EX-2.1ASSET PURCHASE AGREEMENTLimited Partnership Agreement |
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Exhibit 2.1
EXECUTION VERSION
WM TEXAS INTERNATIONAL, LP
SH GEORGIA, INC.
THE PRINCIPAL OWNERS IDENTIFIED HEREIN
AND
WOODMARK INTERNATIONAL, L.P.
ASSET PURCHASE AGREEMENT
Dated as of June 30, 2004
TABLE OF CONTENTS
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INDEX TO SCHEDULES
INDEX TO EXHIBITS
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of June 30, 2004 (this “ Agreement ”), by and among WM Texas International, LP, a Texas limited partnership formerly known as Woodmark International, L.P. (“ Parent ”), SH Georgia, Inc., a Georgia corporation formerly known as Stair House, Inc. and a wholly owned subsidiary of Parent (“ Subsidiary ” and, together with Parent, the “ Sellers ”), the Persons (as hereinafter defined) set forth on Schedule I attached hereto (the “ Principal Owners ”) and Woodmark International, L.P., a Delaware limited partnership (the “ Buyer ”).
W I T N E S S E T H :
WHEREAS, the Buyer desires to purchase certain of the assets of the Sellers, and the Sellers desire to sell such assets to the Buyer, in each case upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, in connection with such purchase and sale of the Sellers’ assets, the Sellers desire to assign to the Buyer certain liabilities of the Sellers, and the Buyer desires to accept such assignment and to assume such liabilities, in each case upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements hereinafter contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, each intending to be legally bound, hereby agree as follows:
SECTION 1 . DEFINITIONS .In addition to the terms defined elsewhere in this Agreement, as used herein, the following terms shall have the following respective meanings:
“ Accounts Receivable ” shall mean all accounts and notes receivable, including, without limitation, the Subsidiary Receivable, of the Sellers relating to the Business, existing on the Closing Date.
“ Adjusted Business EBIT ” shall mean an amount equal to $5,100,000.
“ Affiliate ” of any specified Person shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “ control ” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling ” and “ controlled ” have meanings correlative to the foregoing.
“ Assigned Contracts ” shall mean the rights of the Sellers under, collectively, the Leased Real Property (as hereinafter defined) and the Contracts.
“ Assignment and Assumption Agreement ” shall mean the Assignment and Assumption Agreement substantially in the form attached as Exhibit A hereto.
“ Assignment of Lease ” shall mean an Assignment and Assumption of Lease with respect to each Leased Real Property substantially in the form attached as Exhibit B hereto.
“ Assumed Note ” shall mean a promissory note in the aggregate principal amount of the Assumed Note Balance issued by the Buyer to Samuel G. Sherstad and Becky Sherstad, substantially in the form attached as Exhibit C hereto.
“ Assumed Note Balance ” shall mean an amount equal to $2,190,000, representing the amount of the outstanding principal under the Sherstad Note that, pursuant to and in accordance with the Assumed Note, is being assumed by the Buyer at the Closing.
“ Balance Sheet ” shall mean the audited balance sheet of the Seller as of December 31, 2003 included in the Financial Statements.
“ Bill of Sale ” shall mean the Bill of Sale substantially in the form attached as Exhibit D hereto.
“ Business ” shall mean all the respective business activities and operations of the Sellers other than any such activities or operations relating to the Excluded Business.
“ Business Day ” shall mean days other than Saturdays, Sundays and holidays or days on which banks in the States of New York or Texas are authorized or required by law to close.
“ Closing Date ” shall mean June 30, 2004 or such other date as the parties shall mutually agree upon but in no event later than July 30, 2004.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended.
“ Contingent Payment ” shall mean the Optional Payment or the Demand Payment (as each such term is hereinafter defined).
“ Contracts ” shall mean, collectively, the Employment and Labor Agreements, Leases, Purchase Orders, Sales Orders, Sales Representative Agreements and Other Contracts set forth on Schedule 5.17 .
“ Demand Payment Amount ” shall mean an amount equal to the product of (i) the product of (A) the Demand Payment EBIT, less the Adjusted Business EBIT, multiplied by (B) five, multiplied by (ii) 0.08.
“ Demand Payment EBIT ” shall mean the net income of the Buyer for its fiscal year ending on December 31, 2008, plus an amount which, in the determination of such net income for such year, has been deducted for (i) interest expense for such year and (ii) all taxes relating to the income of the Buyer for such period, in each case determined in accordance with GAAP applied on a consistent basis.
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“ Environmental Law(s) ” shall mean any federal, state, or local statute, regulation, ordinance, order, decree, or other requirement of law (including, without limitation, common law) relating to protection of human health or welfare, natural resources or the environment or to the identification, generation, use, transportation, handling, discharge, emission, treatment, storage or disposal of any pollutant, contaminant, hazardous or solid waste, or any hazardous or toxic substance or material. Without limiting the generality of the foregoing, Environmental Laws shall include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the Safe Drinking Water Act, 42 U.S.C. 300(f) et seq.; the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq.; and the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq.; each as amended, together with the regulations promulgated thereunder, permits issued thereunder, and analogous state and local statutes, regulations and ordinances.
“ Equipment and Machinery ” shall mean (a) all the equipment, machinery, furniture, fixtures and improvements, tooling, spare parts, supplies and vehicles used by the Sellers in or with respect to the operations of the Business as of the Closing Date (including, without limitation, all such items as set forth on the Balance Sheet, with additions thereto (net of dispositions) in the ordinary course of the Business), (b) all the replacements for any of the foregoing owned or leased by either Seller, (c) any rights of either Seller to the warranties (to the extent assignable) and licenses received from manufacturers and sellers of the aforesaid items and (d) any related claims, credits, rights of recovery and set-off with respect thereto.
