Exhibit 10
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ASSET PURCHASE AGREEMENT
AMONG
KATY INDUSTRIES, INC.,
DUCKBACK PRODUCTS, INC.,
AND
DUCKBACK ACQUISITION CORP.
September 15, 2003
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS .................................................. 1
ARTICLE II THE TRANSACTION .............................................. 8
2.1 Transfer of Assets ...................................... 8
2.2 Prorations .............................................. 10
2.3 Allocation .............................................. 10
2.4 Working Capital Adjustment .............................. 11
ARTICLE III COVENANTS AND UNDERTAKINGS ................................... 11
3.1 [Intentionally Omitted] ................................. 11
3.2 [Intentionally Omitted] ................................. 11
3.3 [Intentionally Omitted] ................................. 11
3.4 Change of Name .......................................... 11
3.5 Additional Agreements ................................... 12
3.6 [Intentionally Omitted] ................................. 12
3.7 Transition .............................................. 12
3.8 Intellectual Property ................................... 12
3.9 Domain Names ............................................ 12
3.10 Litigation Support ...................................... 12
3.11 Consistent Tax Reporting ................................ 12
3.12 Transfer Taxes .......................................... 13
3.13 Leased Properties ....................................... 13
3.14 Third Party Consents .................................... 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER ..................... 14
4.1 Organization and Standing ............................... 14
4.2 Authority and Status .................................... 14
4.3 Capitalization .......................................... 14
4.4 Accounts Receivable and Accounts Payable ................ 14
4.5 Financial Statements .................................... 15
4.6 Taxes ................................................... 15
4.7 Ownership of Assets and Leases, Etc ..................... 15
4.8 Absence of Changes ...................................... 16
4.9 Litigation and Claims ................................... 18
4.10 Licenses and Permits .................................... 18
4.11 Contracts ............................................... 18
4.12 Intellectual Property Matters ........................... 20
4.13 Insurance ............................................... 21
4.14 Approvals and Consents .................................. 22
4.15 Transactions with Affiliates ............................ 22
4.16 Environmental and Safety Matters ........................ 22
4.17 Agreement Does Not Violate Other Instruments ............ 23
4.18 Equity Investments; Subsidiaries ........................ 24
4.19 Compliance with Laws .................................... 24
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Table of Contents (Cont'd)
4.20 Inventory ............................................... 24
4.21 Employee Plans .......................................... 24
4.22 Employees ............................................... 25
4.23 Product Warranty ........................................ 25
4.24 Product Liability ....................................... 26
4.25 Customers, Suppliers and Products ....................... 26
4.26 Brokers ................................................. 27
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER ...................... 27
5.1 Organization and Standing ............................... 27
5.2 Corporate Power and Authority ........................... 27
5.3 Agreement Does Not Violate Other Instruments ............ 27
5.4 Brokers ................................................. 27
5.5 Availability of Funds ................................... 27
5.6 Litigation .............................................. 28
5.7 Investigation and Evaluation ............................ 28
5.8 Forecasts, Projections, etc ............................. 28
5.9 Compliance With Law ..................................... 28
ARTICLE VI ADDITIONAL AGREEMENTS OF THE PARTIES ......................... 28
6.1 Cooperation With Respect to Approvals ................... 28
6.2 Employee Matters ........................................ 28
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER ................. 30
7.1 Representations True at Closing ......................... 30
7.2 Covenants of Seller ..................................... 31
7.3 No Injunction, Etc ...................................... 31
7.4 Absence of Adverse Changes .............................. 31
7.5 Approvals ............................................... 31
7.6 Deliveries .............................................. 31
7.7 Modifications of Agreements ............................. 31
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER ............ 31
8.1 Representations True at Closing ......................... 31
8.2 Covenants of Buyer ...................................... 32
8.3 Approvals ............................................... 32
8.4 Deliveries .............................................. 32
ARTICLE IX CLOSING ...................................................... 32
9.1 Time and Place of Closing ............................... 32
9.2 Transactions at Closing ................................. 32
ARTICLE X SURVIVAL OF REPRESENTATION AND WARRANTIES; INDEMNIFICATION ... 34
10.1 Indemnification Covenants of Seller ..................... 34
10.2 Indemnification Covenants of Buyer ...................... 34
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Table of Contents (Cont'd)
10.3 Indemnification Procedure ............................... 34
10.4 Third Party Claims ...................................... 35
10.5 Reductions and Subrogations ............................. 36
10.6 Limits on Indemnification Obligation .................... 36
10.7 Conduct of Litigation ................................... 37
ARTICLE XI KATY'S GUARANTEE ............................................. 37
11.1 Katy's Guarantee ........................................ 37
ARTICLE XII GENERAL PROVISIONS ........................................... 38
12.1 Notices ................................................. 38
12.2 Further Assurances ...................................... 39
12.3 Waiver .................................................. 40
12.4 Expenses ................................................ 40
12.5 Binding Effect .......................................... 40
12.6 Headings ................................................ 40
12.7 Entire Agreement ........................................ 40
12.8 Governing Law; Jurisdiction; Consent to Service of
Process ............................................... 40
12.9 Counterparts ............................................ 41
12.10 Number and Gender ....................................... 41
12.11 Schedules Incorporated .................................. 41
12.12 Confidentiality ......................................... 41
12.13 Public Announcements .................................... 42
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made this 15th day of
September, 2003, by and among Katy Industries, Inc., a Delaware corporation
("Katy"), Duckback Products, Inc., a Delaware corporation and a wholly owned
subsidiary of Katy ("Seller"), and Duckback Acquisition Corp. ("Buyer"), a
Delaware corporation and an indirect wholly owned subsidiary of Professional
Paint, Inc., a Delaware corporation.
W I T N E S S E T H:
WHEREAS, Buyer desires to acquire substantially all of the assets of
Seller; and
WHEREAS, Seller desires to sell substantially all of its assets to Buyer
in exchange for the Purchase Price (as defined below), upon the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual promises,
representations, warranties and covenants hereinafter set forth, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meanings
unless the context otherwise requires:
"Accounts Payable" means trade accounts payable to third-party vendors.
"Accounts Receivable" means all accounts, notes, and other receivables
payable to Seller.
"Acquired Assets" shall have the meaning set forth in Section 2.1.1.
"Acquired Contracts" shall have the meaning set forth in Section 4.11.
"Affiliate", as applied to any Person, shall mean (a) any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person or (b) any director or executive officer with respect to such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"Agreement" shall mean this Asset Purchase Agreement, including all
Schedules hereto.
"Asbestos Claims" shall mean any Claim or notice thereof alleging exposure
to asbestos or asbestos containing materials, or violations of Environmental
Laws related to asbestos in
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connection with the Acquired Assets or business conducted by Seller, its
Affiliates or any predecessor entity, in each case, on or before the Closing
Date.
"Asbestos Liability" means any liabilities relating to or arising from any
Asbestos Claim.
"Assignment and Assumption Agreement" shall have the meaning as set forth
in Section 9.2.1(ix) hereof.
"Assumed Liabilities" shall have the meaning set forth in Section 2.1.4
hereof.
"Basket" shall have the meaning as set forth in Section 10.6.2 hereof.
"Business" shall mean the business of developing, manufacturing and
distributing exterior wood care products and concrete stains, as such business
is conducted by Seller prior to the Closing Date.
"Business Insurance Policies" shall have the meaning set forth in Section
4.13.1.
"Buyer" shall have the meaning set forth in the preamble.
"Claims" means all claims, actions, suits, proceedings, complaints, choses
in action, demands, injunctions, stipulations, arbitrations, mediations,
hearings, investigations, information requests, charges, judgments, orders,
decrees and rulings, including any of the foregoing which have been asserted by
any Governmental Entity.
"Closing" shall mean the consummation of the transactions contemplated
herein.
"Closing Date" shall mean September 15, 2003.
"Closing Date Working Capital" shall mean the Working Capital as of the
Closing Date.
"Closing Date Working Capital Calculation" shall have the meaning set
forth in Section 2.4.1.
"COBRA" shall have the meaning set forth in Section 6.2.2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Employees" shall mean all full or part-time employees of Seller as of the
Closing Date, excluding any retirees or employees on long-term disability.
Notwithstanding the foregoing, Cathy Maraviov shall be deemed an Employee.
"Employee Plans" means all material plans, arrangements, agreements,
programs, policies or practices, whether oral or written, formal or informal,
funded or unfunded, insured or self-insured, registered or unregistered, to
which Seller is a party to or bound by and which covers the employees of the
Business relating to retirement savings or pensions, including any defined
benefit pension plan, defined contribution pension plan, group registered
retirement savings plan, or supplemental pension or retirement plan, or any
bonus, employee benefit, profit
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sharing, stock option, stock purchase, deferred compensation, incentive
compensation, termination, change of control, supplemental unemployment
benefits, hospitalization, health, welfare, dental, disability, life insurance,
employment insurance, vacation pay, severance pay or other benefit plan with
respect to any of Seller's employees, retired employees or former employees,
individuals working on contract with Seller or other individuals providing
services to Seller of a kind normally provided by employees, and all statutory
plans which Seller or the Business are required to comply with.
"Environmental Claims" means administrative, regulatory or judicial
actions, demands, claims, liens, notices of non-compliance or violation,
proceedings, information requests, mediation, arbitration, consent decrees,
judgments, administrative orders, agreements or claims arising under any
Environmental Law or any permit issued under any such Environmental Law,
including, but not limited to (i) such claims by Governmental Entities for
enforcement, cleanup, removal, remediation, response or other actions, damages,
contribution, indemnification or liability pursuant to any applicable
Environmental Law, and (ii) such claims by any third party seeking damages,
contribution, indemnification or injunctive relief resulting from Environmental
Conditions or arising from alleged injury or threat of injury to health, safety
or the environment.
"Environmental Conditions" means the presence, transportation, treatment,
storage, disposal, Release or introduction of any Hazardous Materials into the
environment on or before the Closing Date, and any resulting air, soil,
groundwater or surface water contamination, including contamination on any
property presently owned, leased or operated by Seller, its Affiliates or any
predecessor entity, or contamination on any property to which Seller, any
Affiliate or predecessor entity have ever operated or sent waste for disposal,
without regard to the location to which such resulting contamination may have
migrated or spread, and as a result of which Seller or Buyer have or may become
liable to any person or by reason of which any current or prior Leased
Properties or the Acquired Assets may suffer or be subjected to any Lien,
damages or liability.
"Environmental Law" means any Law which relates to or otherwise regulates
or imposes liability or standards of conduct concerning discharges, emissions,
releases or threatened releases of noises, odors or any Hazardous Materials into
ambient air, water (surface or subsurface), or land, or otherwise relating to
the manufacture, processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of Hazardous Materials, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
the Superfund Amendments and Reauthorization Act of 1986, any so-called
"Superfund" law, the Resource Conservation and Recovery Act of 1976, as amended,
the Toxic Substances Control Act of 1976, the Federal Water Pollution Control
Act Amendments of 1972, the Clean Air Act, the Clean Water Act, the Safe
Drinking Water Act, the Rivers and Harbors Act, the Oil Pollution Act, any other
similar Law, and all analogous state and local provisions, each as in effect on
the date hereof.
"ERISA Affiliate" means any entity which is (or at any relevant time was)
a member of a "controlled group of corporations" with or under "common control"
with Seller, as defined in Code Section 414(b) or (c).
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Excluded Assets" shall have the meaning set forth in Section 2.1.2
hereof.
"Financial Statements" shall have the meaning set forth in Section 4.5
hereof.
"FIRPTA Certificate" shall have the meaning set forth in Section 9.2.1(iv)
hereof.
"Fixed Assets" means all office equipment (including, but not limited to,
furniture and fixtures) and store, service center and distribution facility
equipment (including, but not limited to, mixers, tinters, computers, vehicles
and leasehold improvements).
"GAAP" shall mean the generally accepted accounting principles in effect
in the United States of America.
"Governmental Entity" means any governmental, regulatory or administrative
body, agency or authority, any court or judicial authority, any public, private
or industry regulatory authority, whether federal, state, provincial, local,
foreign or otherwise, or any Person lawfully empowered by any of the foregoing
to enforce or seek compliance with any applicable Law.
"Hazardous Material" means any substance which (alone or in any
combination) is or is deemed to be a pollutant, contaminant, industrial waste,
hazardous waste, subject waste, deleterious substance, special waste or
hazardous, dangerous, toxic or radioactive chemical, material, waste or
substance (including petroleum or any petroleum product), whether as matter or
energy, the storage, manufacture, disposal, treatment, generation, use,
transportation, remediation and release of which is identified, controlled or
regulated within the meaning of any applicable Environmental Law, each as
currently in effect on the date hereof.
"Indebtedness" with respect to any Person means any obligation of such
Person for borrowed money whether or not reflected on the face of the balance
sheets contained in the Financial Statements, including but not limited to: (i)
any obligation incurred for all or any part of the purchase price of property or
other assets or services or for the cost of property or other assets constructed
or of improvements thereto, other than accounts payable included in current
liabilities and incurred in the ordinary course of business, (ii) the principal
amount of all working capital and stockholder loans, (iii) the face amount of
all letters of credit issued for the account of such Person, (iv) obligations
(whether or not such Person has assumed or become liable for the payment of such
obligation) secured by Liens, (v) capitalized lease obligations, (vi) all
guarantees of such Person, (vii) all accrued interest, fees and charges in
respect of any Indebtedness, and (viii) all prepayment premiums and penalties,
and any other fees, expenses, indemnities and other amounts payable as a result
of the prepayment and/or discharge of any Indebtedness.
