Asset Purchase Agreement - North Atlantic Trading Co. Inc., Star Scientific Inc. and Star Tobacco Inc.
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ASSET PURCHASE AGREEMENT
dated as of
February 18, 2003
among
NORTH ATLANTIC TRADING COMPANY, INC.
STAR SCIENTIFIC, INC.
and
STAR TOBACCO, INC.
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TABLE OF CONTENTS
Page
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ARTICLE 1. PURCHASE AND SALE OF ASSETS ........................................... 2
1.1 Purchase and Sale of Assets .................................... 2
1.2 Assumption of Liabilities ...................................... 3
1.3 Excluded Assets and Excluded Liabilities ....................... 4
1.4 Purchase Price and Terms ....................................... 6
1.5 Closing ........................................................ 7
1.6 Net Working Capital Adjustment ................................. 8
1.7 Accounts Receivable ............................................ 10
1.8 Allocation of Purchase Price ................................... 11
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE SELLERS ......................... 11
2.1 Corporate Organization and Authority of the Sellers ............ 12
2.2 No Conflict .................................................... 12
2.3 Assets ......................................................... 12
2.4 Transferred Contracts; No Defaults ............................. 13
2.5 Intellectual Property .......................................... 14
2.6 Real Property .................................................. 15
2.7 Litigation and Proceedings ..................................... 16
2.8 Employee Benefit Plans ......................................... 16
2.9 Labor Relations ................................................ 17
2.10 Legal Compliance ............................................... 17
2.11 Tobacco Matters ................................................ 18
2.12 Environmental Matters .......................................... 18
2.13 Governmental Consents .......................................... 19
2.14 Licenses, Permits and Authorizations ........................... 19
2.15 Absence of Material Adverse Changes ............................ 19
2.16 Brokers' Fees .................................................. 20
2.17 Taxes .......................................................... 20
2.18 Insurance ...................................................... 21
2.19 Financial Statements; SEC Filings .............................. 21
2.20 Inventory ...................................................... 21
2.21 Sellers Acknowledgement ........................................ 22
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER ........................... 22
3.1 Corporate Organization and Authority of Purchaser .............. 22
3.2 No Conflict .................................................... 22
3.3 SEC Filings .................................................... 23
3.4 Litigation and Proceedings ..................................... 23
3.5 Legal Compliance ............................................... 24
3.6 Governmental Consents .......................................... 24
3.7 Brokers' Fees .................................................. 24
3.8 Purchaser Acknowledgment ....................................... 24
ARTICLE 4. COVENANTS RELATING TO THE CONDUCT OF BUSINESS ......................... 24
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4.1 Conduct of Transferred Business by the Sellers ................ 24
4.2 No Solicitations .............................................. 25
ARTICLE 5. ADDITIONAL AGREEMENTS ................................................ 27
5.1 Parent Stockholder Meeting; Proxy Statement ................... 27
5.2 Support of Transaction ........................................ 28
5.3 Inspection .................................................... 28
5.4 HSR Act ....................................................... 29
5.5 Update Information ............................................ 29
5.6 Certain Employee Benefits Matters ............................. 29
5.7 Escrow Obligations ............................................ 32
5.8 Cooperation Regarding Packaging ............................... 35
5.9 Financing ..................................................... 35
5.10 Post-Closing Notification of Product Returns .................. 36
5.11 Master Settlement Agreement ................................... 36
5.12 [Intentionally Omitted.] ...................................... 36
5.13 Moist Snuff Equipment ......................................... 36
5.14 Transition Services ........................................... 36
ARTICLE 6. CONDITIONS TO OBLIGATIONS ............................................ 37
6.1 Conditions to Obligations of Purchaser and the Sellers ........ 37
6.2 Conditions to Obligations of Purchaser ........................ 37
6.3 Conditions to the Obligations of the Sellers .................. 39
ARTICLE 7. TERMINATION .......................................................... 40
7.1 Termination ................................................... 40
7.2 Effect of Termination ......................................... 41
ARTICLE 8. INDEMNIFICATION ...................................................... 42
8.1 Survival of Representations, Etc .............................. 42
8.2 Indemnification ............................................... 42
8.3 Conduct of Proceedings ........................................ 43
8.4 Limited Environmental Indemnification ......................... 44
8.5 Sole Remedy; Time Limitation .................................. 44
ARTICLE 9. CERTAIN DEFINITIONS .................................................. 44
ARTICLE 10. MISCELLANEOUS ....................................................... 52
10.1 Waiver ....................................................... 52
10.2 Notices ...................................................... 52
10.3 Assignment ................................................... 53
10.4 Rights of Third Parties ...................................... 54
10.5 Expenses ..................................................... 54
10.6 Construction ................................................. 54
10.7 Captions; Counterparts ....................................... 54
10.8 Entire Agreement ............................................. 54
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10.9 Amendments ................................................. 55
10.10 Publicity .................................................. 55
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List of Schedules
1.6 Application of GAAP
2.2 Conflicts
2.3 Sufficiency of Assets
2.4(a) Transferred Contracts
2.4(b) Breach of Transferred Contracts
2.5(a) Transferred Intellectual Property
2.5(b) Liens on Transferred Intellectual Property
2.5(c) Infringement of Intellectual Property
2.6(a) Transferred Owned Real Property
2.6(b) Transferred Leased Real Property
2.7 Litigations and Proceedings
2.8 Benefit Arrangements, Pension Plans, and Welfare Plans covering
Transferred Employees
2.9 Labor Relations
2.10 Legal Compliance
2.11(a) Tobacco Matters - Licenses, Approvals, Consents, Franchises and
other Permits
2.11(b) Tobacco Law Issues
2.11(c) Health Claims
2.11(d) Qualifying Statutes
2.12 Environmental Matters
2.13 Governmental Consents
2.15 Business Material Adverse Effects
2.16 Brokers' Fees
2.17 Taxes
2.18 Insurance
2.19 Business Financial Statements
2.20 Inventory
3.2 Conflicts
3.3 Undisclosed Liabilities
3.4 Litigation and Proceedings
3.5 Legal Compliance
4.1 Conduct of Business by Seller
5.13 Moist Snuff Equipment Price
5.14 Transition Services
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List of Annexes
A Machinery, Equipment, Fixtures and other Tangible Personal Property used
in the Operation of the Transferred Business
B Transferred Real Property
C Transferred Contracts
D Cigarette Brands
E Assumed Debts, Liabilities and Obligations
F Excluded Real Property
G Excluded Personal Property
H Excluded Intellectual Property
I Excluded Claims
J Excluded Contracts
K Retained Governmental Authorizations
L License Agreement
M Opinion of Delaware Counsel to the Sellers
N Opinion of Virginia Counsel to the Sellers
O Opinion of Counsel to Purchaser
P Post-Closing Escrow Agreement
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered
into among NORTH ATLANTIC TRADING COMPANY, INC., a Delaware corporation
("Purchaser"), STAR SCIENTIFIC, INC., a Delaware corporation ("Parent"), and
STAR TOBACCO, INC., a Virginia corporation ("Opco" and, together with Parent,
the "Sellers"), as of this 18th day of February 2003.
RECITALS:
WHEREAS, in addition to other businesses not being transferred
(which businesses include, without limitation, the manufacturing and marketing
of leaf tobacco and compressed powdered, dry and moist snuff smokeless tobacco
products, the development and implementation of scientific technology with
respect to the curing of tobacco, and the development, purchase, curing and
production of tobacco products containing reduced toxins, including
tobacco-specific nitrosamines, and, collectively, are referred to herein as the
"Retained Businesses"), the Sellers engage in the business of manufacturing and
marketing discount cigarettes under the Brands through distributors in the
United States (the "Business");
WHEREAS, upon the terms and subject to the conditions set
forth herein, the Sellers desire to sell to Purchaser, and Purchaser desires to
purchase from the Sellers, the assets described herein used in the operation of
the Business;
WHEREAS, in connection with the purchase and sale of assets
described above, the parties desire, upon the terms and subject to the
conditions set forth herein, Purchaser to assume the liabilities described
herein relating to the operation of the Business;
WHEREAS, simultaneously with its execution and delivery of
this Agreement, Purchaser has entered into an Escrow Agreement, dated as of the
date of this Agreement, among HSBC Bank USA (the "Escrow Agent"), the Sellers
and Purchaser (the "Escrow Agreement"), and has deposited $2,000,000 (the
"Earnest Money Deposit") in immediately available funds into the escrow account
established thereunder;
WHEREAS, upon the Closing and subject to the terms and
conditions hereof, the Sellers and Purchaser will enter into a license agreement
in the form attached hereto as Annex L (the "License Agreement"); and
WHEREAS, certain capitalized terms used herein have the
meanings assigned to them in Article 9 hereof.
AGREEMENT:
In consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
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ARTICLE 1.
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets.
Subject to and upon the terms and conditions contained herein, at
the Closing, each of the Sellers will sell, convey, transfer and assign to
Purchaser, and Purchaser will purchase from each of the Sellers, all of the
right, title and interest of each such Seller in and to the properties and
assets of the Sellers, wherever located, real or personal, tangible or
intangible, that are owned, leased or licensed by each such Seller as of the
Closing Date and used or held for use in the operation of the Business and
existing on the Closing Date, other than the Excluded Assets (the "Assets"),
free and clear of all Liens, other than Permitted Liens, including, without
limitation, each such Seller's right, title and interest in the following, other
than, in each case, the Excluded Assets:
(i) all machinery, equipment and other tangible personal
property used or held for use in the operation of the Business, including,
without limitation, the items set forth in Annex A;
(ii) the real property, leaseholds and subleaseholds
therein, owned by either of the Sellers and used or held for use in the
operation of the Business, and all improvements and fixtures thereon, including,
without limitation, the real property listed on Annex B (the "Transferred Real
Property");
(iii) all Contracts entered into in connection with the
operation of the Business, including, without limitation, those Contracts listed
on Annex C (the "Transferred Contracts");
(iv) (A) all trademarks, service marks, trade dress and
logos primarily used or held for use in the operation of the Business, together
with all translations, adaptations, derivations and combinations thereof and
including all goodwill associated therewith and all applications, registrations
and renewals in connection therewith; (B) all works copyrighted by the Sellers,
all applications, registrations, and renewals in connection therewith, and all
works copyrightable but for their lack of fixation in a tangible medium, in each
case used in the operation of the Business; (C) in each case on a non-exclusive
basis, all trade secrets and confidential business information used in the
operation of the Business, including, without limitation, such 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; (D)
all owned or licensed proprietary software used in the operation of the
Business; and (E) other than with respect to items described in clause (C)
above, all copies and tangible embodiments thereof (in whatever form or medium),
in each case including, without limitation, the brands listed on Annex D (the
"Transferred Brands"), and including remedies against infringements thereof, and
rights to protection of interests therein under applicable laws (the
"Transferred Intellectual Property");
(v) all refunds, deposits, and prepaid expenses to the
extent related to the operation of the Business;
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(vi) all items of inventory, including raw materials, work
in process, finished goods, packaging materials (subject to Section 5.8),
supplies and spare parts used or held for use in connection with the operation
of the Business (the "Transferred Inventory");
(vii) all accounts receivable of each of the Sellers to the
extent accruing or arising from the operation of the Business (the "Transferred
Receivables");
(viii) all licenses, authorizations and permits issued or
granted by any Government Authority relating to the Assets or the operation of
the Business, in each case only to the extent transferable;
(ix) all books, records, files and papers relating to the
Business and the Assets, except that the Sellers shall be entitled to retain
copies of all such books, records, files and papers relating to the Retained
Businesses, the Excluded Assets or the Excluded Liabilities;
(x) to the extent assignable, all claims, prepayments,
causes of action, counterclaims, setoffs, rights of recovery or defenses that
the Sellers may have with respect to any Assumed Liabilities, to the extent of
the Assumed Liability;
(xi) all cash and cash equivalent, held by sales
representatives on behalf of the Sellers for use in the Business (the
"Transferred Cash"); and
(xii) subject to Section 5.13, the Moist Snuff Equipment.
1.2 Assumption of Liabilities. Subject to and upon the terms and
conditions contained herein, at the Closing, Purchaser shall assume and become
responsible for all debts, liabilities and obligations of the Sellers relating
to the Assets or the operation of the Business, whether known or unknown, fixed
or contingent, asserted or unasserted, accrued or unaccrued, liquidated or
unliquidated, other than the Excluded Liabilities (the "Assumed Liabilities"),
including, without limitation:
(i) all debts, liabilities, and obligations arising from,
or related to, (A) (1) the development, manufacture, advertising, marketing,
distribution, sale, or use (including, without limitation, any related health
effects) of, (2) the exposure to, or (3) warnings regarding cigarettes
developed, manufactured, advertised, marketed, distributed or sold by either of
the Sellers or any of their Subsidiaries under the Brands ("Transferred Tobacco
Matters"), (B) any past, present or future claim alleging any violation of any
law, statute, ordinance, rule or regulation related to Transferred Tobacco
Matters, including, without limitation, those described in Schedule 2.7, or (C)
claims, litigation, proceedings, suits, or actions of any kind, including,
without limitation, brought by or before any Governmental Authority relating to
the Transferred Tobacco Matters, violations described in clause (B) above, or
any substantially similar subject matter, or substantially similar or related
factual or legal allegations or claims (the debts, liabilities and obligations
referred to in this clause (i), collectively, the "Transferred Tobacco
Liabilities");
(ii) all debts, liabilities, and obligations relating to
the Transferred Contracts;
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(iii) all debts, liabilities, and obligations to pay wages,
salaries, bonuses, severance or retention payments, and payroll Taxes to
Transferred Employees;
(iv) subject to the provisions of Section 10.5, all debts,
liabilities, and obligations for Taxes (other than payroll Taxes assumed
pursuant to subsection (iii) above) arising out of or relating to the operation
of the Business or the ownership of the Assets arising or accruing after the
Closing Date and the obligations and liabilities under the proviso of the first
sentence in Section 10.5;
(v) subject (with respect to Escrow Obligations arising
during the Closing Year) to the provisions of Section 5.7, all debts,
liabilities and obligations related to the Business under any Qualifying
Statutes, including, but not limited to, any Escrow Obligations, arising or
accruing after the Closing Date with respect to sales of cigarettes under the
Brands;
(vi) all debts, liabilities and obligations set forth on
Annex E; and
(vii) all other debts, liabilities, and obligations
reflected as current liabilities in the calculation of the Final Net Working
Capital of the Business.
1.3 Excluded Assets and Excluded Liabilities.
(a) Anything contained in Section 1.1 to the contrary
notwithstanding, all right, title and interest to the following assets and
properties (the "Excluded Assets") shall be excluded from the Assets being
purchased by Purchaser pursuant to this Agreement:
(i) other than the Transferred Cash, all cash and cash
equivalents of each of the Sellers, including, without limitation, amounts
deposited by either of the Sellers into escrow under the Qualifying Statutes;
(ii) all right, title and interest in (including
leaseholds and subleaseholds with respect to) those certain parcels of real
property located in Chase City, Virginia and Bethesda, Maryland more
particularly described on Annex F, (the "Excluded Real Property") together with
all improvements thereon, all fixtures affixed to such improvements and any and
all rights relating to such real property;
(iii) (A) machinery, equipment and other tangible personal
property (1) used or held for use primarily in the Retained Businesses and held
by either of the Sellers at one of the locations of the Excluded Real Property
or (2) listed on Annex G, and (B) StarCured(TM) tobacco curing barns and
associated equipment, wherever located;
(iv) other than cut rag tobacco blends and cigarettes
containing StarCured(TM) tobacco, all items of inventory, including raw
materials, work in process, finished goods, packaging materials, supplies and
spare parts (A) relating to any of the Retained Businesses, regardless of the
location, or (B) containing or consisting of StarCured(TM) leaf tobacco (the
"Excluded Inventory");
(v) (A) 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,
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extensions and reexaminations thereof; (B) all trademarks, service marks, trade
dress, logos, and trade names primarily used or held for use in the Retained
Businesses and all corporate names, together with all translations, adaptations,
variations, derivations and combinations thereof, including "Star," "Star
Scientific", and "Star Tobacco," and including all goodwill associated therewith
and all applications, registrations and renewals in connection therewith; (C)
all copyrighted works, all applications, registrations, and renewals in
connection therewith, and all works copyrightable but for their lack of fixation
in a tangible medium, in each case to the extent primarily related to the
Retained Businesses; (D) in each case on a non-exclusive basis, all trade
secrets and confidential business information used or held for use in the
operation of the Retained Businesses (including, without limitation, 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); (E) all Internet domain names,
including registrations and applications for registration thereof; and (F) all
copies and tangible embodiments thereof (in whatever form or medium), in each
case in clauses (A)-(F) including, without limitation, and in addition to, the
Intellectual Property described on Annex H (collectively, the "Excluded
Intellectual Property");
(vi) all of each Seller's rights in and to any Tax Assets;
(vii) each Seller's corporate franchises, certificates of
incorporation, corporate seals, minute books, and (except for books, records,
files and papers expressly described in clause (ix) of Section 1.1) other
corporate records;
(viii) all capital stock or other equity interests of each
subsidiary of Parent, including, without limitation, Opco;
(ix) except as otherwise expressly set forth herein, any
trusts, trust assets, trust accounts, insurance policies or other assets of any
"employee benefit plans" (as defined in Section 3(3) of ERISA) and any rights
under any plan or agreement maintained by either Seller relating to employee
benefits, employment or executive compensation of such Seller;
(x) all insurance policies and binders and all claims,
refunds and credits from such insurance policies or binders due or to become due
with respect to such policies or binders;
(xi) all claims, prepayments, refunds, deposits, prepaid
expenses, causes of action, choses in action, rights of recovery, rights of
set-off and rights of recoupment in favor of or for the benefit of either Seller
(A) relating to the Excluded Assets and the Excluded Liabilities or (B)
described on Annex I;
(xii) all rights of either of the Sellers and any of their
Subsidiaries against any other of the Sellers and their Subsidiaries;
(xiii) all rights of the Sellers under or in respect of this
Agreement, the License Agreement, the Escrow Agreement, the Post-Closing Escrow
Agreement and the Contracts listed on Annex J;
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(xiv) all licenses, authorizations and permits issued or
granted by any Governmental Authority used in the Business to the extent not
transferable, and those described on Annex K; and
(xv) all assets and properties used or held for use
exclusively in the operation of the Retained Businesses.
