EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (this
“Agreement” )
is made and entered into as of June 19, 2008, by and among
Restaurant Acquisition Partners, Inc., a Delaware corporation
(
“Parent” ),
Oregano’s Acquisition, Inc., an Arizona corporation and a
wholly-owned subsidiary of the Parent (
“Merger Sub” ),
Oregano’s Holdings LLC, a Delaware limited liability company
with the Parent as its sole member (“
Oregano LLC ”),
Oregano’s Pizza Bistro, Inc., an Arizona corporation
(the
“Company” )
and the sole shareholder of the Company, Mark S. Russell
(“
Russell ”).
Capitalized terms used in this Agreement are defined or otherwise
referenced in Article X of this Agreement.
RECITALS
WHEREAS,
the Parent and the Company desire that Parent combine its
business with the businesses operated by the Company through
(i) the merger of Merger Sub with and into the Company, with
the Company as the surviving corporation (the “
First Merger ”),
as more fully provided in this Agreement and in accordance with the
Arizona Business Corporation Act (Arizona Revised Statutes Sections
10-120, et al.), as amended (the “
ABCA ”);
and (ii) immediately following the First Merger, the merger of the
Company with and into Oregano LLC, with Oregano LLC as the
surviving limited liability company (the “
Second Merger ”),
as more fully provided in this Agreement and in accordance with the
Delaware Limited Liability Company Act (the “
DLLCA ”)
and the ABCA;
WHEREAS,
the board of directors of each of the Company, the Parent and
Merger Sub and the board of managers of Oregano LLC have
determined that the First Merger and the Second Merger, taken
together, upon the terms and subject to the conditions set
forth in this Agreement are advisable, fair to and in the best
interests of their respective stockholders and member, as the
case may be;
WHEREAS,
Russell owns 100% of the issued and outstanding shares of
Company Common Stock, constituting all of the capital stock of
the Company;
WHEREAS,
Russell, possessing all voting rights necessary for the
Shareholder Approval has approved this Agreement and the
Transaction (as defined below), subject to the conditions set
forth herein, pursuant to a written consent in lieu of a
meeting of even date herewith (the “
Shareholder Consent ”);
WHEREAS,
for federal income tax purposes, it is intended that the First
Merger and the Second Merger shall be treated as a single
integrated transaction (collectively, the “
Transaction ”)
and shall qualify as a “reorganization” within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the “
Code ”),
and the regulations promulgated thereunder, and that this Agreement
will be, and is, adopted as a plan of reorganization;
WHEREAS,
concurrently with the execution of this Agreement, and as a
condition and inducement to the Parent; Oregano LLC; and
Merger Sub’s willingness to enter into this Agreement,
Russell is entering into a non-competition and
non-solicitation agreement with the Parent substantially in
the form set forth on
Exhibit C to
this Agreement (each, a “
Non-Competition Agreemen t”
and, collectively, the “
Non-Competition Agreements ”);
and
WHEREAS,
concurrently with the execution and delivery of this Agreement
and as a condition and further inducement to the
Parent’s willingness to enter into this Agreement,
Russell has delivered to the Parent an executed copy of the
Real Estate Purchase Agreement.
NOW,
THEREFORE, in consideration of the premises, representations
and warranties and mutual agreements herein contained, the
parties agree as follows:
ARTICLE I
THE TRANSACTION
Section
1.1
The First Merger .
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the provisions of the ABCA,
Merger Sub shall be merged with and into the Company at the
Effective Time. As a result of the First Merger, subject to Section
1.17, the separate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation under the laws
of the State of Arizona and shall continue under the name
“Oregano Pizza Bistro, Inc.” as a wholly owned
subsidiary of the Parent (the Company as a surviving corporation in
the First Merger is sometimes referred to in this Agreement as the
“
First
Surviving Corporation ”).
Section
1.2
Effective Time; Closing .
At the Closing, the parties shall file with the Corporation
Commission of the State of Arizona a certificate of merger in such
form as required and executed in accordance with the relevant
provisions of the ABCA (the “
Certificate of Merger ”)
and shall make all other filings or recordings required under the
ABCA, if any. The First Merger shall become effective at such time
as the Certificate of Merger is duly filed with the Corporation
Commission of the State of Arizona, or at such other time as is
permissible in accordance with the ABCA and as the Parent and the
Company shall agree and as specified in the Certificate of Merger
(the time the First Merger becomes effective being the
“
Effective Time ”).
Section
1.3
Effects of the First Merger .
At the Effective Time:
(a)
The
separate existence of Merger Sub shall cease and Merger Sub
shall be merged with and into the Company with the Company
continuing as the surviving corporation. At the Effective
Time, and without any further action on the part of Merger Sub
or the Company, the certificate of incorporation and bylaws of
Merger Sub as in effect at the Effective Time shall be the
articles of incorporation and bylaws of the First Surviving
Corporation following the First Merger, in each case, until
thereafter changed or amended as provided therein or by Legal
Requirements and until the Second Merger becomes effective,
except that (i) the name of the corporation set forth therein
shall be changed to the name of the Company and (ii) the
identity of the incorporator shall be deleted. The directors
of Merger Sub at the Effective Time shall be the directors of
the First Surviving Corporation following the First Merger and
until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as
may be the case, and until the Second Merger becomes
effective. The officers of the Company immediately prior to
the Effective Time shall be the officers of the First
Surviving Corporation until their respective successors are
duly elected and qualified and until the Second Merger becomes
effective.
(b)
The
First Merger shall have all the effects set forth in the
appropriate provisions of the ABCA and as set forth in this
Agreement.
Section
1.4
Effect on Capital Stock .
Subject to the terms and conditions of this Agreement, at the
Effective Time, by virtue of the First Merger and this Agreement
and without any action on the part of Merger Sub, the Company or
the holders of any of the capital stock of the Company, and subject
to Sections 1.4(b), 1.4(c) and 1.4(d), the following shall
occur:
(a)
Company Common Stock .
Each share of Company Common Stock outstanding immediately prior to
the Effective Time (excluding shares to be canceled pursuant to
Section 1.4(f)) will as of the Closing Date be automatically
converted into the right to receive a pro rata portion of the Total
Merger Consideration subject to Section 1.14 and Article II
hereof.
(b)
As
used in this Agreement, the term “
Preliminary Cash Merger Consideration ”
shall mean an amount determined by subtracting the Estimated Cash
Deduction Amount from Closing Cash. The term “
Closing Cash ”
shall mean the greater of (A) the amount that is the lesser of (i)
$8,500,000 and (ii) the product obtained by multiplying the Gross
Preliminary Closing Merger Consideration by 0.52 and (B) the
Estimated Cash Deduction Amount;
(c)
As
used in this Agreement, the term “
Preliminary Closing
Merger Consideration ”
shall be an amount equal to (A) the sum of (i) 6.5 multiplied by
the Estimated Closing Adjusted EBITDA,
plus (ii)
the amount, if any, by which the Estimated Closing Working Capital
exceeds the Benchmark Working Capital,
plus (iii)
t he
Estimated Closing New Restaurant Investment Amount (such sum the
“
Gross Preliminary Closing Merger Consideration
”),
minus (B)
the sum of (x) the Estimated Total Indebtedness and (y)
the
amount, if any, by which the Benchmark Working Capital exceeds the
Estimated Closing Working Capital (such
sum the “
Estimated Cash Deduction Amount ”).
(d)
As
used in this Agreement, the term “
Preliminary Parent Stock Consideration ”
shall mean an amount of shares of Parent Common Stock determined by
(A) subtracting the Preliminary Cash Merger Consideration from the
Preliminary Closing Merger Consideration and dividing the
difference by (B) the average daily closing price of a share of
Parent Common Stock quoted on the Over-the-Counter Bulletin Board
for the five trading days ending on the second Business Day prior
to the first public announcement pertaining to this
Agreement;
provided ,
however ,
if the Estimated Cash Deduction Amount exceeds $8,500,000 (such
excess the “
Negative Cash Merger Consideration Amount
”),
then a portion of the Preliminary Parent Stock Consideration with a
value equal to the Negative Cash Merger Consideration Amount (the
“
Reallocated Stock ”)
shall be (x) deducted from the Preliminary Parent Stock
Consideration and (y) applied to the payment of the Purchase Price
(as defined in the Real Estate Purchase Agreement), with the
balance of such Purchase Price (as defined in the Real Estate
Purchase Agreement) paid in cash. For the purpose of determining
the value of Parent Common Stock pursuant to this Section 1.4(d), a
share of Parent Common Stock shall be valued at the average daily
closing price of a share of Parent Common Stock quoted on the
Over-the-Counter Bulletin Board for the five trading days ending on
the second Business Day prior to the first public announcement
pertaining to this Agreement;
The
Parties acknowledge and agree that the Preliminary Closing
Merger Consideration shall be payable (a) with respect to the
Preliminary Cash Merger Consideration, if any, in immediately
available funds and (b) with respect to the Preliminary Parent
Stock Consideration, in shares of Parent Common Stock;
provided ,
however ,
that the Total Holdback Shares shall be withheld from the
Preliminary Parent Stock Consideration by the Parent (on behalf of
the Shareholder), as described in Section 1.14.