"Intellectual Property" means, in each case used or held solely for use in
the Business: (a) all foreign and domestic patents, patent applications, and
patent disclosures, together with all re-issuances, continuations,
continuations-in-part, divisions, revisions, extensions, and reexaminations
thereof, and all published or unpublished non-provisional and provisional patent
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applications, including the right to file other or further applications,
reexamination proceedings, invention disclosures and records of invention
("Patents"), (b) all foreign and domestic registered and unregistered
trademarks, service marks, trade dress, logos, trade names, together with all
translations, adaptations, derivations, and combinations thereof and including
all goodwill associated therewith, and all applications, registrations, and
renewals in connection therewith, the right to bring opposition and cancellation
proceedings, and any and all rights under the laws of trade dress
("Trademarks"), (c) all foreign and domestic registered and unregistered
copyrights, copyrightable works, and mask works, and all applications,
registrations, and renewals in connection therewith ("Copyrights"), (d) all
ideas, research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, inventions (whether or
not patentable or reduced to practice), designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals, trade secrets and confidential business
information ("Trade Secrets"), (e) all Internet domain names and registrations
thereof ("Domain Names"), (f) all other proprietary rights and intangible
assets, including the Software, and (g) all copies and tangible embodiments
thereof (in whatever form or medium).
"Interim Financial Statements" shall have the meaning set forth in Section
4.5 hereof.
"Inventory" means all of Seller's inventory including, but not limited to,
all products, raw materials, work-in-progress, finished goods and other
inventory items.
"Katy" shall mean Katy Industries, Inc., a Delaware corporation.
"Katy Loan Documents" shall mean the documents and agreements Seller has
entered into in connection with that certain Credit Agreement, dated as of
January 31, 2003, by and among Katy, Fleet Capital Corporation, as agent, and
certain other financial institutions and the various transactions and documents
related thereto.
"Law" means any law, statute, regulation, by-law, ordinance, rule, order,
injunction, common law standard, decree, judgment, standard, policy, guideline,
code, consent, writ, decree or governmental requirement enacted, promulgated,
entered into, agreed or imposed by any Governmental Entity, as in effect of the
date hereof.
"Lead Paint Claims" shall mean any Claim or notice thereof relating to or
arising from the lead content of any pigment, paint or coatings (including
without limitation exposure to airborne particles containing lead from such
products) manufactured, sold, distributed, or used by Seller, its Affiliates or
predecessor entities, in each case, on or before the Closing Date.
"Lead Paint Liabilities" means any liabilities relating to or arising from
any Lead Paint Claims.
"Leased Properties" shall have the meaning set forth in Section 4.7.1
hereof.
"Liens" shall mean any liens, Claims, charges, options, forfeitures,
rights of seizure, rights of tenants or other encumbrances of any kind.
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"Losses" means any and all claims, Taxes, losses, damages, fees, costs,
assessments, judgments, awards, liabilities, settlement, interest, penalties and
expenses (including, without limitation, reasonable attorneys' and experts' fees
and other litigation expenses, reasonable expenses of investigation or
remediation and any reasonable consulting or engineering fees in connection with
any investigation or remediation) that are not both covered, and paid for, by
insurance.
"Major Customers" shall have the meaning set forth in Section 4.25.2(i)
hereof.
"Major Products" shall have the meaning set forth in Section 4.25.2(iii)
hereof.
"Major Suppliers" shall have the meaning set forth in Section 4.25.2(ii)
hereof.
"Material Intellectual Property" shall have the meaning set forth in
Section 4.12 hereof.
"Material Adverse Effect" shall mean any event, effect or change which is
or which could reasonably be expected to be materially adverse to the business,
properties, assets, liabilities (contingent or otherwise), results, operations
and condition (financial and other) of a Person or the Business, either alone or
in the aggregate.
"Occurrence" shall have the meaning set forth in Section 4.24.
"Pension Plans" means all employee pension benefit plans (within the
meaning of Section 3(2) of ERISA,) provided to employees of Seller, as listed on
Schedule 4.21.
"Permitted Liens" shall have the meaning set forth in Section 4.7.1
hereof.
"Person" shall mean an individual or a corporation, partnership, limited
liability company, trust, estate, unincorporated organization, association or
other entity.
"Permits" means permits, certificates, consents, approvals,
authorizations, orders, licenses, rights, variances, franchises and other
similar indicia of authority issued by a Governmental Entity.
"Post-Closing Tax Period" means (i) any Tax period beginning on or after
the Closing Date and (ii) with respect to a Tax period that commences before but
ends after the Closing Date, the portion of such period on or after the Closing
Date.
"Pre-Closing Tax Period" means (i) any Tax period ending before 12:00 am
on the Closing Date and (ii) in the case of any Tax period which includes, but
does not end before 12:00 am on the Closing Date, the portion of such period up
to and including 11:59 pm on the date immediately preceding the Closing Date.
"Prepaid Expenses" means all prepaid expenses of Seller only to the extent
such prepaid expenses provide benefit to Buyer and the Business after Closing,
including, but not limited to, prepaid rent expenses; provided, however, that
Prepaid Expenses shall not include prepaid insurance premiums.
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"PPI" shall mean Professional Paint, Inc., a Delaware corporation.
"PTO" shall have the meaning set forth in Section 4.12.4 hereof.
"Purchase Price" shall have the meaning set forth in Section 2.1.3 hereof.
"Real Property" shall have the meaning set forth in Section 4.7.1 hereof.
"Recalls" shall have the meaning set forth in Section 4.24 hereof.
"Recovery" shall have the meaning set forth in Section 10.5 hereof.
"Reference Working Capital" shall mean the Working Capital as of December
31, 2002, which the parties acknowledge to be One Million Two Hundred Fifty
Eight Thousand Three Hundred Ninety Dollars ($1,258,390), as set forth on
Schedule 1.1.
"Registered Intellectual Property" shall have the meaning set forth in
Section 4.12.4 hereof.
"Release" means with respect to any Hazardous Materials, any release,
deposit, discharge, emission, leaking, leaching, spilling, seeping, migrating,
injecting, pumping, pouring, emptying, escaping, dumping, disposing or other
movement of Hazardous Materials into the environment.
"Schedules" shall mean the schedules attached hereto which are hereby
incorporated herein by reference.
"Seller" shall have the meaning set forth in the preamble.
"Seller Bonus Obligations" shall have the meaning set forth in Section
6.2.3 hereof.
"Seller's Financial Statement Date" shall have the meaning set forth in
Section 4.5.
"Software" means all computer software programs and software systems,
including all databases, compilations, tool sets, compilers, higher level or
proprietary languages, related documentation and materials, whether in source
code, object code or human readable form, used or held for use solely in the
Business.
"Tax(es)" means any taxes, fees, duties, levies, assessments or other
charges of any nature whatsoever, including, without limitation, any foreign,
federal, state, county or local income, ad valorem, sales and use, franchise,
business, excise, real and personal property, transfer, gross receipt, capital
stock, employment, payroll, or withholding tax or charge imposed by any
governmental authority and any interest and penalties related thereto.
"Tax Affiliate" has the meaning set forth in Section 4.6 hereof.
"Tax Returns" means all returns, declarations, reports, estimates,
statements and other documents, including any supporting information, required
to be filed with respect to Taxes.
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"Termination Agreements" shall mean the respective agreements dated
December 5, 2001 between Seller and each of Joseph Albert, Michael Hinton, Cathy
Maraviov, Stephen McGarr, Steven Taddei and Patrick Wever, and relating to
certain severance and termination payments, as amended in accordance with the
terms thereof.
"Transaction Bonus" shall mean any payments or bonuses due to any Employee
in connection with or as a result of the transactions contemplated by this
Agreement, including any payments required under Section 280G of the Code.
"Transfer Taxes" shall have the meaning set forth in Section 3.12 hereof.
"Transferred Employee" shall have the meaning set forth in Section 6.2.1
hereof.
"Type I, Type II and Type III Claims" shall have the meaning set forth in
Section 10.6.1 hereof.
"Unassumed Liabilities" shall have the meaning set forth in Section 2.1.5
hereof.
"Unaudited Financial Statements" shall have the meaning set forth in
Section 4.5 hereof.
"Websites" means (a) the Websites currently located at the URL
http://www.primarycoatings.com and http://www.superdeck.com, (b) any other
Websites owned or controlled by, licensed to, or used by or for the benefit of,
Seller, and all Content and pages contained within each of those Websites,
hosted anywhere in the world, and (c) all Website user information and data
collected by Seller, including but not limited to, email addresses, Website
logs, clickstream data and cookies, which are permitted to be transferred under
applicable law. For each Website, the Content and pages shall include all
computer files and documentation for the current version of the Website and all
archived Content and pages in the possession or control of Seller. As used
herein, the term "Content" means any literary, audio, video, and other
information, including editorial content, data, animation, graphics, photographs
and artwork, and combinations of any or all of the foregoing, in any tangible or
digital formats.
"Working Capital" means the value of, as shown on the books and records of
Seller, (a) to the extent included in the Acquired Assets, (i) Accounts
Receivable plus (ii) Inventory plus (iii) other current assets less (b) to the
extent included in the Assumed Liabilities (i) Accounts Payable plus (ii)
accrued expenses plus (iii) accrued compensation plus (iv) other accruals plus
(v) any other current liabilities of the Business included on Seller's balance
sheet, calculated in accordance with GAAP, and in each case as calculated in the
manner set forth on Schedule 1.1 and consistent with past practice. For purposes
of illustrating the current assets and current liabilities of the Business, a
copy of Seller's balance sheet as of December 31, 2002 is attached hereto as
Schedule 1.2.
ARTICLE II
THE TRANSACTION
2.1 Transfer of Assets.
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2.1.1 Transfer of the Acquired Assets. On the Closing Date, Seller
shall sell, convey, assign, transfer and deliver to Buyer, free and clear of all
Liens, other than Permitted Liens, and Buyer shall purchase, acquire and take
assignment or delivery of all of the assets (wherever located) owned, leased or
held for use in the Business, and all of Seller's right, title and interest
therein and thereto, except for those assets specifically excluded in Section
2.1.2 (all of the assets sold, assigned, transferred and delivered to Buyer
hereunder are referred to collectively herein as the "Acquired Assets"). The
Acquired Assets include, without limitation, the following assets that are used
or held for use in the Business: (a) Accounts Receivable, (b) Inventory, (c)
Fixed Assets included on Seller's latest balance sheet and Fixed Assets
purchased by Seller since the latest balance sheet less any Fixed Assets
disposed of in the ordinary course of business since the latest balance sheet,
(d) Prepaid Expenses, (e) Seller's leasehold interest in all Leased Properties
and any improvements, fixtures, and fittings thereon, and easements,
rights-of-way and other appurtenants thereto (such as appurtenant rights in and
to public streets) and rights thereunder, including all security deposits, (f)
operating leases for all vehicles and other equipment operated by Seller, (g)
all Intellectual Property, goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights thereunder,
remedies against infringements thereof, and rights to protection of interests
therein under the Laws of all jurisdictions, (h) the Acquired Contracts set
forth on Schedule 4.11, (i) Liens, guarantees, rights, entitlements, other
similar arrangements, and rights thereunder, (j) Claims, deposits, prepayments,
rights of recovery, rights of set off, and rights of recoupment (but not
including any such item relating to the payment of Taxes), (k) transferable
Permits, (l) the assets set forth on Schedule 2.1.1, (m) the Websites and the
Primary Coatings, Inc. trade name, and (n) all other assets (including
intangible assets) of Seller not specifically included in the definition of
Excluded Assets.
2.1.2 Excluded Assets. The following assets of Seller shall be
retained by Seller and are not being sold, transferred or assigned to Buyer
hereunder (all of which are referred to collectively as the "Excluded Assets"):
(a) books and records Seller is required by law to retain; (b) rights that
lawfully cannot be transferred by Seller; (c) Seller's rights under this
Agreement; (d) any insurance proceeds related to casualties that occur prior to
the Closing Date; (e) cash and cash equivalents; (f) rights in and with respect
to the assets associated with any Employee Plans; (g) the Katy Loan Documents;
(h) the stock of Primary Coatings, Inc.; and (i) the other assets listed on
Schedule 2.1.2 hereto.
2.1.3 Purchase Price. The consideration for the Acquired Assets
shall be Fifteen Million Dollars ($15,000,000), payable on the Closing Date by
wire transfer in immediately available funds as set forth on Schedule 2.1.3
hereto and subject to post-Closing adjustment as provided in Section 2.4, plus
the assumption of the Assumed Liabilities as of the Closing Date (collectively,
the "Purchase Price").