(b) The parties expressly acknowledge and agree that the following
liabilities and obligations (the "Excluded Liabilities") shall be excluded from
the liabilities being assumed by Purchaser pursuant to this Agreement:
(i) all debts, liabilities, and obligations for Taxes
arising out of or relating to the operation of the Business or the ownership of
the Assets arising or accruing on or prior to the Closing Date (other than the
obligations of Purchaser to pay the obligations and liabilities under the
proviso to the first sentence in Section 10.5);
(ii) any Funded Debt of either of the Sellers;
(iii) other than Transferred Tobacco Liabilities, all
liabilities arising solely out of the Excluded Assets (for the avoidance of
doubt, for the purposes of this clause (iii) the Excluded Assets include the
contracts listed in Annex J);
(iv) all liabilities of the Business prior to the Closing
owing to the Sellers or any of their Subsidiaries;
(v) except as otherwise expressly set forth herein, all
liabilities relating to any Benefit Plan accruing, arising out of, or relating
to, events occurring on or prior to the Closing Date;
(vi) subject (with respect to Escrow Obligations arising
during the Closing Year) to the provisions of Section 5.7, all debts,
liabilities and obligations of either of the Sellers under any Qualifying
Statutes, including, but not limited to, any Escrow Obligations arising or
accruing on or prior to the Closing Date;
(vii) all liabilities arising from or related to any employee
benefit plan within the meaning of Section 3(3) of ERISA which is subject to
Title IV of ERISA as to which either of the Sellers or any of their ERISA
Affiliates has any obligation to contribute; and
(viii) all liabilities as of the Closing Date to Transferred
Employees for accrued vacation.
1.4 Purchase Price and Terms. Upon the terms and subject to the
conditions contained herein, as consideration for the Assets, at the Closing (i)
Purchaser shall pay to the Sellers, or as they may direct in writing, by
intra-bank transfer or wire transfer of immediately available funds to an
account designated by the Sellers in writing, Eighty Million Dollars
($80,000,000) plus, subject to Section 5.13, the Moist Snuff Equipment Price
(subject to the adjustment set forth in Section 1.6, the "Purchase Price"), less
the amount of the Earnest Money Deposit paid to the Sellers pursuant to clause
(ii) below, (ii) Purchaser and the Sellers shall jointly direct the Escrow Agent
to pay the amount of the Earnest Money Deposit to the Sellers or
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as the Sellers may direct in writing in accordance with the Escrow Agreement,
(iii) Purchaser and the Sellers shall jointly direct the Escrow Agent to pay to
Purchaser (or as Purchaser may direct in writing in accordance with the Escrow
Agreement) any Escrow Funds remaining after payment of the Earnest Money Deposit
in accordance with clause (ii) above (the "Remaining Escrow Funds"), and (iv)
Purchaser shall assume and pay or otherwise discharge and perform the Assumed
Liabilities.
1.5 Closing.
(a) The consummation of (i) the purchase and sale of the Assets
and (ii) the assumption of the Assumed Liabilities (the "Closing") shall take
place at 10:00 a.m., local time, on the third (3/rd/) Business Day following the
satisfaction or waiver of the conditions to the obligations of the parties set
forth in Article 6 hereof, at the offices of Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, NY 10153, or at such other time or place as the Sellers
and Purchaser may agree in writing (the day on which the Closing takes place
being referred to herein as the "Closing Date").
(b) At the Closing, the Sellers shall (x) cooperate with Purchaser
to cause the Escrow Agent to release (1) the Earnest Money Deposit (in the form
of immediately available funds) to Parent at the Closing and (2) the Remaining
Escrow Funds (in the form of immediately available funds) to Purchaser at the
Closing and (y) execute and deliver, or cause to be executed and delivered, to
Purchaser:
(i) one or more general warranty deeds conveying to
Purchaser good and marketable fee simple title to the Transferred Owned Real
Property;
(ii) one or more bills of sale and/or other instruments of
assignment, as necessary, conveying to Purchaser all of the Sellers' interest in
and to the Assets, free and clear of all Liens, other than Permitted Liens, in
form and substance reasonably satisfactory to Purchaser;
(iii) one or more instruments of assignment assigning to
Purchaser all of the Sellers' interest in the Transferred Intellectual Property,
which, to the extent necessary to assign such rights, shall be in recordable
form, in form and substance reasonably satisfactory to Purchaser;
(iv) resolutions of the Board of Directors of each Seller,
certified by the Secretary or Assistant Secretary of such Seller, approving and
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby;
(v) a certificate of good standing for each of the Sellers,
issued not earlier than five (5) days prior to the Closing Date by the Secretary
of State for the jurisdiction of such Seller's incorporation;
(vi) an opinion of Potter, Anderson & Corroon LLP, Delaware
counsel to Parent, in the form of Annex M hereto and an opinion of Latham &
Watkins, Virginia counsel to Opco, in the form of Annex N hereto; and
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(vii) the other documents required to be delivered by the
Sellers pursuant to Article 6 hereof.
(c) At the Closing, Purchaser shall (x) cooperate with the Sellers
to cause the Escrow Agent to release (1) the Earnest Money Deposit (in the form
of immediately available funds) to Parent at the Closing and (2) the Remaining
Escrow Funds (in the form of immediately available funds) to Purchaser at the
Closing, (y) cause to be paid to the Sellers, in the manner provided in Section
1.4 hereof, the Purchase Price, and (z) execute and deliver to the Sellers:
(i) an instrument of assumption evidencing Purchaser's
assumption of the Assumed Liabilities, in form and substance reasonably
satisfactory to the Sellers;
(ii) resolutions of the Board of Directors of Purchaser,
certified by the Secretary or Assistant Secretary of Purchaser, approving and
authorizing the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby;
(iii) a certificate of good standing for Purchaser, issued
not earlier than five (5) days prior to the Closing Date by the Secretary of
State of the State of Delaware;
(iv) an opinion of Weil, Gotshal & Manges LLP, in the form
of Annex O hereto; and
(v) the other documents required to be delivered by
Purchaser pursuant to Article 6 hereof.
1.6 Net Working Capital Adjustment.
(a) As promptly as practicable, but no later than sixty (60) days
after the Closing Date, Parent shall prepare (or cause to be prepared) and
deliver to Purchaser for review, a closing statement (the "Closing Statement"),
setting forth Parent's calculation of the Net Working Capital of the Transferred
Business as of the close of business of the Closing Date. The "Net Working
Capital of the Transferred Business" shall mean the Assets that are current
assets less the Assumed Liabilities that are current liabilities.
(b) Purchaser shall cause the employees of the Business to assist
Parent and its accountants in the preparation of the Closing Statement and shall
provide Parent and its auditors reasonable access, during normal business hours
and upon reasonable prior notice, to the personnel, properties, books and
records of the Business for such purpose.
(c) During the twenty (20)-day period following Purchaser's
receipt of the Closing Statement, Purchaser and its auditors shall be permitted
to review the working papers relating to the Closing Statement (provided that
Purchaser and its accountants execute and deliver a confidentiality agreement,
reasonably satisfactory to the Sellers, and adhere to whatever procedures the
Sellers reasonably request to safeguard confidential, non-public or privileged
information relating to the Sellers or any of their respective subsidiaries),
and the Sellers shall cooperate with Purchaser and its auditors to provide them
with any other information used in preparing the Closing Statement reasonably
requested by Purchaser or its auditors. The Closing Statement shall become final
and binding upon the parties on the 20th day following delivery
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thereof, unless Purchaser delivers to Parent written notice of its disagreement
("Notice of Disagreement") specifying in reasonable detail the amount by which
and the reasons why it believes the Closing Statement (i) contains mathematical
errors or (ii) was not prepared in accordance with the methodology specified in
Section 1.6(g). The Notice of Disagreement shall not specify any basis for
disagreement with the Closing Statement other than as set forth in the preceding
sentence.
(d) If a timely and otherwise sufficient Notice of Disagreement
shall be delivered to Parent in accordance with Section 1.6(c), Purchaser and
Parent shall, during the twenty (20) days following such delivery, seek in good
faith to resolve in writing any differences which they may have with respect to
the matters specified in the Notice of Disagreement. If during such twenty
(20)-day period Purchaser and Parent agree in writing on the correct
determination of the Closing Statement, such determination shall be final and
binding on the parties for all purposes hereunder. If Purchaser and Parent have
not resolved such differences by the end of such twenty (20)-day period,
Purchaser and Parent shall promptly submit, in writing, to an independent public
accounting firm (the "Accounting Firm") their briefs detailing their views as to
the correct amount of Net Working Capital of the Transferred Business as of the
Closing Date, and the Accounting Firm shall determine the final amount of Net
Working Capital of the Transferred Business as of the Closing Date, which
determination shall be final and binding on the parties for all purposes
hereunder. The Accounting Firm shall be the Washington, DC regional office of
Ernst & Young LLP or, if such firm is unable or unwilling to act, Deloitte &
Touche LLP or KPMG LLP or, if such firms are unable or unwilling to act, such
other independent public accounting firm as shall be agreed upon by the parties
hereto in writing. Purchaser and Parent shall use commercially reasonable
efforts to cause the Accounting Firm to issue a report setting forth its
calculation of the Closing Statement, as promptly as practicable, but in any
event within thirty (30) days following the submission of the matters. The fees
and expenses of the Accounting Firm pursuant to this Section 1.6(d) shall be
borne equally by Purchaser, on the one hand, and the Sellers, on the other hand.
The fees and disbursements of the auditors and other advisors of each party
hereto incurred in connection with their review of the Closing Statement and
review of any Notice of Disagreement shall be borne by such party.
(e) If the Final Net Working Capital of the Transferred Business
is less than $5.0 million by more than $50,000, the Purchase Price shall be
decreased by the amount by which $5.0 million exceeds the Final Net Working
Capital of the Transferred Business. If the Final Net Working Capital of the
Transferred Business is greater than $5.0 million by more than $50,000, the
Purchase Price shall be increased by the amount by which the Final Net Working
Capital of the Transferred Business exceeds $5.0 million. The "Final Net Working
Capital of the Transferred Business" means the Net Working Capital of the
Transferred Business as (i) shown on the Closing Statement pursuant to Section
1.6(a) if no timely and otherwise sufficient Notice of Disagreement is delivered
to Parent in accordance with Section 1.6(c) or (ii) if a timely and otherwise
sufficient Notice of Disagreement is delivered to Parent in accordance with
Section 1.6(c), as determined pursuant to Section 1.6(d).
(f) Within three (3) Business Days after the Final Net Working
Capital has been determined pursuant to this Section 1.6, the Sellers shall pay
to Purchaser the amount of any decrease in the Purchase Price or Purchaser shall
pay to the Sellers the amount of any increase in the Purchase Price, as the case
may be, together in either case with an amount equal to interest thereon at the
rate of 10.0% per annum from the Closing Date to and including the
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date of payment, by intra-bank transfer or wire transfer of immediately
available funds to any account designated in writing by the party or parties
entitled to such payment.
(g) Notwithstanding anything in this Agreement to the contrary,
for the purposes of this Section 1.6, Net Working Capital of the Transferred
Business shall be determined in accordance with GAAP (except to the extent the
Interim Balance Sheet was not prepared in accordance with GAAP, as reflected in
Schedule 2.19), applied on a basis consistent with the application of GAAP in
the preparation of the Interim Balance Sheet, and except as otherwise specified
in Schedule 1.6.
(h) In determining the correct calculation of accounts receivable
to be included in the Net Working Capital of the Transferred Business, the
Sellers' determination of the amount of the reserve for uncollected accounts
shall be final and binding. Notwithstanding anything in this Agreement to the
contrary, any matter which, but for the $50,000 threshold, would have been the
subject of such an adjustment to the Net Working Capital of the Transferred
Business pursuant to this Section 1.6 may not be asserted by Purchaser or any
Purchaser Indemnified Party as an alleged misrepresentation or breach of any
warranty or covenant in this Agreement.
1.7 Accounts Receivable.
(a) From and after the Closing, Purchaser shall use commercially
reasonable efforts to collect on a timely basis all accounts receivable
reflected in the Net Working Capital of the Transferred Business on the Closing
Statement (the "Closing Accounts Receivable"). The Sellers shall have the right
to cooperate with and assist Purchaser in such collection efforts. Within five
(5) Business Days after the end of each calendar week, Purchaser shall furnish
the Sellers with a complete and detailed statement of the amounts collected
during such calendar week and in any prior calendar weeks with respect to the
Closing Accounts Receivable and a complete and detailed schedule of the amount
remaining outstanding under each particular account. As promptly as practicable
after the sixtieth (60/th/) day after the Closing, but in no event more than
sixty-five (65) days after the Closing, Purchaser shall prepare (or cause to be
prepared) and deliver to Parent, a certificate (the "Receivables Certificate")
signed by Purchaser's chief financial officer certifying, as of the date the
Receivables Certificate is delivered to Parent, as to (i) the amount of Closing
Accounts Receivable that Purchaser has collected (the "Collected Closing
Accounts Receivable"), (ii) each Closing Account Receivable not fully collected
by Purchaser or its Affiliates, and (iii) for each Closing Account Receivable
not fully collected by Purchaser or its Affiliates, the amount not collected.
(b) Any payment received by Purchaser (i) at any time following
the Closing and (ii) from a customer of Purchaser after the Closing that was
also a customer of the Sellers prior to the Closing and that is obligated with
respect to any Closing Accounts Receivable, shall be presumptively applied to
the accounts receivable for such customer outstanding for the longest amount of
time and, if such accounts receivable shall be a Closing Accounts Receivable,
reflected in the Receivables Certificate in accordance with Section 1.7(a).
(c) If Purchaser timely delivers to Parent a Receivables
Certificate in accordance with Section 1.7(a), and that Receivables Certificate
states that the aggregate amount of Collected Closing Accounts Receivable equals
less than the amount of accounts receivable (net of reserves) reflected in the
calculation of Final Net Working Capital of the Transferred
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Business (the "Minimum Receivables Amount"), then, for 20 days after such
delivery of such Receivables Certificate, Purchaser shall provide Parent with
reasonable access, during normal business hours and upon reasonable prior
notice, to Purchaser's customers, personnel, properties, books and records
related to the Business for the purpose of confirming the accuracy of the
Receivables Certificate.
(d) Purchaser and Parent shall cooperate in good faith to resolve any
disputes with respect to the Receivables Certificate, including the amount of
the Collected Closing Accounts Receivables.
(e) If Purchaser timely delivers to Parent a Receivables Certificate
in accordance with Section 1.7(a), and that Receivables Certificate states that
the aggregate amount of Collected Closing Accounts Receivable equals less than
the Minimum Receivable Amount, on the later of (x) five (5) Business Days after
delivery to Parent of such Receivables Certificate and (y) the date on which the
Final Net Working Capital of the Transferred Business has been finally
determined pursuant to Section 1.6, (i) Parent shall pay to Purchaser the amount
by which the Minimum Receivables Amount exceeds the Collected Closing Accounts
Receivable, (ii) Purchaser shall transfer to Parent all rights to collect the
Closing Accounts Receivable that are not Collected Closing Accounts Receivable,
and (iii) Purchaser shall cooperate in good faith with Parent's efforts to
collect such receivables, including, without limitation, promptly forwarding to
Parent any amounts received in respect of Closing Accounts Receivable that are
not Collected Closing Accounts Receivable.
1.8 Allocation of Purchase Price. Purchaser shall, within 120 days after
the final agreement or determination of the Purchase Price, prepare and deliver
to Parent a schedule (the "Allocation Schedule") allocating the Purchase Price
and the Assumed Liabilities among the Assets in accordance with Treas. Reg.
1.1060-1 (or any comparable provisions of state or local tax law) or any
successor provision. Parent will have the right to raise reasonable objections
to the Allocation Schedule within 10 days after its receipt thereof, in which
event Parent and Purchaser will negotiate in good faith to resolve such
objections. If Parent and Purchaser cannot mutually resolve Parent's reasonable
objections to the Allocation Schedule within 10 days after Purchaser's receipt
of such objections, such dispute with respect to the Allocation Schedule shall
be presented to the Accounting Firm which Accounting Firm shall, within thirty
(30) days thereafter, render a final and binding decision upon each of the
parties. The fees, costs and expenses incurred in connection therewith shall be
shared in equal amounts by the Sellers, on the one hand, and Purchaser, on the
other hand. The Sellers and Purchaser shall each report and file all Tax Returns
(including amended Tax Returns and claims for refunds) consistent with the
Allocation Schedule, and shall take no position contrary thereto or inconsistent
therewith (including, without limitation, in any audits or examinations by any
taxing authority or any other proceedings), provided however, nothing herein
shall prevent either party from compromising in any audit or examination by any
taxing authority the position required to be taken by this Section 1.8 in
respect of the allocation of the Purchase Price. The Sellers and Purchaser shall
cooperate in the filing of any forms (including Form 8594) with respect to such
allocation, including any amendments to such forms required with respect to any
adjustment to the Purchase Price, pursuant to this Agreement. Notwithstanding
any other provisions of this Agreement, this Section 1.8 shall survive the
Closing Date without limitation.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
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Each of the Sellers represents and warrants to Purchaser, jointly and
severally, that, except as set forth in the Schedules delivered by the Sellers
to Purchaser prior to the execution of this Agreement, as of the date of this
Agreement:
2.1 Corporate Organization and Authority of the Sellers. Each of the
Sellers is duly incorporated, validly existing and in good standing in its
respective jurisdiction of organization. Each Seller has the corporate power and
authority to own or lease its properties and to conduct the Business as it is
now being conducted, and each of the Sellers has the corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
Parent owns all of the issued and outstanding capital stock of Opco. Other than
Opco in the case of Parent, neither Parent nor Opco has any Subsidiaries that
owns Assets or operates the Business. Each of the Sellers is duly licensed or
qualified as a foreign corporation and in good standing to do business in each
jurisdiction in which the property owned, leased, or operated by it or the
character of its activities is such as to require it to be so licensed or
qualified, except where the failure to be so licensed or qualified, individually
or in the aggregate, would not reasonably be expected to have a Business
Material Adverse Effect. The execution and delivery of this Agreement by each of
the Sellers and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Board of Directors of each
of the Sellers, and, subject to approval by the affirmative vote or written
consent of the holders of a majority of the outstanding shares of common stock,
par value $0.0001 per share, of Parent ("Parent Common Stock"), and by Parent as
sole stockholder of Opco, no other corporate approval or proceeding on the part
of either of the Sellers is necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of the Sellers and, assuming due authorization,
execution and delivery by Purchaser, constitutes a legally valid and binding
obligation of each of the Sellers, enforceable against each of the Sellers in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights generally and subject, as to enforceability, to general
principles of equity (regardless of whether such enforceability is sought in a
proceeding at law or in equity).