“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.
“ Escrow Agreement ” shall mean an Escrow Agreement substantially in the form attached as Exhibit E hereto.
“ Excluded Business ” shall mean the respective business activities and operations of the Sellers relating to Fortress.
“ Excluded Property ” shall mean the assets and properties of the Sellers used in the operations of the Excluded Business and that are not primarily used in the operations of the Business or are specifically set forth on Schedule III .
“ Files and Records ” shall mean all files and records, whether in hard copy, computer or magnetic format, of either Seller relating to the Business or the Purchased Property, including, without limitation, the following types of files and records specifically relating to the Business: customer and supplier files, equipment maintenance records, equipment warranty information, plant plans, specifications and drawings, equipment drawings, trade secrets and customer specifications and all files relating to employees of the Business employed by the Buyer following the Closing, correspondence with national, state and local governmental agencies relating to the operation of the Business and related files and records of either Seller.
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“ Fortress ” shall mean Fortress Iron, L.P., a Texas limited partnership.
“ Fortress Guaranty ” shall mean a personal guaranty by Samuel G. Sherstad of all of Fortress’ obligations under the Fortress Note, substantially in the form attached as Exhibit F hereto.
“ Fortress Note ” shall mean a promissory note in the aggregate principal amount of $904,000 issued by Fortress to the Buyer, substantially in the form attached as Exhibit G hereto.
“ Fortress Transaction ” shall mean, at all times during the lifetime of Samuel G. Sherstad, any transfer, pledge, contract to sell, sale of any option or contract to purchase, purchase of any option or contract to sell, grant of any option, right or warrant to purchase, or disposition of Fortress or any interest therein, including, without limitation, by way of any merger, consolidation or other business reorganization involving Fortress, the sale or transfer of any partnership or other interest in Fortress or the sale or transfer of a material portion of the assets, or any material asset, of Fortress; provided , however , that “Fortress Transaction” shall not include any merger or consolidation of Fortress with or into any Person 100% of the capital stock or equity interests of which are owned directly or indirectly by the Principal Owners or any spouse and/or child of any Principal Owner or any trusts established for the benefit of any of the foregoing Persons, or any sale or transfer of any partnership or other interest in Fortress or the sale or transfer of a material portion of the assets, or any material asset, of Fortress to any such Persons; provided , further , that, as a condition to the effectuation of any such transaction, each such Person shall have agreed in writing to perform the obligations of the Sellers, their respective Affiliates and the Principal Owners set forth in Section 7.13 .
“ GAAP ” shall mean generally accepted accounting principles.
“ Government ” shall mean any agency, division, subdivision, audit group or procuring office of the Government of the United States or any foreign government, including the employees or agents thereof.
“ Hazardous Substance ” shall mean: any product, substance, gas, chemical, material, microbial matter, or waste, whose presence, nature, quantity or concentration, either by itself or in combination with other materials, is (a) injurious to human health or safety, the environment or natural resources; (b) regulated, monitored or subject to reporting under any Environmental Law; or (c) a basis for liability under any Environmental Law.
“ Income Tax ” or “ Income Taxes ” shall mean all Taxes based upon, measured by, or calculated with respect to (i) gross or net income or gross or net receipts or profits (including, but not limited to, any capital gains, minimum Taxes and any Taxes on items of Tax preference, but not including sales, use, goods and services, real or personal property transfer or other similar Taxes), (ii) multiple bases (including, but not limited to, corporate franchise, doing business or occupation Taxes) if one or more of the bases upon which such Tax may be based upon, measured by, or calculated with respect to, is described in clause (i) above or (iii) withholding Taxes measured by, or calculated with respect to, any payments or distributions (other than wages).
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“ Intangible Assets ” shall mean all intangible personal property rights, including, without limitation, all rights on the part of either Seller to proceeds of any insurance policies and all claims on the part of either Seller for recoupment, reimbursement and coverage under any insurance policies, in each case in connection with or relating to the Business and all goodwill of either Seller relating to the Business, and including, without limitation, those items listed on Schedule 5.13 .
“ Intellectual Property ” shall mean: (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof; (ii) all trademarks, service marks, trade dress, logos, trade names and corporate 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; (iii) all copyrightable works (including, without limitation, all software developed by the Sellers), all copyrights and all applications, registrations and renewals in connection therewith; (iv) all mask works and all applications, registrations and renewals in connection therewith; (v) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals); (vi) all computer software (including data and related documentation); (vii) internet web site, domain names and registrations pertaining thereto and all intellectual property used in connection with or contained in the Sellers’ Web sites; (viii) all other proprietary rights, including all rights under agreements related to the foregoing; and (ix) all copies and tangible embodiments thereof (in whatever form or medium); including, without limitation, those items listed on Schedule 5.13 .
“ Inventory ” shall mean (i) all the finished goods, raw materials, work in progress and inventoriable supplies (whether or not in the possession of, or otherwise in transit to, either Seller) owned by either Seller as of the Closing Date (including, without limitation, all such items as set forth on the Balance Sheet, with additions thereto (net of dispositions) in the ordinary course of business) for use in the operations of the Business, (ii) any and all rights of either Seller to the warranties received from its suppliers with respect to such inventory and related claims, credits, rights of recovery and set-off with respect thereto and (iii) any and all deposits and prepayments given or made in respect of any of the items described in the foregoing (i) and (ii).