2.1.4 Assumed Liabilities. Buyer shall assume, as of the Closing
Date: (a) any obligations of Seller incurred or arising after the Closing Date
with respect to any of the Leased Properties (excluding any liability to the
extent it results from any breach of contract, breach of warranty, tort,
infringement, violation of Law, or Environmental Claim or Environmental
Condition relating to events occurring or conditions existing on or before the
Closing Date) and the leases relating to the Leased Properties set forth on
Schedule 4.7; (b) the obligations of Seller incurred or arising after the
Closing Date under the Acquired Contracts or any other contract
9
assumed by Buyer (excluding any liability to the extent it results from any
breach of contract, breach of warranty, tort, infringement, violation of Law, or
Environmental Claim or Environmental Condition relating to events occurring or
conditions existing on or before the Closing Date), (c) the obligations arising
from Buyer's conduct of the Business and ownership or use of the Acquired Assets
from and after the Closing Date (excluding any liability to the extent it
results from any breach of contract, breach of warranty, tort, infringement,
violation of Law, or Environmental Claim or Environmental Condition relating to
events occurring or conditions existing on or before the Closing Date); (d)
Accounts Payable (to the extent reflected in Working Capital); (e) any and all
liabilities and obligations of Seller or any of its Affiliates which accrue from
and after the Closing Date and relate to or concern Employees, including any
severance obligations; (f) any and all liabilities or obligations with respect
to the Worker Adjustment and Retraining Notification Act ("WARN") or any similar
state or foreign law which arises as a result of Buyer not hiring Employees; (g)
all ad valorem taxes relating to the Acquired Assets allocated to Buyer pursuant
to Section 2.2 below; (h) all liabilities reflected on the face of Seller's
balance sheet (without reference to the notes thereto) as of the Closing Date,
which is delivered to Buyer in accordance with this Agreement and which is
reflected in Working Capital, (i) its fifty percent portion of any Transfer
Taxes owing in accordance with Section 3.12, (j) any and all liabilities and
obligations with respect to any employee bonuses accruing after the Closing
Date; (k) any liabilities relating to vacation pay for the Transferred Employees
as reflected on the Seller's balance sheet as of the Closing Date; and (l) any
obligations to make payments arising after the Closing Date under and in
accordance with the Termination Agreements, but no other obligations thereunder
(those obligations referred to in clauses 2.1.4 (a) through (l) immediately
above being collectively referred to as the "Assumed Liabilities").
2.1.5 Unassumed Liabilities. Except as expressly and specifically
set forth as Assumed Liabilities, Buyer shall not assume, and shall not be
deemed to have assumed, any obligation, liability or responsibility, of any
kind, of Seller and its Affiliates, irrespective of whether set forth in the
Schedules hereto (collectively, the "Unassumed Liabilities").
2.2 Prorations. All property and ad valorem taxes, leasehold rentals and
other customarily proratable items relating to the Acquired Assets or Business,
payable on or after the Closing Date and relating to a period of time both prior
to and on the Closing Date will be prorated as of the Closing Date between
Seller, on the one hand, and Buyer, on the other hand, based on the number of
days of such taxable period included in the Pre-Closing Tax Period and the
number of days of such taxable period included in the Post-Closing Tax Period.
If the actual amount of any such item is not known as of the Closing Date, the
aforesaid proration shall be based on the previous year's assessment of such
item.
2.3 Allocation. The aggregate Purchase Price for the Acquired Assets
(including the fair market value of the Assumed Liabilities that are recognized
as liabilities for United States federal income tax purposes) shall be allocated
by Buyer and Seller as set forth in Schedule 2.3 hereto, as required by Section
1060 of the Code. Buyer shall provide Seller with such Schedule 2.3 allocating
the Purchase Price. If Seller disagrees with any items reflected on the schedule
so provided, Seller shall have the right to notify Buyer of such disagreement
and its reasons for disagreeing, and shall do so within five business days from
the delivery of such schedule, provided, that any disagreements that cannot be
mutually resolved by Buyer and Seller shall be promptly resolved pursuant to the
procedures set forth in Section 2.4.2 which shall be binding on
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both Buyer and Seller. Buyer and Seller shall file Form 8594, Asset Acquisition
Statement under Section 1060, in a manner consistent with the allocation of the
Purchase Price set forth on Schedule 2.3 hereto, with its income tax returns for
the taxable year that includes the Closing Date. Buyer and Seller agree to
satisfy any and all other reporting requirements of Section 1060 of the Code and
the Treasury regulations thereunder. If, in subsequent taxable years, Buyer or
Seller makes an allocation of any increase or decrease in the Purchase Price for
any asset, the party making such increase or decrease agrees to file a
supplemental Form 8594 as required.
2.4 Working Capital Adjustment.
2.4.1 The Purchase Price shall be adjusted based upon the difference
between the Closing Date Working Capital and the Reference Working Capital in
accordance with this Section. Within thirty (30) business days after the Closing
Date, Seller shall prepare and deliver to Buyer Seller's calculation of the
Closing Date Working Capital (the "Closing Date Working Capital Calculation"),
which shall have been prepared in accordance with GAAP and in accordance with
past practice. If the Closing Date Working Capital, as finally determined in
accordance with this Section 2.4, exceeds the Reference Working Capital, Buyer
shall pay Seller the difference; if the Closing Date Working Capital is less
than the Reference Working Capital, Seller shall pay Buyer the difference. In
either case, the adjustment provided in the preceding sentence shall be paid
within ten (10) days of the final determination of the Closing Date Working
Capital and shall be paid by wire transfer of immediately available funds.
2.4.2 If Buyer wishes to dispute the Closing Date Working Capital
Calculation, Buyer shall within twenty (20) days of receipt of the Closing Date
Working Capital Calculation give written notice to Seller of such dispute and
the reason(s) therefor. Seller and Buyer shall attempt to resolve such dispute
within twenty (20) business days after receipt by Seller of such notice, and in
the event Buyer and Seller fail to resolve such dispute within said period, the
parties agree that the independent certified public accounting firm of
PricewaterhouseCoopers LLP (or any other nationally recognized independent
certified public accounting firm that shall be mutually agreed upon by such
parties) shall be employed to resolve such dispute as soon as reasonably
practicable and that any determination of such accounting firm as to the
disputed matter shall be binding upon the parties hereto. In the event
PricewaterhouseCoopers LLP or any other accounting firm is employed to resolve
any dispute, the costs of any such accounting firm shall be divided equally
among Buyer and Seller. In the event an accounting firm is employed to resolve a
dispute, all amounts due hereunder shall be paid, in the manner set forth above,
within ten (10) days of the final determination of such accounting firm.
ARTICLE III
COVENANTS AND UNDERTAKINGS
3.1 [Intentionally Omitted]
3.2 [Intentionally Omitted]
3.3 [Intentionally Omitted]
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3.4 Change of Name. Seller covenants and agrees to, within 15 days of the
Closing Date, take all actions as may be necessary to change its corporate name
so that Seller's corporate name is not confusingly similar to "Duckback
Products" and any tradename, trademark, servicemark or logo of Seller.
3.5 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use commercially reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable, whether under applicable law or
otherwise, or to remove any injunctions or other impediments or delays, legal or
otherwise, to consummate and make effective the transactions contemplated by
this Agreement. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of Buyer and Seller shall use commercially reasonable
efforts to take, or cause to be taken, all such necessary actions.
3.6 [Intentionally Omitted]
3.7 Transition. Seller will refer all customer inquiries relating to the
Business of Seller to Buyer for a period of six (6) months after the Closing
Date.
3.8 Intellectual Property. After the Closing Date, Seller will: (i)
cooperate with Buyer in assigning any and all Intellectual Property; (ii)
execute, verify, acknowledge and deliver all such further papers, including
applications and instruments of transfer; and (iii) perform such other acts as
Buyer may reasonably request, to facilitate Buyer's right to obtain, record,
perfect, evidence, protect, maintain, defend or enforce any of the rights
granted and assignments made hereunder.
3.9 Domain Names. Immediately following the Closing Date, Seller agrees to
promptly carry out jointly with Buyer the formal transfer of the Domain Names to
Buyer in accordance with the domain name transfer procedures of the applicable
registrars for each of the Domain Names. For those Domain Names registered using
Network Solutions, Inc., this process is carried out via the following URL:
http://www.networksolutions.com/en_US/name-it/transfer.jhtml.
3.10 Litigation Support. In the event and for so long as any party hereto
actively is contesting or defending any Claim, not otherwise covered by the
indemnification provisions of Article X, in connection with (i) any transaction
contemplated under this Agreement or (ii) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date involving
Seller, each of the other parties hereto will cooperate with such party and its
counsel in the contest or defense, make available their personnel, and provide
such testimony and access to their books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending party.
3.11 Consistent Tax Reporting. Seller and Buyer shall treat and report the
transactions contemplated by this Agreement in all respects consistently for
purposes of any federal, state, provincial, local or foreign tax. The parties
hereto shall not take any actions or positions
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inconsistent with the obligations or agreements set forth herein, including,
without limitation, any allocation of the Purchase Price and Assumed Liabilities
in accordance with Section 2.3. Buyer and Seller shall cooperate with each other
in the conduct of any audit or other proceedings relating to the Business, the
Acquired Assets and the Assumed Liabilities. Seller and Buyer agree to furnish
or cause to be furnished to the other, upon request, as promptly as practicable,
such information (including access to books and records) relating to the
Business, the Acquired Assets and the Assumed Liabilities as is reasonably
necessary for the filing of any Tax Return, the preparation for any Tax audit,
the prosecution or defense of any Claim relating to any proposed Tax adjustment.
Buyer shall treat all such information and documents received by it in
accordance with Section 12.12. Buyer and Seller agree to retain or cause to be
retained all books and records pertinent to the Business, the Acquired Assets
and the Assumed Liabilities until all applicable periods for assessment,
reassessment or determination in respect of any liability for Taxes under
applicable Law (giving effect to any and all extensions or waivers) have
expired, and such additional period as necessary for all administrative or
judicial proceedings relating to any proposed assessment, and to abide by all
record retention agreements entered into with any taxing authority. Seller and
Buyer agree to give the other reasonable notice prior to transferring,
discarding or destroying any such books and records relating to Tax matters and,
if so requested, Seller and Buyer shall allow the requesting Party to take
possession of such books and records.
3.12 Transfer Taxes. All goods and services, sales, use and transfer
taxes, including but not limited to any value added, stock transfer, gross
receipts, stamp duty, land transfer and real, personal, or intangible property
transfer taxes due by reason of the transfer of the Acquired Assets, including
but not limited to any interest or penalties in respect thereof (the "Transfer
Taxes") shall be apportioned fifty percent to Seller and fifty percent to Buyer.
Seller and Buyer shall cooperate with each other and use their reasonable best
efforts to minimize the Transfer Taxes attributable to the transfer of the
Acquired Assets.
3.13 Leased Properties. Seller shall use commercially reasonable efforts
to cause the landlords of all the Leased Properties to provide all necessary
waivers, consents and approvals to the transactions contemplated hereby,
including the execution and delivery of the appropriate counterpart Lease
Assignment Agreements providing for the assignment of such Leased Real Property
free of any claims, liabilities or obligations as of the Closing and the
execution and delivery of estoppel letters waiving any landlord Liens, including
any Liens with regard to Inventory stored on such Leased Property; provided,
however, that Seller shall in no way be liable for the failure to obtain any
such waivers, consents, approvals or other documents. With respect to the lease
for the premises located at 2644 Hegan Lane, Chico, California, set forth on
Schedule 4.7, Buyer and its Affiliates shall not exercise any option to renew,
extend or otherwise amend such lease without first procuring from the landlord a
release of all obligations of Seller under the lease.
3.14 Third Party Consents. Seller covenants and agrees to use its
commercially reasonable efforts to obtain, promptly after the Closing, the third
party consents set forth on Schedule 4.11. Buyer covenants and agrees to
cooperate with Seller in its efforts to carry out the provisions of this Section
3.14. Neither Buyer nor Seller shall agree to the payment of any transfer or
other fees without the consent of the other party.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1 Organization and Standing. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Seller is duly qualified and/or licensed to transact business as a foreign
entity in the jurisdictions listed on Schedule 4.1 hereto and is in good
standing in each such jurisdiction. The character of the property owned or
leased by Seller and the nature of the business conducted by Seller does not
require it to be qualified or licensed in any other jurisdiction, except for
jurisdictions in which the failure to be so qualified or licensed will not have
a Material Adverse Effect.
4.2 Authority and Status. The execution, delivery and performance by
Seller of this Agreement and each and every agreement, document and instrument
provided herein has been duly and validly authorized and approved by all
necessary corporate action on the part of Seller and no other corporate action
on the part of Seller is necessary to authorize the execution, delivery and
performance of this Agreement, and each and every agreement, document and
instrument provided herein and therein. This Agreement and each agreement,
document and instrument provided for herein constitutes or will, when executed
and delivered, constitute the legal, valid and binding obligations of Seller,
enforceable against it in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, applicable equitable principles, or similar laws from time to time
in effect affecting the enforcement of creditors' rights generally.
4.3 Capitalization. All the capital stock of Seller is owned of record in
the manner set forth on Schedule 4.3 hereto. There has been no change in the
ownership of the capital stock of Seller in contemplation of this Agreement.
4.4 Accounts Receivable and Accounts Payable. Schedule 4.4 sets forth a
list of all Accounts Receivable of Seller relating to the Business as of July
25, 2003 and the aging thereof, and all Accounts Payable of Seller as of July
25, 2003.
All Accounts Receivable of Seller have arisen out of bona fide
transactions in the ordinary course of business and are carried at values
determined in accordance with GAAP consistently applied. All Accounts Receivable
reflect actual transactions and the granting of credit to customers in a manner
consistent with past practices of Seller, and, subject to the reserves or
allowances taken on a basis consistent with past practice, the Accounts
Receivable constitute valid and binding obligations of the obligors, makers,
comakers, guarantors, endorsers or debtors thereof. No agreement for deduction,
discount or setoff has been made with respect to any of such Accounts
Receivable, other than reserves and credits as reflected in the Working Capital.
All Accounts Payable have arisen out of bona fide transactions in the
ordinary course of business, are consistent with Seller's past practices with
respect to its goods and services and are
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carried at values determined in accordance with GAAP consistently applied. As of
the Closing, Seller shall have no Accounts Payable owing to any of its
Affiliates.