2.2 No Conflict. Except as set forth in Schedule 2.2, the execution and
delivery of this Agreement by each of the Sellers and the consummation of the
transactions contemplated hereby and compliance with the terms hereof does not
and will not (a) conflict with or result in any violation of any provision of,
the certificate of incorporation, bylaws or other organizational documents of
either of the Sellers, (b) violate any order, writ, injunction, decree,
judgment, permit, license, ordinance, law, statute, rule or regulation of any
Governmental Authority applicable to either of the Sellers or the Assets or the
Business, (c) result in a violation or breach of, or constitute a default (with
or without due notice or lapse of time or both), require the consent,
authorization or approval of any other Person, or give rise to any right of
termination, amendment, cancellation, acceleration or loss of material benefit
under, or result in the creation of a Lien (other than any Permitted Liens) on
any of the Assets pursuant to any of the terms, conditions or provisions of any
Transferred Contract, or other Contract, instrument or obligation by which any
of the Assets may be bound, except to the extent that the occurrence of any of
the foregoing in clause (c) would not, individually or in the aggregate,
reasonably be expected to have a Business Material Adverse Effect or a material
adverse effect on the ability of the Sellers to enter into and perform their
respective obligations under this Agreement.
2.3 Assets.
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(a) Except as set forth in Schedule 2.3, and except for the
Excluded Assets, (i) the Assets include all assets necessary to the conduct of
the Business, as currently conducted, and are sufficient to conduct the Business
immediately following the Closing in substantially the same manner as currently
conducted, and (ii) there are no assets that are material to the Business as
currently conducted other than the Assets. The Assets are in reasonably good
condition and repair (ordinary wear and tear and immaterial defects excluded).
(b) Except with respect to the Transferred Real Property (as to
which certain representations are made pursuant to Section 2.6 hereof), one of
the Sellers owns and has good title to the Assets that they purport to own, or
that are reflected as owned in the books and records of the Sellers. All Assets
are free and clear of all Liens, other than Permitted Liens.
2.4 Transferred Contracts; No Defaults.
(a) Except as set forth on Schedule 2.4(a), as of the date of this
Agreement, there is no Transferred Contract to which either of the Sellers is a
party that relates to the conduct or operation of the Business or the Assets and
is:
(i) a Contract for the lease of personal property involving
aggregate payments in excess of $50,000 in any one year;
(ii) a Contract for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property or for the
furnishing or receipt of services and which provides for consideration to be
furnished to or by the Sellers in excess of $50,000 in any one year;
(iii) a Contract under which either of the Sellers has
created, incurred, assumed or guaranteed any outstanding indebtedness for
borrowed money or any existing capitalized lease obligation or which imposes a
Lien on any of the Assets, other than any Permitted Liens, in any case in an
amount in excess of $50,000;
(iv) a Contract under which either of the Sellers has
advanced or loaned any money to any of their directors, officers or employees
outside the ordinary course of business;
(v) a Contract imposing any non-competition,
non-solicitation, or other similar obligations or limitations on either of the
Sellers;
(vi) a Contract for the employment of any individual who has
been identified as a Business Employee;
(vii) a Contract for the sale of any material Assets, or for
the grant to any Person of any preferential rights to purchase any material
Assets, other than in the ordinary course of business;
(viii) a Contract for the acquisition by the Sellers of any
operating business or the capital stock or other equity interest of any other
Person that would constitute a part of the Business and was entered into during
the three years preceding the date of this Agreement;
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(ix) a Contract concerning a partnership, joint venture,
joint development or other similar cooperation arrangement with respect to the
Business or the Assets;
(x) a Contract relating to any Intellectual Property of the
Business to which either of the Sellers is a party or by which they are bound,
other than (x) software licenses which currently are readily available and (y)
customary employee, vendor and other nondisclosure agreements;
(xi) a Contract pursuant to which the Sellers have granted
rights with respect to the distribution, sale, manufacture or other use of any
products, or other assets (both tangible and intangible) of the Business, in any
case in an amount in excess of $50,000 in any one year;
(xii) a Contract pursuant to which the Sellers have agreed to
sell products of the Business (other than standard purchase orders) in an amount
in excess of $50,000 in any one year; or
(xiii) a Contract providing for exclusivity or under which
either of the Sellers is restricted, or which after the Closing Date would
restrict Purchaser or any of its Affiliates, with respect to distribution,
marketing, development or manufacture of products in the Business; or
(xiv) a Contract not made in the ordinary course of business.
(b) Except as set forth on Schedule 2.4(b), (i) the Transferred
Contracts listed pursuant to Section 2.4(a) are valid, binding and in full force
and effect, (ii) such Transferred Contracts are enforceable against the Seller
party thereto and, to the knowledge of the Sellers, the other parties thereto,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
generally and subject to general principles of equity (regardless of whether
such enforceability is sought in a proceeding at law or in equity), (iii)
neither of the Sellers nor, to the knowledge of the Sellers, any other party has
materially breached any of the Transferred Contracts listed pursuant to Section
2.4(a), (iv) to the knowledge of the Sellers, no condition exists or event has
occurred which, with notice or lapse of time or both, would constitute a default
by any party under the Transferred Contracts listed pursuant to Section 2.4(a),
except where the occurrence of any such event or existence of any such condition
would not reasonably be expected to have a Business Material Adverse Effect, (v)
the Sellers have performed all obligations required under the Transferred
Contracts listed pursuant to Section 2.4(a) to the extent required to be
performed by the Sellers, except where such failures of performance would not
reasonably be expected to have a Business Material Adverse Effect, and (vi) as
of the date of this Agreement, neither of the Sellers has received any written
notice of the intention of any party to terminate, cancel or not renew any
Transferred Contract listed pursuant to Section 2.4(a).
2.5 Intellectual Property.
(a) Schedule 2.5(a) lists each patent, registered trademark,
service mark and trade name or registered copyright and applications for any of
the foregoing, used or held for use by either of the Sellers in the operation of
the Business, other than those that constitute Excluded Assets. The Transferred
Contracts listed on Schedule 2.4(a) include all license or sublicense
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agreements entered into by either of the Sellers in connection with the
Transferred Intellectual Property to which either of the Sellers is a party and
which is material to the operation of the Business, as presently being
conducted. The Sellers have used commercially reasonable efforts to maintain in
confidence all of the trade secrets and confidential information included in the
Transferred Intellectual Property, except as would not reasonably be expected to
have a Business Material Adverse Effect.
(b) Except as set forth on Schedule 2.5(b), one of the Sellers
owns, free and clear of any Liens (other than Permitted Liens) or has the right
to use pursuant to license, sublicense, agreement or permission, each item of
Transferred Intellectual Property listed on Schedule 2.5(a).
(c) To the knowledge of the Sellers, except as set forth on
Schedule 2.5(c), (i) the conduct, products, or services of the Transferred
Business as currently conducted do not infringe upon any Intellectual Property
of any third party, (ii) there are no claims or suits pending before any
Governmental Authority or for which written notice has been provided or
threatened (A) alleging that the conduct, products, or services of the
Transferred Business infringes upon any Intellectual Property of any third
party, or (B) challenging the Sellers' ownership of, right to use, or the
validity or enforceability of, the Transferred Intellectual Property or any
license or other agreement relating thereto, and (iii) no third party is
infringing any Transferred Intellectual Property.
2.6 Real Property.
(a) Schedule 2.6(a) sets forth a complete list of all Transferred
Real Property owned by the Sellers (the "Transferred Owned Real Property") and
the name of the record owner thereof. With respect to each parcel of Transferred
Owned Real Property, the identified Seller has good and marketable fee simple
title to the parcel of Transferred Owned Real Property, free and clear of any
Liens, except for Permitted Liens. With respect to each parcel of Transferred
Owned Real Property, there are no outstanding options or rights of first refusal
or other contractual rights to purchase, sell, assign or dispose of any of the
Transferred Owned Real Property or any material portion thereof or material
interest therein.
(b) Schedule 2.6(b) sets forth a complete list of all leases and
subleases of Transferred Real Property leased to the Sellers (the "Transferred
Leased Real Property"). Complete and correct copies of each of the leases for
the Transferred Leased Real Property have been furnished to Purchaser. With
respect to the Transferred Leased Real Property:
(i) the leases are in full force and effect and enforceable
against the Sellers in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless of whether such
enforceability is sought in a proceeding at law or in equity); and
(ii) neither of the Sellers is and, to the knowledge of the
Sellers, no other party to the leases listed on Schedule 2.6(b) is, in material
breach or default of any such lease and no event has occurred that, with notice
or lapse of time, would constitute a breach or default or permit termination,
modification or acceleration thereunder, to the extent such default would have a
Business Material Adverse Effect.
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2.7 Litigation and Proceedings. Except (i) as set forth on Schedule 2.7
and (ii) for any other Proceedings or investigations, if any, giving rise solely
to liabilities constituting Excluded Liabilities, there are no Proceedings at
law or in equity or, to the knowledge of the Sellers, investigations, relating
to the Business, the Assets, or the Assumed Liabilities, before or by any court
or Governmental Authority or before any arbitrator pending or, to the knowledge
of the Sellers, threatened, against the Sellers. Except as set forth on Schedule
2.7, there is no unsatisfied judgment, order or decree requiring payment of
monetary damage or any open injunction binding upon either of the Sellers that
would reasonably be expected to have a Business Material Adverse Effect or a
material adverse effect on the ability of the Sellers to enter into and perform
their obligations under this Agreement.
2.8 Employee Benefit Plans.
(a) Definitions. The following terms, when used in this Section 2.8,
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
(i) ERISA. "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(ii) ERISA Affiliate. "ERISA Affiliate" means any entity that
would be aggregated with any of the Sellers under Section 414 of the Code or
Section 4001 of ERISA.
(iii) Multiemployer Plan. "Multiemployer Plan" means any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, (A) to which
the Sellers or any of their ERISA Affiliates maintains, administers, contributes
or is required to contribute and (B) which covers any Business Employees.
(iv) COBRA. "COBRA" means Section 4980B of the Code and Part 6
of Subtitle B of Title I of ERISA and the regulations thereunder.
(v) Benefit Plan. "Benefit Plan" means (i) any "employee
pension benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) with respect to which the Sellers or any of their ERISA
Affiliates maintains, administers, contributes or is required to contribute;
(ii) any "employee welfare benefit plan" as defined in Section 3(1) of ERISA
with respect to which the Sellers or any of their Subsidiaries maintains,
administers, contributes or is required to contribute; and (iii) any agreement,
contract, plan or program providing deferred compensation, profit-sharing,
bonus, incentive compensation, stock or other equity-related award, restricted
stock, stock ownership, stock option, stock appreciation right, phantom stock,
stock purchase, severance or termination pay, retention, salary continuation,
vacation, sick leave, leave of absence, layoff, employee loan or other material
employment-related compensation or benefits with respect to which is entered,
maintained, contributed or required to be contributed, as the case may be, by
the Sellers or any of their Subsidiaries; in each case, covering or otherwise
relating to any Business Employee.
(b) Disclosure. Schedule 2.8 contains an accurate and complete list
of each Benefit Plan. With respect to each Benefit Plan, the Sellers have caused
Purchaser's counsel to be provided with documents describing the benefits
provided thereunder pursuant to the letter from Seller's counsel to Purchaser's
counsel dated January 22, 2003.
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(c) Representations.
(i) Each Benefit Plan and its related trust intended to be
qualified and tax-exempt under the provisions of Code Sections 401(a) and 501(a)
(A) have been determined by the Internal Revenue Service to be so qualified and
tax-exempt, or timely application for such determination has been made, and (B)
to the knowledge of either Seller, is in compliance in all material respects
with applicable law.
(ii) None of the Benefit Plans provide for life insurance or
health benefits beyond the date of the participant's termination of employment
with the Sellers except as may be required under COBRA and maintained at the
expense of the participant or participant's beneficiary.
(iii) All wages, salaries and payroll Taxes with respect to any
of the Business Employees required to have been paid have been paid by the due
date thereof.
(iv) With respect to each individual set forth as an employee of
the Sellers on Schedule 2.8 (each a "Business Employee" and collectively,
"Business Employees"), Schedule 2.8 accurately sets forth, as of the date of
this Agreement, such Business Employee's (A) annual base salary, (B) job title,
(C) date of hire; (D) location; and (E) status (i.e., active, short term
disability, long term disability or leave of absence (specifying the kind of
absence and the terms relating thereto)).
2.9 Labor Relations.
(a) None of the Business Employees is covered by a collective
bargaining agreement to which either of the Sellers or any their Subsidiaries is
a party. To the knowledge of either Seller, there are no organizing activities
(including any demand for recognition or certification proceedings pending or
threatened in writing to be brought or filed with the National Labor Relations
Board or other labor relations tribunal) involving either Seller. To the
knowledge of either Seller, there are no strikes, work stoppages, slowdowns,
lockouts, unfair labor practice charges, grievances, complaints, arbitrations or
other material labor disputes pending or threatened in writing against or
involving either Seller.
(b) Except as set forth on Schedule 2.9, to the knowledge of either
Seller, there are no complaints, charges or claims against either Seller pending
or threatened in writing to be brought or filed, with any public or governmental
authority, arbitrator or court based on, arising out of, in connection with, or
otherwise relating to the service or termination of service by either Seller of
any individual with respect to the Transferred Business.
(c) As relates to each Business Employee, each Seller is in
compliance in all material respects with all laws and orders relating to the
employment of labor, including all such laws and orders relating to wages,
hours, collective bargaining, discrimination, civil rights, safety and health
workers' compensation and the collection and payment of withholding and/or
Social Security Taxes and similar Taxes.
2.10 Legal Compliance. Except with respect to (a) matters set forth on
Schedule 2.10, and (b) compliance with (x) Environmental Laws (as to which
certain representations and warranties are made pursuant to Section 2.12), (y)
Tobacco Laws (as to which certain
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representations and warranties are made pursuant to Section 2.11) and (z)
employment laws (as to which certain representations and warranties are made
pursuant to Section 2.9), the conduct of the Business by the Sellers is in
compliance with all laws, rules, regulations, ordinances, orders, judgments,
writs, injunctions, statutes and decrees thereunder of Governmental Authorities,
except where such instances of noncompliance would not reasonably be expected to
have a Business Material Adverse Effect or a material adverse effect on the
ability of the Sellers to enter into and perform their obligations under this
Agreement.
2.11 Tobacco Matters.
(a) The licenses, approvals, consents, franchises and other permits
described on Schedule 2.11(a) are in full force and effect, and such licenses,
approvals, consents, franchises and permits constitute all of the licenses,
approvals, consents, franchises and permits that are required under the Tobacco
Laws (other than the Qualifying Statutes) as of the date of this Agreement to
permit the Sellers to conduct the Business, as currently conducted, except as
would not reasonably be expected to have a Business Material Adverse Effect.
(b) Except as set forth on Schedule 2.11(b), (i) no written notices
of any violation or alleged violation of any Tobacco Law (other than the
Qualifying Statutes) relating to the operations or properties of either of the
Sellers (other than any such notice relating to the Excluded Assets) have been
received by either of the Sellers, (ii) the Sellers are in compliance with all
Tobacco Laws (other than the Qualifying Statutes) and (iii) there are no writs,
injunctions, decrees, orders or judgments outstanding, or any actions, suits,
claims, proceedings or, to the knowledge of the Sellers, investigations pending
or, to the knowledge of the Sellers, threatened, against either of the Sellers,
and, to the knowledge of the Sellers, there are no disputes involving either of
the Sellers, relating to compliance with any Tobacco Laws (other than the
Qualifying Statutes) (other than any such proceeding relating to the Excluded
Assets), except as would not reasonably be expected to have a Business Material
Adverse Effect.
(c) Except as set forth in Schedule 2.11(c), the Sellers have not
made any written Health Claims in or on any packaging, label, marketing or
promotional materials used or held for use by the Sellers in marketing
cigarettes under the Brands. For the purposes of this Section 2.11, the term
"Health Claims" means any claims that smoking cigarettes marketed by the Sellers
under the Brands is less injurious to human health than smoking other cigarette
brands.
(d) As of the date of this Agreement, the Sellers have delivered to
Purchaser a correct and complete copy of the current draft of the agreement to
be entered into among the Sellers and the other parties thereto with respect to
the Sellers' Escrow Obligations (the "Draft Settlement Agreement"). Except as
set forth in Schedule 2.11(d), as of the date of this Agreement the Sellers are
in compliance in all material respects with the Qualifying Statutes.
2.12 Environmental Matters. Except as set forth on Schedule 2.12, and
except as would not reasonably be expected to have a Business Material Adverse
Effect, with respect to the Business, (i) each of the Sellers is in compliance
with all Environmental Laws and (ii) neither of the Sellers has any liability
under any Environmental Law. Except as set forth on Schedule 2.12, (i) no
notices of any violation or alleged violation of any Environmental Law relating
to the operations or properties of either of the Sellers (other than any such
notice relating to activities at the Excluded Real Property) have been received
by either of the Sellers, (ii) there are no writs,
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injunctions, decrees, orders or judgments outstanding, or any actions, suits,
claims, proceedings or, to the knowledge of the Sellers, investigations pending
or, to the knowledge of the Sellers, threatened, against either of the Sellers
relating to compliance with any Environmental Law (other than any such
proceeding relating to the Excluded Assets), (iii) there have been no spills,
discharges or releases of Substances by the Sellers or any of their Affiliates
at the Transferred Real Property within the past three years of the date of this
Agreement that have had or would reasonably be expected to have a Business
Material Adverse Effect, and (iv) neither of the Sellers has received any
written notice that either of the Sellers is or may be, as a result of operating
the Business, a potentially responsible person or otherwise liable in connection
with any waste disposal site allegedly containing, or other location used for
the disposal of, any pollutants, contaminants, or hazardous or toxic materials,
wastes or chemicals.