Prior
to the Closing, for the purpose of determining the allocation
of the Preliminary Closing Merger Consideration, the Company
shall provide to the Parent all necessary documentation to
calculate the Agreed Allocation Statement of Merger
Consideration. The Agreed Allocation of Merger Consideration
shall set forth: (i) the Shareholder’s name; (ii) the
Shareholder’s address; (iii) the Preliminary Cash Merger
Consideration, if any; (iv) the Negative Cash Merger
Consideration Amount, if any; (v) the Preliminary Closing
Merger Consideration; (vi) the Preliminary Parent Stock
Consideration; (vii) the Total Holdback Shares; and (viii)
Russell’s percentage interest in the Company Common
Stock.
(e)
Capital Stock of Merger Sub .
Each share of common stock, par value $0.01 per share, of Merger
Sub (the
“Merger Sub Common Stock” )
issued and outstanding immediately prior to the Effective Time
shall be converted into one (1) validly issued, fully paid and
nonassessable share of common stock of the First Surviving
Corporation. Each certificate evidencing ownership of shares of
Merger Sub Common Stock shall evidence ownership of such shares of
common stock of the First Surviving Corporation.
(f)
Cancellation of Treasury and Parent-Owned Stock
.
Each share of Company Common Stock held by the Company or owned by
Merger Sub, the Parent or any direct or indirect wholly-owned
subsidiary of the Company or of the Parent immediately prior to the
Effective Time shall be canceled and extinguished without any
conversion or payment in respect thereof.
(g)
Cancellation and Retirement of Company Common Stock
.
As of the Effective Time, all shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time shall no
longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall, to the
extent such certificate represents such shares, cease to have any
rights with respect thereto, except the right to receive the
Closing Merger Consideration, as adjusted, allocable to the shares
represented by such certificate set forth above to be paid in
consideration therefor, without interest, upon surrender of such
certificate in accordance with Section 1.5.
Section
1.5
Surrender of Certificates .
(a)
Payment at Closing .
As of the Effective Time, the Parent shall pay the Preliminary
Closing Merger Consideration to Russell in accordance with Section
2.1(b).
(b)
Exchange Procedures .
Upon
the surrender of a certificate or certificates (each “
Certificate ”)
representing Company Common Stock for cancellation to the Parent
duly completed and validly executed, the holder of such
Certificate(s) shall be entitled to receive in exchange therefor
the consideration set forth in Section 1.4(a) allocable to the
shares formerly represented by such Certificate(s), and the
Certificate(s) so surrendered shall be canceled. Until surrendered
as contemplated by this Section 1.5, each Certificate for shares of
Company Common Stock shall be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender the Total Merger Consideration allocable to the shares
formerly represented by such Certificate pursuant to Section 1.4.
No interest shall
be
paid or shall
accrue
on any amount payable as the Total Merger Consideration
subject
to Section 1.14 and Article II hereof.
If
any portion of the Total Merger Consideration is to be issued
in the name of a person other than the person in whose name
the Certificate surrendered in exchange therefor is
registered, it shall be a condition to the issuance of such
Total Merger Consideration that (i) the Certificate so
surrendered shall be transferable, and shall be properly
assigned, endorsed or accompanied by appropriate stock powers,
(ii) such transfer shall otherwise be proper,
(iii) the person requesting such transfer shall pay to
the Parent any transfer or other Taxes payable by reason of
the foregoing or establish to the satisfaction of the Parent
that such Taxes have been paid or are not required to be paid
and (iv) if payable in Parent Common Stock, the person
requesting such a transfer shall deliver an opinion of counsel
to the effect that such transfer is exempt from the
requirements of the Securities Act and applicable federal
securities laws.
(c)
Transfers of Ownership .
As
of the date of this Agreement, the stock transfer books of the
Company shall be closed and there shall thereafter be no further
registration of transfers of Company Common Stock outstanding
immediately prior to the Effective Time on the records of
Company.
Section
1.6
No Further Ownership Rights in Company Stock
. The
Total
Merger Consideration paid
upon the surrender for exchange of Certificates representing shares
of stock in accordance with the terms of this Article I shall be
deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock represented by
such certificates.
Section
1.7
Lost, Stolen or Destroyed Certificates .
In the event any Certificate shall have been lost, stolen or
destroyed, Russell shall notify the Parent and, upon the making of
an affidavit (including customary indemnification) of that fact by
the Person claiming such Certificate to be lost, stolen or
destroyed, and the receipt by the Parent of such affidavit and
other documents as the Parent may reasonably request, the Parent
shall deliver to the holder of such Certificate in exchange for
such lost, stolen or destroyed Certificate, the applicable Total
Merger Consideration, as adjusted, in respect of the shares
formerly represented by such Certificate in accordance with the
terms and conditions of this Agreement;
provided ,
however ,
that, as a condition precedent to the issuance of such
consideration, the owner of such lost, stolen or destroyed
Certificates shall indemnify the Parent against any claim that may
be made against the Parent or the First Surviving Corporation with
respect to the Certificates alleged to have been lost, stolen or
destroyed.
Section
1.8
No Liability .
Notwithstanding anything to the contrary contained herein, none of
the Parent, Merger Sub, Oregano LLC, the First Surviving
Corporation or any party hereto shall be liable to any Person in
respect of any payment of the Total Merger Consideration properly
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate representing
shares of Company Common Stock shall not have been surrendered
immediately prior to the date on which any of the Total Merger
Consideration would otherwise escheat to or become the property of
any Government Entity, any such amount of Total Merger
Consideration shall, to the extent permitted by Legal Requirements,
become the property of the Parent, free and clear of all claims of
or interest of any Person previously entitled thereto.
Section
1.9
Required Withholding .
Each of the Parent, Merger Sub, and the First Surviving Corporation
shall be entitled to deduct and withhold from any consideration
payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as are
required to be deducted or withheld therefrom under the Code, or
under any provision of state, local or foreign tax law or under any
other applicable Legal Requirement. To the extent such amounts are
so deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the person to
whom such amounts would otherwise have been paid.
Section
1.10
Taking of Necessary Action; Further Action .
If, at any time after the Effective Time, the First Surviving
Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or
desirable to (a) vest, perfect or confirm, of record or otherwise,
in the First Surviving Corporation its right, title or interest in,
to or under any of the property, rights, privileges, powers and
franchises of the Company or (b) otherwise carry out the provisions
of this Agreement, the Company and its officers and directors shall
be deemed to have granted to the First Surviving Corporation an
irrevocable power of attorney to execute and deliver all such
deeds, assignments or assurances in law and to take all acts
necessary, proper or desirable to vest, perfect or confirm title to
and possession of such property, rights, privileges, powers and
franchises in the First Surviving Corporation and otherwise to
carry out the provisions of this Agreement, and the officers and
directors of the First Surviving Corporation are authorized in the
name of the Company or otherwise to take any and all such
action.
Section
1.11
[Reserved ]
Section
1.12
[Reserved]
Section
1.13
No Fractional Shares of Parent Common Stock, Rounding of Cash
Amounts .
Notwithstanding any other provision of this Agreement, no
fractional shares of Parent Common Stock shall be issuable by the
Parent upon the conversion of shares of Company Common Stock in the
First Merger pursuant to Section 1.4(a) hereof. In lieu of such
issuance, the total number of shares of Parent Common Stock
issuable to each holder of Company Common Stock shall be rounded to
the closest whole number of shares of Parent Common Stock. The
total amount of Preliminary Cash Merger Consideration payable as
part of the Total Merger Consideration to each holder of Company
Common Stock will be rounded to the nearest penny.
Section
1.14
Holdback Shares .