4.5 Financial Statements. Attached hereto as Schedule 4.5 are true,
correct and complete copies of Seller's unaudited balance sheet and the related
statements of earnings and retained earnings and cash flows for Seller's fiscal
year ended December 31, 2002 (collectively, the "Unaudited Financial
Statements"), and its unaudited balance sheet as of July 25, 2003 ("Seller's
Financial Statement Date") and the related statements of earnings and retained
earnings for the seven-month period then ended (collectively, the "Interim
Financial Statements", and together with the Unaudited Financial Statements, the
"Financial Statements"). The Financial Statements are complete and fairly
present the financial condition and results of operations of Seller as of the
dates and for the periods thereof and were prepared in accordance with GAAP,
consistently applied, and with a standard appropriate to Seller as a subsidiary
of a larger company, subject, in the case of Interim Financial Statements to
appropriate year-end adjustments.
4.6 Taxes. Seller and any affiliated, combined or unitary group of which
Seller is or was a member (each, a "Tax Affiliate" and, collectively, the "Tax
Affiliates") has: (i) timely filed (or has had filed on its behalf) all Tax
Returns required to be filed by it by any taxing authority having jurisdiction
and the information provided in such Tax Returns is accurate and complete in all
material respects, and (ii) timely and properly paid (or has had paid on its
behalf) all Taxes shown to be due and payable on such Tax Returns. There are no
Liens for Taxes upon any assets of Seller, or any Tax Affiliate, except
Permitted Liens. There are no tax audits pending by any federal, state, foreign
or local taxing authorities with respect to Seller.
4.7 Ownership of Assets and Leases, Etc.
4.7.1 Schedule 4.7 attached hereto contains a true, correct and
complete list and brief description of all of the real property owned by Seller
(the "Real Property") and all real property leased, subleased, licensed or
otherwise or used by Seller relating to the Business (the "Leased Properties").
Schedule 4.7 also identifies the Leased Properties for which title insurance
policies are to be procured. The Seller has delivered to Buyer correct and
complete copies of the leases and subleases listed on Schedule 4.7 (as amended
to date). Seller has good and marketable title to all of the Acquired Assets
owned or leased by Seller, including those listed and described in Schedule 4.7.
Upon satisfaction of the condition set forth in Section 8.3, Seller has or will
have the right to transfer the Acquired Assets free and clear of all Liens,
except (i) as specifically disclosed or reserved against in the Financial
Statements or set forth on Schedule 4.7, (ii) for Liens for Taxes, fees, levies,
duties or other governmental charges affecting an Acquired Asset which are not
yet due and payable, to the extent the underlying amounts are included in the
Assumed Liabilities and reflected on the Financial Statements, (iii) Liens for
mechanics, material, laborers, employees, supplies or similar Liens arising by
operation of law for sums which are not yet due and payable, to the extent the
underlying amounts are included in the Assumed Liabilities and reflected on the
Financial Statements and (iv) easements, rights of way, covenants, restrictions,
leases, or other matters shown of record which affect an Acquired Asset which
are not material in amount, do not materially detract from the value or use of
the property affected thereby and do not impair the operations of Seller's
Business (items (i) through (iv) collectively, the "Permitted Liens")
15
4.7.2 Each of the leases and agreements described in Schedule 4.7 is
in full force and effect and constitutes the legal, valid and binding
obligations of the respective parties thereto, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, applicable equitable principles or similar laws from
time to time in effect affecting the enforcement of creditors' rights generally.
To the knowledge of Seller, there is no default of any of the other parties to
any of the leases or agreements (or event or condition which, with notice or
lapse of time, or both, would constitute a default) under any of such leases or
agreements. Except as described in Schedule 4.11, no consent of any other party
to any of such leases or agreements is required for any of such leases or
agreements to remain in full force and effect following the Closing.
4.7.3 Except as disclosed on Schedule 4.7, (i) the buildings,
facilities, installations, fixtures and other structures and improvements
located on or at the Leased Properties are in good operating condition and
repair (except for normal wear and tear and taking into account the age of such
buildings, facilities, installations, fixtures or other structures or
improvements), and (ii) the tangible assets included in the Acquired Assets are
free from material defects and are in good operating condition and repair
(subject to normal wear and tear).
4.7.4 To Seller's knowledge, no party to any lease or agreement has
repudiated any provision thereof and no provision thereof is currently in
dispute between the parties thereto.
4.7.5 The ownership, use, operation and occupancy of the Leased
Properties is in material compliance with all Laws, including without
limitation, zoning laws, building code requirements and environmental laws, and
Seller has not received any written notice alleging any violation of the
foregoing.
4.7.6 Seller and the Leased Properties are in material compliance
with all Liens, and Seller has not received any written notice of, nor has any
knowledge of, any default under any of such Liens.
4.7.7 To Seller's knowledge, there is no pending or threatened
condemnation or other eminent domain proceedings, zoning action or proceedings,
or other lawsuits or administrative actions affecting any Leased Properties that
would have a Material Adverse Effect.
4.7.8 Seller has not received any written notice from any
Governmental Entity concerning, and Seller has no knowledge of, (i) any tax or
other assessments to be levied against any of the Leased Properties or (ii) any
change in the tax assessment of any the Leased Properties.
4.7.9 Other than as set forth on Schedule 4.7, Seller has not
provided any other parties the right to possess or use any of the Leased
Properties.
4.8 Absence of Changes. Since December 31, 2002, Seller has not, except as
specifically disclosed on Schedule 4.8 attached hereto or with respect to the
Excluded Assets:
16
4.8.1 incurred any Indebtedness, except in the ordinary course of
business and consistent with past practice, or, except as would not have an
adverse effect on the Acquired Assets, assumed, guaranteed, endorsed or
otherwise become liable (whether directly, contingently or otherwise) for the
obligations of any other Person, or made any payment or repayment in respect of
any Indebtedness in excess of $50,000 (other than trade payables and accrued
expenses in the ordinary course of business and consistent with past practice);
4.8.2 declared or paid any dividends on any capital stock,
repurchased or redeemed any capital stock, or made any other distributions with
respect to the capital stock;
4.8.3 acquired or disposed of any of its assets or entered into any
transaction with respect to the acquisition or disposition of its assets, other
than in the ordinary course of business and consistent with past practice;
4.8.4 acquired any business, corporation or other entity or entered
into any transaction with respect to such an acquisition;
4.8.5 entered into any transactions with any Affiliates, except for
compensation to the officers and employees of Seller, consistent with past
practice;
4.8.6 suffered any change in the Business, its operations or
financial condition, the effect of which has had a Material Adverse Effect;
4.8.7 had any loss or damage (whether or not covered by insurance)
to any of the Acquired Assets which has had a Material Adverse Effect;
4.8.8 granted any license or sublicense of any rights under or with
respect to the Intellectual Property;
4.8.9 had any material changes in the accounting systems, policies
or practices of Seller;
4.8.10 paid any material amount, performed any material obligation
or agreed to pay any material amount or perform any material obligation, in
settlement or compromise of any suits or claims of liability against Seller or
any of its directors, managers, officers, employees or agents;
4.8.11 made any Tax election or settled or compromised any federal,
state, local or foreign income Tax liability, or waived or extended the statute
of limitations in respect of any such Taxes;
4.8.12 except in the ordinary course and consistent with past
practice, entered into, adopted, amended or terminated any bonus, profit
sharing, compensation, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans, funds
or other arrangements for the benefit or welfare of any director, manager,
officer or employee, or increased in any manner the compensation or fringe
benefits of any director, manager, officer or
17
employee or pay any benefit not required by any existing plan and arrangement or
entered into any contract, agreement, commitment or arrangement to do any of the
foregoing;
4.8.13 had any sale or transfer of the Acquired Assets, except items
of Inventory which have been sold in the ordinary course of business.
4.8.14 acquired, leased, encumbered or otherwise imposed a Lien on
any assets, whether tangible or intangible;
4.8.15 waived, released or cancelled any claims against third
parties or debts owing to it, or any rights which have any value;
4.8.16 acquired, compromised or disposed of any Material
Intellectual Property or entered into any transaction with respect to the
acquisition, compromise, settlement or disposition of Material Intellectual
Property or infringements thereof; or
4.8.17 entered into any enforceable agreement with regard to any of
the foregoing.
4.9 Litigation and Claims. Except as set forth in Schedules 4.9 and 4.16,
there is no suit, action, proceeding, Claim or investigation pending, or, to
Seller's knowledge, threatened against or affecting Seller, or any of its
officers, directors, managers or employees in their capacity as such, or any of
the Acquired Assets or Business, including, but not limited to, Lead Paint
Claims and Asbestos Claims. None of the items described in Schedules 4.9 or
4.16, if pursued and/or resulting in a judgment or decision against Seller,
would have a Material Adverse Effect on Seller or the ability of any party to
consummate the transactions contemplated hereby.
4.10 Licenses and Permits. Schedule 4.10 is a true and accurate list by
category of all material licenses, certificates, permits, franchises, variances,
consents, approvals, authorizations, orders and rights held by Seller. Seller
has made each such licenses, certificates, permits, franchises, variances,
consents, approvals, authorizations, orders and rights available for review by
Buyer. Seller holds all material licenses, certificates, permits, franchises and
rights from all appropriate foreign, domestic, federal, state, county, municipal
or other public authorities necessary for the conduct of the Business and
ownership of the Acquired Assets. Except as set forth on Schedule 4.10, Seller
is not in material violation or default of any such licenses, certificates,
permits, franchises, variances, consents, approvals, authorizations, orders and
rights and has received no notice of a pending or threatened claim to revoke,
suspend or modify any such licenses, certificates, permits, franchises,
variances, consents, approvals, authorizations, orders and rights.
4.11 Contracts. Schedule 4.11 hereto lists, as of the date hereof, each
material contract (i) to which Seller is a party or by which Seller is bound or
pursuant to which the Acquired Assets are bound and (ii) which is material to
the Business or financial condition of Seller (the "Acquired Contracts"),
including, but not limited to, the following (provided, however, that none of
the Katy Loan Documents shall be considered to be an Acquired Contract):
18
(a) any contract (or group of related contracts) for the lease of personal
property to or from any Person providing for lease payments in excess of $25,000
per annum;
(b) any contract (or group of related contracts) between Seller and any
Major Customer or Major Supplier;
(c) any contract (or group of related contracts) for the purchase or sale
of raw materials, commodities, supplies, products, or other personal property,
or for the furnishing or receipt of services, the performance of which will
extend over a period of more than one year or involve consideration in excess of
$25,000;
(d) any contract concerning a partnership or joint venture;
(e) any contract granting to any Person a right of first refusal or option
to purchase or acquire any material assets;
(f) any capitalized lease, pledge, conditional sale or title retention
agreement involving the payment of more than $25,000 in the aggregate;
(g) any contract with a sales representative;
(h) any contract (or group of related contracts, other than the Katy Loan
Documents) related to Indebtedness of Seller or pursuant to which Seller has
become a guarantor or surety or pledged their credit on or otherwise become
responsible with respect to any undertaking of another Person;
(i) any contract concerning confidentiality or noncompetition or otherwise
prohibiting Seller from freely engaging in any business;
(j) any license, royalty or other contract relating to Intellectual
Property not otherwise delivered to Buyer pursuant to Section 4.12;
(k) any contract with any Governmental Entity;
(l) any collective bargaining agreement or similar labor contract;
(m) any contract under which it has advanced or loaned any amount to any
of its directors, officers, and employees;
(n) any contract for the employment of any individual on a full-time,
part-time, consulting, or other basis or providing severance benefits;
(o) any contract (other than the Katy Loan Documents) that (A) limits or
contains restrictions on the ability of Seller to declare or pay dividends on,
to make any other distribution in respect of or to issue or purchase, redeem or
otherwise acquire its capital stock, to incur Indebtedness, to incur or suffer
to exist any Lien, to purchase and sell any assets or properties, to change the
line of business in which it participates or engages or engage in any merger or
19
business combination or (B) requires Seller to maintain specified financial
ratios or levels of net worth or other indicia of financial condition;
(p) any other contract (or group of related contracts) the performance of
which involves consideration in excess of $50,000; and
(q) any enforceable agreement to do any of the foregoing described in
clauses (a) through (p).
Each of the Acquired Contracts is in full force and effect and constitutes
the legal, valid and binding obligations of the respective parties thereto,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, applicable
equitable principles or similar laws from time to time in effect affecting the
enforcement of creditors' rights generally. Except as disclosed in Schedule
4.11, (i) Seller is not in default under any of the Acquired Contracts, (ii) no
consent of any other party to any of such Acquired Contracts is required for any
of such contracts to be assigned to Buyer following the Closing, (iii) upon the
consent of the required parties, if any, each Acquired Contract will continue to
be legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby, (iv)
no party has repudiated any provision of the Acquired Contract and (v) the
rights and obligations of Seller under each Acquired Contract are exclusive to
Seller and are not shared with the Affiliates of Seller, or any other parties.
Each of the foregoing Acquired Contracts has been made available for
review by Buyer. In the case of any Acquired Contract described above which is
not written, Seller has provided to Buyer a brief written description of such
Acquired Contract.
4.12 Intellectual Property Matters.
4.12.1 Schedule 4.12 identifies the Intellectual Property, including
a separate designation of the Intellectual Property that is material to the
Business (the "Material Intellectual Property"), and lists all of Seller's
contracts which relate or pertain to any Intellectual Property or any portion of
the Software or the Websites which is owned by a third party and currently used
by Seller in the Business.