2.13 Governmental Consents. Assuming the truth and completeness of the
representations and warranties of Purchaser contained in this Agreement, except
as set forth in Schedule 2.13, no consent, approval or authorization of, or
designation, declaration or filing with, any Governmental Authority is required
on the part of the Sellers with respect to the Sellers' execution or delivery of
this Agreement or the consummation of the transactions contemplated hereby,
except for (i) applicable requirements of the HSR Act, (ii) the filing with the
SEC of such reports under the Exchange Act as may be required in connection with
the transactions contemplated hereby, including, without limitation, the
approval by Parent's stockholders of the transactions contemplated hereby, and
(iii) such consents, approvals, authorizations, designations, declarations, and
filings the failure of which to obtain would not reasonably be expected to have
a Business Material Adverse Effect or a material adverse effect on the ability
of the Sellers to enter into and perform their obligations under this Agreement.
2.14 Licenses, Permits and Authorizations. All material licenses,
franchises and other permits of or with any Governmental Authority, whether
foreign, federal, state or local, held by the Sellers in connection with the
conduct of the Transferred Business (other than (i) those required under Tobacco
Laws, which are addressed in Section 2.11, or (ii) those required under
Environmental Laws, which are addressed in Section 2.12) are in full force and
effect, and such licenses, approvals, consents, franchises and permits
constitute all of the material licenses, approvals, consents, franchises and
permits necessary to permit the Sellers to conduct the Transferred Business, as
currently conducted.
2.15 Absence of Material Adverse Changes. Except as set forth on Schedule
2.15, from September 30, 2002 to the date of this Agreement, (i) there has not
occurred any Business Material Adverse Effect, (ii) the Sellers have conducted
the Business in the ordinary course of business consistent with past practice,
and (iii) without limiting the foregoing, neither of the Sellers has, in each
case only to the extent the Transferred Business is concerned:
(a) awarded or paid any bonuses to any Business Employee, or entered
into any employment, deferred compensation, severance or similar agreement (nor
amended any such agreement), nor agreed to increase the compensation payable or
to become payable by it to any such Business Employee, or agreed to increase the
coverage or benefits available under any severance pay, termination pay,
vacation pay, award, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with any such
Business Employee (in any case other than in the ordinary course and consistent
with past practice);
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(b) mortgaged or pledged any of the Assets, or sold, assigned,
transferred, conveyed, leased or otherwise disposed of any of the Assets except
in the ordinary course of business, and except with respect to obsolete or
worthless assets;
(c) made any capital expenditures in respect of the Business in
excess of $50,000 for any single expenditure or $100,000 in the aggregate, other
than in the ordinary course of business; or
(d) entered into any agreement or made any commitment to do any of
the foregoing.
2.16 Brokers' Fees. Except as set forth on Schedule 2.16, no broker,
finder, investment banker or other Person is entitled to any brokerage fee,
finders' fee or other commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by the Sellers or
any of their Affiliates.
2.17 Taxes.
(a) Except as set forth in Schedule 2.17, as of the date of this
Agreement:
(i) all Tax Returns required to be filed with any taxing
authority by or on behalf of the Sellers with respect to the Business or the
Assets have been timely filed; and
(ii) all Taxes due and payable by the Sellers with respect to
the Business or the Assets have been duly and timely paid.
(b) Except as set forth in Schedule 2.17, as of the date of this
Agreement:
(i) no tax deficiency for additional Taxes with respect to the
Business or the Assets has been assessed or asserted by any Taxing Authority
against either Seller;
(ii) there is not any audit, action or proceeding pending
against either Seller in respect of any Tax liabilities with respect to the
Business or the Assets; and
(iii) there is no Lien for any Tax upon any of the Assets except
Liens arising as a matter of law for current Taxes not yet due.
(c) Each Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party in connection
with the Business, and all Forms W-2 and 1099 required with respect thereto have
been properly completed and timely filed.
(d) Neither Seller has waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) No Asset is (A) property required to be treated as being owned by
another Person pursuant to the provisions of Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986, (B) "tax-exempt use property" within
the meaning of Section 168(h)(1) of the Code, (C) "tax-exempt
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bond financed property" within the meaning of Section 168(g) of the Code, (D)
subject to Section 168(g)(1)(A) of the Code, (E) "limited use property" within
the meaning of Rev. Proc. 76-30 or (F) subject to any provision of law
comparable to any of the provisions listed above.
(f) Neither Seller is a "foreign person" within the meaning of
Section 1445 of the Code.
2.18 Insurance. Schedule 2.18 contains a complete and correct list of all
material policies of property, fire and casualty, product liability, workers'
compensation and other forms of insurance owned or held by the Sellers covering
the Transferred Business.
2.19 Financial Statements; SEC Filings.
(a) The Sellers have made available to Purchaser (i) the audited
balance sheet of the Business as of December 31, 2001, and the related audited
income statement and statement of cash flows of the Business for the year ended
December 31, 2001, together with the report thereon of Aidman, Piser & Company,
P.A. and (ii) the unaudited balance sheet of the Business as at September 30,
2002 (the "Interim Balance Sheet") and the related unaudited statements of
income and cash flow for the nine months ended September 30, 2002, including, in
each case, the notes thereto. Except as set forth on Schedule 2.19, such
financial statements fairly present, in all material respects, the financial
position of the Business as of the date thereof and the results of operations of
the Business for the period indicated and have been prepared in accordance with
GAAP applied on a consistent basis throughout the period covered (except in each
case as stated in the applicable footnotes or auditor's report and except, in
the case of interim financial statements, for year-end adjustments and the
absence of notes).
(b) Neither of the Sellers has any liabilities or obligations which
would be required under GAAP to be reflected on a balance sheet of the Sellers
as of the date of this Agreement, except for liabilities and obligations (i)
reflected or reserved against in the Interim Balance Sheet, (ii) incurred or
arising in the ordinary course of business since September 30, 2002, (iii)
constituting Excluded Liabilities, (iv) incurred or arising other than in the
ordinary course of business since September 30, 2002 and not, individually or in
the aggregate, material, or (v) described on Schedule 2.19.
(c) As of their respective dates, Parent's annual report on Form 10-K
for the fiscal year ended December 31, 2001, and all required quarterly reports
on Form 10-Q and current reports on Form 8-K with the SEC since January 1, 2002
(other than the financial statements (including the notes thereto) filed as a
part thereof or incorporated by reference therein about which no representation
is made hereby) (the "Seller SEC Documents"), in so far as they relate to the
Assets or the Transferred Business, complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to such Seller SEC Documents, and none of the
Seller SEC Documents when filed contained any untrue statement of a material
fact or omitted to state a material fact, in either case only in so far as such
fact or omission relates to the Assets or the Transferred Business, required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
2.20 Inventory. Except as set forth on Schedule 2.20, the Transferred
Inventory, as of the date of this Agreement, taken as a whole, is in good,
usable and saleable condition (subject in
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the case of raw materials and work in progress, to the completion of the
production process) in quantities consistent with past practice.
2.21 Sellers Acknowledgement. EACH SELLER ACKNOWLEDGES THAT PURCHASER MAKES
NO REPRESENTATIONS OR WARRANTIES CONCERNING PURCHASER, ITS ASSETS OR ITS
BUSINESS OTHER THAN AS EXPRESSLY SET FORTH IN ARTICLE 3 HEREOF AND THAT
PURCHASER EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND WARRANTIES,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Sellers that, as of the date
of this Agreement:
3.1 Corporate Organization and Authority of Purchaser. Purchaser is duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Purchaser has the corporate power and authority to own or lease its
properties and to conduct its business as it is now being conducted, and
Purchaser has the corporate power and authority to enter into this Agreement and
to perform its obligations hereunder. Purchaser is duly licensed or qualified as
a foreign corporation and in good standing to do business in each jurisdiction
in which the ownership of its property or the character of its activities is
such as to require it to be so licensed or qualified, except where the failure
to be so licensed or qualified would not reasonably be expected to have a
material adverse effect on the business, assets, properties, liabilities,
results of operations or financial condition of Purchaser, taken as a whole (a
"Purchaser Material Adverse Effect"). The execution and delivery of this
Agreement by Purchaser and the consummation of the transactions contemplated
hereby have been duly and validly authorized and approved by the Board of
Directors of Purchaser, and no other corporate approval or proceeding on the
part of Purchaser is necessary to authorize this Agreement or the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Purchaser and, assuming due authorization, execution and delivery
by the Sellers, constitutes a legally valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless of whether
such enforceability is sought in a proceeding at law or in equity).
3.2 No Conflict. Except as set forth on Schedule 3.2, the execution and
delivery of this Agreement by Purchaser and the consummation of the transactions
contemplated hereby does not and compliance with the terms hereof does not and
will not (a) conflict with or result in any violation of any provision of, the
certificate of incorporation, bylaws or other organizational documents of
Purchaser or any of its Subsidiaries, (b) violate any order, writ, injunction,
decree, judgment, permit, license, ordinance, law, statute, rule or regulation
of any Governmental Authority applicable to the assets or business of Purchaser
or any of its Subsidiaries, or (c) result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both),
require the consent, authorization or approval of any Person or give rise to any
right of termination, amendment, cancellation, acceleration or loss of material
benefit under, or result in
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the creation of a Lien (other than any Permitted Liens) on any of the assets of
Purchaser or any of its Subsidiaries pursuant to any of the terms, conditions or
provisions of any Contract, instrument or other obligation to which Purchaser or
any of its Subsidiaries is bound or by which any of the assets of Purchaser or
any of its Subsidiaries may be bound, except to the extent that the occurrence
of any of the foregoing in clauses (b) or (c) would not, individually or in the
aggregate, reasonably be expected to have a Purchaser Material Adverse Effect or
a material adverse effect on the ability of Purchaser to enter into and perform
its obligations under this Agreement.
3.3 SEC Filings. Purchaser has filed all required reports, schedules,
forms, statements and other documents (including exhibits and all other
information incorporated therein) with the SEC since January 1, 2000 (the
"Purchaser SEC Documents"). As of their respective dates, the Purchaser SEC
Documents (including the financial statements filed as a part thereof or
incorporated by reference therein) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Purchaser SEC Documents, and none of the Purchaser SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Purchaser and its subsidiaries included
in the Purchaser SEC Documents comply as to form, as of their respective dates
of filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of
Purchaser and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal recurring
year-end audit adjustments). Purchaser has no liabilities or obligations which
would be required under GAAP to be reflected on a balance sheet of the Sellers
as of the date of this Agreement, except for liabilities and obligations (i)
reflected or reserved against in the unaudited balance sheet of Purchaser
contained in its Form 10-Q for the quarter ended September 30, 2002, (ii)
incurred or arising in the ordinary course of business since September 30, 2002,
(iii) incurred or arising other than in the ordinary course of business since
September 30, 2002 and not individually or in the aggregate material, or (iv)
described on Schedule 3.3.
3.4 Litigation and Proceedings. Except as set forth on Schedule 3.4, there
are no lawsuits, actions, suits, claims, investigations, or other proceedings at
law or in equity, or, to the knowledge of Purchaser, investigations, before or
by any court or Governmental Authority or before any arbitrator pending or, to
the knowledge of Purchaser, threatened, against Purchaser, other than any such
proceeding which would not reasonably be expected to have a material adverse
effect on the ability of Purchaser to enter into and perform its obligations
under this Agreement. Except as set forth on Schedule 3.4, there is no
unsatisfied judgment, order or decree requiring payment of monetary damage or
any open injunction binding upon Purchaser that would reasonably be expected to
have a Purchaser Material Adverse Effect or a material adverse effect on the
ability of Purchaser to enter into and perform its obligations under this
Agreement.
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3.5 Legal Compliance. Except with respect to matters set forth on Schedule
3.5, Purchaser is in compliance with all laws, rules, regulations, ordinances,
orders, judgments, writs, injunctions, statutes and decrees thereunder of
Governmental Authorities (and all agencies thereof), except where such instances
of noncompliance would not reasonably be expected to have a Purchaser Material
Adverse Effect or a material adverse effect on the ability of Purchaser to enter
into and perform its obligations under this Agreement.
3.6 Governmental Consents. Assuming the truth and completeness of the
representations and warranties of each of the Sellers contained in this
Agreement, no consent, approval or authorization of, or designation, declaration
or filing with, any Governmental Authority is required on the part of Purchaser
with respect to Purchaser's execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) applicable
requirements of the HSR Act, (ii) the filing with the SEC of such reports under
the Exchange Act as may be required in connection with the transactions
contemplated hereby, and (iii) such consents, approvals, authorizations,
designations, declarations, and filings the failure of which to obtain would not
reasonably be expected to have a Purchaser Material Adverse Effect or a material
adverse effect on the ability of Purchaser to enter into and perform its
obligations under this Agreement.
3.7 Brokers' Fees. No broker, finder, investment banker or other Person is
entitled to any brokerage fee, finders' fee or other commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by Purchaser or any of its Affiliates.
3.8 Purchaser Acknowledgment.
(a) PURCHASER ACKNOWLEDGES THAT THE SELLERS MAKE NO REPRESENTATIONS
OR WARRANTIES CONCERNING THE SELLERS, THEIR RESPECTIVE ASSETS (INCLUDING,
WITHOUT LIMITATION, INTELLECTUAL PROPERTY) OR THE BUSINESS OTHER THAN AS
EXPRESSLY SET FORTH IN ARTICLE 2 HEREOF AND THAT THE SELLERS EXPRESSLY DISCLAIM
ALL OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(b) Purchaser acknowledges and agrees that (i) it has made its own
inquiry and investigation into, and, based thereon, has formed an independent
judgment concerning the Business, and (ii) it has been furnished with or given
adequate access to such information about the Business as it has requested.
ARTICLE 4.
COVENANTS RELATING TO THE CONDUCT OF BUSINESS
4.1 Conduct of Transferred Business by the Sellers. From the date hereof
through the Closing, each of the Sellers shall, except as otherwise contemplated
by this Agreement, as set forth in Schedule 4.1, or as consented to by Purchaser
in writing (which consent will not unreasonably be withheld or delayed), use
commercially reasonable efforts to: (i) operate its portion of the Transferred
Business in the ordinary course and substantially in accordance with past
practice, (ii) preserve intact all rights, privileges, franchises and other
authority adequate or necessary for the conduct of the Transferred Business as
currently conducted, (iii) keep available
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the services of the key Business Employees, and (iv) maintain relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with the Transferred Business consistent with past practice.
Without limiting the generality of the foregoing, unless consented to by
Purchaser in writing (which consent shall not unreasonably be withheld or
delayed), each of the Sellers shall not, and shall cause their respective
Affiliates not to, with respect to the Transferred Business:
(a) enter into, extend, materially modify, terminate or renew any
material Transferred Contract of the nature described in Section 2.4(a), except
in the ordinary course of business;
(b) sell, assign, transfer, convey, lease or otherwise dispose of any
Assets, except in the ordinary course of business, and except for the
disposition of obsolete or worthless assets;
(c) except as otherwise required by law or consistent with past
practices, take any action to (i) increase the wages, bonus, commission,
severance, profit sharing, retirement, deferred compensation, insurance or other
compensation or benefits of any Business Employee; (ii) amend any Benefit Plan
to increase benefits; (iii) establish any new compensation or benefit plan or
arrangements with respect to any Business Employee; (iv) enter into any
employment, consulting or severance or termination pay agreement with respect to
any Business Employee; (v) grant any severance or termination pay (otherwise
than pursuant to policies or agreements of either of the Sellers in effect on
the date hereof and as disclosed in Schedule 2.8) to any Business Employee which
will become due and payable from Purchaser or any of its Subsidiaries on or
after the Closing Date; (vi) promote any Business Employee; or (vii) make any
change in the key management structure of the Transferred Business, including,
without limitation, the hiring of additional officers or the terminations of
existing officers;
(d) permit any Lien to encumber any of the Assets, other than
Permitted Liens;
(e) waive or relinquish any material right or claim with respect to
the Assets, other than in the ordinary course of business or consistent with
past practices;
(f) fail to maintain its books, accounts and records consistent with
past practices;
(g) extend credit in the sale of products, collection of receivables
or otherwise, other than in the ordinary course of business;
(h) enter into any commitment for capital expenditures (to the extent
it represents an Assumed Liability), except for expenditures not exceeding
$50,000 per project or $100,000 in the aggregate for all projects; or
(i) enter into any agreement, or otherwise become obligated, to do any
action prohibited hereunder.
4.2 No Solicitations.
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(a) Except as permitted by this Agreement, neither Seller shall
authorize any of its respective officers, directors or employees, or any
financial advisor, attorney, accountant or other representative retained by any
of them, to (i) solicit, initiate or encourage (including by way of furnishing
material, nonpublic information regarding the Assets or the Transferred
Business) the making or submission of any Acquisition Proposal, or (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal; provided, however, that, at any time prior to the approval of the
transactions contemplated by this Agreement by the holders of Parent Common
Stock, if either of the Sellers receives an inquiry that did not result from a
breach of this Section 4.2(a) and (x) Parent determines in good faith, after
having considered the advice of outside counsel, that such inquiry could
reasonably likely result in a Superior Proposal and (y) Parent receives from
such Person an executed confidentiality agreement containing customary
limitations (in any event at least as stringent as those contained in the
Confidentiality Agreement between Purchaser and Parent) on the use and
disclosure of all information furnished to such Person by or on behalf of Parent
or Opco, then the Sellers may furnish information, including, without
limitation, non-public information, with respect to the Sellers, the Business
and the Assets to the person who made such inquiry and the Sellers may
participate in negotiations regarding such Acquisition Proposal.
(b) Parent shall promptly (but in any event within two Business
Days) notify Purchaser orally and in writing of any Acquisition Proposal
(including the identity of the Person making such Acquisition Proposal and the
material terms of any such Acquisition Proposal) that is made or submitted by
any Person. Parent shall thereafter inform Purchaser on a reasonably prompt
basis of any material changes to the terms and conditions of such Acquisition
Proposal, and shall reasonably promptly give Purchaser a copy of any nonpublic
information regarding the Transferred Business delivered to such Person to the
extent not previously delivered to Purchaser or its representatives.