To
secure the indemnification obligations of Russell set forth in
Article VIII hereof, at the Closing, the Total Holdback Shares
shall be withheld by the Parent (on behalf of Russell) to be held
during the period commencing on the Closing Date and ending on the
Final Holdback Payment Date. Such shares shall be distributed to
Russell in accordance with, and subject to the limitations of,
Section 2.6.
Section
1.15
Rule 145 .
All shares of Parent Common Stock issued pursuant to this Agreement
to affiliates of the Company identified on
Schedule 1.15 attached
hereto will be subject to certain resale restrictions under Rule
145 promulgated under the Securities Act and all certificates
representing such shares shall bear the appropriate
legend.
Section
1.16
Shareholder Matters .
(a) By his execution of this Agreement, Russell in his capacity as
the sole shareholder of the Company, hereby approves and adopts
this Agreement and authorizes the Company, its directors and
officers to take all actions necessary for the consummation of the
First Merger and the other transactions contemplated hereby
pursuant to the terms of this Agreement (including the exhibits and
Schedules to this Agreement). Such execution shall be deemed to be
action taken by the irrevocable written consent of the Shareholder
for the purposes of Section 10-1103 of the ABCA. The Shareholder
also confirms that he is not entitled to any appraisal,
dissenters’ or similar rights pursuant to any Legal
Requirements.
(b)
Russell represents and warrants as follows: (i) all Parent
Common Stock to be acquired by Russell pursuant to this
Agreement will be acquired for investment only and not with a
view to or intention of or in connection with any resale or
distribution of such Parent Common Stock or any interest
therein; (ii) Russell understands that he must bear the
economic risk of the investment in the Parent Common Stock,
which will be “restricted securities” under
applicable federal securities laws and that the Securities Act
provides in substance that Russell may dispose of such shares
only pursuant to an effective registration statement under the
Securities Act or an exemption from registration if available;
(iii) Russell shall furnish any additional information about
Russell reasonably requested by the Parent to assure the
compliance of this transaction with applicable federal and
state securities laws; (iv) Russell has had both the
opportunity to ask questions and receive answers from the
officers and directors of the Parent and all person’s
acting on the Parent’s behalf concerning the business
and operations of the Parent and to obtain any additional
information to the extent the Parent possesses or may possess
such information or can acquire it without unreasonable effort
or expense necessary to verify the accuracy of such
information; (v) Russell has had access to the Parent SEC
Reports filed prior to the date of this Agreement; (vi)
Russell is an “accredited investor” (as defined in
rule 501(a) under the Securities Act) and has such knowledge,
skill and experience in business, financial and investment
matters so that he is capable of evaluating the merits and
risks of an investment in the Parent Common Stock pursuant to
the transactions contemplated by this Agreement or to the
extent that Russell has deemed it appropriate to do so, he has
relied upon appropriate professional advice regarding the tax,
legal and financial merits and consequences of an investment
in the Parent Common Stock pursuant to the transactions
contemplated by this Agreement and (vii) Russell understands
the certificates representing the Parent Common Stock to be
issued pursuant to the transactions contemplated under this
Agreement shall bear legends to the effect that the Parent
Common Stock shall not be transferred except upon compliance
with the registration requirements of the Securities Act (or
an exemption therefrom) and the provisions of this
Agreement.
Section
1.17
The Second Merger .
(a) Immediately following the First Merger, the Parent shall cause
the First Surviving Corporation to merge into Oregano LLC and the
separate corporate existence of the First Surviving Corporation
shall cease and Oregano LLC shall continue as the surviving limited
liability company. Oregano LLC, in its capacity as the limited
liability company surviving the Second Merger, is sometimes
referred to in this Agreement as the “
Surviving LLC ”.
There
shall be no conditions to the completion of the Second Merger other
than the completion of the First Merger. The Parent shall cause the
Second Merger to be consummated by filing with the Delaware
Secretary of State and the Corporation Commission of the State of
Arizona, as the case may be, a certificate of merger in such form
as required by and executed in accordance with the applicable
provisions of the DLLCA and ABCA (the “
Second Certificate of Merger ”)
and
shall make all other filings or recordings required under the DLLCA
and ABCA, if any. The Second Merger shall become effective when the
Second Certificate of Merger has been filed with the Delaware
Secretary of State which shall be filed immediately after the
Effective Time (the “
Second Effective Time ”).
From and after the Second Effective Time, the Second Merger shall
have the effects set forth in the applicable provisions of the
DLLCA and ABCA. Without limiting the generality of the foregoing,
at the Second Effective Time, except as otherwise provided in this
Agreement, all the property, rights, privileges, powers and
franchises of the First Surviving Corporation and Oregano LLC shall
vest in the Surviving LLC, and all debts, liabilities and duties of
the First Surviving Corporation and Oregano LLC shall become the
debts, liabilities and duties of the Surviving LLC. At the Second
Effective Time, (i) the certificate of formation of Oregano LLC in
effect immediately prior to the Second Effective Time shall be the
certificate of formation of the Surviving LLC and (ii) the limited
liability agreement of Oregano LLC in effect immediately prior to
the Second Effective Time shall be the limited liability agreement
of the Surviving LLC, in each case, until thereafter amended in
accordance with the DLLCA and this Agreement and as provided in
such certificate of formation or limited liability agreement. From
and after the Second Effective Time, the officers and the directors
of the First Surviving Corporation shall be the officers and the
managers of the Surviving LLC (as applicable), in each case, until
their respective successors are duly elected and qualified in
accordance with the certificate of formation and limited liability
agreement of the Surviving LLC. If, at any time after the Second
Effective Time, the Surviving LLC shall consider or be advised that
any further deeds, assignments or assurances in law or any other
acts are necessary or desirable to (x) vest, perfect or confirm, of
record or otherwise, in the Surviving LLC its right, title or
interest in, to or under any of the property, rights, privileges,
powers and franchises of the First Surviving Corporation or the
Company or (y) otherwise carry out the provisions of this
Agreement, the First Surviving Corporation and its officers and
directors shall be deemed to have granted to the Surviving LLC an
irrevocable power of attorney to execute and deliver all such
deeds, assignments or assurances in law and to take all acts
necessary, proper or desirable to vest, perfect or confirm title to
and possession of such property, rights, privileges, powers and
franchises in the Surviving LLC and otherwise to carry out the
provisions of this Agreement, and the officers and managers of the
Surviving LLC are authorized in the name of the First Surviving
Corporation or otherwise to take any and all such
action.
(b)
At the Second Effective Time, by virtue of the Second Merger
and without any action on the part of the holder thereof, each
issued and outstanding share of common stock, par value $0.001
per share, of the First Surviving Corporation issued and
outstanding immediately prior to the Effective Time shall be
converted into and shall constitute the only membership
interests of the Surviving LLC.
ARTICLE II
MERGER CONSIDERATION ADJUSTMENTS
Section
2.1
Preparation of the Company’s Statement
. (a) Not more than five (5) Business Days and not less than three
(3) Business Days prior to the Closing, the chief financial officer
of the Company shall deliver to the Parent a good faith estimate of
(i) the Closing Working Capital (“
Estimated Closing Working Capita l”);
(ii) the Total Indebtedness (the “
Estimated Total Indebtedness ”),
including a list of each such obligee of such Total Indebtedness
(each a “
Company Debt Obligee ”)
and wire instructions for the repayment thereof; (iii) the Closing
New Restaurant Investment Amount (the “
Estimated Closing New Restaurant Investment Amount
”)
and (iv) the Closing Adjusted EBITDA (the “
Estimated Closing Adjusted EBITDA ”),
and provide Russell and the Parent with a statement setting forth
such amounts (the “
Company’s Statement ”).
(b)
Payment of the Preliminary Closing Merger Consideration
.
On the Closing Date, the Parent shall pay the Preliminary Closing
Merger Consideration as follows:
(i)
Parent shall deliver to Russell the Preliminary Closing Merger
Consideration payable as follows: (A) an amount equal to the
Preliminary Cash Merger Consideration (which shall be
delivered by check or wire transfer);
provided ,
however ,
that payment of the Preliminary Cash Merger Consideration shall be
subject to the Agreed Allocation Statement of Merger Consideration
and (B) a stock certificate representing the Preliminary Closing
Stock Consideration; and
(ii)
Parent shall deliver to each of the Company Debt Obligees, the
amounts owed to each of the Company Debt Obligees for
satisfaction of all outstanding obligations under the
Estimated Total Indebtedness.