4.12.2 Except as disclosed in Schedule 4.12, as of the Closing Date,
Seller will own all right, title and interest in and to the Intellectual
Property identified on Schedule 4.12, free and clear of any Liens, other than
Permitted Liens.
4.12.3 The Seller possesses all Intellectual Property rights
necessary for the conduct of the Business as presently conducted, including all
licenses and rights to use any Intellectual Property not owned by Seller. Except
as disclosed in Schedule 4.12, the transactions contemplated by this Agreement
shall have no effect on the validity and enforceability of any of the
Intellectual Property.
4.12.4 Except as set forth on Schedule 4.12, Seller has taken
reasonable actions to protect the Material Intellectual Property. With respect
to the registered Intellectual Property
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and applications to register Intellectual Property (collectively, the
"Registered Intellectual Property"), Schedule 4.12 also sets forth (i) accurate
details of all due dates for further filings relating to the Registered
Intellectual Property falling due within twelve (12) months of the date hereof;
and (ii) any proceedings or actions before any court, or tribunal, arbitrator,
governmental agency or other body (including, without limitation, the United
States Patent and Trademark Office (the "PTO")) related to the Registered
Intellectual Property, including, without limitation, any opposition,
cancellation, protest, public use, reexamination, reissue or interference
proceeding, office action or lawsuit naming any of Seller as a party. Except as
disclosed in Schedule 4.12: (a) the Registered Intellectual Property has not
been sold, assigned or transferred to a third party, or abandoned or permitted
to lapse, and is not the subject of any pending opposition proceedings, pending
cancellation proceedings, pending interference proceedings, pending lawsuit
naming Seller as a party or other pending or threatened challenges or
proceedings of which Seller has knowledge; and (b) all fees to maintain
registrations for the Material Intellectual Property have been paid.
4.12.5 To Seller's knowledge, none of the Employees has entered into
any agreement relating to the prohibition or restriction of competition or
solicitation of customers, or any other similar restrictive agreement or
covenant, whether written or oral, with any person other than Seller.
4.12.6 Except as disclosed in Schedule 4.12: (i) to Seller's
knowledge, neither the Intellectual Property nor the use thereof has infringed
any copyright, trademark, service mark, trade name, patent, patent right or
trade secret or other property right of any third party, (ii) no claim of any
such infringement has been made or asserted or threatened against Seller; (iii)
Seller has had no written notice of any such claim or threat; and (iv) to the
knowledge of Seller, no basis for such a claim exists in connection with the
operations, products (including software, equipment, machinery, wood and cement
treatments or other products or devices), processes, methods or activities of
Seller.
4.12.7 Except as disclosed in Schedule 4.12, to Seller's knowledge,
there have been no material breaches of Seller's procedures for protection of
the Material Intellectual Property.
4.13 Insurance.
4.13.1 Schedule 4.13 contains a complete and correct description of
all insurance policies owned or held by Seller or related to the Business (the
"Business Insurance Policies") as of the date hereof. The coverage provided
under such insurance policies is reasonable as of the date hereof. The coverage
provided under such insurance policies is reasonable in scope and amount in
light of (i) the risks attendant to the operations and activities of the
Business and (ii) industry practice. As of date of this Agreement, with respect
to the Business, (x) to the knowledge of Seller, there has been no incurrence or
incident that would reasonably be expected to give rise to a material claim for
insurance by Seller under any insurance policy that has not been reported to the
primary carrier (and, if applicable, excess carrier) issuing any such policy and
(y) no material claims submitted under a Business Insurance Policy are in
dispute and no insurer under a Business Insurance Policy has asserted that any
material event or circumstance is
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not a covered claim under such Business Insurance Policy. No coverage limits
under any Business Insurance Policy have been exhausted or materially reduced.
4.13.2 The Seller has paid all premiums due, and has otherwise
performed in all material respects all of its obligations under the Business
Insurance Policies. Each Business Insurance Policy is in full force and effect
and, to the knowledge of Seller, is a valid and binding obligation of each
insurance carrier thereof, enforceable in accordance with its terms, and Seller
has not received any written notice of cancellation or any other written notice
that any Business Insurance Policy is no longer in full force and effect or will
not be renewed or that the issuer of any such policy is not willing or able to
perform its obligations thereunder.
4.14 Approvals and Consents. Except as listed on Schedule 8.3, no filing
or registration with, and no consent, approval, permit, authorization, license,
certificate or order of any governmental authority is required by any applicable
law or by any applicable judgment, order or decree or any applicable rule or
regulation of any governmental authority to permit Seller to execute, deliver or
perform this Agreement or any document, instrument or agreement required to be
executed by such party at or prior to the Closing. No consent, approval,
authorization or waiver is required with respect to the conveyance, transfer,
assignment, mortgaging or encumbering of any Leased Properties, except as set
forth on Schedules 4.7 and 8.3.
4.15 Transactions with Affiliates. Except as described in Schedule 4.15
and with respect to remuneration for services rendered as an officer or Employee
in the ordinary course, (i) no Affiliate of Seller provides or causes to be
provided any assets, services or facilities to Seller, (ii) Seller does not
provide or cause to be provided any assets, services or facilities to its
Affiliates, (iii) Seller does not beneficially own, directly or indirectly, any
investment assets issued by its Affiliates (iv) Seller has not entered into any
agreement, understanding or arrangement with its Affiliates and (v) as of the
Closing Date, there will be no Indebtedness, Accounts Receivable or Accounts
Payable, between Seller, on the one hand, and its Affiliates, on the other.
4.16 Environmental and Safety Matters. Except as set forth on Schedule
4.16 hereto and except as set forth in the environmental report conducted by
Buyer and its representatives, to the knowledge of Seller:
4.16.1 Seller is and has been in material compliance with all
applicable Environmental Laws and all permits, licenses and authorizations
required thereunder for the Leased Properties;
4.16.2 no material Release, burial, placement or exposure by Seller,
its Affiliates or any predecessor entity, of any Hazardous Materials in
violation of Environmental Laws has occurred on, in, at, under or about the
Leased Properties;
4.16.3 none of the following exists or is contained at the Leased
Properties or forms a part of any building, building component or structure
presently or previously owned, operated or leased by Seller, its Affiliates or
any predecessor: (1) underground storage tanks, (2) asbestos-containing
material, urea formaldehyde insulation or aluminum wiring in any form or
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condition, (3) materials or equipment containing polychlorinated biphenyls, (4)
landfills, subsurface impoundments, unpermitted or unregulated waste disposal
sites or Hazardous Material disposal areas in violation of Environmental Laws,
or (5) Hazardous Materials in violation of Environmental Laws;
4.16.4 neither this Agreement nor the consummation of the
transactions that are the subject of this Agreement will result in any
obligations for Losses, or notification to or consent of Governmental Entities
or third parties, pursuant to any so-called "transaction-triggered" or
"responsible property transfer" laws;
4.16.5 Seller and its subsidiaries have never assumed or undertaken
any Losses of any other Person relating to Environmental Laws, Environmental
Claims, Environmental Conditions, Asbestos Claims or Lead Paint Claims,
including without limitation any obligation for corrective or remedial action,
or any costs, liability, contribution or indemnification, nor have the Seller or
its Affiliates, in connection with any Leased Property, been required by any
Governmental Entity to alter the property in order to be in compliance with
Environmental Laws or to perform any environmental remediation on, about, or in
connection with such property;
4.16.6 nothing has come to the attention of Seller, nor its
Affiliates, that would cause it to believe that it will be prevented, hindered
or limited from continued compliance with Environmental Laws or licenses,
certificates, permits, franchises, variances, consents, approvals,
authorizations, orders and rights issued under Environmental Laws, or will be
subject to any investigatory, remedial or corrective actions or obligations
pursuant to Environmental Laws as a result of Environmental Conditions, or will
be subject to any other Losses pursuant to Environmental Laws, including without
limitation any relating to onsite or offsite Releases or threatened Releases,
personal injury or property damage. Seller and its Affiliates, and each of their
respective officers and directors, have not received any written notice of
non-compliance or been convicted of an offence for non-compliance with any
Environmental Laws or been fined or settled any prosecution short of conviction;
4.16.7 no property currently or formerly owned, operated or leased
by Seller or its Affiliates is listed or proposed to be listed on the CERCLIS or
any comparable list maintained by any Governmental Entity, or subject to
regulation as a treatment, storage or disposal facility under the Resource
Conservation Recovery Act, 42 U.S.C. ss. 6901 et seq.; and
4.16.8 there are no capital expenditures greater than $50,000,
individually or in the aggregate, planned within the next 2 years to maintain
compliance with Environmental Laws.
4.17 Agreement Does Not Violate Other Instruments. Except as set forth on
Schedule 8.3, the execution, delivery and performance by Seller of this
Agreement and other agreements, certificates and documents contemplated hereby
and thereby, the consummation by Seller of the transactions contemplated hereby
and thereby, and the compliance by Seller with any of the provisions hereof and
thereof will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, permit the acceleration of any obligation
under, give to any third party any right of termination, cancellation, amendment
or acceleration under, or result in the creation of a Lien on any of the
Acquired Assets (a) under any of the terms or provisions of the articles of
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incorporation or by-laws (or similar governing documents) of Seller, (b) any Law
applicable to Seller or the Business or (c) under any mortgage, deed of trust,
conveyance to secure debt, note, loan, lien, lease, agreement, instrument, or
any order, judgment, decree or other arrangement to which it is a party or by
which it is bound or its assets are affected. Except for the Leased Properties
and further except as set forth on Schedules 4.11 or 8.3, no material consent,
approval, order or authorization of, or registration, declaration or filing
with, any Person is required in connection with the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated by this Agreement.
4.18 Equity Investments; Subsidiaries. None of the Acquired Assets
consists of any securities (debt, equity or otherwise) of any business (other
than the Business) or entity and Seller has no subsidiaries other than Primary
Coatings, Inc. Primary Coatings, Inc. does not own or otherwise have any right,
title or interest in or to any of the Acquired Assets.
4.19 Compliance with Laws. The Business has not been and is not now being
conducted in material violation of any applicable Law of any Governmental
Entity.
4.20 Inventory. The Inventory is fairly reflected in the inventory
accounts on the balance sheet in the Financial Statements and is valued at the
lower of cost or market value and determined in accordance with GAAP. To
Seller's knowledge, subsequent to Seller's Financial Statement Date no Inventory
has been stolen or otherwise unlawfully or improperly removed or diverted, and
none of such items is held by Seller on assignment or consignment or, as of the
Closing Date, will be pledged or otherwise given as collateral.
4.21 Employee Plans.
4.21.1 Schedule 4.21 contains a complete list of each Employee Plan.
Such schedule identifies the Employee Plan (i) sponsored by Seller and (ii)
those which Seller provides or offers to its employees, or former employees (or
their dependents or other beneficiaries), but which is sponsored by one of
Seller's ERISA Affiliates. Except as set forth on Schedule 4.21, (i) the costs
of all such Employee Plans which are paid currently by Seller are reflected as
expenses in the Financial Statements; and (ii) the cost of such Employee Plans
which are, in whole or in part, not paid currently by Seller are adequately
reserved for in the balance sheet contained in the Financial Statements.
4.21.2 Seller has made available to Buyer accurate and complete
copies of, to the extent applicable, (i) the most recent annual report on Form
5500 filed with the Internal Revenue Service with respect to any Employee Plan
(if required), (ii) each trust agreement and group annuity contract relating to
any Employee Plan, (iii) the most recent certified financial statements, if any,
for any Employee Plan and (iv) the most recent actuarial report, if any,
prepared in connection with any Employee Plan and its funded status.
4.21.3 All contributions to the Employee Plans required to have been
made in accordance therewith and, if applicable, ERISA Section 302 or Code
Section 412, have been timely made by the applicable date. None of the Acquired
Assets are subject to any lien under ERISA Section 302 of Code Section 412.
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4.21.4 Except as set forth on Schedule 4.21, each of the Pension
Plans (and any related trust agreement or annuity contract or any other funding
instrument) (i) has been administered in material compliance with the provisions
of ERISA, the Code and all other applicable requirements of law (including Code
Section 410(b) relating to coverage), where required in order to be
tax-qualified under Code Section 401(a); (ii) all legally required governmental
approvals for such plan have been obtained; and (iii) if applicable, has
received a determination letter from the Internal Revenue Service to the effect
that the such plan is qualified under Code Section 401(a) which covers all
amendments thereto for which the remedial amendment period (within the meaning
of Code Section 401(b) of the Code and applicable regulations) has expired, and
no such determination letter has been revoked nor, to the knowledge of Seller,
has such revocation been threatened, nor has such plan been amended since the
date of its most recent determination letter or application therefore in any
respect which would adversely affect its qualification.
4.21.5 Seller does not, and has not within the last six years,
contributed to or been required to contribute to any "multiemployer pension
plan" (as defined in ERISA Section 3(37)).
4.21.6 Except as set forth on Schedule 4.21, no Employee Plan
provides medical, health, welfare or death benefits (whether or not insured)
with respect to current or former employees of Seller beyond their retirement or
other termination of service, except as required under Code Section 4980B, Part
6 of Subtitle B of Title I of ERISA or other applicable law.
4.22 Employees.
4.22.1 Except as set forth in Schedule 4.22, all persons who are
engaged in the Business are the common law employees of Seller.
4.22.2 Schedule 4.22 sets forth a complete list of all former
employees of the Business whose employment has been terminated, voluntarily or
involuntarily, since December 31, 2002.
4.22.3 Schedule 4.22 sets forth all current employees of the
Business, including in each case, such Employee's hire date and salary or hourly
rate, as the case may be.