“ Knowledge ” means (i) with respect to either Seller, the knowledge, after due inquiry under the circumstances, of Samuel G. Sherstad at any time during all periods up to and including, but not after, the Closing Date, and (ii) with respect to the Buyer, the knowledge, after due inquiry under the circumstances, of Joseph A. Molino, Jr. at any time during all periods up to and including, but not after, the Closing Date.
“ Lien ” shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or other) or conditional sale agreement.
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“ Material Adverse Effect ” shall mean a material adverse effect on the operations, properties, condition (financial or otherwise) or prospects of either Seller, the Business or the Purchased Property, taken as a whole, except any such effect resulting from or arising in connection with changes in economic, regulatory or political conditions generally, including acts of war or terrorism, or changes in the retail sector.
“ Non-Competition Agreement ” shall mean a non-competition agreement, substantially in the form of Exhibit H hereto.
“ Obsolete Inventory ” is Inventory which, at December 31, 2003, was not usable or saleable in the lawful and ordinary course of business of the Business as now conducted and as contemplated to be conducted because of legal restrictions, failure to meet specifications, loss of market, damage, physical deterioration or for any other cause, in each case net of reserves provided therefor on the Balance Sheet.
“ Optional Payment Amount ” shall mean an amount equal to the product of (i) the product of (A) the Optional Payment EBIT, less the Adjusted Business EBIT, multiplied by (B) six, multiplied by (ii) 0.08.
“ Optional Payment EBIT ” shall mean the net income of the Buyer for its fiscal year ending on December 31, 2006, plus an amount which, in the determination of such net income for such year, has been deducted for (i) interest expense for such year and (ii) all taxes relating to the income of the Buyer for such period, in each case determined in accordance with GAAP applied on a consistent basis.
“ Other Contracts ” shall mean all Equipment and Machinery leases, and all indentures, loan agreements, security agreements, partnership or joint venture agreements, license agreements, service contracts, guarantees and warranties in favor of either Seller, employment, commission and consulting agreements, suretyship contracts, letters of credit, reimbursement agreements, distribution agreements, contracts or commitments limiting or restraining either Seller from engaging or competing in any lines of business or with any Person, documents granting the power of attorney with respect to the affairs of either Seller, agreements not made in the ordinary course of business of either Seller, options to purchase any assets or property rights of either Seller, working capital maintenance or other form of guaranty agreements, and all other agreements to which either Seller is a party and which are related to the operations of the Business, but excluding Employment and Labor Agreements, Leases, Purchase Orders, Sales Orders and Plans and those Contracts listed on Schedule 2.4(b) .
“ Peterson Employment Agreement ” shall mean the Employment Agreement substantially in the form of Exhibit I hereto.
“ Person ” shall mean any individual, corporation, partnership (general or limited), joint venture, association, joint-stock company, trust, unincorporated organization or Government.
“ Products ” shall mean (i) the products manufactured or in the process of design or development for manufacturing by either Seller as of the Closing Date (including, but not limited to, any product necessary and useful for the performance of any Contract) and (ii) any products
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manufactured or which were in the process of design or development for manufacturing by either Seller (or its predecessors in interest) in the last five years.
“ Purchase Orders ” shall mean all the Sellers’ outstanding purchase orders, contracts or other commitments to suppliers of goods and services for materials, supplies or other items used in the Business.
“ Purchased Property ” shall mean the Accounts Receivable, Assigned Contracts, Equipment and Machinery, Files and Records, Intangible Assets, Intellectual Property, Inventory, Licenses and Permits, Leased Real Property, any prepaid expenses and other assets relating to the operations of the Business as of the Closing Date (including, without limitation, all such items as are set forth on the Balance Sheet, with additions thereto (net of dispositions) in the ordinary course of business), any cash on hand of the Sellers as of the Closing Date (other than any such cash that is Excluded Property), and all software, software systems, databases and all other information systems used in the Business and shall include all the tangible and intangible assets of either Seller or its Affiliates used in the Business or otherwise related thereto, including, without limitation, any of the foregoing set forth on Schedule IV . Notwithstanding anything to the contrary contained in this Agreement, Purchased Property shall not include any Excluded Property.
“ Purchaser Note ” shall mean a promissory note in the aggregate principal amount of $1,333,000 issued by the Purchaser to Parent, substantially in the form of Exhibit J hereto.
“ Sales Orders ” shall mean all of the Sellers’ sales orders, contracts or other commitments to purchasers of goods and services of the Business.
“ Sales Representative Agreement ” shall mean any agreement relating to the engagement or retention of any sales, marketing or similar representative of either Seller or with respect to any Product, in each case, together with all amendments and supplements thereto.
“ Sherstad Employment Agreement ” shall mean the Employment Agreement substantially in the form of Exhibit K hereto.
“ Sherstad Note ” shall mean that certain promissory note, dated September 30, 2000, as modified on July 28, 2003, in the aggregate principal amount of $4,677,954, issued by Parent to Samuel G. Sherstad and Becky Sherstad.
“ Subsidiary Receivable ” shall mean all amounts payable to Subsidiary under that certain (i) Promissory Note and Security Agreement, dated April 7, 2003, in the aggregate principal amount of $83,350.39, issued by Stair Systems Holding Company to Subsidiary, and the related guaranty thereof by David E. Taylor, and (ii) Promissory Note and Security Agreement, dated May 12, 2004, in the aggregate principal amount of $105,905.39, issued by Stair Systems Holding Company to Subsidiary, and the related guaranty thereof by David E. Taylor.