(c) Promptly after the execution and delivery of this Agreement,
the Sellers will, and will request their respective Subsidiaries and Affiliates,
officers, directors, employees, investment bankers, attorneys, accountants and
other agents to, cease and terminate any existing discussions or negotiations
with any parties conducted heretofore with respect to any possible Acquisition
Proposal, subject in any case to the rights of the Sellers under Section 4.2(a).
Parent agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this 4.2.
(d) Parent's Board of Directors may withdraw or modify, in a
manner adverse to Purchaser, its approval or recommendation of the transactions
contemplated by this Agreement only in the event Parent's Board of Directors (i)
receives a Superior Proposal, and (ii) determines in good faith that the
transactions contemplated by this Agreement are no longer in the best interests
of Parent's stockholders.
(e) Nothing contained in this Section 4.2 shall prohibit Parent
from at any time disclosing to its stockholders a position contemplated by Rule
14d-9 or Rule 14e-2 promulgated under the Exchange Act or from making any
required disclosure to Parent's stockholders.
(f) "Acquisition Proposal" means, other than the transactions
contemplated by this Agreement, any proposed or actual (i) sale, lease or other
disposition of any assets of the
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Sellers representing 20% or more of the Assets or (ii) liquidation, dissolution,
or other similar type of transaction with respect to either of the Sellers.
(g) "Superior Proposal" means any proposed or actual (i)
Acquisition Proposal, (ii) merger, consolidation or similar transaction
involving either of the Sellers, (iii) issue, sale or other disposition by
either Seller of (including by way of merger, consolidation, share exchange or
similar transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 50% or more of the
votes associated with the outstanding securities of either Seller, (iv) tender
offer or exchange offer in which any third party would acquire beneficial
ownership (as such term is defined in Section 13d-3 under the Exchange Act), or
the right to acquire beneficial ownership, of 50% or more of the outstanding
shares of either Seller's common stock, (v) recapitalization, restructuring, or
other similar type of transaction with respect to either of the Sellers, or (vi)
transaction that is similar in form, substance or purpose to any of the
foregoing transactions, in any case that Parent's Board of Directors determines
in good faith, after consultation with its financial adviser and outside legal
counsel, is likely to be consummated and would, if consummated, result in a
transaction that is more favorable from a financial point of view to Parent's
stockholders than the transactions contemplated by this Agreement.
ARTICLE 5.
ADDITIONAL AGREEMENTS
5.1 Parent Stockholder Meeting; Proxy Statement.
(a) Unless the holders of the requisite number of shares of
Parent Common Stock approve the transactions contemplated by this Agreement by
written consent ("Stockholders' Written Consent"), Parent shall, to the extent
permitted under Delaware law, take all action reasonably necessary in accordance
with applicable law and Parent's certificate of incorporation and bylaws to duly
call, give notice of, convene and hold a meeting of its stockholders (the
"Stockholders Meeting") as promptly as practicable after the date hereof for the
purpose of, among other things, considering and taking action, as necessary,
upon the transactions contemplated by this Agreement. In the event the
Stockholders' Written Consent is obtained, Parent shall promptly, and in any
event within 10 Business Days after the date of this Agreement, give, or cause
to be given, to holders of Parent Common Stock the notice required under Section
228(e) of the Delaware General Corporation Law.
(b) As promptly as practicable after the date hereof, Parent
shall take, or cause to be taken, all actions, and do, or cause to be done, all
things, reasonably necessary, proper or advisable to (i) prepare and file with
the SEC any documents or materials, including, but not limited to, the proxy
statement and related materials for the Stockholders Meeting, or, if the
Stockholders' Written Consent has been obtained, the information statement
relating thereto, as the case may be (the "Proxy Materials") and (ii) have the
Proxy Materials cleared by the SEC. Subject to Section 4.2, the Proxy Materials
(if prepared for the Stockholders Meeting) shall contain the recommendation of
Parent's Board of Directors that stockholders of Parent vote in favor of the
approval of the transactions contemplated by this Agreement. Parent shall notify
Purchaser promptly of the receipt of any comments on, or any requests for
amendments or supplements to, the Proxy Materials by the SEC, and Parent shall
supply Purchaser with copies of all written correspondence between Parent and
its representatives, on the one hand, and the SEC or members of its staff, on
the other, with respect to the Proxy Materials. Parent shall use
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its reasonable best efforts to respond promptly to any comments made by the SEC
with respect to the Proxy Materials. Parent and Purchaser shall cooperate with
each other in preparing the Proxy Materials, and Parent and Purchaser shall each
use its reasonable best efforts to obtain any consents required to be included
in the Proxy Materials. Purchaser shall provide any information Parent
reasonably requests for inclusion in the Proxy Materials. Parent and Purchaser
each agrees promptly to correct any information provided by it for use in the
Proxy Materials if and to the extent that such information shall have become
false or misleading in any material respect, and Parent further agrees to take
all steps necessary to cause the Proxy Materials, as so corrected, to be filed
with the SEC and to be disseminated promptly to holders of shares of Parent
Common Stock, in each case as and to the extent required by applicable law.
(c) Parent agrees that the information contained in the Proxy
Materials (other than information with respect to Purchaser or any of its
Affiliates, which shall have been supplied in writing by them or any of their
authorized representatives expressly for use in or in preparing the Proxy
Materials) will not, at the date the Proxy Materials are filed with the SEC or
at the date of mailing to Parent's stockholders or at the date of the
Stockholders Meeting, contain any statement that, at the time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, and will not omit to state any material fact required to be
stated therein or necessary to make any statement therein of a material fact, in
the light of the circumstances under which it is made, not misleading or to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Stockholders Meeting. The Proxy Materials will
comply as to form in all material respects with the Exchange Act and the rules
and regulations of the SEC thereunder.
(d) Purchaser agrees that the information provided by it for
inclusion in the Proxy Materials will not, at the date of mailing to Parent's
stockholders or at the date of the Stockholders Meeting, contain any statement
that, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, and will not omit to
state any material fact required to be stated therein or necessary to make any
statement therein of a material fact, in the light of the circumstances under
which it is made, not misleading or to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meeting.
5.2 Support of Transaction. Purchaser and each of the Sellers shall
(i) use its reasonable best efforts to assemble, prepare and file any
information (and, as needed, to supplement such information) as may be
reasonably necessary to obtain as promptly as practicable all governmental and
regulatory consents required to be obtained in connection with the transactions
contemplated hereby, (ii) use its reasonable best efforts to obtain all material
consents and approvals of third parties that any of Purchaser, the Sellers, or
their respective Affiliates are required to obtain in order to consummate the
transactions contemplated hereby, and (iii) take such other action as may
reasonably be necessary or as another party may reasonably request to satisfy
the conditions of Article 6 or otherwise to comply with this Agreement,
provided, however, that the Sellers' obligations with respect to Purchaser's
financing of the transactions contemplated by this Agreement shall be limited to
those described in Section 5.9.
5.3 Inspection. Subject to that certain letter agreement, dated as of
May 18, 2002, between Purchaser and Parent (as amended, the "Confidentiality
Agreement"), each of the Sellers and Purchaser shall, and shall cause their
respective subsidiaries, to afford to the other
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parties and their respective accountants, counsel and other representatives
reasonable access, during normal business hours, to the respective properties,
books, contracts, commitments, tax returns, records and appropriate officers and
employees of Purchaser and its subsidiaries or the Transferred Business, as the
case may be, and shall furnish such representatives with all financial and
operating data and other information concerning the affairs of Purchaser and it
subsidiaries or the Transferred Business, as the case may be, that they may
reasonably request.
5.4 HSR Act.
(a) In connection with the transactions contemplated by this
Agreement, each of Purchaser and Parent (and, to the extent required, its
respective Affiliates) shall comply promptly, but in any event within ten (10)
Business Days of the date of this Agreement, with the notification and reporting
requirements of the HSR Act and use its reasonable best efforts to obtain early
termination of the waiting period under the HSR Act. Each of Purchaser and
Parent shall substantially comply with any additional requests for information,
including requests for production of documents and production of witnesses for
interviews or depositions, by any Antitrust Authorities.
(b) Purchaser shall use its reasonable best efforts, and the
Sellers shall cooperate fully with Purchaser, to prevent the entry in any Action
brought by an Antitrust Authority or any other Person of any Governmental Order
which would prohibit, make unlawful or delay the consummation of the
transactions contemplated by this Agreement.
5.5 Update Information. Not earlier than ten (10) and not less than
three (3) days before the date scheduled for Closing, the Sellers shall correct
and supplement in writing any information furnished on the Schedules that, to
the knowledge of the Sellers, is incorrect or incomplete, and shall promptly
furnish such corrected and supplemented information to the other, so that such
information shall be correct and complete to the knowledge of such party at the
time such updated information is so provided. Thereafter, prior to the Closing,
the Sellers shall notify Purchaser in writing of any changes or supplements to
the updated information needed, to the knowledge of Sellers, to make such
information correct and complete to the knowledge of such party as of the
Closing. It is agreed that the furnishing of such corrected and supplemental
information, in and of itself, shall not create any presumption that such
information constitutes or evidences the existence of a material change or any
breach or violation by Seller of any provision of this Agreement. For purposes
of determining the fulfillment of the conditions precedent set forth in Article
6, no such amendment or supplement shall be given effect; for all other
purposes, including, without limitation, Article 8, each such amendment or
supplement shall be given full effect.
5.6 Certain Employee Benefits Matters.
(a) All of the Business Employees who are actively employed
(including those on vacation) on the Closing Date shall be offered employment on
an "at will" basis with the Purchaser on such date, and such individuals who
accept such offer on such date shall be referred to as "Transferred Employees."
Each such offer of employment shall be (i) at the same salary or hourly wage
rate and position in effect immediately prior to the Closing Date and (ii) at
the same location or within 20 miles from the location of such employment
immediately prior to the Closing Date. Purchaser shall also offer employment on
an "at will" basis to each Business Employee who is temporarily absent from
active employment on the Closing Date upon
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termination of such temporary absence within six months following the Closing
Date, provided that such individual is able to perform the essential functions
of the position he or she previously held with the Sellers prior to such
absence, and any such individual shall be treated as a "Transferred Employee"
from and after his or her date of employment with Purchaser. For a period of 12
months following the Closing Date, Purchaser shall provide benefits to the
Business Employees that, in the aggregate, (i) are substantially equivalent to
those provided by Purchaser to its other similarly situated employees as of the
Closing Date and (ii) are no less favorable than those provided by the Sellers
and their Subsidiaries under the Benefit Plans (other than benefits relating to
stock options or other equity-based compensation) to such Business Employees
immediately prior to the Closing Date. Purchaser shall cause Purchaser's
employee benefit plans and arrangements (including, but not limited to, all
"employee benefit plans" within the meaning of Section 3(3) of ERISA and all
plans, programs, policies and employee fringe benefit programs, including
vacation policies), to the extent Purchaser makes them available to Business
Employees, to recognize, solely for the purposes of determining the vesting of
benefits and participation eligibility (but not for benefit accrual), all
service by Transferred Employees with the Sellers, including service with
predecessor employers, to the extent that such service was recognized by the
analogous benefit plans of Purchaser, provided that such recognition does not
result in any duplication of benefits. Individuals who have terminated
employment with Sellers prior to the Closing Date and are subsequently hired by
Purchaser and its Affiliates will not be entitled to any service recognition
under this paragraph. Transferred Employees shall also be given credit for any
deductible, co-payment amounts or out-of-pocket expenses paid in respect of the
plan year in which the Closing occurs, to the extent that, following the
Closing, they participate in any corresponding plan maintained or sponsored by
Purchaser for which deductibles or co-payments are required.
(b) Purchaser agrees that any pre-existing condition exclusions
or waiting periods or evidence of insurability requirements imposed under
Purchaser's welfare benefit plans will be waived with respect to any Transferred
Employee and his or her covered dependents to the same extent that such
exclusions, waiting periods or evidence of insurability did not preclude his or
her participation in the equivalent plan of the Sellers.
(c) Sellers and their ERISA Affiliates shall be exclusively
responsible for complying with COBRA with respect to their employees with
respect to any "qualifying event" as such term is defined in COBRA, occurring on
or prior to the Closing Date.
(d) Seller agrees to cause the accrued benefits and account
balances of Transferred Employees under the Star Tobacco 401(k) Plan ("Sellers'
401(k) Plan") to be 100% vested effective as of the Closing Date.
(e) Effective as of the Closing Date, Purchaser shall establish
for the benefit of the Transferred Employees who, immediately prior to the
Closing Date were participants in the Sellers' 401(k) Plan, a tax-qualified
defined contribution plan or shall designate a pre-existing tax-qualified
defined contribution plan, (in either case, "Purchaser's Plan"), which shall
qualify as a cash or deferred plan under Section 401(k) of the Code and shall
provide benefits only with respect to service after the Closing Date. Service
with Seller or any prior employer recognized under the Sellers' 401(k) Plan
shall be recognized for eligibility, vesting and all other purposes under
Purchaser's Plan. As soon as practicable after Purchaser's Plan is determined to
be a tax qualified plan, Transferred Employees shall be permitted to make a
rollover contribution from the Sellers' 401(k) Plan to Purchaser's Plan.
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(f) Purchaser shall be liable for all obligations with respect to
claims of Transferred Employees for (i) workers compensation for incidents
occurring on or after the Closing Date and (ii) for claims of such Transferred
Employees that arise from or relate to facts, circumstances or conduct that
occurred or are deemed to occur on or after the Closing Date. With respect to
Transferred Employees, (i) a claim for health benefits (including, without
limitation, claims for medical, prescription drug and dental expenses) will be
deemed to have been incurred on the date on which the related medical service or
material was rendered to or received by the Transferred Employee claiming such
benefit, (ii) a claim for sickness or disability benefits based on an injury or
illness occurring prior to the Closing Date will be deemed to have been incurred
prior to the Closing Date, and (iii) in the case of any claim for benefits other
than health benefits and sickness and disability benefits (e.g., life insurance
benefits), a claim will be deemed to have been incurred upon the occurrence of
the event giving rise to such claims.
(g) Prior to Closing, and in any event within 90 days of the date of
this Agreement, Purchaser shall, after consultation with the Sellers, establish
a Retention Plan (the "Retention Plan") in an amount equal to $2,000,000 in the
aggregate for payment to the Transferred Employees (i) who are employed by
Purchaser or its Affiliates on the first anniversary of the Closing Date or (ii)
whose employment with Purchaser or its Affiliates has been terminated by
Purchaser or its Affiliates other than for Cause prior to the first anniversary
of the Closing Date. The aggregate of $2,000,000 of payments shall be allocated
among the Transferred Employees in the manner set forth in the Retention Plan,
except that in the event one or more Transferred Employees terminates their
employment prior to the first anniversary of the Closing Date or the employment
of one or more Transferred Employees is terminated by Purchaser or its
Affiliates for Cause prior to such first anniversary, the $2,000,000 initially
allocated under the Retention Plan shall be reduced by the amounts allocated to
such Transferred Employees. As promptly as practicable after establishing the
Retention Plan, and in any event within 90 days of the date of this Agreement,
Purchaser shall deliver to Parent a copy of the Retention Plan and the Sellers
shall be entitled to disclose to the Transferred Employees the terms of the
Retention Plan. For purposes of the Retention Plan, "Cause" shall mean the
termination of the employee's employment by reason of any one or more of the
following: (i) failure, in the reasonable judgment of Purchaser, of the employee
to satisfactorily perform the employee's duties; (ii) fraud or dishonesty in the
performance of the employee's duties; or (iii) a breach of any of the policies
of "General Conduct" contained in the Employee Handbook of Star Tobacco &
Pharmaceuticals, Inc. to the extent such breach would be grounds for a
termination for cause under such Employee Handbook. A failure of an employee to
relocate the place of his employment beyond 20 miles from the current location
of such employment at the request of Purchaser will not constitute "Cause" for
termination of employment.
(h) Nothing contained in this Agreement shall confer upon any
Transferred Employee any rights with respect to continuance of employment by
Purchaser, nor shall any provision of this Agreement create any third party
beneficiary rights (other than with respect to the Retention Plan) in any
Transferred Employee, any beneficiary or dependents thereof, or any collective
bargaining representative thereof. Subject to applicable laws, Purchaser shall
have the right to dismiss any or all Transferred Employees at any time, with or
without cause, and to change the terms and conditions of their employment
(including compensation and employee benefits provided to them).
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(i) Pursuant to the "Alternative Procedure" provided in section 5 of
Revenue Procedure 96-60, 1996-2 C.B. 399, (i) Purchaser and Sellers shall report
on a predecessor/successor basis as set forth therein, (ii) Sellers will be
relieved from filing a Form W-2 with respect to the Transferred Employees who
accept Buyer's offer of employment and (iii) Purchaser will undertake to file
(or cause to be filed) a Form W-2 for each such employee for the year that
includes the Closing Date (including the portion of such year that such employee
was employed by Seller). Sellers will provide Purchaser on a timely basis with
all payroll and employment-related information with respect to each such
employee.
5.7 Escrow Obligations.
(a) On or prior to the Termination Date, the Sellers shall use
reasonable best efforts to satisfy the condition set forth in Section 6.2(h).
For the purposes of this Section 5.7(a), "reasonable best efforts" shall include
payment of any and all amounts into the Sellers' escrow accounts maintained in
accordance with the Qualifying Statutes, and any other payments required under
the Qualifying Statutes, as shall be necessary, as determined by the applicable
states or other applicable Governmental Authority, to cause the Sellers to be in
compliance with the Qualifying Statutes, including, without limitation, using or
directing the use of proceeds from the transactions contemplated hereby for such
purpose. Notwithstanding anything to the contrary in this Agreement, the Sellers
shall not have any obligation under this Agreement to agree with any MSA States
to take any action, or make any commitment, other than with respect to the
payment of cash into the Sellers' escrow accounts maintained in accordance with
the Qualifying Statutes.