4.23 Product Warranty. Except as disclosed on Schedule 4.23, each of the
products manufactured, sold, leased, or delivered by Seller has been in material
conformity with all applicable contractual commitments and all express and
implied warranties. To Seller's knowledge, Seller has no liabilities (and there
is no basis for any present or future Claim against it giving rise to any
liability) relating to the replacement or repair thereof or other damages in
connection therewith for products manufactured, sold, leased, or delivered by
Seller. No product manufactured, sold, leased or delivered by Seller is subject
to any express guaranty, warranty or other indemnity beyond the applicable
standard terms and conditions of sale or lease. Schedule 4.23 includes copies of
the standard terms and conditions of sale or lease for Seller (containing
applicable guaranty, warranty, and indemnity provisions). Seller will promptly
notify Buyer of any information relating to any warranty and product liability
or recall claims or threatened claims in excess of $10,000.
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4.24 Product Liability. Except as disclosed in Schedule 4.24, (i) there is
no Claim against or involving Seller concerning any product designed,
manufactured, shipped, sold or delivered by or on behalf of Seller which is
pending or, to the knowledge of Seller, threatened, relating to or resulting
from an alleged defect in design, manufacture, materials or workmanship of any
such product, an alleged failure to warn as to the condition or use of any such
product, or an alleged breach of implied warranties or representations made with
respect to any such product, nor, to Seller's knowledge, is there any valid
basis for any such Claim, (ii) there has not been any Occurrence (as hereinafter
defined) involving Claims or threatened Claims in writing in excess of $10,000,
(iii) there has not been any product recall, rework or post-sale warning or
similar action (collectively "Recalls") conducted with respect to any products
designed, manufactured, shipped, sold or delivered by or on behalf of Seller, or
any investigation or consideration of or decision made by Seller concerning
whether to undertake or not undertake, any Recalls and (iv) there are no
material defects in design, manufacturing and materials or workmanship,
including, without limitation, any failure to warn, or any breach of express or
implied warranties or representations, which involve any product designed
manufactured, shipped, sold or delivered by or on behalf of Seller. For the
purposes of Section 4.24, the term "Occurrence" means any accident, happening or
event which occurs or has occurred at any time within two (2) years prior to the
Closing Date which is caused or allegedly caused by hazard or defect in
manufacture, design, materials or workmanship, including without limitation, any
failure or alleged failure to warn or any breach or alleged breach of express or
implied warranties or representations with respect to a product designed,
manufactured, shipped, sold or delivered by or on behalf of Seller which results
or is alleged to have resulted in injury or death to any person or damage to or
destruction of property (including damage to or destruction of the product
itself, except for products returned, repaired or replaced in the ordinary
course of business) or for which any person seeks consequential damages.
4.25 Customers, Suppliers and Products.
4.25.1 Since Seller's Financial Statement Date, there has not been
any material adverse change in the business relationship, and there has been no
material dispute between Seller and any Major Customer or Major Supplier, and
Seller has not received written notice that any Major Customer or Major Supplier
intends to reduce its purchases from, or sales to, Seller. To the knowledge of
Seller, no Major Customer or Major Supplier intends to terminate its business
relationship with Seller as a result of the transactions contemplated by this
Agreement.
4.25.2 Schedule 4.25 sets forth:
(i) a list of the 5 largest customers of Seller, in terms of revenue
during each of the 2001 and 2002 calendar years (collectively, the "Major
Customers"), showing the total revenue received in each such period from
each such customer;
(ii) a list of the 5 largest suppliers of Seller in terms of
purchases during the 2001 and 2002 calendar years (collectively, the
"Major Suppliers"), and showing the approximate total purchases in each
such period from each such supplier; and
(iii) a list of the 5 products with the largest sales volume sold by
Seller in terms of revenue during each of the 2001 and 2002 calendar years
(collectively, the
26
"Major Products"), showing the approximate total revenue received in each
such period with respect to each such product.
4.26 Brokers. Other than Shattuck Hammond Partners, LLC, the fees of which
broker shall be solely the responsibility of Seller, no broker or finder has
acted for Seller or its Affiliates in connection with this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
5.1 Organization and Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
As of the Closing Date, Buyer shall be duly qualified and/or licensed to conduct
business in all jurisdictions where the conduct of the Business shall require.
5.2 Corporate Power and Authority. Buyer has the full corporate power and
authority to execute and deliver this Agreement, to perform hereunder, and to
consummate the transactions contemplated hereby without the necessity of any
act, approval or consent of any other person or entity whomsoever. The
execution, delivery and performance by Buyer of this Agreement and each and
every agreement, document and instrument provided for herein have been duly
authorized and approved by the Board of Directors of Buyer. This Agreement, and
each and every other agreement, document and instrument to be executed,
delivered and performed in connection herewith constitute or will, when executed
and delivered, constitute the valid and binding obligations of Buyer enforceable
against it in accordance with their terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, applicable
equitable principles, or similar laws from time to time in effect affecting the
enforcement of creditors' rights generally.
5.3 Agreement Does Not Violate Other Instruments. The execution and
delivery of this Agreement by Buyer does not, and the consummation of the
transactions contemplated hereby will not, violate any provisions of the charter
documents of Buyer or violate or constitute an occurrence of default under any
provision of, or conflict with, result in acceleration of any obligation under,
or give rise to a right by any party to terminate its obligations under, any
mortgage, deed of trust, conveyance to secure debt, note, loan, lien, lease,
agreement, instrument, or any order, judgment, decree or other arrangement to
which it is a party or by which it is bound or its assets are affected.
5.4 Brokers. No broker or finder has acted for Buyer or its Affiliates in
connection with this Agreement, other than Castle Crow, the fees of which broker
shall be solely the responsibility of Buyer.
5.5 Availability of Funds. Buyer has available, and will have available on
the Closing Date, sufficient funds to enable it to consummate the transactions
contemplated by this Agreement.
27
5.6 Litigation. There is no litigation pending or, to Buyer's knowledge,
threatened against Buyer (i) that would have a Material Adverse Effect on the
ability of Buyer to perform its obligations under this Agreement or (ii) that
seeks to enjoin or obtain damages in respect of the consummation of the
transactions contemplated hereby.
5.7 Investigation and Evaluation. Buyer acknowledges that (i) Buyer is
experienced in the operation of the type of business conducted by Seller, (ii)
Buyer and its directors, officers, attorneys, accountants and advisors have been
given the opportunity to examine to the full extent deemed necessary and
desirable by Buyer all books, records and other information with respect to
Seller, (iii) Buyer has taken full responsibility for determining the scope of
its investigations of Seller and for the manner in which such investigations
have been conducted, and has examined Seller to Buyer's full satisfaction, (iv)
Buyer is fully capable of evaluating the adequacy and accuracy of the
information obtained by Buyer in the course of such investigations, (v) Buyer
has not relied on Seller with respect to any matter in connection with Buyer's
evaluation of Seller other than the representations and warranties of Seller
specifically set forth in Article IV and (vi) Seller is not making any
representations or warranties, express or implied, of any nature whatever with
respect to Seller other than the representations and warranties of Seller
specifically set forth in this Agreement.
5.8 Forecasts, Projections, etc. Buyer acknowledges that (i) Buyer has
taken full responsibility for evaluating the adequacy, completeness and accuracy
of various forecasts, projections, opinions and similar material heretofore
furnished to Buyer by Seller in connection with Buyer's investigations of Seller
and the Acquired Assets, (ii) there are uncertainties inherent in attempting to
make projections and forecasts and render opinions, (iii) Buyer is familiar with
such uncertainties, and (iv) Buyer is not relying on any projections, forecasts
or opinions furnished to it by Seller.
5.9 Compliance With Law. Except as noted in Schedule 5.9, to the knowledge
of Buyer, Buyer is not presently charged with or under governmental
investigation with respect to, any actual or alleged violation of any statute,
ordinance, rule or regulation, or presently the subject of any pending or
threatened adverse proceeding by any regulatory authority having jurisdiction
over its business, properties or operations.
ARTICLE VI
ADDITIONAL AGREEMENTS OF THE PARTIES
6.1 Cooperation With Respect to Approvals. Buyer and Seller will cooperate
in all respects in connection with (i) securing any nongovernmental approvals,
consents and waivers of third parties necessary for the consummation of the
transactions contemplated hereby and (ii) giving notices to any governmental
authority, or securing the permission, approval, determination, consent or
waiver of any governmental authority, required by law in connection with the
transactions contemplated hereby.
6.2 Employee Matters.
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6.2.1 Employment of the Employees. (a) As of the Closing Date,
Seller shall terminate, or cause to be terminated, the employment of the
Employees and Buyer agrees to offer to employ, effective as of the Closing Date,
each Employee of Seller listed on Schedule 4.22, (each Employee who accepts such
offer of employment by Buyer shall be referred to hereinafter as a "Transferred
Employee"). The terms and conditions of employment after the Closing Date of the
Transferred Employees shall be identical with respect to base salary and wages
and shall be substantially similar, in the aggregate for each Employee, with
respect to all other terms and conditions of their employment before the Closing
Date and at Buyer's sole cost. Buyer shall be responsible for and shall assume
all liability under the WARN Act or any similar state or foreign law which
arises as a result of Buyer not hiring Employees. No provision of this Agreement
shall confer upon any Employee any right with respect to continuance of
employment by Buyer, nor shall anything herein interfere with the right of
Seller to terminate the employment of any of the Transferred Employees at any
time prior to the Closing Date, with or without cause, or restrict Buyer in the
exercise of its independent business judgment in establishing or modifying any
of the terms and conditions of the employment of the Transferred Employees;
provided, however, that Seller and its Affiliates shall in no way be liable for
any Claims arising from Buyer's modification of any terms and conditions of the
employment of the Transferred Employees set forth in the second sentence of this
Section 6.2.1(a). Buyer shall be solely responsible for all the benefits and
compensation due to Transferred Employees on and after the Closing Date except
as otherwise provided in this Agreement.
(b) Seller shall honor or cause its insurance carriers to honor all
Claims for benefits incurred by the Transferred Employees prior to the Closing
Date under the insurance programs provided to employees and maintained by Seller
in accordance with the terms of such insurance programs, without interruption as
a result of the consummation of the transactions contemplated by this Agreement.
6.2.2 Pension and Welfare Benefits. (a) Seller shall provide COBRA
coverage to the Transferred Employees through September 30, 2003 and Buyer shall
reimburse Seller for standard COBRA premiums plus any costs or expenses incurred
by Seller for claims made by Transferred Employees during such coverage. No
later than October 1, 2003, Buyer, with respect to the Transferred Employees,
shall (i) cause a group health plan (including, without limitation, medical,
dental, prescription and the like) to enroll the Transferred Employees who were
enrolled in Seller's group health plan prior to the Closing Date and (ii) cause
such Buyer group health plan to waive any eligibility requirements, waiting
periods and pre-existing condition limitations to coverage and (iii) to the
extent any Transferred Employee has satisfied any internal limits, deductibles,
or co-payment requirements of any such group health plan of Seller, or has
amounts remaining in any health care spending or dependent care spending account
of Seller's, for the year that includes the Closing Date, cause such amounts to
be credited towards satisfaction of such requirements under Buyer's group health
plan or, in case of health care spending or dependent care spending accounts,
credited towards such accounts with Buyer. Buyer's group health plan shall
provide substantially comparable benefits and coverage in the aggregate to that
provided to such Transferred Employees under Seller's group health plan
immediately before the Closing Date. Seller shall satisfy all medical benefits
accrued through the Closing Date on account of employment with Seller by any
person employed by Seller immediately before the Closing Date, such that Seller
can terminate the COBRA coverage that it provides hereunder at the time the
Transferred Employees become covered under Buyer's group
29
health plan. Seller shall further, at its expense, comply with and provide the
benefits, if any, required under Section 4980B of the Code or Part 6 of Title I
of ERISA ("COBRA") from and after the Closing Date for any person, other than a
Transferred Employee, who is or becomes entitled to COBRA continuation coverage
from Seller's group health plan or becomes entitled to such COBRA continuation
coverage as a result of, among other things, the termination of employment by
Seller in connection with the transactions contemplated by this Agreement.
Notwithstanding the foregoing, Buyer shall, at its expense, comply with and
provide any benefits required under COBRA with respect to any Transferred
Employee who terminates employment with Buyer after the Closing Date.
(b) Seller will take, or cause to be taken, any and all actions
necessary to terminate participation of the Transferred Employees in any
employee benefit plans of Seller as of the Closing Date. As of the Closing Date,
Buyer shall have in place employee benefit plans, policies and procedures
substantially similar to those that are available to the Transferred Employees
and their dependents as of the Closing Date under Seller's plans. Additionally,
Buyer agrees that it will cause any Buyer's plan that is a defined contribution
plan qualified under Section 401(a) and 401(k) of the Code to accept direct
rollovers from Transferred Employees in the form of cash and outstanding
participant loans, if any, from the applicable plan of Seller. Buyer shall
provide credit to the Transferred Employees for all prior service with Seller
for any applicable waiting period, eligibility and vesting relating to any
defined contribution plan of Buyer. Buyer shall not provide credit for any
applicable waiting period, eligibility or vesting relating to any defined
benefit plan of Buyer.