“ Surplus Inventory ” is Inventory that, at December 31, 2003, exceeded 12 months’ supply based on sales during the 12 months ended December 31, 2003.
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“ Taxes ” shall mean for all purposes of this Agreement all taxes however denominated, including any interest, penalties or additions to tax that may become payable in respect thereof, imposed by any Government, which taxes shall include, without limiting the generality of the foregoing, all Income Taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer taxes, gains taxes, workmen’s compensation taxes and other obligations of the same or a similar nature, whether arising before, on or after the Closing; and “Tax” shall mean any one of them.
“ Tax Returns ” shall mean any return, report, information return or other document (including any related or supporting information) filed or required to be filed with any Government in connection with the determination, assessment, collection or administration of any Taxes.
“ Transaction Documents ” shall mean this Agreement, the Bill of Sale, the Assignment and Assumption Agreement, the Escrow Agreement, each Assignment of Lease, the Sherstad Employment Agreement, the Peterson Employment Agreement, the Purchaser Note, the Assumed Note, the Fortress Note, the Fortress Guaranty and the agreements, certificates, instruments and documents contemplated hereby and thereby.
“ WARN ” shall mean the Worker Adjustment and Retraining Notification Act, as codified at 29 U.S.C., §§ 2101-2109, and the regulations promulgated thereunder.
SECTION 2 . PURCHASE AND SALE OF THE PURCHASED PROPERTY .SECTION 2.1. Transfer of Assets . Subject to the terms and conditions herein set forth, the Sellers shall sell, convey, transfer, assign and deliver to the Buyer, and the Buyer shall purchase and accept from the Sellers, on the Closing Date, all right, title and interest of the Sellers and their respective Affiliates in, to and under the Purchased Property, wherever located.SECTION 2.2. Sale at Closing Date . The sale, transfer, assignment and delivery by the Sellers of the Purchased Property to the Buyer, as herein provided, shall be effected on the Closing Date by deeds, bills of sale, endorsements, assignments and other instruments of transfer and conveyance, in each case satisfactory in form and substance to counsel for the Buyer.SECTION 2.3. Subsequent Documentation . Each Seller shall, at any time and from time to time after the Closing Date, upon the request of the Buyer and at the expense of the Sellers, do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered, all such further deeds, assignments, transfers and conveyances, and take such other actions, as may be required for the better assigning, transferring, granting, conveying and confirming to the Buyer or its successors and assigns, or for aiding and assisting in collecting and reducing to possession, any or all of the Purchased Property. Each Seller hereby constitutes and appoints, effective as of the Closing Date, the Buyer, its successors and assigns, as the true and lawful attorney of such Seller with full power of substitution in the name of the Buyer or in the name of such Seller but for the benefit of the Buyer (a) to collect for the account of the Buyer all Accounts Receivable and any other item of Purchased Property and (b) to institute and
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prosecute all proceedings which the Buyer may in its sole discretion deem proper in order to collect the Accounts Receivable or to assert or enforce any right, title or interest in, to or under the Purchased Property and to defend or compromise any and all actions, suits or proceedings in respect of any of the Purchased Property. The Buyer shall be entitled to retain for its own account any amounts collected pursuant to the foregoing powers, including any amounts payable as interest in respect thereof.SECTION 2.4. Assumption of Liabilities .(a) From and after the Closing, the Buyer shall assume and the Buyer hereby agrees to pay, perform and discharge when due only those liabilities (together with the Assumed Note Balance, the “ Assumed Liabilities ”) of the Sellers directly related to the Business (i) as specifically set forth on Schedule 2.4(a) or (ii) arising pursuant to the terms of the Assigned Contracts after the Closing Date. On the Closing Date, the Buyer shall execute and deliver to the Sellers the Assignment and Assumption Agreement.(b) Other than the Assumed Liabilities, the Buyer shall not assume (or be deemed to assume) pursuant to this Agreement or otherwise any liabilities (the “ Excluded Liabilities ”) of either Seller, including, without limitation, (i) Income Taxes of either Seller; (ii) an amount equal to 50% of the Transfer Taxes (as hereinafter defined); (iii) all other Taxes attributable to periods ending on or prior to the Closing Date; (iv) Taxes of any other Person for which either Seller may be liable by contract or otherwise; (v) any liability of any kind due to illegal or tortious conduct prior to the Closing Date by either Seller, or either Seller’s officers, directors (or Persons in similar positions), partners, employees or agents, whether to any employees or other third parties; (vi) any liability for product liability lawsuits arising from the sale of any Product on or before the Closing Date; (vii) any liability for the infringement of any item of Intellectual Property in connection with the sale of any Product on or before the Closing Date; (viii) any liability for violation of any Environmental Law, or any generation, treatment, use, transportation or disposal, or arrangements for transportation or disposal, of Hazardous Substances, or the presence of Hazardous Substances, on, at, beneath near or within the Leased Real Property occurring on or before the Closing Date or any liability under any Environmental Law relating to any property or business formerly owned or operated by either Seller or the Principal Owners or any of their respective predecessors; (ix) any liabilities with respect to any Contract listed on Schedule 2.4(b) ; and (x) any other liability not expressly assumed by the Buyer pursuant to this Agreement.SECTION 3 . PURCHASE PRICE .SECTION 3.1. Purchase Price . The total purchase price (the “ Purchase Price ”) for the sale and transfer of the Purchased Property hereunder shall consist of (a) $27,160,000 (the “ Cash Amount ”), (b) the Assumed Note, (c) the Purchaser Note and (d) the Contingent Payment (if any). The Purchase Price shall be paid and deliverable in accordance with Section 3.2 .SECTION 3.2. Payment of Purchase Price . In payment for the Purchased Property, the Buyer shall, on the Closing Date: (i) pay to the Sellers $24,045,000 of the Cash Amount by (x) bank wire transfer of immediately available funds to an account designated by the Sellers at least four (4) Business Days prior to the Closing Date or (y) certified check or bank
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check payable, in either case, to the order of the Sellers unless the Sellers have designated another payee at least four (4) Business Days prior to the Closing Date, (ii) pay $3,115,000 of the Cash Amount (the “ Escrowed Funds ”) into an escrow account established pursuant to the terms of the Escrow Agreement and (iii) deliver to Parent the Purchaser Note and the Assumed Note.SECTION 4 . CLOSING .The closing (the “ Closing ”) of the purchase and sale of the Purchased Property and the assignment and assumption of the Assumed Liabilities hereunder shall take place at the offices of Willkie Farr & Gallagher LLP, located at 787 Seventh Avenue, New York, New York 10019 at 10:00 a.m. (or such other time as the parties hereto may mutually agree upon) on the Closing Date. The Closing shall be deemed to occur at the start of business on the Closing Date.