(b) The Sellers shall provide to Purchaser, at least two Business
Days prior to the Closing Date: (i) their good faith estimate, which shall be
based on the Sellers' shipping records of direct sales into the MSA States and
shall be in form and substance reasonably satisfactory to Purchaser, of their
Escrow Obligations with respect to the number of units of Brand cigarettes tax
stamped in each MSA State during the Closing Year prior to and including the
Closing Date and (ii) written instructions to Purchaser to direct a portion of
the Purchase Price equal to the aggregate amount of such Escrow Obligations into
an escrow account established pursuant to an escrow agreement, in the form of
Annex P, among the Escrow Agent, the Sellers and Purchaser (the "Post-Closing
Escrow Agreement"), which the Sellers and Purchaser each agree to execute and
deliver to the other parties hereto on or prior to the Closing Date. The Sellers
and Purchaser shall, upon determination of the Sellers' Closing Year Escrow
Obligation for each MSA State in accordance with this Section 5.7, cooperate to
cause the Escrow Agent to promptly deliver to each MSA State, to the extent of
the funds remaining in the escrow account maintained in accordance with the
Post-Closing Escrow Agreement, the funds necessary to satisfy the Sellers'
Closing Year Escrow Obligation for such MSA State. Purchaser shall cooperate
with the Sellers to cause the Escrow Agent promptly to release to the Sellers
any amounts remaining in such escrow account after the Sellers have satisfied
(including by payments from such escrow account) the Sellers' Closing Year
Escrow Obligation for each MSA State.
(c) At least ten days prior to the anticipated Closing Date, the
Sellers shall send to each distributor to whom the Sellers have sold cigarette
products since January 1, 2003 a written notice in such form approved by
Purchaser, such approval not unreasonably to be withheld or delayed. Such
written notice shall (i) inform such distributor of the sale of the
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Assets contemplated by this Agreement and the anticipated Closing Date and (ii)
request that, after the Closing Date, each such distributor identify Purchaser,
rather than the Sellers, as the manufacturer of cigarettes sold under the Brands
after the Closing Date. Promptly following the Closing Date (but not later than
five Business Days thereafter), the Sellers shall send to each such distributor
a further written notice, which shall (i) inform such distributor of the Closing
Date and (ii) reiterate the request referred to in clause (ii) of the
immediately preceding sentence.
(d) Promptly following the Closing Date, the Sellers shall notify the
tobacco enforcement section (or comparable department) of the office of the
Attorney General (or other applicable regulatory office) for each State and the
District of Columbia party to the Master Settlement Agreement (each such State
and the District of Columbia, an "MSA State") of the Closing and the transfer of
the Transferred Business to Purchaser effective the Closing Date. Such notice
shall state that the Sellers ceased manufacturing cigarettes as of the Closing
Date and shall request that the MSA State confirm to the Sellers the number of
units of Brand cigarettes that were tax stamped in such MSA State from the
period beginning on January 1 of the year in which the Closing occurs (the
"Closing Year") and ending on the last calendar day of the month in which the
Closing occurs (such period the "MSA Cut-off Period" and such number of units
tax stamped by such MSA State during the MSA Cut-off Period, the "Cut-off Period
Data").
(e) The Sellers and Purchaser each covenant and agree to satisfy all
Escrow Obligations for sales of Brand cigarettes during the Closing Year as
provided in the Qualifying Statutes. Notwithstanding the foregoing or any
assertion by an MSA State to the contrary, subject to Section 5.7(i), the
parties agree that, as between the Sellers and Purchaser, the Sellers' Escrow
Obligations for the sale of Brand cigarettes in any MSA State during the Closing
Year (for each such MSA State, "Sellers' Closing Year Escrow Obligation") shall
be:
(i) with respect to any MSA State providing Cut-off Period
Data, the escrow deposits required for the sale of (i) the number of units of
Brand cigarettes tax stamped in such MSA State during the Closing Year prior to
the month in which the Closing occurs plus (ii) the Sellers' Closing Month
Units.
(ii) with respect to any other MSA State, the escrow deposits
required for the sale of (i) the number of units of Brand cigarettes sold by the
Sellers directly into such MSA State during the MSA Cut-off Period plus (ii)
Sellers' Allocable Portion of such MSA State's Total Asserted Indirect Sales.
(f) The Sellers' obligation to make the Sellers' Closing Year Escrow
Obligations shall be deemed to be an Excluded Liability. The Sellers will use
reasonable best efforts to satisfy the Sellers' Closing Year Escrow Obligations
on or prior to April 1, 2004 and will reasonably promptly notify Purchaser of
the amounts deposited with respect to each MSA State. As between the Sellers and
Purchaser, other than the Sellers' Closing Year Escrow Obligations, Purchaser
shall be responsible for all Escrow Obligations related to the sale of
cigarettes under the Brands during and after the Closing Year, and such Escrow
Obligations shall be deemed to be Assumed Liabilities.
(g) Promptly upon receipt of Cut-off Period Data from any MSA State,
the Sellers shall notify the tobacco enforcement section (or comparable
department) of the office of Attorney General for such MSA State of Sellers'
intention to make escrow deposits for sale of
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the Brand cigarettes by the Sellers in such MSA State during the Closing Year
equal to the Sellers' Closing Year Escrow Obligation for such MSA State and
shall request that such MSA State confirm the sufficiency of such escrow
deposits. On or prior to April 1, 2004, the Sellers shall notify the office of
the Attorney General of each MSA State not providing Cut-off Period Data of the
Sellers' calculation of the Sellers' Closing Year Escrow Obligation with respect
to such MSA State and of Sellers' intention to make escrow deposits of such
amount for sale of the Brand cigarettes by the Sellers in such MSA States during
the Closing Year and shall request that such MSA State confirm the sufficiency
of such escrow deposit.
(h) Subject to Section 5.7(i), in the event that any MSA State shall
assert that the Sellers' Escrow Obligations for Brand cigarettes sold in such
MSA State during the Closing Year (such asserted amount, an "Asserted Escrow
Obligation") is different than the Sellers' Closing Year Escrow Obligation, the
parties agree to cooperate in good faith to seek to convince such MSA State to
accept as sufficient the Sellers' Closing Year Escrow Obligation with respect to
such MSA State. If such efforts are unsuccessful and the amount of the escrow
deposit that the Sellers are required to make for such MSA State exceeds the
Sellers' Closing Year Escrow Obligation for such MSA State, then such excess
amount will represent an Assumed Liability and Purchaser shall promptly pay such
excess amount into the escrow account maintained by the Sellers with respect to
such MSA State. If such efforts are unsuccessful and the amount of the escrow
deposit that the Sellers are required to make for such MSA State is less than
the Sellers' Closing Year Escrow Obligation for such MSA State, then the amount
of such deficit will represent an Excluded Liability and the Sellers shall
promptly pay such excess amount into the escrow account maintained by Purchaser
with respect to such MSA State.
(i) Notwithstanding anything to the contrary in this Agreement, if
the Sellers enter into a binding agreement with any MSA State pursuant to which
the Sellers' Escrow Obligations for the sale of Brand cigarettes in such MSA
State during the Closing Year are released or otherwise determined to be an
amount less than the amount determined pursuant to Section 5.7(e), and such
release or determination is effective and not subject to any pre-Closing or
post-Closing conditions, then for all purposes of this Agreement the Sellers'
Closing Year Escrow Obligation for each such MSA State shall be deemed to be the
amount owed by the Sellers to such MSA State under such agreement between the
Sellers and such MSA State.
(j) Definitions. The following terms, when used in this Section 5.7,
shall have the following meanings, and any of these terms may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference:
(i) "Sellers' Allocable Portion" means the ratio of the
Sellers' Closing Year Production to the Total Closing Year Production.
(ii) "Sellers' Closing Year Production" means the total number
of units of Brand cigarettes removed by the Sellers from bond during the Closing
Year, according to applicable BATF records.
(iii) "Total Closing Year Production" means the sum of (i) the
total number of units of Brand cigarettes removed by Purchaser from bond during
the Closing Year, according to applicable BATF records, plus (ii) the Sellers'
Closing Year Production.
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(iv) "Sellers' Closing Month Units" with respect to any MSA
State means the number of units of Brand cigarettes tax stamped in any such MSA
State during the calendar month in which the Closing occurs multiplied by a
fraction the numerator of which is the number of days from the beginning of the
Closing Month through and including the Closing Date and the denominator of
which is the number of days in the Closing Month.
(v) "Total Asserted Indirect Sales" means, with respect to any
MSA State, the total number of aggregate units of Brand cigarettes asserted by
such MSA State to have been sold in such MSA State during the Closing Year minus
the aggregate number of units of Brand cigarettes sold by the Sellers and
Purchaser directly into such MSA State during the Closing Year.
5.8 Cooperation Regarding Packaging. Purchaser and the Sellers shall use
reasonable best efforts to ensure that, as promptly as practicable after the
Closing Date, but in any event within three months after the Closing Date, all
packaging of product sold in the Transferred Business refers only to Purchaser
and its BATF permit numbers, and not to either of the Sellers or any BATF permit
that they hold or any Excluded Intellectual Property. Without limiting the
foregoing, Purchaser and the Sellers shall cooperate in good faith in their
communications with BATF with respect to the transition of packaging materials
used in the Transferred Business. So long as Purchaser is complying with its
obligations under this Section 5.8, Purchaser shall be permitted to sell
existing inventory included in the Assets bearing marks constituting Excluded
Intellectual Property until the earlier of (i) three months after the Closing
Date and (ii) the date on which existing inventories are exhausted, provided
that Purchaser complies in all material respects with all applicable laws, rules
and regulations in any use of packaging, labeling or advertising containing such
marks and obtains all BATF authorizations required therefor.
5.9 Financing.
(a) In furtherance of and without limiting the generality of Section
5.2, Purchaser shall use its reasonable best efforts to arrange and consummate
the financing necessary for it to consummate the transactions contemplated by
this Agreement, including using its reasonable best efforts (A) to negotiate in
good faith definitive agreements respecting such financing on reasonable terms
with respect thereto, (B) to satisfy all conditions provided in such definitive
agreements, (C) to negotiate in good faith such modifications to such financing
as may be necessary or advisable to reflect any change in market conditions
which occurs after the date of this Agreement, (D) if any portion of such
financing has become unavailable, regardless of the reason therefor, to obtain
alternative financing from the same or other sources on and subject to
substantially the same terms and conditions as that portion which has become
unavailable and (E) to satisfy at or prior to the Closing all requirements of
any agreements under which such financing is to be provided and conditions to
the drawdown of proceeds thereunder. Purchaser agrees that it will use its
reasonable best efforts to exercise all of its rights to enforce performance of
any agreements under which Purchaser is entitled to receive financing with
respect to the transactions contemplated by this Agreement and will not waive,
modify or amend any of its rights under such agreements in any material respect.
(b) Purchaser shall keep Parent informed as to the material terms and
status of its arrangements with respect to its financing of the transactions
contemplated by this Agreement, as reasonably requested by Parent. When
preparing any prospectus, registration statement or other marketing or
solicitation documents and all other documents to be used by
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Purchaser in connection with Purchaser's financing of the transactions
contemplated by this Agreement (the "Financing Documents"), Purchaser shall
consult with the Sellers with respect to any description in the Financing
Documents of the Sellers, the Business or the transactions contemplated by this
Agreement, and will make reasonable changes to such descriptions as requested by
the Sellers. Purchaser will provide drafts of all such Financing Documents to
the Sellers and allow the Sellers a reasonable amount of time to review and
comment on such documents prior to their circulation to third parties or filing
with any Governmental Authority.
(c) For purposes of assisting Parent with the financing contemplated
in this Section 5.9, Parent shall provide to Purchaser (i) the financial
statements of the Business prepared and audited in accordance with Regulation
S-X of the Securities and Exchange Commission for the periods that would be
required under Rule 3-05(b) of Regulation S-X, (ii) any other historical
information and data with respect to the Transferred Business that would be
required to be included in a registration statement on Form S-1 filed by
Purchaser under the Securities Act (a "Form S-1"), (iii) in the event the
Sellers have entered into an agreement with respect to the matters covered by
the Draft Settlement Agreement, a correct and complete copy of the executed
agreement, and (iv) any Transferred Contract that Purchaser would be required to
file as an exhibit to a Form S-1. The Sellers shall provide such additional
cooperation to Purchaser in connection with the preparation of the Financing
Documents as is reasonably requested by Purchaser.
5.10 Post-Closing Notification of Product Returns. In order to facilitate
the Sellers' obtaining of refunds of federal excise taxes with respect to
returned products sold by the Business on or prior to the Closing Date,
Purchaser shall promptly notify the Sellers in writing at any time, and from
time to time, in any event that Purchaser receives any return of products sold
by the Business on or prior to the Closing Date. Purchaser shall cooperate in
good faith with the Sellers to return such products to the Sellers, as
reasonably requested by the Sellers.
5.11 Master Settlement Agreement. Without the prior written consent of
Purchaser, prior to the Closing neither of the Sellers shall enter into an
agreement to become a participating manufacturer under the Master Settlement
Agreement with respect to the Transferred Business.
5.12 [Intentionally Omitted.]
5.13 Moist Snuff Equipment. Parent shall use commercially reasonable
efforts to purchase the Moist Snuff Equipment from the Moist Snuff Lessor,
effective on or prior to the Closing Date, at a price no greater than that set
forth on Schedule 5.13 with respect to the applicable date of the Closing.
Reasonably promptly after Parent and the Moist Snuff Lessor agree in writing to
the terms of Parent's purchase of the Moist Snuff Equipment, Parent shall
deliver to Purchaser a copy of such agreement. The purchase price under such
agreement, as amended, shall be referred to herein as the "Moist Snuff Equipment
Price". Subject to the completion of Parent's purchase of the Moist Snuff
Equipment under such agreement, as amended, on or prior to the Closing Date, the
Moist Snuff Equipment will be deemed to be an "Asset" under Section 1.1 and the
Purchase Price will be increased by the Moist Snuff Equipment Price.
5.14 Transition Services. For 90 days after the Closing Date (or, with
respect to any particular service, if applicable, the shorter or longer duration
described in Schedule 5.14), the Sellers shall provide to Purchaser with respect
to the Transferred Business the services listed in
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Schedule 5.14, and any other services reasonably requested by Purchaser to
facilitate transition of the Transferred Business to Purchaser (to the extent
the Sellers are able to render such services after the Closing Date), on the
terms and conditions set forth herein, except as set forth in Schedule 5.14.
Purchaser shall reimburse the Sellers for their out-of-pocket costs and expenses
incurred in connection with rendering these services, including all employment
costs (including, without limitation, salary and benefits) reasonably allocated
by the Sellers to such services, but not for the Sellers' general overhead
costs. The Sellers shall be obligated to render services pursuant to this
Section 5.14 only to the extent reasonably necessary to assist Purchaser in
achieving an orderly transfer of the Transferred Business from the Sellers to
Purchaser, and shall be permitted to render such services in a manner reasonably
determined to minimize any disruption to the Retained Businesses caused by the
rendering of such services.
ARTICLE 6.
CONDITIONS TO OBLIGATIONS
6.1 Conditions to Obligations of Purchaser and the Sellers. The
obligations of Purchaser and the Sellers to consummate, or cause to be
consummated, the transactions contemplated hereby are subject to the
satisfaction of the following conditions, any one or more of which may be waived
in writing by such parties:
(a) All waiting periods under the HSR Act applicable to transactions
contemplated hereby shall have expired or been terminated.
(b) All necessary permits, approvals, clearances, and consents of,
and all filings with, Governmental Authorities required to be procured by
Purchaser or the Sellers in order to complete the transactions contemplated by
this Agreement shall have been procured, it being understood, however, that any
consents, authorizations or approvals (other than those, if any, required to be
obtained from the BATF), the absence of which would not have a material adverse
effect on the business, operations or financial condition of Purchaser or the
Sellers, as applicable, in each case taken as a whole, need not be obtained.
(c) There shall not be in force any order, decree, injunction,
statute, rule or regulation of any Governmental Authority prohibiting the
consummation of the transactions contemplated hereby.
(d) Parent shall have obtained from its stockholders any necessary
approval of the transactions contemplated by this Agreement and, in the case of
any such approval other than at the Stockholders Meeting, the requirements of
Regulation 14C, promulgated under the Securities Exchange Act of 1934, as
amended, shall have been satisfied.
6.2 Conditions to Obligations of Purchaser. The obligations of Purchaser
to consummate, or cause to be consummated, the transactions contemplated by this
Agreement are subject to the satisfaction of the following additional
conditions, any one or more of which may be waived in writing by Purchaser:
(a) The representations and warranties of the Sellers contained in
this Agreement that are qualified by Business Material Adverse Effect shall be
true and correct in all respects as of the date hereof and as of the Closing, as
if made anew at and as of that time (other than representations and warranties
made as of a specific date, which shall be true and correct as
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of that date). The representations and warranties of each of the Sellers
contained in this Agreement that are not qualified by Business Material Adverse
Effect shall be true and correct in all respects as of the date hereof and as of
the Closing, as if made anew at and as of that time (other than representations
and warranties made as of a specified date, which shall be true and correct as
of that date), except where all such failures to be true and correct,
individually or in the aggregate, do not constitute a Business Material Adverse
Effect.
(b) Each of the covenants and agreements of each of the Sellers to be
performed as of or prior to the Closing shall have been duly performed in all
material respects.
(c) Each of the Sellers shall have delivered to Purchaser a
certificate signed by an officer of such Seller, dated as of the Closing Date,
certifying that the conditions specified in Sections 6.2(a) and 6.2(b) have been
fulfilled.
(d) From the date of this Agreement to the Closing Date, there shall
not have occurred a Business Material Adverse Effect.
(e) Each of the Sellers shall have delivered to Purchaser the
documents required by Section 1.5(b).
(f) The Sellers shall have executed and delivered to Purchaser the
License Agreement.
(g) Purchaser shall have obtained all financing necessary for it to
consummate the transactions contemplated hereby.