(c)
Acknowledgements with respect to the Payment of the Preliminary
Closing Merger Consideration .
(i)
The Company and Russell hereby acknowledge and agree that
payment by the Parent to Russell pursuant to Section 2.1(b)(i)
satisfies the Parent’s obligations to make the
applicable payments described in this Section 2.1(b)(i) and
that following such payment the Parent and the Company shall
have no further liability to Russell to make any additional
payments under this Section 2.1(b)(i).
Section
2.2
Preliminary Closing Statement .
(a) Within sixty (60) days after the Closing Date, the Parent shall
prepare and deliver to Russell a statement of each of the Closing
Working Capital, the Total Indebtedness, the Closing New Restaurant
Investment Amount and the Closing Adjusted EBITDA (the
“Preliminary Closing Statement”)
.
(b)
The
Preliminary Closing Statement shall be prepared in accordance
with the Accounting Principles.
Section
2.3
Review of Statement .
Russell
and his independent certified public accountants may review the
Preliminary Closing Statement .
The Parent shall make available to Russell and his representatives,
as reasonably requested by Russell, all books, records and other
documents within its possession relating to the Preliminary Closing
Statement reasonably deemed necessary by Russell in reviewing the
Preliminary Closing Statement .
The Preliminary Closing Statement and
the calculations of (i) the Total Indebtedness; (ii) the Closing
New Restaurant Investment Amount; (iii) the Closing Adjusted
EBITDA; and (iv) the Closing Working Capital contained
therein, shall
be binding and conclusive upon, and deemed accepted by, Russell
unless Russell shall have notified the Parent
in
writing within thirty (30) days after receipt of the Preliminary
Closing Statement of any objections thereto (a “
Dispute Notice ”).
A Dispute Notice shall specify in reasonable detail the items of
the Preliminary Closing Statement which are being disputed, and a
summary of the reasons for such dispute.
Section
2.4
Disputes; Final Closing Statement .
(a) At the request of the Parent or Russell
,
any dispute between the parties relating to the Preliminary Closing
Statement which cannot be resolved by them in good faith within
thirty (30) days after receipt of the Dispute Notice shall be
referred to the Disputes Auditor for decision. The parties agree
that they shall require the Disputes Auditor to render its decision
within thirty (30) days after referral of the dispute to the
Disputes Auditor for decision pursuant hereto. The Disputes
Auditor’s decision shall be set forth in a written statement
delivered to the Parent and Russell
,
and shall be final, conclusive and binding upon all parties, and
shall constitute an arbitral award upon which a judgment may be
entered by any court of competent jurisdiction.
(b)
Before
referring a matter to the Disputes Auditor, the parties shall
agree on
procedures to be followed by the Disputes Auditor (including
procedures for presentation of evidence). If the parties are
unable to agree upon procedures before the end of thirty (30)
days after receipt of the Dispute Notice, the Disputes Auditor
shall establish procedures giving due regard to the intention
of the parties to resolve disputes as quickly, efficiently and
inexpensively as possible; the Disputes Auditor’s
procedures may be, but need not be, those proposed by either
the Parent or Russell
;
provided ,
however ,
that the Disputes Auditor shall act as an expert, and not as an
arbitrator, to determine, based solely on presentations and
materials submitted by the Parent and Russell
,
and not by independent review, only those issues in dispute between
the parties regarding the Preliminary Closing Statement and the
Disputes Auditor shall in all cases use the Accounting Principles
in resolving any dispute. The parties shall, as promptly as
practicable, submit evidence in accordance with the procedures
agreed upon or established by the Disputes Auditor, and the
Disputes Auditor shall decide the dispute in accordance therewith
as promptly as practicable. The fee of the Disputes Auditor for,
and relating to, the making of any such decision shall, in any
event, be borne equally by the Parent and Russell
.
(c)
The
Preliminary Closing Statement shall become final and binding
on the parties upon the earliest of (i) if no Dispute Notice
has been given, the expiration of the period within
which Russell
may
notify the Parent of any objections to the Preliminary Closing
Statement pursuant to Section 2.3; (ii) agreement by
Russell
and
the Parent that such Preliminary Closing Statement, together
with any modifications thereto agreed by Russell
and
the Parent, shall be final and binding and (iii) the date on
which the Disputes Auditor shall issue its decision with
respect to any dispute relating to the Preliminary Closing
Statement. The Preliminary Closing Statement when final and
binding on both parties, is herein referred to as the
“Final Closing Statement” .
Section
2.5
Closing Statement Adjustments .
(a) The Preliminary Closing Merger Consideration shall be (i)
increased (any such increase, the “
Shareholder Adjustment Amount” )
by (w) the amount, if any, by which the Working Capital of the
Company as reflected on the Final Closing Statement (the
“
Final Working Capital ”),
exceeds the Estimated Closing Working Capital, (x) the amount, if
any, by which the Estimated Total Indebtedness exceeds the Total
Indebtedness as reflected on the Final Closing Statement (the
“
Final Total Indebtedness ”)
and (y) the amount, if any by which the Closing New Restaurant
Investment Amount as reflected on the Final Closing Statement (the
“
Final New Restaurant Investment Amount ”),
exceeds the Estimated New Restaurant Investment Amount and (z) the
amount, if any, by which 6.5 times the Closing Adjusted EBITDA as
reflected on the Final Closing Statement, exceeds 6.5 times the
Estimated Closing Adjusted EBITDA, and (ii) decreased (any such
decrease, the “
Parent Adjustment Amount ”)
by (w) the amount, if any, by which the Final Total Indebtedness
exceeds the Estimated Total Indebtedness, (x) the amount, if any,
by which the Estimated Closing Working Capital exceeds the Final
Working Capital, (y) the amount, if any, by which the Estimated New
Restaurant Investment Amount exceeds the Final New Restaurant
Investment Amount and (z) the amount, if any, by which 6.5 times
the Estimated Closing Adjusted EBITDA, exceeds 6.5 times the
Closing Adjusted EBITDA as reflected on the Final Closing
Statement. The
Preliminary Closing Merger Consideration as it may be adjusted
post-Closing pursuant to this Section 2.5 is referred to as
“
Closing Merger Consideration ”.
(b)
Subject
to Article VIII, if the Shareholder Adjustment Amount exceeds
the Parent Adjustment Amount, the Parent shall deliver a
portion of the Total Holdback Shares, if any, in an amount
equal to such excess, within five (5) Business Days after the
Preliminary Closing Statement has become final and binding on
Russell and the Parent pursuant to Section 2.4 (the
“
Initial Holdback Payment Date ”),
to
Russell (less the First Holdback Reserve). If
the Parent Adjustment Amount exceeds the Shareholder Adjustment
Amount, Russell shall immediately pay an amount equal to such
excess from either the Preliminary Closing Stock Consideration or
the Preliminary Cash Merger Consideration (at the option of
Russell). Any adjustment hereunder shall be an adjustment to the
Total Merger Consideration for tax purposes. For the avoidance of
doubt, (i) none of the Total Holdback Shares withheld by the Parent
pursuant to this Section 2.5 shall continue to constitute any
portion of the Total Holdback Shares in accordance with this
Agreement; (ii) Russell will no longer be entitled to receive as a
portion of the Total Merger Consideration that portion of the Total
Holdback Shares used to pay any amount owed to the Parent pursuant
to this Section 2.5 or used to satisfy any Losses of the Parent
Indemnified Persons and (iii) in no event shall the Parent’s
recourse pursuant to this Section 2.5 be limited to the Total
Holdback Shares.
For
the purposes of determining the aggregate number of the Total
Holdback Shares that may be delivered or withheld by the
Parent pursuant to Section 2.5 and Section 2.6, the Total
Holdback Shares shall be valued at the average daily closing
price of a share of Parent Common Stock quoted on the
Over-the-Counter Bulletin Board for the five trading days
ending on the second Business Day prior to the first public
announcement pertaining to this Agreement.
Section
2.6
Payment of Total Holdback Shares .
Subject to Article VIII, within five (5) Business Days following
the later of (i) final determination of all claims to which the
Second Holdback Reserve relates and (ii) the Final Holdback Payment
Date, the Parent shall deliver or caused to be delivered
to
Russell the Remaining Holdback Shares.
Section
2.7
Restaurant Earn-Out Amount .
(a) As additional consideration for the Company Common Stock and as
part of the Total Merger Consideration, Russell may be entitled to
the Restaurant Earn-Out Amount, if any, as described in this
Section 2.7, from the Parent after the Closing Date, subject,
however, to all terms and conditions of this Section 2.7.
