasonal Loan, Note No. 29180
29,000,000.00 - Term Loan, Note No. 39180
18,409,007.58 - Term Loan, Note No. 33061
18,000,000.00 - Construction Term Loan & Commitment, Note No. 35061
-------------
$76,409,007.58 - Total
The St. Paul Bank for Cooperatives (the "Bank") and Borrower agree to the
above loans (the "Loans") to the Borrower. The Borrower's present
indebtedness to the Bank and/or commitments outstanding (entitled Present
Loans in the above heading) are consolidated and are made subject to all the
terms and conditions of this loan agreement.
I. PURPOSE
The proceeds of the Loans shall be used as follows:
A. The Seasonal Loan shall be used for general operating purposes.
B. Term Loan, Note No. 39180, shall be used to assist the Borrower in
the financing of the acquisition of Primo Piatto, Inc.
C. The Term Loan, Note No. 33061, were used to finance the construction
of the pasta plant.
D. The Construction Term Loan, Note No. 35061, shall be used to finance
the mill and pasta line expansion (the "Project").
II. NOTES AND SECURITY
Advances under this loan agreement, together with any existing
indebtedness of the Borrower to the Bank, shall be evidenced by a promissory
note or notes acceptable to the Bank, and shall be secured to the extent of
all collateral presently held by the Bank, including but not limited to all
real estate mortgages and security agreements; and by:
A. A first security interest covering all personal property and
fixtures, including but not limited to, all machinery and equipment,
inventory, receivables, investment property, accounts, contract rights,
chattel paper, documents and instruments, general intangibles and all proceeds
of the above, now owned or hereafter acquired;
B. A first real estate mortgage in the amount of $76,400,000 covering
all property currently under mortgage to the Bank;
58
C. A guaranty agreement executed by Primo Piatto, Inc. (hereinafter
called PPI), in form acceptable to the Bank under the terms of which PPI shall
become a guarantor for the payment of the Borrower of $76,400,000 of its
indebtedness to the Bank, secured by:
1. A first security interest covering all PPI's personal property and
fixtures, including but not limited to, all machinery and equipment,
inventory, receivables, investment property, accounts, contract rights,
chattel paper, documents and instruments, general intangibles and all proceeds
of the above, now owned or hereafter acquired, and
2. A first real estate mortgage in the amount of $29,000,000 covering
PPI's property located in New Hope and Minneapolis, Minnesota.
III. LIMITATION ON ADVANCES
A. The total Seasonal Loan outstanding under this or any loan agreement
between the Bank and the Borrower shall not exceed the amount shown in the
above heading.
B. Advances on the Seasonal Loan shall not exceed the sum of the
following collateral values based on collateral reports to be submitted
monthly (or more often at Borrower's discretion) in such form as required by
the Bank:
1. Eighty percent (80%) of accounts receivable acceptable to the
Bank and not older than forty-five (45) days from the date of invoice.
2. Sixty-five percent (65%) of the net market value (market value
less selling expenses) of owned inventories of grain, semolina, flours,
millfeeds, and finished pasta.
3. Fifty percent (50%) of supply inventories.
C. Advances shall not be made on Term Loan, Note No. 39180, prior to
the execution of the security interests, real estate mortgages and guaranty
described in Section II, "NOTES AND SECURITY," of this loan agreement.
D. Advances shall not be made on Term Loan, Note No. 39180, until the
Bank has received a board resolution authorizing additional borrowing of
$29,000,000.
E. Construction progress reports shall be submitted to the Bank prior
to each advance being made on the Construction Term Loan, Note No. 35061.
Construction progress reports shall include:
1. A draw request;
2. Inspection reports; and
3. Evidence that mechanic's and materialmen's lien waivers have
been obtained for all work done on, and all materials supplied to, the Project
which were paid for pursuant to the previous disbursement request.
IV. INTEREST
All outstanding balances hereunder shall bear a rate of interest as the
Bank shall from time to time prescribe, provided, however, the fixed amounts
shall bear such rates of interest as described in the statements (as defined
in the "FIXED RATE SEASONAL ADVANCES AND MATURITIES" and "CUSTOMER MANAGED
FIXED RATE TERM ADVANCES AND MATURITIES" sections of this loan agreement).
Interest on the Loans shall be payable on the last day of each calendar
quarter or as the Bank may specify.
V. FIXED RATE SEASONAL ADVANCES AND MATURITIES
In accordance with and subject to the Bank's Fixed Rate Seasonal Loan
Program, and subject to the Bank's overall program funding limitations, it is
agreed the interest rate may be fixed on any seasonal loan indebtedness (the
"fixed amount") made under this loan agreement as follows:
A. The minimum fixed amount shall be $100,000.
B. Each fixed amount and each selected pricing maturity date will be
59
treated as a separate indebtedness for interest rate designation and interest
billing purposes.
C. Fixed amount pricing maturities shall not be less than 15 days nor
greater than 180 days from the day of advance to be based on the maturity
selection of the Borrower, however, all fixed amounts shall have pricing
maturities no later than September 30, 1998.
D. The Borrower may receive same day interest rate quotes if a firm
request is placed and accepted by the Bank before 12:01 p.m. (Central Time) on
any business day. A firm request is one placed by telephone or in writing by
an authorized representative of the Borrower.
E. Fixed amounts shall be automatically converted to the variable rate
seasonal loan at maturity.
F. Fixed amounts cannot be repaid or repriced by the Borrower prior to
their respective pricing maturity dates without being subject to prepayment
penalties. Such penalties shall be determined according to a methodology
specified by the Bank which preserves the Bank's yield on the fixed amount
prepaid or repriced and which is based upon the difference between the Bank's
cost of like funds to pricing maturity at the time of prepayment and the
existing fixed rate on the fixed amount.