(h) Each of the Sellers shall be in compliance with the Qualifying
Statutes. Without limiting the generality of the immediately preceding sentence,
for purposes of this Section 6.2(h), the Sellers shall be deemed to be in
compliance with the Qualifying Statutes with respect to any MSA State if (i) the
Sellers shall have received a written release with respect to any and all
liability under the Qualifying Statutes of such MSA State for the years
1999-2002, which release is effective on the Closing Date, and is not subject to
any pre-Closing or post-Closing condition (other than, if applicable, the making
of any payment contemplated by the immediately following sentence), (ii) the
Sellers shall have entered into an agreement with such MSA State which provides
for a release with respect to any and all liabilities under the Qualifying
Statutes of such MSA State for the years 1999-2002 subject to the satisfaction
of certain conditions, performance obligations or reaching agreements in the
future (collectively, "Release Conditions"), and (A) such Agreement is in full
force and effect on the Closing Date, (B) all Release Conditions have been
satisfied (other than, if applicable, the making of any payment contemplated by
the immediately following sentence) and (C) the Sellers have provided Purchaser
with reasonable evidence of the matters referred to in clauses (A) and (B) above
(which may include the written acknowledgement of such MSA State or the National
Association of Attorneys General to the effect that such agreement is in full
force and effect and that all Release Conditions have been satisfied), or (iii)
the Sellers have paid all amounts (other than, if applicable, the making of any
payment contemplated by the immediately following sentence) asserted by such MSA
State in writing to be required for the Sellers to be in compliance and either
(A) the Sellers have provided Purchaser with reasonable evidence that they have
paid such amounts or (B) such MSA State has acknowledged in writing that the
payment of such amounts on the Closing Date is sufficient to satisfy the
Sellers' obligations
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under the applicable Qualifying Statutes. In any case where the making of a
payment by the Sellers on the Closing Date is required to satisfy the condition
set forth in this Section 6.2(h), such payment shall be deemed to have occurred
upon the Sellers' direction to Purchaser to pay, at the Closing, all or a
portion of the Purchase Price to satisfy such obligation of the Sellers. For
purposes of clauses (i) and (ii) of this Section 6.2(h), a release from all
claims of non-compliance substantially in the form set forth in Paragraph 3 of
the Draft Settlement Agreement shall be deemed to be a sufficient form of
release to satisfy the condition set forth in this Section 6.2(h), provided that
(x) (1) in the case of clause (i) above, such release is effective on the
Closing Date, and is not subject to any pre-Closing or post-Closing condition
(other than, if applicable, the making of any payment contemplated by the
penultimate sentence of this Section 6.2(h)) or (2) in the case of clause (ii)
above, the conditions set forth in clause (A), (B) and (C) have been satisfied
and (y) the Sellers have no reason to believe that either of the Sellers is in
material noncompliance with the Qualifying Statutes that are not the subject of
the release described in this sentence such that Purchaser's ability
post-Closing to sell cigarettes in the MSA States under the Transferred Brands
would be reasonably likely to be adversely affected in any material respect.
(i) The form and substance of all actions, proceedings, instruments
and documents required to consummate the transactions contemplated by this
Agreement shall be satisfactory in all reasonable respects to Purchaser and its
counsel.
6.3 Conditions to the Obligations of the Sellers. The obligation of the
Sellers to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following additional conditions, any one or more of
which may be waived in writing by the Sellers:
(a) The representations and warranties of Purchaser contained in this
Agreement that are qualified by Purchaser Material Adverse Effect shall be true
and correct in all respects as of the date hereof and as of the Closing, as if
made anew at and as of that time (other than representations and warranties made
as of a specific date, which shall be true and correct as of that date). The
representations and warranties of each of the Sellers contained in this
Agreement that are not qualified by Purchaser Material Adverse Effect shall be
true and correct in all respects as of the date hereof and as of the Closing, as
if made anew at and as of that time (other than representations and warranties
made as of a specified date, which shall be true and correct as of that date),
except where all such failures to be true and correct, individually or in the
aggregate, do not constitute a Purchaser Material Adverse Effect.
(b) Each of the covenants and agreements of Purchaser to be performed
as of or prior to the Closing shall have been duly performed in all material
respects.
(c) Purchaser shall have delivered to each of the Sellers a
certificate signed by an officer of Purchaser, dated as of the Closing Date,
certifying that the conditions specified in Sections 6.3(a) and 6.3(b) have been
fulfilled.
(d) From the date of this Agreement to the Closing Date, there shall
not have occurred a Purchaser Material Adverse Effect.
(e) Purchaser shall have executed and delivered to the Sellers the
License Agreement.
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(f) Purchaser shall have delivered to Sellers the documents required
by Section 1.5(c).
(g) Purchaser shall have obtained from BATF any bond, license or
other approval from BATF necessary to allow transfer by the Sellers to Purchaser
of the Assets held in bond without incurring any obligation on the part of the
Sellers to pay federal excise Taxes with respect to such transfer.
(h) The form and substance of all actions, proceedings, instruments
and documents required to consummate the transactions contemplated by this
Agreement shall be satisfactory in all reasonable respects to each of the
Sellers and its counsel.
ARTICLE 7.
TERMINATION
7.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned prior to the Closing as follows:
(a) by mutual written consent of the parties at any time;
(b) by written notice to the Sellers from Purchaser, if (i) there is
any material breach of any representation, warranty, covenant or agreement on
the part of either Seller set forth in this Agreement, or if a representation or
warranty of either Seller shall be untrue in any material respect, in either
case, such that the condition specified in Section 6.2(a) or Section 6.2(b)
hereof would not be satisfied at the Closing (a "Terminating Seller Breach"),
except that, if such Terminating Seller Breach is curable by such Seller through
the exercise of its reasonable best efforts, then for so long as such
Terminating Seller Breach is curable and Seller continues to use its reasonable
best efforts to cure such Terminating Seller Breach (the "Seller Cure Period"),
such termination shall not be effective, and such termination shall become
effective only if the Terminating Seller Breach is not cured within the Seller
Cure Period, provided, however, that Purchaser may not terminate this Agreement
pursuant to this clause (i) at any time during which Purchaser is in material
breach of this Agreement, (ii) the Closing has not occurred on or before July
15, 2003 (the "Termination Date"), other than as a result of a breach of a
representation, warranty or covenant of Purchaser or (iii) if consummation of
any of the transactions contemplated hereby is enjoined or prohibited by the
terms of a final, non-appealable order or judgment of a court of competent
jurisdiction;
(c) by written notice to Purchaser from either of the Sellers, if (i)
there is any material breach of any representation, warranty, covenant or
agreement on the part of Purchaser set forth in this Agreement, or if a
representation or warranty of Purchaser shall be untrue in any material respect,
in either case, such that the condition specified in Section 6.3(a) or Section
6.3(b) hereof would not be satisfied at the Closing (a "Terminating Purchaser
Breach"), except that, if such Terminating Purchaser Breach is curable by
Purchaser through the exercise of its reasonable best efforts, then, for so long
as such Terminating Parent Breach is curable and Purchaser continues to exercise
such reasonable best efforts to cure such Terminating Purchaser Breach (the
"Purchaser Cure Period"), such termination shall not be effective, and such
termination shall become effective only if the Terminating Purchaser Breach is
not cured within the Purchaser Cure Period, provided, however, that the Sellers
may not terminate this Agreement pursuant to this clause (i) at any time during
which the Sellers are in material breach of this
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Agreement, (ii) the Closing has not occurred on or before the Termination Date,
other than as a result of a breach of a representation, warranty or covenant of
the Sellers or (iii) if consummation of any of the transactions contemplated
hereby is enjoined or prohibited by the terms of a final, non-appealable order
or judgment of a court of competent jurisdiction;
(d) by either Purchaser or Parent, by written notice to the other
party, if (i) the Stockholders' Written Consent shall not have been obtained,
(ii) the Stockholders Meeting (including any adjournments and postponement
thereof) shall have been held and completed, (iii) Parent's stockholders shall
have voted at the Stockholders Meeting on a proposal to adopt this Agreement and
the transactions contemplated by this Agreement, and (iv) this Agreement and the
transactions contemplated by this Agreement shall not have been adopted at the
Stockholders Meeting (and shall not have been adopted at any adjournment or
postponement thereof) by the requisite vote;
(e) by Purchaser (before or after the Stockholders Meeting) by written
notice to the Sellers, if Parent's Board of Directors (i) fails to include in
the Proxy Materials (if prepared for the Stockholders Meeting) its
recommendation without adverse modification or qualification that stockholders
approve this Agreement and the transactions contemplated by this Agreement, (ii)
withdraws or modifies in an adverse manner its approval or recommendation of
this Agreement and the transactions contemplated by this Agreement, or (iii)
approves or publicly recommends any Acquisition Proposal (other than the
transaction contemplated by this Agreement); or
(f) by Parent, by written notice to Purchaser, at any time prior to
the Stockholders Meeting or Stockholders' Written Consent, if the Board of
Directors of Parent (i) receives a Superior Proposal and (ii) determines in good
faith that the transactions contemplated by this Agreement are no longer in the
best interests of Parent's stockholders.
7.2 Effect of Termination.
(a) In the event of termination of this Agreement pursuant to Section
7.1, this Agreement shall forthwith become void and have no effect, without any
liability on the part of any party hereto or their respective Affiliates,
officers, directors or stockholders in either case, other than (i) any liability
of the Sellers or Purchaser as the case may be, for breaches of this Agreement
occurring prior to such termination; provided, however, that in the event that
this Agreement is so terminated, neither party shall have any liability for any
breach or violation of this Agreement unless such breach or violation (other
than any breach or violation (x) by the Sellers of Section 4.2, which is subject
exclusively to Section 7.2(b), (y) by the Sellers of Section 5.7(a), which is
subject exclusively to Section 7.2(c), or (z) by Purchaser of Section 5.9(a),
which is the subject exclusively to Section 7.2(d)) is (A) the result of gross
negligence on the part of such party, in which case such party shall be liable
for the lesser of (1) $750,000 and (2) the amount of all documented, reasonable,
out-of-pocket expenses reasonably incurred by the other party in connection with
this Agreement or (B) intentional on the part of such party and (ii) payments as
are required under this Section 7.2.
(b) If this Agreement is terminated by (i) Purchaser or Parent
pursuant to Section 7.1(d), if at the time of the Stockholders Meeting a third
party Acquisition Proposal shall have been publicly disclosed, submitted or
commenced and, within six months after such termination, Parent or any of its
Subsidiaries consummates or enters into a definitive agreement
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to consummate such Acquisition Proposal (or a substantially identical
Acquisition Proposal with the same third party or an Affiliate thereof), (ii)
Purchaser pursuant to Section 7.1(e) and this Agreement and the transactions
contemplated hereby shall not have been adopted at the Stockholders Meeting (and
shall not have been adopted at any adjournment or postponement thereof) by the
requisite vote or by Stockholders' Written Consent, or (iii) Parent pursuant to
Section 7.1(f), then the Sellers shall pay to Purchaser a nonrefundable fee in
an amount in cash equal to (x) $2,800,000, plus (y) the amount of all
documented, reasonable, out-of-pocket expenses reasonably incurred by Purchaser
in connection with the transactions contemplated by this Agreement, including,
without limitation, the financing thereof.
(c) If (i) this Agreement is terminated pursuant to clause (ii) of
Section 7.1(b) or clause (ii) of Section 7.1(c), (ii) the condition set forth in
Section 6.2(h) shall not have been satisfied (or deemed satisfied by operation
of clauses (i) and (ii) of Section 6.2(h), as applicable) and (iii) prior to
such termination, the conditions set forth in Sections 6.1, 6.2(g) and 6.3
(other than those conditions that by their nature are to be satisfied at the
Closing and are capable of being satisfied) shall have been satisfied, then the
Sellers shall pay to Purchaser the amount of all documented, reasonable,
out-of-pocket expenses reasonably incurred by Purchaser in connection with the
transactions contemplated by this Agreement, including, without limitation, the
financing thereof.
(d) If (i) this Agreement is terminated pursuant to clause (ii) of
Section 7.1(b) or clause (ii) of Section 7.1(c) and (ii) prior to such
termination, the conditions set forth in Sections 6.1 and 6.2 (other than (x)
those conditions that by their nature are to be satisfied at the Closing and are
capable of being satisfied and (y) the condition set forth in Section 6.2(g))
shall have been satisfied, then Purchaser shall take all actions necessary to
cause the Earnest Money Deposit to be released to Parent.
(e) The provisions of this Section 7.2 and Articles 9 and 10 hereof
shall survive any termination of this Agreement.
ARTICLE 8.
INDEMNIFICATION
8.1 Survival of Representations, Etc. The representations and warranties of
each party contained herein shall survive the Closing until the second
anniversary of the Closing Date provided, however, that (i) the representations
and warranties contained in Sections 2.1 and 2.3(b), the second sentence of
Section 2.6(a) and Section 3.1 shall survive indefinitely, (ii) the
representations and warranties in Section 2.17 shall survive until 30 days after
the expiration of the applicable statute of limitations, and (iii) the
representations and warranties contained in Section 2.11(c) shall survive until
the third anniversary of the Closing Date.
8.2 Indemnification.
(a) The Sellers shall, jointly and severally, indemnify and hold
Purchaser and its officers, directors, employees and Affiliates and their
respective successors and assigns (the "Purchaser Indemnified Parties") harmless
from any damage, claim, liability or expense, including, without limitation,
reasonable attorneys' fees (collectively "Damages"), arising out of or relating
to (i) the breach of any warranty, representation, covenant or agreement of the
Sellers contained in this Agreement or (ii) any Excluded Liability.
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(b) Purchaser shall indemnify and hold Parent, Opco and their
respective officers, directors, employees and Affiliates and their respective
successors and assigns (the "Seller Indemnified Parties") harmless from any
Damages, arising out of or relating to (i) the breach of any warranty,
representation, covenant or agreement of Purchaser contained in this Agreement
or (ii) except as set forth in Section 8.4, any Assumed Liability.
(c) Notwithstanding the foregoing, (i) no Person shall be entitled to
indemnification for any Damages pursuant to clause (i) of either Section 8.2(a)
or Section 8.2(b) (collectively, the "Specified Damages") unless and until the
amount of all Specified Damages for which such Person is entitled to
indemnification exceeds $500,000 (the "Threshold Amount"), at which time such
Person shall be entitled to indemnification only for all such Specified Damages
sustained by such Person to the extent that the amount of such Specified Damages
(excluding attorneys' fees other than for third party claims) exceeds $250,000,
(ii) in no event shall the aggregate amount of Specified Damages for which
Purchaser Indemnified Parties or Seller Indemnified Parties shall be entitled to
indemnification exceed $12,500,000, (iii) the amount of Damages for which any
Person is entitled to indemnification shall be reduced by any insurance
recoveries or other indemnities, contributions or similar payments actually
recovered from any third party as a result of the incurrence of such Damages or
the facts or circumstances giving rise thereto, (iv) an Indemnitor may require
any Indemnified Party to assign to Indemnitor such Indemnified Party's rights to
seek recovery from any insurer or other indemnitor for Damages paid to
Indemnified Party by or on behalf of Indemnitor, (v) for purposes of determining
the amount of any Specified Damages relating to all representations or
warranties (but not for determining the inaccuracy thereof), all qualifications
or expectations contained therein relating to Business Material Adverse Effect
or Purchaser Material Adverse Effect (as applicable) shall be disregarded.
(d) [Intentionally Omitted.]
(e) Each party hereto agrees to take, and to cause its Affiliates to
take, all reasonable steps to mitigate any Damages incurred or to be incurred by
such party or its Affiliates upon and after becoming aware of any event which
could reasonably be expected to give rise to any Damages.
8.3 Conduct of Proceedings. If any third party claim, action, suit or
proceeding (a "Proceeding") covered by the foregoing agreements to indemnify and
hold harmless shall arise, the party seeking indemnification pursuant to this
Article 8 (the "Indemnified Party") shall give written notice thereof to the
other party (the "Indemnitor") promptly, but in any event within ten days, after
the Indemnified Party learns of the existence of such Proceeding; provided,
however, that the Indemnified Party's failure to give the Indemnitor prompt
notice shall not release the Indemnitor except to the extent such party is
prejudiced by such failure. Such notice shall describe the claim in reasonable
detail and include copies of all related notices and documents (including court
papers) served on or received by the Indemnified Party. The Indemnitor shall
have the right to participate in such claim or action, to assume the defense
thereof with counsel reasonably acceptable to the Indemnified Party, and to
compromise, settle or otherwise dispose of the same, if the Indemnitor deems it
advisable to do so, all at the expense of the Indemnitor; provided that,
Indemnitor shall not settle, or consent to entry of any judgment in any
Proceeding, without obtaining a release of the Indemnified Party from, or
acknowledging its obligation to indemnify the Indemnified Party for, all Damages
in respect of the claims underlying such Proceeding. If requested by the
Indemnified Party, the Indemnitor shall assume the defense of
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such claim, subject to the limitations set forth in this Section 8.3. After
notice to the Indemnified Party of the Indemnitor's election to assume the
defense of such claim or action, the Indemnitor shall not be liable to the
Indemnified Party for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof; provided that, in the
event that the Indemnified Party shall reasonably determine, based upon the
advice of its outside legal counsel, that (x) it may have available to it one or
more defenses or counterclaims that are inconsistent with one or more of those
that may be available to the Indemnitor in respect of such claim or any
litigation relating thereto, or (y) there is a conflict of interest between the
Indemnitor and the Indemnified Party, then the Indemnified Party shall have the
right at all times to have one counsel participate in the defense of such claim
at the expense of the Indemnitor. In such an event, the Indemnitor shall not
assume the defense of such Proceeding on behalf of the Indemnified Party and the
Indemnified Party shall assume its own defense and the Indemnitor shall pay the
reasonable fees and expenses of such counsel to the Indemnified Party. The
parties will fully cooperate in any such action, and shall make available to
each other any books or records useful for the defense of any such Proceeding.
If the Indemnitor fails to acknowledge in writing its obligation to defend
against or settle any Proceeding that it is obligated to defend hereunder within
thirty (30) days after receiving notice thereof from the Indemnified Party (or
such shorter time specified in the notice as the circumstances of the matter may
dictate), the Indemnified Party shall have the right to undertake the defense
and settlement of any such Proceeding, at the Indemnitor's expense; provided
that, if the Indemnified Party assumes the defense of any such Proceeding, the
Indemnified Party shall not settle such Proceeding prior to final judgment
thereon or forego any appeal with respect thereto without the prior written
consent of the Indemnitor (which consent may not be unreasonably withheld).