6.2.3 Employee Bonuses. For fiscal year 2003, Buyer will maintain
the bonus plan currently provided by Seller to the Employees with the exact same
terms and conditions. A copy of such plan and the Employee targets for fiscal
year 2003 are attached hereto as Schedule 6.2.3. Provided that Buyer maintains
and honors the bonus plan in accordance with the foregoing, Seller shall pay
Buyer an amount equal to the employee bonus obligations accruing on a per diem
basis for fiscal year 2003 through the Closing Date (the "Seller Bonus
Obligation"). Such payment shall not be made to Buyer until a payment is due to
the eligible employees under the terms of the bonus plan.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of which may
be waived in writing, in whole or in part, by Buyer for purposes of consummating
such transactions:
7.1 Representations True at Closing. The representations and warranties
made by Seller in this Agreement, the Schedules hereto or any document or
instrument delivered to Buyer or its representatives hereunder that are
qualified as to materiality shall be true and correct in all respects on the
Closing Date and each of the representations and warranties of Seller that are
not so qualified shall be true and correct in all material respects.
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7.2 Covenants of Seller. Seller shall have duly performed all of the
covenants, acts and undertakings to be performed by it on or prior to the
Closing Date and it shall have delivered to Buyer certificates dated as of the
Closing Date certifying to the fulfillment of this condition and the condition
set forth in Section 7.1 hereof.
7.3 No Injunction, Etc. No action, proceeding, investigation, regulation
or legislation shall have been instituted, threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit, or
obtain substantial damages in respect of, or which is related to, or arises out
of, this Agreement or the consummation of the transactions contemplated hereby,
or which is related to or arises out of the Business, if such action,
proceeding, investigation, regulation or legislation, in the reasonable judgment
of Buyer, would make it inadvisable to consummate such transactions.
7.4 Absence of Adverse Changes. Since the Seller's Financial Statement
Date, Seller shall not have suffered any change in its financial condition,
business, properties or assets which has had a Material Adverse Effect on Seller
or the transactions contemplated by this Agreement and Seller shall deliver to
Buyer a certificate to such effect.
7.5 Approvals. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities whose approvals are required by Law and the third
party consents and approvals listed on Schedule 8.3 have been obtained.
7.6 Deliveries. Buyer shall have received from Seller all of the documents
listed in Section 9.2.1.
7.7 Modifications of Agreements. Seller shall have amended and modified
the Termination Agreements such that: (i) Section 2(b) of the Taddei, Maraviov
and McGarr agreements shall refer to the first anniversary of the effective date
of a "Sale" rather than the second anniversary; (ii) all references to the
undefined term "Annual Base Salary" shall be replaced with the defined term
"Annual Base Pay"; (iii) payments by a "Purchaser" will only be made in the
event of an actual termination by a "Purchaser" other than for "Cause," (iv) the
definition of "Cause" shall be expanded to expressly include commission of any
felony, embezzlement, theft or breach of fiduciary duty and (v) the expiration
date of the agreements shall have been extended.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction, on or before the Closing
Date, of each and every one of the following conditions, all or any of which may
be waived, in whole or in part, by Seller for purposes of consummating such
transactions:
8.1 Representations True at Closing. The representations and warranties
made by Buyer in this Agreement, the Schedules hereto or any document or
instrument delivered to Seller
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or its representatives hereunder that are qualified as to materiality shall be
true and correct in all respects on the Closing Date and each of the
representations and warranties of Seller that are not so qualified shall be true
and correct in all material respects.
8.2 Covenants of Buyer. Buyer shall have duly performed all of the
covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, and a duly authorized officer of Buyer shall deliver to Seller a
certificate dated as of the Closing Date certifying to the fulfillment of this
condition and the condition set forth under Section 8.1 above.
8.3 Approvals. The execution and the delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been approved by
all regulatory authorities whose approvals are required by law and the third
party consents and approvals listed on Schedule 8.3 have been obtained.
8.4 Deliveries. Buyer shall have received from Seller all of the documents
listed in Section 9.2.2.
ARTICLE IX
CLOSING
9.1 Time and Place of Closing. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, the Closing shall be
held at the offices of Hunton & Williams, 200 Park Avenue, 43rd Floor, New York,
New York 10166 on September 15, 2003, commencing at 10:00 a.m. local time. For
all purposes, including the allocation of liability and the ownership of the
Acquired Assets, the Closing shall be deemed to have occurred at 12:00 am on
September 16, 2003.
9.2 Transactions at Closing. At the Closing, each of the following
transactions shall occur:
9.2.1 Seller's Performance. At the Closing, Seller shall deliver to
Buyer, the following:
(i) such good and sufficient bills of sale, licenses, assignments
and other good and sufficient instruments of sale, conveyance, transfer
and assignment as shall be required or as may be appropriate in order to
vest effectively in Buyer good and marketable title to the Acquired Assets
free and clear of all Liens other than the Permitted Liens and the Assumed
Liabilities;
(ii) certificate of good standing of Seller as of the most recent
practicable date from the Secretary of State of the State of Delaware;
(iii) with respect to any of the Leased Properties for which Buyer
desires to obtain title insurance, Seller shall satisfy all of Buyer's
title company's reasonable title requirements and deliver such title
affidavits and indemnities as reasonably required by such title company;
provided, that, such title insurance shall be at Buyer's expense and shall
be subject to the Permitted Liens and any other matters that are shown in
the real
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estate records of the county where the Leased Property is located or on
any survey of the Leased Property provided for purposes of obtaining the
title insurance;
(iv) a certification of its non-foreign status that complies with
the requirements of Section 1445 of the Code and the Treasury Regulations
promulgated thereunder (a "FIRPTA Certificate");
(v) certified copies of the resolutions of Seller approving the
transactions set forth in this Agreement, executed by those with such
authority;
(vi) incumbency certificates from the officers of Seller executing
this Agreement or any agreement delivered ancillary hereto;
(vii) those certificates required by Section 7.2 and Section 7.4;
(viii) an Assignment and Assumption Agreement in the form of Exhibit
9.2(a) (the "Assignment and Assumption Agreement"), duly executed by
Seller;
(ix) evidence of consents described in Section 4.11;
(x) a bill of sale in the form of Exhibit 9.2(b) (the "Bill of
Sale"), duly executed by Seller;
(xi) an assignment and assumption of lease, with respect to each of
the Leased Properties (the "Assignment of Lease"), and such Assignment of
Lease, to the extent required, shall have been consented to by the
landlord of such Leased Property;
(xii) a short form intellectual property assignment agreement for
filing immediately upon Closing with the applicable registries, executed
by Seller;
(xiii) (A) a consent under the Katy Loan Documents required to
consent to the transactions contemplated by this Agreement or (B) evidence
that all obligations with respect to the Acquired Assets under the Katy
Loan Documents have been settled and released in full; and
(xiv) such other evidence of the performance of all covenants and
satisfaction of all conditions required of Seller by this Agreement, at or
prior to the Closing, as Buyer or its counsel may reasonably require.
9.2.2 Performance by Buyer. At the Closing, Buyer shall deliver to
Seller the following:
(i) the Purchase Price;
(ii) certificate of good standing of Buyer as of the most recent
practicable date from the Secretary of State of the State of Delaware;
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(iii) certified copies of resolutions of Buyer approving the
transactions set forth in this Agreement, executed by those with such
authority;
(iv) incumbency certificate for the officers of Buyer executing this
Agreement and any agreement delivered ancillary hereto;
(v) those certificates required by Section 8.2;
(vi) the Assignment and Assumption Agreement, duly executed by
Buyer; and
(vii) such other evidence of all covenants and satisfaction of all
conditions required of Buyer by this Agreement, as Seller or its counsel
may reasonably require.
ARTICLE X
SURVIVAL OF REPRESENTATION AND WARRANTIES; INDEMNIFICATION
10.1 Indemnification Covenants of Seller.
10.1.1 Subject to Section 10.5 hereof, after the Closing Date,
Seller hereby agrees to indemnify and hold Buyer and its Affiliates harmless
from and against all Losses sustained or incurred by Buyer or any such Affiliate
as a result or arising out of or by virtue of: (i) the inaccuracy of any
representation or warranty made by Seller to Buyer in this Agreement, (ii) the
breach or non-performance by Seller of any of the covenants, agreements or
obligations of this Agreement to be performed by Seller; and (iii) all Unassumed
Liabilities.
10.1.2 For all purposes under this Article X, any breach of or any
inaccuracy in (or any alleged breach of or inaccuracy in) any representation or
warranty under Section 10.1.1(i) and any breach of or failure to perform (or any
alleged breach of or failure to perform) any covenant, agreement or obligation
under Section 10.1.1(ii) shall each be determined giving effect to any
materiality standard contained therein and any Losses related to or arising
thereunder shall be calculated giving effect to any materiality standard
contained in such representation, warranty, covenant, agreement or obligation.
10.2 Indemnification Covenants of Buyer. Subject to Section 10.5 hereof,
after the Closing Date, Buyer hereby agrees to indemnify and hold Seller and its
Affiliates harmless from and against all Losses sustained or incurred by Seller
or its Affiliates as a result or arising out or by virtue of: (i) the inaccuracy
of any representation or warranty made by Buyer to Seller in this Agreement,
(ii) the breach or non-performance by Buyer of any of the covenants, agreements
or obligations of this Agreement to be performed by Buyer, and (iii) the failure
to pay or discharge in accordance with their terms any of the Assumed
Liabilities, after the Closing Date.
10.3 Indemnification Procedure.
10.3.1 Whenever a Claim shall arise for which any Person (an
"Indemnitee") shall be entitled to indemnification pursuant to this Article X,
Indemnitee shall notify the other party ("Indemnitor") in writing within 30 days
of the first receipt of notice of, or to the best of Indemnitee's knowledge of,
such Claim, and in any event within such shorter period as may be
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necessary for Indemnitor to take the appropriate action to resist such Claim;
provided, however, that the failure of an Indemnitee to give timely notice shall
not affect its right to indemnification hereunder except to the extent that
Indemnitor is prejudiced by such failure (it being understood that this proviso
does not modify or otherwise affect the time periods specified in Section 10.6).
Such notice shall specify the nature of the Claim and the facts giving rise to
such indemnity rights with reasonable specificity, including the amount or
estimated amount of the Claim and the basis, in reasonable detail, for such
Claim.
10.3.2 Upon receipt of any request for indemnification by Indemnitee
directly against Indemnitor (rather than indemnification for a Claim brought by
a third party), Indemnitor shall, within 30 days of receiving Indemnitee's
notice setting forth such request for indemnification, either (a) agree in
writing to such indemnification request, or (b) if Indemnitor believes in good
faith that it is not obligated to indemnify Indemnitee with respect to such
Claim, provide Indemnitee with oral notice of such disagreement, to be followed
promptly by written notice setting forth the basis for such objection in
reasonable detail. If Indemnitor fails to respond to Indemnitee's written
request within such 30-day period, Indemnitee's right to indemnification, as set
forth in Indemnitee's notice to Indemnitor, shall be deemed agreed to by
Indemnitor. If Indemnitor timely objects to Indemnitee's request for
indemnification, Indemnitor and Indemnitee shall meet and confer and attempt to
resolve such dispute through good faith negotiations.
10.4 Third Party Claims.
10.4.1 If any third party shall notify any Indemnitee of a Claim (a
"Third Party Claim") which may give rise to a right to indemnification against
any Indemnitor under this Article X, then the Indemnitee shall notify each
Indemnitor thereof in writing within 30 days; provided, however, that no delay
on the part of the Indemnitee in notifying any Indemnitor shall relieve the
Indemnitor from any obligation hereunder unless (and then solely to the extent)
the Indemnitor thereby is prejudiced. Such notice shall specify the nature of
the Third Party Claim and the facts giving rise to such indemnity rights with
reasonable specificity, including the amount or estimated amount of the Third
Party Claim and the basis, in reasonable detail, for such Third Party Claim.
10.4.2 An Indemnitor will have the right to defend the Indemnitee
against the Third Party Claim with counsel of its choice reasonably satisfactory
to the Indemnitee (and each Indemnitee shall reasonably cooperate in connection
therewith and shall furnish such records, information and testimony and attend
such conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by Indemnitor in connection therewith) so long as (i) the
Indemnitor notifies the Indemnitee in writing within 15 days after the
Indemnitee has given notice of the Third Party Claim that the Indemnitor will,
to the extent required under this Article X (including taking into consideration
the limitations set forth in Section 10.6), indemnify Indemnitee from and
against Losses the Indemnitee may suffer as a result of the Third Party Claim,
(ii) the Indemnitor provides the Indemnitee with evidence reasonably acceptable
to the Indemnitee that the Indemnitor will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification obligations
hereunder, and (iii) the Indemnitor conducts the defense of the Third Party
Claim actively and diligently. If Indemnitor does not conduct the defense of a
Third Party Claim, Indemnitee may assume the defense thereof at the
35
expense of the Indemnitor and Indemnitor shall reasonably cooperate with such
defense; provided, however, that Indemnitor shall be responsible for the
reasonable fees and expenses of only one counsel (together with appropriate
local counsel) for all Indemnitees. Notwithstanding the foregoing, Indemnitee
shall have the right to pay, settle or compromise any Third Party Claim without
the consent of Indemnitor if Indemnitee shall waive any right to indemnity
therefor. If Indemnitor assumes the defense of any Third Party Claim and later
relinquishes the defense for any reason, Indemnitor shall give prompt notice of
its intent to relinquish and shall reasonably cooperate in the transfer of the
defense.
10.4.3 So long as the Indemnitor is conducting the defense of the
Third Party Claim in accordance with Section 10.4.2 above, (i) the Indemnitee
may retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third Party Claim, (ii) the Indemnitor will not consent to
the entry of any judgment or enter into any settlement with respect to the Third
Party Claim, which judgment or settlement involves injunctive or other equitable
relief, without the prior written consent of Indemnitee, not to be withheld
unreasonably and (iii) the Indemnitee will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnitor, not to be withheld
unreasonably.