SECTION 5 . REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE PRINCIPAL OWNERS .The Sellers and the Principal Owners hereby jointly and severally represent and warrant to the Buyer as follows:
SECTION 5.1. Corporate Organization . Parent is a limited partnership, and Subsidiary is a corporation, each of which is duly organized, validly existing and in good standing under the laws of the State of Texas and the laws of the State of Georgia, respectively, and has all requisite power and authority to own its properties and assets and to conduct its businesses as now conducted. Copies of the Certificate of Limited Partnership and Partnership Agreement (or equivalent documents) of Parent and the Articles of Incorporation and By-laws (or equivalent documents) of Subsidiary, in each case with all amendments thereto to the date hereof (collectively, the “ Organizational Documents ”), have been furnished to the Buyer or its representatives, and such copies are accurate and complete as of the date hereof.SECTION 5.2. Qualification to Do Business . Each Seller is duly qualified to do business as a foreign corporation or limited partnership (as applicable) and is in good standing in every jurisdiction in which the character of the properties owned or leased by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to so qualify would not have a Material Adverse Effect. Schedule 5.2 sets forth all jurisdictions in which either Seller is qualified to do business as a foreign corporation or limited partnership.SECTION 5.3. Authorization and Validity of Transaction Documents . Each Seller has all requisite power and authority to enter into this Agreement and the other Transactions Documents to which it is or will be a party and to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Documents to which such Seller is or will be a party and the performance of such Seller’s obligations hereunder and thereunder have been duly authorized by all necessary action by the general partner and other partners of Parent and the board of directors and stockholders of Subsidiary, and no other corporate or partnership proceedings on the part of either Seller are necessary to authorize such execution, delivery and performance. This Agreement and the other Transaction Documents to which either Seller is a party, at the time of the execution and delivery thereof by such Seller, have been or will be duly executed and delivered by such Seller and
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constitute or will constitute such Seller’s valid and binding obligations, enforceable against such Seller in accordance with its terms.SECTION 5.4. No Conflict or Violation . The execution, delivery and performance by either Seller of this Agreement and the other Transaction Documents to which such Seller is or will be a party do not and will not violate or conflict with any provision of any Organizational Document of either Seller and do not and will not violate any provision of law, or any order, judgment or decree of any court or other governmental or regulatory authority, nor materially violate nor will result in a breach of or constitute (with due notice or lapse of time or both) a default, or result in acceleration of, create in any Person the right to accelerate, terminate, modify or cancel, or otherwise require any notice under, any contract, lease, loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which either Seller is a party or by which it is bound or to which any of its properties or assets is subject, nor will result in the creation or imposition of any Lien upon any of the Purchased Property, nor will result in the cancellation, modification, revocation or suspension of the Sellers’ Licenses and Permits (if any).SECTION 5.5. Consents and Approvals . Schedule 5.5 sets forth a true and complete list of each consent, waiver, authorization or approval of any governmental or regulatory authority, domestic or foreign, or of any other Person, and each declaration to or filing or registration with any such governmental or regulatory authority, that is required in connection with the execution and delivery of this Agreement by either Seller or the performance by either Seller of its obligations hereunder.SECTION 5.6. Financial Statements . The Sellers have heretofore furnished to the Buyer (a) copies of the audited consolidated balance sheet of the Sellers as of December 31, 2003 audited by KBA Group LLP, together with the related consolidated statements of income, changes in equity and cash flows for the fiscal year then ended and the notes thereto, accompanied by the report thereon of such public accountants, and (b) copies of the unaudited consolidated balance sheet of the Sellers as of May 31, 2004, together with the related consolidated statements of income, changes in equity and cash flows for the three months then ended (all the financial statements referred to in clauses (a) and (b) above being hereinafter referred to as the “ Financial Statements ”). The Financial Statements: (i) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby; (ii) present fairly in all material respects the financial condition and results of operations of the Sellers as of such dates and for the periods then ended (subject, in the case of the unaudited interim Financial Statements, to normal year-end adjustments consistent with prior periods); (iii) are complete, correct and in accordance with the books of account and records of the Sellers, (iv) can be legitimately reconciled with the financial statements and the financial records maintained and the accounting methods applied by the Sellers for federal income tax purposes; and (v) reflect accurately all accrued costs and expenses of the Sellers.SECTION 5.7. Absence of Certain Changes or Events .(a) Except as set forth on Schedule 5.7(a) , since December 31, 2003, there has not been:
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(i) any material adverse change in the business, operations, properties, assets or condition (financial or other) of either Seller, or any event that has otherwise had a Material Adverse Effect, and no factor or condition exists and no event has occurred that would be likely to result in any of the foregoing;(ii) any material loss, damage, destruction or other casualty to the Purchased Property;(iii) any change in any method of accounting or accounting practice of the Business or either Seller relating to the Business; or(iv) any loss of the employment, services or benefits of any key employee of the Business.(b) Except as set forth on Schedule 5.7(b) , since December 31, 2003, the Sellers have operated the Business in the ordinary course of the business consistent with past practice and have not:(i) incurred any material obligation or liability (whether absolute, accrued, contingent or otherwise) relating to the operations of the Business except in the ordinary course of business consistent with past practice;(ii) failed to discharge or satisfy any Lien or pay or satisfy when due any obligation or liability (whether absolute, accrued, contingent or otherwise) arising from the operation of the Business, other than liabilities being contested in good faith and for which adequate reserves have been provided and Liens arising in the ordinary course of business that do not, individually or in the aggregate, interfere with the use, operation, enjoyment or marketability of any of the Purchased Property;(iii) mortgaged, pledged or subjected to any Lien any of the Purchased Property, except for mechanics’ Liens and Liens for Taxes not yet due and payable and Liens arising in the ordinary course of business that do not, individually or in the aggregate, interfere with the use, operation, enjoyment or marketability of any of the Purchased Property;(iv) sold or transferred any of the assets of the Business or, other than the Sherstad Note (as contemplated hereby), canceled any debts or claims or waived any rights relating to the operations of the Business, except in the ordinary course of business consistent with past practice;(v) disposed of any patents, trademarks or copyrights or any patent, trademark or copyright applications used in the operations of the Business;(vi) defaulted on any obligation relating to the operations of the Business;(vii) entered into any transaction relating to the Business, except in the ordinary course of business consistent with past practice;(viii) written down the value of any Inventory or written off as uncollectible any
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accounts receivable specifically relating to the Business or any portion thereof not reflected on the Balance Sheet;(ix) granted any increase in the compensation or benefits of employees of the Business other than increases in accordance with past practice or entered into any employment or severance agreement or arrangement with any of them;(x) made any capital expenditure, or additions to property, plant and equipment used in the operations of the Business other than ordinary repairs and maintenance;(xi) laid off any employees of the Business;(xii) discontinued the manufacture or sale of any Products;(xiii) incurred any obligation or liability for the payment of severance benefits;(xiv) other than aggregate distributions of $1,425,000 with respect to Income Taxes, made any distributions with respect to Income Taxes of the Sellers, the Principal Owners or any direct or indirect owners of any of the Principal Owners;(xv) waived, released or assigned any material right or claim under any Lease; or(xvi) entered into any agreement or made any commitment to do any of the foregoing.SECTION 5.8. Tax Matters . All Tax Returns required to be filed before the Closing Date in respect of both Sellers have been (or will have been by the Closing Date) filed, and each Seller has (or will have by the Closing Date) paid, accrued or otherwise adequately reserved for the payment of all Taxes required to be paid in respect of the periods covered by such Tax Returns and has (or will have by the Closing Date) adequately reserved for the payment of all Taxes with respect to periods ended on or before the Closing Date for which Tax Returns have not yet been filed. All Taxes of each Seller have been paid or adequately provided for and such Seller knows of no proposed additional Tax assessment against it not adequately provided for on the Balance Sheet. In the ordinary course, each Seller makes adequate provision on its books for the payment of Taxes (including for the current fiscal period) owed by such Seller. Each Seller has withheld and paid all Taxes related to the Business and required to be withheld with respect to amounts paid or owing to any employee, creditor, independent contractor or other third party.SECTION 5.9. Absence of Undisclosed Liabilities . Neither Seller has any indebtedness or liability, absolute or contingent, known or unknown relating to the Business, which is not shown or provided for on the Balance Sheet, other than liabilities as shall have been incurred or accrued in the ordinary course of business since December 31, 2003. Except as shown on the Balance Sheet, neither Seller is directly or indirectly liable upon or with respect to (by discount, repurchase agreements or otherwise), or obligated in any other way to provide funds in respect of, or to guarantee or assume, any debt, obligation or dividend of any Person in
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connection with the Business, except endorsements in the ordinary course of business in connection with the deposit, in banks or other financial institutions, of items for collection.SECTION 5.10. Owned Real Property . Neither Seller owns any real property that is used in any manner in the conduct or operations of the Business.SECTION 5.11. Leases .(a) Schedule 5.11(a)(i) sets forth a list of all leases, licenses, permits, subleases and occupancy agreements, together with all amendments and supplements thereto, with respect to all properties in which either Seller has a leasehold interest, whether as lessor or lessee and which are used in connection with the Business (each, a “ Lease ”). The real property covered by any Lease under which either Seller is a lessee is referred to herein as the “ Leased Real Property ”. The Sellers have furnished true, correct and complete copies of all Leases to the Buyer or its representatives. No option has been exercised under any of such Leases, except options whose exercise has been evidenced by a written document, a true, complete and accurate copy of which has been delivered to the Buyer or its representative with the corresponding Lease. Except as set forth on Schedule 5.11(a)(ii) , the transfer of the Leases to the Buyer does not require the consent or approval of the other party to the Lease, nor will such transfer violate any Lease or cause either Seller to be in default under any Lease.(b) Each Lease is in full force and effect, and no Lease has been modified or amended except pursuant to an amendment referred to on Schedule 5.11(a)(i) . Neither either Seller nor any other party to a Lease has given to the other party written notice of or has made a claim with respect to any breach or default. Neither Seller is in default under any Lease and, to the Knowledge of each Seller, no other party to a Lease is in default. No material amount due under any Lease remains unpaid and, to the Knowledge of each Seller, the lessor under each Lease has completed all tenant improvement work and other alterations required to be performed by such lessor pursuant to the applicable Lease.