G. Each fixed amount shall be summarized in the Daily Activity
Statement (the "statement") to the Borrower. Each statement shall reference
and confirm at least the following:
1. Note No. 29180.
2. The fixed amount and its Contract No.
3. The rate of interest.
4. The effective date.
5. The pricing maturity date.
H. The Borrower agrees that the statement shall verify the
understanding reached by the parties, and that the Borrower shall be bound by
the statement without its signature; provided, however, if there is an error
reflected in the statement, the Borrower shall notify the Bank of the error
within five days after receipt of the statement and an appropriate correction
will be made.
I. If there is a question on the interest rate applicable to the fixed
amount, the rate as established by the Bank for such amounts shall be
controlling.
VI. CUSTOMER MANAGED FIXED RATE TERM ADVANCES AND MATURITIES
In accordance with and subject to the Bank's Customer Managed Fixed Rate
Term Program and subject to the Bank's overall program funding limitations, it
is agreed the interest rate may be fixed on any term loan indebtedness (the
"fixed amount") under this loan agreement as follows:
A. The minimum fixed amount shall be $1,000,000.
B. Each fixed amount and each selected pricing maturity date shall be
treated as a separate indebtedness for interest rate designation and interest
billing purposes.
C. Fixed amount pricing maturities shall be for a minimum maturity of
60 days and a maximum of ten years.
D. The Borrower shall have indebtedness under the variable rate term
interest rate program or priced maturing fixed amounts against which to apply
scheduled term loan payments as set forth in the "REPAYMENT" section of this
loan agreement.
E. The Borrower's selection of loan interest rate quotes and pricing
maturities must be communicated to the Bank by 2:00 p.m. (Central Time) on the
day prior to the fixed amount advance. If this selection deadline is not met,
maturing fixed amounts shall automatically convert to the variable rate term
loan.
F. Fixed amounts cannot be repaid or repriced by the Borrower prior to
their respective pricing maturity dates without being subject to prepayment
penalties. Such penalties shall be determined according to a methodology
specified by the Bank which preserves the Bank's yield on the fixed amount
60
prepaid or repriced and which is based upon the difference between the Bank's
cost of like funds to pricing maturity at the time of prepayment and the
existing fixed rthe
right of the Borrower to such reinstatement may be denied and cancelled at any
time at the option of the Bank.
XIV. DEFAULT PROVISION
If the Borrower shall fail to pay when due any amount on any of the
Loans under this loan agreement, or on any other indebtedness of the Borrower
secured hereby, or fail to observe or perform any of the provisions or
representations of this loan agreement, or of any security agreement or
mortgage, or shall be subject to the jurisdiction of a bankruptcy court
whether by a voluntary filing or involuntary action, the Borrower shall be in
default. When the Borrower is in default, the Bank may declare by written
notice to the Borrower that the Loans and other indebtedness are immediately
due and payable. The Bank may then terminate its commitment to lend and
cancel any reinstatement rights provided to the Borrower under this loan
agreement, and proceed to enforce payment and exercise any or all of the
rights afforded to the Bank by law or agreement. Upon demand, and as
permitted by law, the Borrower shall reimburse the Bank for all attorneys'
fees and costs incurred by the Bank in protecting or enforcing its rights or
collateral, including reasonable attorneys' fees incurred by the Bank in a
bankruptcy or receivership proceeding or in enforcing any judgment against the
Borrower.
XV. ACCEPTANCE
This loan agreement is the full agreement under the terms and
conditions of the Loans. It shall not be modified except in writing, and
shall not become effective unless the Borrower shall, within 60 days from
date, signify its acceptance of these terms and conditions by signing and
returning a copy of this loan agreement to the Bank.
BY DIRECTION of the loan committee this 13th day of February, 1998.
ST. PAUL BANK FOR COOPERATIVES
By /s/ Marvin L. Lindo
Its Senior Vice President
ACCEPTED AND AGREED TO:
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
By /s/ Tim Dodd
Its President
Date 2/19/98
65
Exhibit 10.2
NONNEGOTIABLE NOTE OF
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
Note No. 39180
$29,000,000.00 February 13, 1998
For value received, the undersigned ("Maker") promises to pay to the St.
Paul Bank for Cooperatives ("Bank"), at its office in the City of St. Paul,
Minnesota, the sum of Twenty-nine Million and no/100 Dollars ($29,000,000.00)
with interest on the unpaid balance at a variable rate of interest which may
increase or decrease as the Bank may, from time to time, determine as provided
in the Loan Agreement of even date between the Maker and the Bank. The unpaid
balance of this note, with accrued interest, and required equity purchases,
may be paid at any time subject to a prepayment penalty, if any, in accordance
with the terms of the Loan Agreement between the Bank and Maker.
This note shall at all times evidence and constitute prima facie proof of
the indebtedness of the Maker to the bank or its successors or assigns, of
such amount of money (not in excess of the amount of the principal
indebtedness stated above plus accrued interest and required equity purchases)
as shown to be owing by the records of the Bank, or its successors or assigns.
In the event that suit is brought on this note, the Maker agrees to pay
such reasonable attorneys' fees and costs of collection as permitted by law to
be charged.
The maker hereby waives presentment for payment, demand, protest, notice
of protest, and notice of dishonor and nonpayment of this note.
If requested by the Bank, its successors or assigns, the Maker agrees to
deliver in substitution for this note, a negotiable note for the amount of the
unpaid balance of Maker's indebtedness, plus accrued interest and required
equity purchases.
DAKOTA GROWERS PASTA COMPANY
By /s/ Timothy J. Dodd
Its President
By /s/ Curtis R. Trulson
Its Secretary
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