Notwithstanding anything contained in this Section 2.7 or elsewhere
in this Agreement to the contrary, in the event that Russell is no
longer an employee of the Surviving LLC upon completion of the
Restaurant Milestone, then no Restaurant Earn-Out Amount shall be
payable.
(b)
After
the Closing Date, the Parent shall use commercially reasonable
efforts to complete the construction of the Earn-Out
Restaurants in accordance with the Company’s project
development plan and budget for each Earn-Out Restaurant as
provided by the Company to the Parent on May 27,
2008.
(c)
If
the Company achieves the Restaurant Milestone during the
Earn-Out Period the
Closing
Merger Consideration
shall
be increased by the amount of the Restaurant Earn-Out Amount, and
the Parent shall promptly distribute to Russell the Restaurant
Earn-Out Amount (such distribution payable in cash or Parent Common
Stock based upon Russell’s written election) to a financial
institution designated by Russell as soon as practicable; provided
however, in no event shall such distribution be made later than
sixty (60) days after the end of the applicable Earn-Out Period.
The Restaurant Earn-Out Amount shall be treated by all parties as
an adjustment to the Total Merger Consideration.
For
the purpose of determining the aggregate number of shares of
Parent Common Stock that may be delivered pursuant to this
Section 2.7, if any, a share of Parent Common Stock shall be
valued at the average daily closing price of a share of Parent
Common Stock quoted on a national securities exchange of the
United States for the five trading days ending on the second
Business Day prior to the end of the applicable Earn-Out
Period.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RUSSELL AND THE
COMPANY
The
Company and Russell represent and warrant as follows to the
Parent, Merger Sub and Oregano LLC, and acknowledge and
confirm that the Parent, Merger Sub and Oregano LLC are
relying upon the following representations and warranties in
entering into this Agreement:
Section
3.1
Organization and Qualification .
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Arizona and has all requisite corporate or similar power and
authority to own, lease and operate its assets and properties and
to carry on its business as it is now being or currently planned by
the Company to be conducted. Complete and correct copies of the
articles of incorporation and by-laws (collectively referred to
herein as
“Charter Documents” )
of the Company, as amended and currently in effect, have been
heretofore delivered to the Parent or the Parent’s counsel.
The Company is not in violation of any of the provisions of the
Company’s Charter Documents.
(b)
The
Company is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each
jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes
such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good
standing that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on
the Company. Each jurisdiction in which the Company is so
qualified or licensed is listed on
Schedule 3.1(b) hereto.
(c)
The
minute books of the Company contain true, complete and
accurate records of all meetings and consents in lieu of
meetings of its board of directors (and any committees
thereof), similar governing bodies and shareholders (
“Corporate Records” )
since January 1, 2003. Copies of such Corporate Records of the
Company have been heretofore made available to the Parent or the
Parent’s counsel.
(d)
The
stock transfer and ownership records of the Company contain
true, complete and accurate records of the securities record
ownership as of the date of such records and the transfers
involving the capital stock and other securities of the
Company since January 1, 2003. Copies of such records of the
Company have been heretofore made available to the Parent or
the Parent’s counsel.
Section
3.2
No Subsidiaries .
The Company does not own, directly or indirectly, any ownership,
equity, profits or voting interest in any Person or have any
agreement or commitment to purchase any such interest, and has not
agreed and is not obligated to make nor is bound by any written,
oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order,
license, sublicense, insurance policy, benefit plan, commitment or
undertaking of any nature, as of the date hereof or as may
hereafter be in effect under which it may become obligated to make,
any future investment in or capital contribution to any other
entity.
Section
3.3
Capitalization .
(a) The authorized capital stock of the Company consists of
1,000,000 shares of Company Common Stock, of which 100,000 are
issued and outstanding. No shares of capital stock are held in the
Company’s treasury. All issued and outstanding shares of
Company Common Stock are duly authorized, validly issued, fully
paid and non-assessable and are not subject to preemptive rights
created by statute, the Charter Documents of Company or any
agreement or document to which the Company is a party or by which
it is bound, and were issued in compliance with all applicable
federal and state securities laws. Russell owns all issued and
outstanding shares of capital stock of the Company free and clear
of all Liens except for restrictions on transfer under federal and
state securities laws. The Company does not have outstanding any
bonds, debentures, notes or other obligations (including the
obligation to pay any dividend with respect to any shares of
Company Common Stock or to make any other distribution in respect
thereof) the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to
vote) with the Shareholder of the Company.
(b)
Except
as contemplated by this Agreement and except as set forth
in
Schedule 3.3(b) hereto,
there are no subscriptions, options, warrants, conversion rights,
stock appreciation rights, equity securities, partnership interests
or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which the
Company or Russell is a party or by which it is bound obligating
the Company or Russell to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests, membership
interests or similar ownership interests of the Company or Russell
or obligating the Company or Russell to grant, extend, accelerate
the vesting of or enter into any such subscription, option,
warrant, equity security, call, right, commitment or
agreement.
(c)
Except
as set forth in
Schedule 3.3(c) hereto,
(i) there are no registration rights, and there is no voting trust,
proxy, rights plan, anti-takeover plan or other agreement or
understanding to which the Company is a party or by which the
Company is bound with respect to any equity security of any class
of the Company and (ii) there are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to
the Company.
(d)
Except
as set forth in
Schedule 3.3(d) hereto,
there is no agreement, written or oral, between the Company or
Russell and any holder of their securities, or, to the
Company’s knowledge, among any holders of its securities,
relating to the sale or transfer (including agreements relating to
rights of first refusal, co-sale rights or “drag-along”
rights), registration under the Securities Act or voting, of the
capital stock of the Company.
Section
3.4
Authority Relative to this Agreement .
(a)Other than (i) the filing the Certificate of Merger and such
other documents as required by the ABCA and (ii) the filing of the
Second Certificate of Merger and such other documents as required
by the DLLCA and ABCA, the Company has all necessary corporate
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the
Transaction, including obtaining the approval and adoption of this
Agreement prior to the Closing pursuant to the Shareholders Consent
as required under the ABCA and its Charter Documents. Except as set
forth in the prior sentence, no other corporate proceedings on the
part of the Company or the Shareholder are necessary to authorize
the execution, delivery and performance of this Agreement by the
Company or to consummate the Transaction.
This
Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery
thereof by the other parties hereto, constitutes the legal and
binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors’ rights generally and
by general principles of equity.
(b)
Russell has all requisite power and authority to enter into
this Agreement, to perform the obligations hereunder and to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
Russell and, assuming the due authorization, execution and
delivery thereof by the other parties hereto, constitutes the
legal and binding obligation of Russell, enforceable against
Russell in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors’ rights
generally and by general principles of equity.
Section
3.5
No Conflict; Required Filings and Consents .
(a) Except as set forth in
Schedule 3.5(a) hereto,
no notices, reports or other filings are required to be made with,
nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Russell or the Company
from any supranational, national, state, municipal, local or
foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other governmental authority
or instrumentality, or any quasi-governmental or private body
exercising any Tax, regulatory or governmental or
quasi-governmental authority (a
“Governmental Entity” ),
as a result of, in connection with, or as a condition to the
execution and delivery of this Agreement by Russell or the Company
and the consummation of the Transaction.
(b)
The
execution, delivery and performance of this Agreement does
not, and the consummation of the Transaction will not,
constitute or result in (A) a breach or violation of, or a
default (with or without notice, lapse of time or both) under,
the Company’s Charter Documents, (B) (with or without
notice, lapse of time or both) a breach or violation of, or a
default under, the acceleration of any obligations under, or
the creation of a Lien on any assets of the Company pursuant
to any Company Contract that is binding upon the Company or
any Legal Requirement or governmental or non-governmental
permit or license to which the Company is subject or (C) any
change in the rights or obligations of any party under any of
the Material Company Contracts.
Section
3.6
Compliance .
(a) Except as set forth in
Schedule 3.6(a) hereto,
the Company’s business has not been, and is not being,
conducted in violation, in any material respect, of any Legal
Requirements. No action, demand, requirement, investigation or
review by any Governmental Entity with respect to the Company or
affecting any of its properties or assets is pending or, to the
Company’s knowledge, threatened, nor has any Governmental
Entity indicated to the Company or Russell an intention to conduct
the same. To the Company’s knowledge, no change is required
in its processes, properties or procedures in connection with any
such Legal Requirements, and it has not received any notice or
communication of any noncompliance with any such Legal Requirements
that has not been cured as of the date hereof.