(c) None of the Leased Real Property is subject to any sublease, license or other agreement granting to any Person any right to the use, occupancy or enjoyment of such property or any portion thereof. Neither Seller has received any notice from any utility company or municipality of any fact or condition which could result in the discontinuation of presently available or otherwise necessary sewer, water, electric, gas, telephone or other utilities or services for any of the Leased Real Property. The Leased Real Property, all improvements thereon and thereto, and the operations therein conducted conform to all applicable health, fire, insurance, environmental, safety, zoning and building laws, ordinances and administrative regulations, Licenses and Permits and other regulations (including, without limitation, the Americans with Disabilities Act) except for possible nonconforming uses or violations that do not and will not interfere with the present use, operation or maintenance thereof by the Sellers as now used, operated or maintained or access thereto, and that do not and will not have a Material Adverse Effect, and that do not and will not give rise to any material penalty, fine or other liability, and neither Seller has received any notice to the contrary. Each Leased Real Property is occupied and used by the Sellers pursuant to and in conformity with a validly issued certificate of occupancy which currently remains in effect.
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(d) The plumbing, electrical, heating, air conditioning, elevator, ventilating and all other mechanical or structural systems for which either Seller is responsible under the Leases in the buildings or improvements are in good working order and condition (ordinary wear and tear excepted), and the roof, basement and foundation walls of such buildings and improvements for which either Seller is responsible under the Leases are in good condition and free of leaks and other defects (ordinary wear and tear excepted). To the Knowledge of each Seller, all such mechanical and structural systems and such roofs, basement and foundation walls for which others are responsible under said Leases are in good working order and condition and free of leaks and other defects. There are no other physical defects or deferred maintenance items at any Leased Real Property that interfere with or impede either Seller’s use of the Leased Real Property in the ordinary course of the Business or that either Seller is obligated under any of the Leases to repair or otherwise correct.(e) Except as set forth on Schedule 5.11(e) , there are no guarantees from any Person in favor of either Seller for any of the Leased Real Property.(f) Neither Seller has sold, assigned, transferred, pledged or encumbered all or any part of its leasehold interests in the Leased Real Property.(g) Access from public streets and provision for parking and loading/unloading at each Leased Real Property conforms to all applicable legal requirements and is adequate for the conduct of the Business in the normal course.(h) To the Knowledge of each Seller, except as set forth on Schedule 5.11(h) , none of the Leased Real Property is subject to a fee mortgage, deed of trust, other security interest or similar encumbrance, nor to a ground lease or underlying lease.(i) There is no pending, or, to the Knowledge of each Seller, threatened: (i) condemnation of any part of the Leased Real Property by any governmental authority; (ii) special assessment against any part of the Leased Real Property; or (iii) litigation against either Seller for breach of any restrictive covenant affecting any part of the Leased Real Property.(j) All brokerage commissions and any other compensation or fees payable by either Seller or any of its Affiliates in connection with any Lease have been indefeasibly paid in full.(k) No Seller has received any notice, or otherwise has any Knowledge, of any proposed increase of the assessed valuation of any of the Leased Real Property or of any proposed public improvement assessment affecting any of the Leased Real Property.(l) To the Knowledge of each Seller, there is no violation of any condition or agreement contained in any covenant, easement or similar obligation, agreement or instrument affecting any of the Leased Real Property.SECTION 5.12. Equipment and Machinery . Schedule 5.12 sets forth a complete and correct list and brief description of each item of Equipment and Machinery having an original purchase cost exceeding $5,000. Except as set forth on Schedule 5.12 , the Sellers have good and valid title, free and clear of all title defects and objections, Liens (other than the
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Lien of current property Taxes and assessments not in default, if any) to the Equipment and Machinery. The Equipment and Machinery is sufficient and adequate to carry on the Business as presently conducted and as contemplated to be conducted, and all items thereof are in good operating condition and repair (ordinary wear and tear excepted). All Equipment and Machinery owned by any Person other than the Sellers required or used in connection with the Business will, on the Closing Date, be included in the Purchased Property.SECTION 5.13. Intellectual Property; Intangible Assets .(a) Schedule 5.13(a) sets forth a complete and correct listing of the Intellectual Property, all of which is owned by the Sellers, free and clear of all Liens and is in good standing and is not known to be the subject of any challenge. As of the date hereof, there are no unresolved claims made and there has not been communicated to either Seller the threat of any claim that the holder of such Intellectual Property is in violation or infringement of any service mark, patent, trademark, trade name, trademark or trade name registration, copyright or copyright registration of any other Person. The Sellers are the owners of the patents, patent licenses, trade names, trademarks, service marks, brand marks, brand names, copyrights, know-how, formula and other proprietary and trade rights necessary for the conduct of the Business as now conducted, and without any known conflict with the rights of others, and neither Seller has knowingly forfeited or otherwise relinquished any such patent, patent license, trade name, trademark, service mark, brand mark, brand name, copyright, know-how, formula or other proprietary right necessary for the conduct of the Business as conducted on the date hereof. Neither Seller is under any obligation to pay any royalties or similar payments in connection with any license to any of its Affiliates. All Intellectual Property owned by any Person other than the Sellers required or used in connection with the Business will, on the Closing Date, be included in the Purchased Property. The Sellers own or have the right to use all computer software, software systems and databases and all other information systems included in the Purchased Property.