10.4.4 In the event any of the conditions in subsections 10.4.2(i)
through (iii) above is or becomes unsatisfied, however, (i) the Indemnitee may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it reasonably
may deem appropriate (with the consent of Indemnitor, not to be unreasonably
withheld), (ii) the Indemnitor will reimburse the Indemnitee promptly for the
costs of defending against the Third Party Claim (including reasonable
attorneys' fees and expenses), and (iii) the Indemnitor will remain responsible
for any Losses the Indemnitee may suffer resulting from, arising out of,
relating to, or caused by the Third Party Claim to the fullest extent provided
in this Section 10.4.
10.5 Reductions and Subrogations. If the amount of any Loss incurred by an
indemnified party at any time subsequent to the making of an indemnity payment
is reduced by (i) any actual recovery, settlement or otherwise under or pursuant
to any insurance coverage or (ii) any actual recovery, settlement or payment by
or against any other Person (each, a "Recovery"), the amount of such Recovery
(less any costs, expenses (including Taxes) or premiums incurred in connection
therewith), together with interest thereon from the date the indemnification
payment was made, shall promptly be repaid by the indemnified party to the
indemnifying party. Upon making a full indemnity payment, the indemnifying party
shall, to the extent of such indemnity payment, be subrogated to all rights of
the indemnified party against any third party in respect of the Loss to which
the indemnity payment relates.
10.6 Limits on Indemnification Obligation. Notwithstanding anything in
Sections 10.1 or 10.2 to the contrary or in conflict:
10.6.1 All of the terms and conditions of this Agreement, together
with the representations, warranties, agreements and covenants contained herein
or in any instrument or document delivered or to be delivered pursuant to this
Agreement, shall survive the execution of this Agreement and the Closing Date,
notwithstanding any investigation heretofore or hereafter
36
made by or on behalf of any party hereto; provided, however, that unless
otherwise stated, the agreements and covenants set forth in this Agreement shall
survive and continue until all obligations set forth therein shall have been
performed and satisfied. Notwithstanding the foregoing, (a) the representations
and warranties of Seller contained in Sections 4.1, 4.2 and 4.26 of this
Agreement and the representations and warranties of Buyer contained in Sections
5.1, 5.2 and 5.4 of this Agreement shall survive the Closing and continue in
full force and effect indefinitely ("Type I Claims"); (b) the representations
and warranties of Seller contained in Section 4.6 of this Agreement shall
survive the Closing and continue in full force and effect until 90 days
following the expiration of any applicable statute of limitations (including any
extensions or waivers thereof) ("Type II Claims"); and (c) all other
representations and warranties ("Type III Claims"), and the agreements of Seller
and Buyer in Sections 10.1.1(i) and 10.2(i) to indemnify each other for breaches
of such representations and warranties, shall survive and continue for, and all
indemnification claims with respect thereto shall be made prior to, one year
from the Closing Date, except for representations, warranties and related
indemnities for which an indemnification claim shall be pending as of the end of
the applicable period referred to above, in which event such indemnities shall
survive with respect to such indemnification claim until the final disposition
thereof.
10.6.2 Except on account of fraud or willful misconduct (for which
the Basket shall not apply), neither Seller, on the one hand, nor Buyer, on the
other hand, shall be liable for Type II or Type III Claims, as applicable, in
any instance until such time as the aggregate liability under such section
exceeds One Hundred Fifty Thousand Dollars ($150,000) (the "Basket"), in which
event Seller or Buyer, as is applicable, shall be liable for the full amount of
such liability.
10.6.3 Except on account of fraud or willful misconduct, neither
Seller, on the one hand, nor Buyer, on the other hand, shall be liable for Type
II or Type III Claims, as applicable, for Losses which exceed, in the aggregate,
One Million Five Hundred Thousand Dollars ($1,500,000). In no event shall the
aggregate liability of Seller, on the one hand, nor Buyer, on the other hand,
under the indemnity provisions of Section 10.1 and Section 10.2, as applicable,
exceed Fifteen Million Dollars ($15,000,000).
10.6.4 Any term of this Article X to the contrary notwithstanding,
after the Closing Date, the rights and remedies of Buyer and Seller under this
Article X are exclusive and in lieu of any and all other rights and remedies
which Buyer and Seller may have with respect to the transactions evidenced
hereby.
10.7 Conduct of Litigation. The parties agree to conduct any litigation
relating to this Article X in a reasonable manner and in good faith, including
appropriate concern for the best interests of each party hereto that is involved
in such litigation.
ARTICLE XI
KATY'S GUARANTEE
11.1 Katy's Guarantee.
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11.1.1 Katy hereby unconditionally guarantees the due and punctual
payment and performance of the following obligations of Seller set forth in this
Agreement: (a) the indemnification obligations of Seller under Section 10.1 of
the Agreement, (b) the agreements and covenants of Seller set forth in Sections
2.4, 3.4, 3.5, 3.7 through 3.14, Article VI and Sections 12.2 and 12.4 of the
Agreement and (c) any liabilities relating to the Unassumed Liabilities.
11.1.2 This guaranty is an irrevocable guaranty of payment (and not
just of collection) and shall continue in effect notwithstanding any extension
or modification of the terms of this Agreement; provided, however, that any
assignment of any such guaranteed obligation to any other party, except in
accordance with Section 12.5 herein, shall operate as a discharge of Katy under
this Article XI. This guarantee is not conditioned upon any requirement that
Buyer first attempt to collect or enforce any guaranteed obligation from or
against Seller. Subject to Section 11.1.4, the obligations of Katy hereunder
shall be absolute and unconditional and shall not be affected by or contingent
upon any disability of Seller; provided, however, that such obligations shall be
subject to any defense Seller may have against Buyer.
11.1.3 Katy hereby waives all demands and notices of every kind in
connection with this Article XI; provided, however, that nothing in this Article
XI shall limit or otherwise affect Buyer's notice and demand obligations under
Article X or any other limitations of Seller's indemnification obligations under
such Article. This Article XI shall continue to be effective or shall be
reinstated, as the case may be, if at any time payment or performance of any
obligation of Seller under this Agreement is rescinded or must otherwise be
restored or returned by Buyer upon the insolvency, bankruptcy or reorganization
of Seller or otherwise. Katy acknowledges that each of the waivers set forth
above is made with full knowledge of its significance and consequences and under
the circumstances the waivers are reasonable. If any of said waivers is
determined to be contrary to any applicable law or public policy, such waivers
shall be effective only to the extent permitted by law.
11.1.4 Article XI shall not be construed to expand the
indemnification obligations set forth in this Agreement. The aggregate liability
of Katy (under this Article XI) and Seller (under the terms of this Agreement)
shall not exceed $15,000,000. For purposes of clarification, and by way of
example, if Buyer shall be entitled to indemnification for a Loss of $15,000,000
under Article X and Buyer shall have received $2,000,000 from Seller, the
maximum aggregate potential liability of Katy shall be reduced to $13,000,000.
ARTICLE XII
GENERAL PROVISIONS
12.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand or overnight
courier or mailed by registered or certified mail, return receipt requested,
first class postage prepaid, addressed (or sent) as follows:
If to Seller, to:
Katy Industries, Inc.
38
765 Straits Turnpike
Suite 2000
Middlebury, CT 06762
Attention: Amir Rosenthal, Esq.
With copies to:
KKTY Holding Company, LLC
111 Radio Circle
Mt. Kisco, New York 10549
Attention: Christopher Lacovara
and
Hunton & Williams LLP
Bank of America Plaza - Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: Joseph B. Alexander, Jr., Esq.
If to Buyer, to:
Professional Paint, Inc.
8600 Park Meadows Drive
Suite 300
Lone Tree, Colorado 80124
Attention: Kent Child
With a copy to:
Mayer, Brown, Rowe and Maw LLP
1675 Broadway
New York, New York 10019
Attention: James B. Carlson, Esq.
If delivered personally or by overnight courier, the date on which a
notice, request, instruction or document is delivered shall be the date on which
shall delivery is made and, if delivered by mail, the date on which such notice,
request, instruction or document is received shall be the third business day
following the date of mailing. Any party hereto may change its address specified
for notices herein by designating a new address by notice in accordance with
this Section 12.1.
12.2 Further Assurances. At any time, and from time to time, after the
Closing Date, Seller, on the one hand, and Buyer, on the other hand, shall
execute such additional instruments and take such actions as may be reasonably
requested by any of them to confirm or perfect or otherwise to carry out the
intent and purposes of this Agreement.
39
12.3 Waiver. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived by the
party or parties to whom such compliance is owed. No waiver of any provision of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be effective unless it is made in writing and delivered
as provided in this Agreement.
12.4 Expenses. All expenses incurred by the parties hereto in connection
with or related to the authorization, preparation and execution of this
Agreement and the Closing of the transactions contemplated hereby, including,
without limitation of the generality of the foregoing, all fees and expenses of
agents, representatives, counsel and accountants employed by any such party,
shall be borne solely and entirely by the party or parties which has incurred
the same.
12.5 Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. No
party may assign or transfer this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other party
except that: (i) Buyer may assign its rights and obligations under this
Agreement in whole or in part to any entity or entities, or any assignee of such
entity or entities, providing financing for the transactions contemplated by
this Agreement or to any entity or entities providing to Buyer and its
Affiliates financing related to the Business, (ii) Seller may assign its rights
and obligations under this Agreement in whole or in part to any of Katy's
lenders under the Katy Loan Documents, and (iii) each party may assign its
rights and obligations hereunder to an Affiliate so long as such Affiliate
continues to be bound by the terms of this Agreement and so long as such
Affiliate is either Katy or PPI, or a direct or indirect wholly owned subsidiary
thereof and remains a direct or indirect wholly owned subsidiary thereof.
12.6 Headings. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not and
shall not be deemed to be a part of this Agreement.
12.7 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes and cancels any prior agreements,
representations, warranties, or communications, whether oral or written, among
the parties hereto relating to the transactions contemplated hereby or the
subject matter herein. Neither this Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only by an agreement in
writing signed by both parties.
12.8 Governing Law; Jurisdiction; Consent to Service of Process. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW RULES
AND PRINCIPLES. EACH OF THE PARTIES HERETO IRREVOCABLY: (A) SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE
FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN NEW YORK, NEW YORK,
FOR THE PURPOSE OF ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT; (B)
40
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT; (C) AGREES THAT A FINAL
JUDGMENT IN ANY ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW; AND (D) CONSENTS TO SERVICE OF PROCESS UPON IT BY
MAILING A COPY THEREOF BY CERTIFIED MAIL ADDRESSED TO IT AND ITS COUNSEL AS
PROVIDED FOR NOTICES HEREUNDER.
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Number and Gender. Whenever the context requires, references in this
Agreement to the singular number shall include the plural, the plural number
shall include the singular and words denoting gender shall include the
masculine, feminine and neuter.
12.11 Schedules Incorporated. All Schedules attached hereto are
incorporated herein by reference.
12.12 Confidentiality. Seller and Buyer agree that each (a) will maintain
the confidentiality of the terms and provisions of this Agreement, (b) will
maintain the confidentiality of the information delivered to them or made
available for their inspection in connection with this Agreement and the
consummation of the transactions contemplated hereby, including, but not limited
to, any information received pursuant to Section 3.3 hereof or any prior
confidentiality agreement between the parties and (c) will not use any such
information other than in connection with the transactions contemplated hereby.
In the event the Closing does not occur, Seller and Buyer will promptly return
or destroy all material of or concerning the other party obtained from such
other party and hereby covenant (x) to keep any information concerning the other
party and ascertained from their review confidential and not to disclose any
such information to any third parties for any reason whatsoever and (y) not to
use any such information for any purpose whatsoever. Notwithstanding the
foregoing, the prohibitions and restrictions set forth in this section shall not
apply to any information (a) in the public domain not as a result of the
violation of Seller's or Buyer's undertaking herein, (b) available to Seller or
Buyer on a non-confidential basis without regard to the disclosure by Seller or
Buyer to the other parties, (c) available to Seller or Buyer from a source other
than the other party (provided that such source in so acting is not violating
any duty or agreement of confidentiality), or (d) required to be disclosed by
any law, rule or regulation. Buyer shall be liable for the breach of any of the
foregoing by its Affiliates, employees, representatives, advisors or agents.
Notwithstanding anything herein to the contrary, any party to this Agreement
(and any employee, representative, or other agent of any party to this
Agreement) may disclose to any and all persons, without limitation of any kind,
the tax treatment and tax structure of the transactions contemplated hereby and
all materials of any kind (including opinions or other tax analyses) that are
provided to it relating to such tax treatment and tax structure. However, any
such information relating to the tax treatment or tax structure is required to
be kept confidential to the extent necessary to comply with applicable federal
or state securities laws.
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12.13 Public Announcements. Buyer and Seller shall consult with each other
prior to issuing any press release or otherwise making a public announcement or
statement with respect to this Agreement or the transactions contemplated hereby
and shall not issue any such public announcement or statement without the prior
written consent of the other, except as may be required by Law.
[Signatures appear on the next page]
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IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
BUYER: KATY:
DUCKBACK ACQUISITION CORP. KATY INDUSTRIES, INC.
By: _________________________ By: _________________________
Name: Name:
Title: Title:
SELLER:
DUCKBACK PRODUCTS, INC.
By: _________________________
Name:
Title:
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