(b)
The
Company has in effect all approvals, authorizations,
certificates, filings, franchises, licenses, notices and
permits of or with all Governmental Entities (collectively,
“
Permits” )
necessary, in all material respects, for it to own, lease or
operate its properties and other assets and to carry on its
business and operations as presently conducted. All such Permits
are set forth in
Schedule 3.6(b) hereto.
There has occurred no default under, or violation of, any such
Permit, which has not been cured, and each such Permit is in full
force and effect. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated by
this Agreement, will not result in a violation of or default under
and will not cause the revocation or cancellation of any such
Permit. Neither the Company nor Russell has received any
communication or otherwise has knowledge of any facts which have,
or reasonably should have, led it to believe that any of the
Permits are not currently in good standing. The Company has kept
all required records and has filed with Governmental Entities all
required notices, supplemental applications and annual or other
reports required for the operation of the Company’s
business.
(c)
Russell
is not in violation of any Legal Requirement with respect to
his ownership of the capital stock of the Company or his
ability to consummate the transactions contemplated by this
Agreement.
Section
3.7
Financial Statements .
(a). The Company has provided to the Parent a correct and complete
copy of the unaudited consolidated financial statements (including,
in each case, any related notes thereto) of the Company for: (i)
the fiscal years ended December 31, 2006 and 2007 and (ii) the
three month period ending March 31, 2008 (the “
Unaudited Financial Statements ”).
The Unaudited Financial Statements comply as to form in all
material respects, and were prepared in accordance with, generally
accepted accounting principles of the United States (
“U.S. GAAP” )
applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto), and each fairly
presents in all material respects the financial position of the
Company at the respective dates thereof and the results of its
operations and cash flows for the period indicated in accordance
with U.S. GAAP, except that such statements do not contain notes
and are subject to normal year-end adjustments.
(b)
[Reserved]
(c)
Since
January 1, 2008, the books of account, minute books, stock
certificate books and stock transfer ledgers and other similar
books and records of the Company have been maintained in
accordance with good business practice, are complete and
correct in all material respects and there have been no
material transactions that are required to be set forth
therein and which are not so set forth.
(d)
Except
as otherwise noted in the Unaudited Financial Statements, or
as set forth in
Schedule 3.7(d) hereto,
the accounts and notes receivable of the Company reflected on the
balance sheets included in the Unaudited Financial Statements (i)
arose from bona fide transactions in the ordinary course of
business and are payable on ordinary trade terms; (ii) are legal,
valid and binding obligations of the respective debtors enforceable
in accordance with their terms, except as such may be limited by
bankruptcy, insolvency, reorganization, or other similar laws
affecting creditors’ rights generally, and by general
equitable principles; (iii) are not subject to any valid set-off or
counterclaim except to the extent set forth in such balance sheet
contained therein; and (iv) except as set forth in
Schedule 3.7(d) hereto,
are not the subject of any actions or proceedings brought by or on
behalf of the Company.
(e)
The
Company has established internal controls for a privately held
company for purposes of preparing the Company’s periodic
financial statements.
Section
3.8
No Undisclosed Liabilities .
Except as set forth in
Schedule 3.8 hereto,
the Company has no liability or obligation of any nature (whether
known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due or
otherwise), except for (a) liabilities and obligations reflected or
reserved against on the interim balance sheet included in the
Unaudited Financial Statements hereto, (b) liabilities and
obligations which have arisen since December 31, 2007 in the
ordinary course of business, and (c) contractual liabilities or
obligations incurred in the ordinary course of business which are
not required by U.S. GAAP (applied in accordance with the
Accounting Principles) to be reflected on a balance sheet and which
are not in the aggregate material.
Section
3.9
Absence of Certain Changes or Events .
Except as set forth in
Schedule 3.9 hereto,
since December 31, 2007 the Company has conducted its business only
in, and has not engaged in any transaction other than according to,
the ordinary course of business, and there has not occurred: (i)
any Material Adverse Effect on the Company; (ii) any declaration,
setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of the
Company’s capital stock, or any purchase, redemption or other
acquisition by the Company of any of the Company’s capital
stock or any other securities of the Company or any options,
warrants, calls or rights to acquire any such shares or other
securities; (iii) any split, combination or reclassification of any
of the Company’s capital stock; (iv) any granting by the
Company of any increase in compensation or fringe benefits, except
for normal increases of cash compensation in the ordinary course of
business consistent with past practice, or any payment by the
Company of any bonus, except for bonuses made in the ordinary
course of business consistent with past practice, or any granting
by the Company of any increase in severance or termination pay or
any entry by Company into any currently effective employment,
severance, termination or indemnification agreement or any
agreement the benefits of which are contingent or the terms of
which are materially altered upon the occurrence of a transaction
involving the Company of the nature contemplated hereby; (v) entry
by the Company into any licensing or other agreement with regard to
the acquisition, assignment, transfer, termination or disposition
of any Intellectual Property other than licenses in the ordinary
course of business consistent with past practice or any amendment
or consent with respect to any licensing agreement filed or
required to be filed by the Company with respect to any
Governmental Entity; (vi) any material change by the Company in its
accounting methods, principles or practices; (vii) any change in
the auditors of the Company; (viii) any issuance of capital stock
of the Company; (ix) any revaluation by the Company of any of its
assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable
or any sale of assets of the Company other than in the ordinary
course of business; (x) any change in any material Tax election or
Tax accounting method, or any settlement or compromise of any Tax
liability; (xi) any damage, destruction or other casualty loss with
respect to any material asset or property owned, leased or
otherwise used by the Company that is material to the Company,
whether or not covered by insurance; or (xii) any agreement,
whether written or oral, to take any of the actions referred to in
clauses (ii) through (x) above.
Section
3.10
Litigation .
(a) Except as set forth in
Schedule 3.10(a) hereto,
there is no civil, criminal or administrative suit, action,
proceeding, arbitration, investigation, review or inquiry pending
or, to Russell’s or the Company’s knowledge, threatened
against or affecting the Company or any of its properties or
rights, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against
or affecting the Company or any of its properties or rights (the
foregoing collectively referred to as “
Proceedings ”).
None of the Proceedings is reasonably likely, either individually
or in the aggregate, to have a Material Adverse Effect or to
prevent, impair or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement. No
event has occurred or circumstance exists which could reasonably be
expected to give rise to or serve as a valid basis for the
commencement of any Proceeding by or against the Company. Except as
set forth in
Schedule 3.10(a) hereto,
since January 1, 2006, the Company has not been subject to any
Proceeding nor has the Company settled any claim prior to being
sued or prosecuted.
(b)
Except as set forth in
Schedule 3.10(b) hereto,
there is no civil, criminal or administrative suit, action,
proceeding, arbitration, investigation, review or inquiry pending
or, to Russell’s knowledge, threatened against or affecting
Russell or any of his properties or rights, nor is there any
judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against or affecting Russell or
any of his properties or rights which would have a Material Adverse
Effect or prevent, impair or materially delay the ability of
Russell to consummate the transactions contemplated by this
Agreement.
Section
3.11
Employee Benefit Plans and Compensation.
(a)
Schedule 3.11(a) lists
all “employee benefit plans,” as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended (
“ERISA” ),
and any other employee benefit, severance, change in control, death
benefit, compensation, retirement, deferred compensation, bonus,
stock purchase, hospitalization, medical insurance and life
insurance contracts, arrangements and programs covering employees
of the Company and maintained by the Company or any member of a
controlled group of organizations (within the meaning of Section
414(b), (c), (m) or (o) of the Code) of which the Company is a
member (the Company or any other such member, a “
Controlled Group Member ”)
or to which the Company or any other Controlled Group Member
contributes or is required to contribute or under which the Company
or any other Controlled Group Member pays or is required to pay
premiums or benefits (collectively, the
“Employee Benefit Plans” ).
(b)
Neither
the Company nor any Controlled Group Member has, or has ever
had, any obligation to make any contribution to any
“multiemployer plans” as defined in Section
4001(a)(3) of ERISA (
“Multiemployer Plans” ).
Neither the Company nor any Controlled Group Member has at any time
ever maintained, established, sponsored, participated in or
contributed to any multiple employer plans.