(b) Schedule 5.13(b) sets forth a complete list of all: (i) licenses, sublicenses and other agreements in which the Sellers or any sublicensee of the Sellers has granted to any Person the right to use the Intellectual Property; and (ii) all other consents, indemnifications, forbearances to sue, settlement agreements and licensing or cross-licensing arrangements to which either Seller is a party relating to the Intellectual Property or the proprietary rights of any third party. Except as set forth on Schedule 5.13(b) , the Sellers are not under any obligation to pay royalties or other payments in connection with any license, sublicense or other agreement, nor restricted from assigning its rights under any sublicense or agreement respecting Intellectual Property, nor will the Sellers otherwise be, as a result of the execution and delivery of this Agreement or the performance of their obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Intellectual Property.(c) Schedule 5.13(c) sets forth a true and complete list of all of the Intangible Assets and a summary description of each such item. There is no restriction affecting the use of any of the Intangible Assets, and no license has been granted with respect thereto. Each of the Intangible Assets is valid and in good standing, is not currently being challenged, is not involved in any pending or threatened administrative or judicial proceeding, and does not conflict with any rights of any other Person. The Sellers’ rights in and to the Intangible Assets are sufficient
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and adequate in all respects to permit the conduct of the Business as now conducted and as contemplated to be conducted, and none of the products or operations of the Business involves any infringement of any proprietary right of any other Person. All Intangible Assets owned by any Person other than the Sellers required or used in connection with the Business will, on the Closing Date, be included in the Purchased Property.SECTION 5.14. Licenses and Permits . No licenses, permits, certificates of occupancy, franchises, authorizations, registrations, and approvals issued or granted by the Government of the United States, any state or local government, any foreign national or local government, or any department, agency, board, commission, bureau or instrumentality of any of the foregoing (the “ Licenses and Permits ”) are required in connection with the operation of the Business or any of the Leased Real Property, and there are no pending applications of any Seller for any Licenses and Permits.SECTION 5.15. Compliance with Law . The operations of the Business and the Leased Real Property have, in all material respects, been conducted in accordance with all applicable laws, regulations, orders and other requirements of all courts and other governmental or regulatory authorities having jurisdiction over either Seller and its assets, properties and operations, including, without limitation, all such laws, regulations, orders and requirements promulgated by or relating to consumer protection, currency exchange, equal opportunity, health, environmental protection, Hazardous Substances, conservation, wetlands, architectural barriers to the handicapped, fire, zoning and building, occupation safety, pension, securities and trading-with-the-enemy matters. Neither Seller has received notice of any violation of any such law, regulation, order or other legal requirement, and neither Seller is in default with respect to any order, writ, judgment, award, injunction or decree of any national, state or local court or governmental or regulatory authority or arbitrator, domestic or foreign, applicable to the Business or any of the assets, properties or operations with respect thereto.SECTION 5.16. Litigation . Except as set forth on Schedule 5.16 , there are no claims, actions, suits, proceedings, labor disputes or investigations pending or, to the Knowledge of either Seller, threatened (including, without limitation, any claim, action, suit, proceeding or investigation under any Environmental Law), before any national, state or local court or governmental or regulatory authority, domestic or foreign, or before any arbitrator of any nature, brought by or against either Seller or any of its officers, directors (or persons in similar positions), employees, agents or Affiliates involving, affecting or relating to the Business, the Purchased Property or the transactions contemplated by this Agreement, nor is any basis known to either Seller or any of its directors (or persons in similar positions) or officers for any such action, suit, proceeding or investigation. Neither the Business nor the Purchased Property is subject to any order, writ, judgment, award, injunction or decree of any national, state or local court or governmental or regulatory authority or arbitrator, domestic or foreign, that affects or might affect the Business or the Purchased Property, or that would or might interfere with the transactions contemplated by this Agreement.SECTION 5.17. Contracts .(a) Schedule 5.17 sets forth a complete and correct list and a summary description of all Contracts (in each case as in effect on the date hereof).
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(b) Each Contract is valid, binding and enforceable against the parties thereto in accordance with its terms, and in full force and effect on the date hereof. Each Seller has performed all material obligations required to be performed by it to date under, and is not in default or delinquent in performance, status or any other respect (claimed or actual) in connection with, any Contract, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default. To the Knowledge of each Seller, no other party to any Contract is in default in respect thereof, and no event has occurred which, with due notice or lapse of time or both, would constitute such a default. The Sellers have delivered to the Buyer or its representatives true and complete originals or copies of all the Contracts.(c) With respect to each Contract, each Seller (as applicable) has complied with all material terms thereof, all certifications and representations of such Seller with respect thereto and all statutes and regulations applicable thereto.SECTION 5.18. Receivables . Except as set forth on Schedule 5.18 , all notes and accounts receivable payable to or for the benefit of the Business reflected on the Balance Sheet, or acquired by either Seller after the date thereof | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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