(c)
Each
Employee Benefit Plan intended to qualify under Section 401 of
the Code has received a favorable determination letter (or in
the case of a master or prototype plan, a favorable opinion
letter) from the Internal Revenue Service (
“IRS” )
to reflect that the Employee Benefit Plan satisfies the
requirements of Section 401(a) of the Code and that its related
trust is exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred with respect to the operation of
the Employee Benefit Plan that could reasonably be expected to
cause the loss of such qualification or exemption.
(d)
All
contributions required by law to have been made under any of
the Employee Benefit Plans to any funds or trusts established
thereunder or in connection therewith and all premiums
required to be paid in connection with the Employee Benefit
Plans have been made by the due date thereof (including any
valid extension).
(e)
Neither
the Company nor any Controlled Group Member sponsors or
maintains, or has ever sponsored or maintained, an
“employee pension benefit plan” (within the
meaning of Section 3(2) of ERISA) that is subject to Title IV
of ERISA, the minimum funding requirements of Section 412 of
the Code or Part 3 of Title I of ERISA, or any voluntary
employee benefits association described in Section 501(c)(9)
of the Code.
(f)
True,
correct and complete copies of the following documents, with
respect to each of the Employee Benefit Plans, have been
provided to the Parent by the Company, where available and to
the extent applicable: (i) any plan documents and related
trust documents, and any amendments thereto; (ii) the
three most recently filed IRS Forms 5500 with all attachments
thereto; (iii) the most recent IRS determination letter
or opinion letter; (iv) the most recent summary plan
descriptions or in the case of any plan not subject to the
disclosure requirements of ERISA, other written description of
the plan’s material terms; and (v) any material
correspondence to or from the Department of Labor, the IRS, or
any other Governmental Entity.
(g)
There
are no pending actions (including, without limitation,
governmental audits or investigations), claims or lawsuits
that have been asserted or instituted or, to the knowledge of
the Company, threatened with respect to any of the Employee
Benefit Plans, the assets of any of the trusts under such
plans or the plan sponsor or the plan administrator, or
against any fiduciary of any of the Employee Benefit Plans
with respect to the terms or operation of such plans (other
than routine benefit claims).
(h)
The
Employee Benefit Plans have been maintained in all material
respects in accordance with their terms and with the
provisions of applicable Legal Requirements. Neither the
Company nor any Controlled Group Member has engaged in a
transaction on or before the date hereof with respect to any
Employee Benefit Plan that would subject it to material
fiduciary liability or a tax or penalty imposed pursuant to
either Section 4975 of the Code or Section 502 of
ERISA.
(i)
None
of the Employee Benefit Plans is a “welfare benefit
plan” within the meaning of Section 3(1) of ERISA that
provides for continuing benefits or coverage for any
participant or any beneficiary of any participant, except
(i) as may be required under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, at the expense
of the participant or the participant’s beneficiary or
(ii) coverage through the last day of the month following
the date of termination of employment in accordance with an
Employee Benefit Plan’s provisions.
(j)
Except
as disclosed on
Schedule 3.11(j) hereto,
neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby will (w) entitle any employees of
the Company to severance pay, (x) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits or
forgiveness of indebtedness under, increase the amount payable or
trigger any other obligation pursuant to, any of the Employee
Benefit Plans, (y) obligate the Parent to continue any of the
Employee Benefit Plans or (z) result in any breach or violation of,
or a default under, any of the Employee Benefit Plans.
(k)
The
consummation of the transactions contemplated by this
Agreement will not (either along with or upon the occurrence
of any additional or subsequent events) result in a
nondeductible expense to the Company pursuant to Section 280G
of the Code or an excise tax to any employee of the Company
pursuant to Section 4999 of the Code.
Section
3.12
Employees .
Schedule 3.12(i) hereto
sets forth the name, current annual compensation rate (including
bonus and commissions), title, current base salary rate, accrued
sick leave and accrued vacation benefits of each present employee
of the Company. Except as disclosed in
Schedule 3.12(ii)
hereto,
no such employee is absent from work on long term disability leave,
extended leave of absence or receiving workers’ compensation
benefits.
Schedule 3.12(i)) hereto
further lists all such employees, as well as consultants, agents
and independent contractors, covered by an employment,
non-competition, consulting or severance agreement with the
Company, and the Company has provided or made available to the
Parent current and complete copies of each such agreement, as well
as copies of any confidentiality or other agreement covering
proprietary processes, formulae or information applicable to any
such Person. Except as set forth in
Schedule 3.12(iii) ,
the Company is not a party to or otherwise bound by any collective
bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is the Company
subject to an application or election regarding the acquiring of
bargaining rights by any labor union or labor organization, nor is
the Company the subject of any proceeding asserting that it has
committed an unfair labor practice or seeking to compel it to
bargain with any labor union or labor organization nor is there
pending or, to the Company’s knowledge, threatened, any labor
strike, dispute, walkout, work stoppage, slowdown or lockout
involving the Company. The Company is in compliance in all material
respects with all Legal Requirements respecting employment and
employment practices, independent contractor arrangements, terms
and conditions of employment, workers’ compensation, wages,
hours of work and occupational safety and health. Except as
disclosed on
Schedule 3.12(iii) hereto,
there is no action, suit or legal, administrative, arbitration,
grievance or other proceeding pending or, to the Company’s
knowledge, threatened, or, to the Company’s knowledge, any
investigation pending or threatened against the Company relating to
its employment practices or any of the Legal Requirements described
in this Section 3.12.
Section
3.13
Restrictions on Business Activities .
Except as set forth in
Schedule 3.13 hereto,
there is no agreement, commitment, judgment, injunction, order or
decree binding upon the Company or its assets or to which the
Company is a party which has or could reasonably be expected to
have the effect of prohibiting or materially impairing any business
practice of the Company, any acquisition of property by the Company
or the conduct of business by Company as currently
conducted.
Section
3.14
Personal Property .
The Company has good title to, or holds by valid and existing lease
or license, all of the tangible personal property (“
Personal Property ”)
reflected in the Unaudited Financial Statements or acquired by the
Company after January 1, 2008, except with respect to assets set
forth in
Schedule 3.14(a) hereto
or disposed of in the ordinary course of business since such date,
free and clear of any Liens. The Personal Property owned or leased
by the Company is sufficient for the conduct of its business as
presently conducted and is listed on
Schedule 3.14(b) hereto.
Each item constituting Personal Property is free from defects, has
been maintained in accordance with normal industry practice, is in
good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is
used.
Section
3.15
Real Property .
(a)
Other
than the real property being acquired pursuant to the Real Estate
Purchase Agreement, t he
Company does not now own or, at any time, has owned any real
property.
Schedule 3.15(a)(i) hereto
sets forth a complete and correct list of all real property leased,
subleased, licensed, operated or occupied by the Company
(collectively the
“Company Leases” )
and the location of the premises. The premises subject to the
Company Leases are hereinafter referred to as
“Company Leased Property” .
Except as set forth in
Schedule 3.15(a)(ii) hereto,
neither the Company, nor, to the Company’s knowledge, any
other party is in default under any of the Company Leases, nor does
there exist any condition which, upon the passage of time or the
giving of notice or both, would cause a default, nor has any
waiver, indulgence or postponement of any of the Company’s
obligations, as lessees, been granted by any owner of the Company
Leased Property. All rent and other sums and charges payable by the
Company as lessee or sublessee under the Company Leases are
current. Except as set forth in
Schedule 3.15(a)(i) hereto,
no Company Leased Property is occupied by a third party other than
the Company, and, to the Company’s knowledge, no third party
has a right to occupy such property other than the Company. The
Company has provided to the Parent complete and correct copies of
all the Company Leases, including all amendments thereto; no term
or condition of any of the Company Leases has been modified,
amended or waived except as shown in such copies; and there are no
other agreements or arrangements whatsoever relating to the
Company’s use or occupancy of any of the Company Leased
Property. The Company has not transferred, mortgaged or assigned
any interest in any of the Company Leases. To the Company’s
knowledge, there is no pending or threatened condemnation or
similar proceeding affecting any Company Leased Property or any
portion thereof, and each Company Leased Property is supplied with
utilities and other services sufficient to operate the business of
the Company as presently conducted. The Company Leased Property is
in good operating condition and repair and is suitable for the
conduct of business as presently conducted therein.
(b)
Except
for ordinary wear and tear, all of the buildings, fixtures,
improvements and structures with respect to the Company Leased
Property are in a good state of maintenance, operating
condition and repair, and there are no defects with respect
thereto or existing condition that would impair the continued
day-to-day use of any such buildings, fixtures, improvements
or structures in substantially the same manner as conducted
prior to Closing or that would subject the Parent or the First
Surviving Corporation to any liability under Legal
Requirements. Except as set forth in
Schedule 3.15(b ),
the Company Leased Property is not located within any flood plain
or area subject to wetlands regulation or any similar Legal
Requirements.
(c)
There
are no restrictions of any nature in respect of the
transactions contemplated by this Agreement in the Company
Leases either by the terms of such Company Lease or by
operation of any Legal Requirement, and, except as set forth
in
Schedule 3.15(c) ,
no consent of any Person is required in respect of the transactions
contemplated by this Agreement with respect to any Company Lease.
The Company is in peaceful and undisturbed possession of the
Company Leased Property.
(d)
The
Company Leased Property is in compliance with all Legal
Requirements. There is no pending or, to the Company’s
knowledge, threatened Proceeding to rezone any of the Company
Leased Property. Use of the Company Leased Property for the
various purposes for which it is currently being used and the
proposed use by the Parent of the Company Leased Property are
permitted as of the date hereof and not restricted or impaired
under any Legal Requirement and are not subject to permitted
non-conforming use or structure classifications. The Company
has not received notice of any violation of any Legal
Requirement or any covenants, deed restrictions or easements
arising out of, relating to or affecting the Company Leased
Property.
(e)
The
Company has good and valid rights of ingress and egress to and
from all Company Leased Property from and to the public street
systems for all usual road, street and utility purposes and
other purposes necessary or incidental to the operation of the
business of the Company. There is no pending or, to the
Company’s knowledge, threatened plan to modify or
realign any street, and there is no pending or, to the
Company’s knowledge, threatened eminent domain
proceeding, in each case that would result in the taking of
all or any part of the Company Leased Property or that would
prevent or hinder the continued use of the Company Leased
Property as heretofore used.
(f)
The
Company has all Permits required under any Legal Requirement
with respect to the occupancy, ownership and use of the
Company Leased Property. The current occupancy and use of the
Company Leased Property do not violate any of such Legal
Requirements, and no proceeding is pending or, to the
Company’s knowledge, threatened to limit, modify, revoke
or suspend any of the Permits or to challenge, condition or
restrict the lease, occupancy, operations, ownership or use of
the Company at any portion of the Company Leased Property. No
Permit with respect to the occupancy, ownership and use of the
Company Leased Property will be subject to limitation,
modification, revocation or suspension as a result of the
transactions contemplated by this Agreement.
Section
3.16
Title to Assets; Condition of Assets .
(a)
The
Company owns, and has good and valid title to, all assets purported
to be owned by it, including: (i) all assets reflected on the
Audited Financial Statements and the Unaudited Financial Statements
(except for assets sold or otherwise disposed of in the ordinary
course of business since March 31, 2008); and (ii) all other assets
reflected in the books and records of the Company as being owned by
the Company. All of said assets are owned by the Company free and
clear of any Liens, except for Permitted Liens.
(b)
All
items of equipment, Personal Property, and other tangible
assets owned by or leased to the Company are adequate for the
uses to which they are being put, are in good and safe
condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the business of the Company in the
manner in which such business is currently being conducted and
presently proposed to be conducted.
Section
3.17
Tax Matters .
(a) Except as set forth in
Schedule 3.17(a) ,
all Tax Returns required to be filed in respect of the Company have
been duly and timely filed. All such Tax Returns are true, correct
and complete. All Taxes of the Company, whether or not shown as due
on such Tax Returns, have been fully paid when due. The Company has
established on its financial statements (including without
limitation the Audited Financial Statements and the Unaudited
Financial Statements) in accordance with U.S. GAAP adequate
reserves for Taxes accrued but not yet due or has determined in
accordance with U.S. GAAP that such reserves are not
necessary.
(b)
Except
as set forth in
Schedule 3.17(b) ,
there are no investigations, audits, actions or proceedings
currently pending or, to the Company’s knowledge, threatened
against the Company by any Governmental Entity for the assessment
or collection of Taxes, no claim for the assessment or collection
of Taxes has been asserted against the Company, and there are no
matters under discussion, audit or appeal between the Company with
any Governmental Entity with respect to the assessment or
collection of Taxes. Any unpaid Taxes that have been claimed or
imposed as a result of any examination of any Tax Return of the
Company by any Governmental Entity are being contested in good
faith and are fully described in
Schedule 3.17(b) .
There are no Tax Liens on any of the assets of the Company other
than Permitted Liens. The Company has not agreed to make any
material adjustment under Code Section 481(a) (or analogous
provision of any Legal Requirement) by reason of a change in
accounting method or otherwise. No power of attorney has been
granted by or with respect to the Company with respect to any
matter relating to Taxes. The Company has not participated in a
transaction that is described as a “reportable
transaction” within the meaning of Treasury Regulation §
1.6011-4(b)(1). During the last three years, the Company has not
been a party to any transaction to which Code Section 355 applied.
The Company has not received any claim from any Governmental Entity
in a jurisdiction in which the Company files Tax Returns that any
of them may be subject to taxation by that jurisdiction. No
adjustment relating to the timing of income, deductions, losses or
credits of the Company have been made in writing by any
Governmental Entity in any completed audit or examination which, by
application of the result of such adjustment, could reasonably be
expected to result in a material Tax liability for any subsequent
period. The Company is not subject to any action or proceeding of a
Governmental Entity imposing on the Company any obligations or
liabilities with respect to another Person’s
Taxes.
(c)
Set
forth in
Schedule 3.17(c) is
a list of the most recent examinations and audits by Governmental
Entities for each Tax for which the Company has been audited during
the last five years. The Company has provided to the Parent true
and complete copies of the final reports and notices of assessment
of the relevant Governmental Entity for each such examination or
audit showing the adjustments proposed and the basis asserted
therefor.
(d)
Except
as set forth in
Schedule 3.17(d) ,
the Company has withheld or deducted all Taxes or other amounts
from payments to employees or other persons required to be so
withheld or deducted, and has timely paid over such Taxes or other
amounts to the appropriate Governmental Entity to the extent due
and payable.
(e)
Except
as set forth in
Schedule 3.17(e) ,
the Company has not requested, offered to enter into or entered
into any agreement or other arrangement, or executed any waiver,
providing for any extension of time within which (i) to file any
Tax Return covering any Taxes for which it is or may be liable;
(ii) to file any elections, designations or similar filings
relating to Taxes for which it is or may be liable; (iii) it is
required to pay or remit any Taxes or amounts on account of Taxes;
or (iv) any Government Entity may assess or collect Taxes for which
it is or may be liable. Except as set forth in
Schedule 3.17(e) ,
the Company has not entered into any agreement with, or provided
any undertaking to, any Person, and no circumstances exist by
reason of which the Company has assumed liability for the payment
of Taxes owing by another Person, or has or may be liable for
another Person’s Taxes.
(f)
“
Tax ”
or “
Taxes ”
means any taxes of any kind, including but not limited to those on
or measured by or referred to as income, gross receipts, capital,
sales, goods and services, use, ad valorem, franchise, profits,
stamp, license, withholding, employment, payroll, premium, value
added, property or windfall profits taxes, surtaxes, environmental
transfer taxes, social security taxes, national health
contributions, pension and employment insurance contributions,
customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions
to tax or additional amounts imposed by any Governmental Entity,
domestic or foreign.
(g)
“
Tax Return ”
means any return, declaration, report, election, notice, statement
or information return and including any amendment, schedule,
attachment, part, supplement, appendix and exhibit thereto, made,
prepared, filed or required to be filed with any Governmental
Entity, domestic or foreign, with respect to Taxes.
Section
3.18
Environmental Matters .
(a) Except as disclosed on
Schedule 3.18(a) hereto:
(i) the Company has complied with all applicable Environmental
Laws; (ii) the Company has no liability under any
Environmental Law for any Hazardous Substance disposal or
contamination on the properties currently owned or operated by the
Company; (iii) the Company has no liability under any Environmental
Law for any Hazardous Substance disposal or contamination on the
properties formerly owned or operated by the Company; (iv) the
Company has no liability under any Environmental Law for any
Hazardous Substance disposal or contamination on any third party
property; (v) the Company is not in violation of or has any
liability under any Environmental Law for any release or threat of
release of any Hazardous Substance; (vi) the Company has not
receiv