8.4 Limited Environmental Indemnification. If, prior to the fifth
anniversary of the Closing Date, a Proceeding is initiated against Purchaser
with respect to the Transferred Real Property pursuant to any Environmental Law
in effect at that time that provides a right of contribution against the Sellers
as owner or operator of such Transferred Real Property and Purchaser provides
notice of such Proceeding to the Sellers within 30 days after such Proceeding is
initiated, Purchaser shall be entitled to seek contribution from the Sellers
pursuant to the contribution provisions of such Environmental Law in effect at
that time. Notwithstanding Purchaser's assumption of the Assumed Liabilities,
the Sellers will not be entitled to indemnification from Purchaser with respect
to Losses incurred by the Sellers as a result of the application of this Section
8.4. For the avoidance of doubt, subject only to this Section 8.4, all Losses
under Environmental Laws related to the Transferred Business or the Assets are
Assumed Liabilities, and Purchaser will be obligated to indemnify the Sellers
for such Losses under Section 8.2(b)(ii).
8.5 Sole Remedy; Time Limitation. After the Closing has occurred, the right
to indemnification under this Article 8 shall be the exclusive remedy of each
party hereto in connection with any breach by the other party of its
representations, warranties, covenants or agreements contained herein.
ARTICLE 9.
CERTAIN DEFINITIONS
As used herein, the following terms shall have the following meanings:
"Accounting Firm" has the meaning specified in Section 1.6.
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"Acquisition Proposal" has the meaning specified in Section 4.2.
"Action" means any action, suit, arbitration or other proceeding by or
before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person, through one or more intermediaries or
otherwise. For the purposes of this definition, the term "control" means the
power to direct or cause the direction of the management or policies of the
controlled Person.
"Agreement" has the meaning specified in the introduction hereto.
"Allocation Schedule" has the meaning specified in Section 1.8.
"Antitrust Authorities" means the Antitrust Division of the United
Stated Department of Justice, the United States Federal Trade Commission or the
antitrust or competition law authorities of any other jurisdiction (whether
United States, foreign or multinational).
"Assets" has the meaning specified in Section 1.1.
"Assumed Liabilities" has the meaning specified in Section 1.2.
"B&W Agreements" means (i) Restated Master Agreement, dated April 25,
2001, between Brown & Williamson Tobacco Corporation and Star Scientific, Inc.;
(ii) Supply Agreement for Star Scientific Blend, dated January 1, 2000, between
Brown & Williamson Tobacco Corporation and Star Tobacco and Pharmaceuticals,
Inc.; (iii) Cigarette Manufacturing Agreement, dated January 1, 2000, between
Brown & Williamson Tobacco Corporation and Star Tobacco and Pharmaceuticals,
Inc.; (iv) Restated Loan Agreement, dated August 21, 2000 and as first amended
on April 25, 2001 ($4,950,000), among Star Scientific, Inc., Star Tobacco and
Pharmaceuticals, Inc. and Brown & Williamson Tobacco Corporation; (v) Restated
Promissory Note A ($13,200,000), dated April 25, 2001, from Star Scientific,
Inc. and Brown & Williamson Tobacco Corporation; (vi) Restated Promissory Note C
($4,950,000), dated April 25, 2000, from Star Tobacco and Pharmaceuticals, Inc.
to Brown & Williamson Tobacco Corporation; (vii) Restated Promissory Note D
($11,000,000), dated April 25, 2001, from Star Scientific, Inc. and Brown &
Williamson Tobacco Corporation; (viii) Security Agreement, dated August 21,
2000, between Star Tobacco Pharmaceuticals, Inc. and Brown & Williamson Tobacco
Corporation; (ix) Guaranty Agreement, dated August 21, 2000, between Star
Scientific, Inc. and Brown & Williamson Tobacco Corporation; (x) Guaranty
Agreement, dated August 21, 2000, between Star Tobacco and Pharmaceuticals, Inc.
and Brown & Williamson Tobacco Corporation; (xi) Restated Security Agreement,
dated August 21, 2000, between Star Scientific, Inc. and Brown and Williamson
Tobacco Corporation; (xii) Intercreditor Agreement, dated January 20, 2000,
among Finova Capital Credit Corporation, Brown & Williamson Tobacco Corporation
and Star Tobacco and Pharmaceuticals, Inc.; (xiii) Hard Tobacco Agreement, dated
April 25, 2001, between Star Scientific, Inc. and Brown & Williamson Tobacco
Corporation; (xiv) Trademark License and Royalty Agreement, dated April 25,
2001, between Star Scientific, Inc. and Brown & Williamson Tobacco Corporation;
(xv) Other Low TSNA Tobacco Royalty Agreement, dated April 25, 2001, between
Star Scientific, Inc. and Brown & Williamson Tobacco Corporation;
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(xvi) Regent/Brown & Williamson Tobacco Corporation License Agreement, dated
August 20, 2000 and as amended, by and among Regent Court Technologies, Jonnie
R. Williams, Francis O'Donnell, Jr., Star Scientific, Inc. and Brown and
Williamson Tobacco Corporation; and (xvii) Chase City License and Services
Agreement, dated April 25, 2001, between Star Scientific, Inc. and Brown &
Williamson Tobacco Corporation.
"BATF" means the Department of Treasury, Bureau of Alcohol, Tobacco
and Firearms.
"Benefit Plan" has the meaning specified in Section 2.8.
"Brands" means the Transferred Brands and the "Vegas" brand, Reg. No.
1,893,281.
"Business" has the meaning specified in the Recitals hereof.
"Business Day" means any day that is not a Saturday, Sunday or other
day on which banks are required or authorized by law to be closed in New York,
New York.
"Business Employee" has the meaning specified in Section 2.8.
"Business Material Adverse Effect" means a material adverse effect on
the Transferred Business, Assets, Assumed Liabilities, results of operations or
financial condition of the Transferred Business, taken as a whole, it being
understood that any decline in the stock market generally, or the trading price
of Parent Common Stock specifically, will not be taken into account in
determining whether such a material adverse effect has occurred.
"Closing" has the meaning specified in Section 1.5.
"Closing Accounts Receivable" has the meaning specified in Section
1.7.
"Closing Date" has the meaning specified in Section 1.5.
"Closing Statement" has the meaning specified in Section 1.6.
"Closing Year" has the meaning specified in Section 5.7.
"COBRA" has the meaning specified in Section 2.8.
"COBRA Continuation Coverage" has the meaning specified in Section
5.6.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collected Closing Accounts Receivable" has the meaning specified in
Section 1.7.
"Confidentiality Agreement" has the meaning specified in Section 5.3.
"Contract" means any agreement, license, lease, sublease, contract,
commitment, obligation or legally-binding undertaking.
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"Damages" has the meaning specified in Section 8.2.
"Draft Settlement Agreement" has the meaning specified in Section
2.11.
"Earnest Money Deposit" has the meaning specified in Recitals hereof.
"Environmental Assessments" has the meaning specified in Section 5.12.
"Environmental Laws" means, collectively, all applicable U.S. federal,
state or local laws, statutes, ordinances, rules, regulations, codes or common
law relating to health, safety, pollution or protection of the environment, as
in effect as of the date hereof, or, for purposes of Section 8.4 only, as in
effect on the date on which any Proceeding described in Section 8.4 is
initiated.
"ERISA" has the meaning specified in Section 2.8.
"ERISA Affiliate" has the meaning specified in Section 2.8.
"Escrow Agent" has the meaning specified in the Recitals hereof.
"Escrow Agreement" has the meaning specified in the Recitals hereof.
"Escrow Funds" has the meaning specified in Escrow Agreement.
"Escrow Obligations" means all obligations to make, or cause to be
made, escrow deposits under Qualifying Statutes for sale of cigarettes in those
states that are parties to the Master Settlement Agreement and that have enacted
Qualifying Statutes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" has the meaning specified in Section 1.3.
"Excluded Intellectual Property" has the meaning specified in Section
1.3.
"Excluded Inventory" has the meaning specified in Section 1.3.
"Excluded Liabilities" has the meaning specified in Section 1.3.
"Excluded Real Property" has the meaning specified in Section 1.3.
"February Lease" means the Master Lease Agreement, dated as of
February 26, 2002, between GE Capital and Parent, as amended from time to time.
"Final Net Working Capital of the Transferred Business" has the
meaning specified in Section 1.6
"Financing Documents" has the meaning specified in Section 5.9.
"Funded Debt" of any Person, means all obligations of such Person for
borrowed money, including any guarantees thereof.
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"GAAP" means the United States generally accepted accounting
principals.
"Governmental Authority" means any Federal, state, municipal or local
government, governmental authority, regulatory or administrative agency,
governmental commission, department, board, bureau, court, tribunal, arbitrator
or arbitral body.
"Governmental Order" means any order, writ, rule, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnified Party" has the meaning specified in Section 8.3.
"Indemnitor" has the meaning specified in Section 8.3.
"Intellectual Property" means: (a) 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; (b) 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; (c) all copyrighted works, all applications,
registrations, and renewals in connection therewith, and all works copyrightable
but for their lack of fixation in a tangible medium; (d) all trade secrets and
confidential business information (including, without limitation, 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); (e) all owned or licensed
proprietary software; (f) all Internet domain names, including registrations and
applications for registration thereof; and (g) all copies and tangible
embodiments thereof (in whatever form or medium).
"Interim Balance Sheet" has the meaning specified in Section 2.19.
"IRS" means the United States Internal Revenue Service.
"License Agreement" has the meaning specified in Recitals to this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
easement, encumbrance, security interest or other lien of any kind.
"Master Settlement Agreement" means the tobacco master settlement
agreement, dated November 28, 1998, as amended, among 46 of the United States,
certain territories of the United States, and certain tobacco companies.
"Minimum Receivables Amount" has the meaning specified in Section 1.7.
"Moist Snuff Equipment" means the All-Fill Moist Snuff Filling System
described in Processing Equipment Schedule No. 001 to the Moist Snuff Lease, as
in effect on
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the date of this Agreement, and the following equipment leased to Parent under
the Schedule No. 001 to the February Lease, as in effect on the date of this
Agreement: (i) the All-Fill Model E-2000 Automatic Case Erector, as described in
the invoice, dated March 23, 2001, from All-Fill, Inc. to Parent, as well as the
related Combi Case Sealer and spare parts for the Case Erector; (ii) the Tooling
- B Cavity Mold, from Granville Plastics/Richmond Plastics; and (iii) the
Desktop NIR Moisture Meter, from Kett US.
"Moist Snuff Equipment Price" has the meaning specified in Section
5.13.
"Moist Snuff Lease" means the Master Lease Agreement, dated 29
June 2001, between GE Capital and Parent, as amended from time to time.
"Moist Snuff Lessor" means the lessor under the Moist Snuff Lease and
the February Lease, as applicable.
"MSA State" has the meaning set forth in Section 5.7.
"Multiemployer Plan" has the meaning specified in Section 2.8.
"Net Working Capital of the Transferred Business" has the meaning
specified in Section 1.6.
"Notice of Disagreement" has the meaning specified in Section 1.6.
"Parent Common Stock" has the meaning specified in Section 2.1.
"Parent" has the meaning specified in the introduction hereto.
"Pension Plan" has the meaning specified in Section 2.8.
"Permitted Liens" means (i) mechanics, materialmen's and similar Liens
with respect to any amounts not yet due and payable or which are being contested
in good faith through appropriate proceedings, (ii) Liens for Taxes not yet due
and payable or which are being contested in good faith through appropriate
proceedings, (iii) Liens on goods in transit incurred pursuant to documentary
letters of credit, (iv) Liens securing rental payments under capital lease
agreements, (v) encumbrances and restrictions on real property that do not
materially interfere with the present uses of such real property, (vi) other
Liens arising in the ordinary course of business and not incurred in connection
with the borrowing of money, (vii) Liens that are to be released at or prior to
Closing, and (viii) Liens arising from the Transferred Contract set forth on
Schedule 2.5(b).
"Person" means any individual, firm, corporation, partnership, limited
liability company, incorporated or unincorporated association, joint venture,
joint stock company, governmental agency or instrumentality or other entity of
any kind.
"Post-Closing Escrow Agreement" has the meaning specified in Section
5.7.
"Proceeding" has the meaning specified in Section 8.3.
"Proxy Materials" has the meaning specified in Section 5.1.
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"Purchase Price" has the meaning specified in Section 1.4.
"Purchaser" has the meaning specified in the introduction hereto.
"Purchaser Cure Period" has the meaning specified in Section 7.1.
"Purchaser Indemnified Parties" has the meaning specified in Section
8.2.
"Purchaser Material Adverse Effect" has the meaning specified in
Section 3.1.
"Purchaser's Plan" has the meaning specified in Section 5.6.
"Purchaser SEC Documents" has the meaning specified in Section 3.3.
"Qualifying Statutes" means the "qualifying statutes" that are enacted
by the respective states of the United States and the District of Columbia that
are participants in the Master Settlement Agreement, which statutes are
substantially in the form of the model statute attached to the Master Settlement
Agreement as Exhibit T, as may be amended from time to time, and all statutes,
regulations and rules enacted in connection with such "qualifying statutes",
including, without limitation, such statutes, regulations and rules providing
for contraband treatment of cigarettes for non-compliance.
"Receivables Certificate" has the meaning specified in Section 1.7(a).
"Remaining Escrow Funds" has the meaning specified in Section 1.4.
"Retained Businesses" has the meaning specified in the Recitals
hereof.
"Retention Plan" has the meaning specified in Section 5.6(g).
"SEC" means the United States Securities & Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Cure Period" has the meaning specified in Section 7.1.
"Seller Indemnified Parties" has the meaning specified in Section 8.2.
"Seller SEC Documents" has the meaning specified in Section 2.19.
"Sellers" has the meaning specified in the introduction hereto.
"Sellers' Allocable Portion" has the meaning specified in Section 5.7.
"Sellers' Closing Month Units" has the meaning specified in Section
5.7.
"Sellers' Closing Year Production" has the meaning specified in
Section 5.7.
"Sellers' 401(k) Plan" has the meaning specified in Section 5.6(d).
"Specified Damages" has the meaning specified in Section 8.2.
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"Stockholders Meeting" has the meaning specified in Section 5.1.
"Stockholders Written Consent" has the meaning specified in Section
5.1.
"Subsidiary" means, with respect to any Person, a corporation or other
entity of which 50% or more of the voting power of the equity securities or
equity interests is owned, directly or indirectly, by such Person.
"Substance" means any toxic, hazardous or other regulated wastes,
substances, products, pollutants or materials, including, without limitation,
radioactive materials, asbestos, polychlorinated biphenyls, radon gas, petroleum
and petroleum products.
"Superior Proposal" has the meaning specified in Section 4.2.
"Tax" or "Taxes" means (x) any federal, state, local or foreign net or
gross income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, (including taxes under Code Section 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, governmental fee or like assessment or charge of any
kind whatsoever, imposed by any Governmental Authority or arising under any Tax
law or agreement, including, without limitation, any joint venture or
partnership agreement and (y) all interest, penalties or additions to Taxes and
additional amounts imposed on any items described in clause (x) imposed by any
Governmental Authority.
"Tax Asset" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction, refund of Taxes or claim
for refund of Taxes or any other credit or tax attribute which could reduce
Taxes (including, without limitation, deductions and credits related to
alternative minimum tax.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto and any amendment thereof, including, but not limited to, any
information returns, claim for refund, amended return or declaration of
estimated tax, and including, where permitted or required, combined, unitary or
consolidated returns for any group of entities that includes Seller.
"Terminating Purchaser Breach" has the meaning specified in Section
7.1.
"Terminating Seller Breach" has the meaning specified in Section 7.1.
"Threshold Amount" has the meaning specified in Section 8.2.
"Tobacco Laws" means all laws, statutes, rules, regulations and
ordinances related to (1) the development, manufacture, advertising, marketing,
distribution, sale, or use (including, without limitation, any related health
effects) of, (2) the exposure to, or (3) warnings regarding, tobacco,
cigarettes, smokeless tobacco, and other tobacco products.
"Total Asserted Indirect Sales" has the meaning specified in Section
5.7.
"Total Closing Year Indirect Sales" has the meaning specified in
Section 5.7.
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"Total Closing Year Production" has the meaning specified in Section
5.7.
"Transferred Brands" has the meaning specified in Section 1.1.
"Transferred Business" means the Business, but excluding the Excluded
Assets and Excluded Liabilities.
"Transferred Cash" has the meaning specified in Section 1.1.
"Transferred Contracts" has the meaning specified in Section 1.1
"Transferred Employee" has the meaning specified in Section 5.6.
"Transferred Intellectual Property" has the meaning specified in
Section 1.1.
"Transferred Inventory" has the meaning specified in Section 1.1.
"Transferred Leased Real Property" has the meaning specified in
Section 2.6(b).
"Transferred Owned Real Property" has the meaning specified in Section
2.6(a).
"Transferred Real Property" has the meaning specified in Section 1.1.
"Transferred Receivables" has the meaning specified in Section 1.1.
"Transferred Tobacco Matters" has the meaning specified in Section
1.2.
"Transferred Tobacco Liabilities" has the meaning specified in Section
1.2.
ARTICLE 10.
MISCELLANEOUS
10.1 Waiver. Either party to this Agreement may, at any time prior to the
Closing, waive any of the terms or conditions of this Agreement or agree to an
amendment or modification to this Agreement by an agreement in writing executed
in the same manner as this Agreement.
10.2 Notices. All notices and other communications among the parties shall
be in writing and shall be deemed to have been duly given (i) when delivered in
person, (ii) five (5) days after posting in the United States mail having been
sent registered or certified mail return receipt requested, or (iii) upon
receipt after being sent by a reputable, nationally recognized overnight
courier, or (iv) when delivered by telecopy and promptly confirmed automatically
or by telephone confirmation, addressed as follows:
(a) If to Purchaser, to:
North Atlantic Trading Company, Inc.
257 Park Avenue South, 7th Floor
New York, New York 10010
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Attention: David Brunson, President
Chief Financial Officer
Telecopy No.: (212) 253-8296
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: David E. Zeltner
Telecopy No.: (212) 310-8007
If to either of the Sellers, to:
Star Scientific, Inc.
801 Liberty Way
Chester, VA 23836
Attention: Christopher G. Miller, Chief Financial Officer
Telecopy No.: (804) 530-0535
and
Star Scientific, Inc.
7475 Wisconsin Ave.
Suite 850
Bethesda, MD 20814
Attention: Robert E. Pokusa, General Counsel
Telecopy No.: (301) 654-9308
with copies to:
Latham & Watkins
555 Eleventh St., N.W.
Suite 1000
Washington, D.C. 20004
Attention: Scott C. Herlihy
Telecopy No.: (202) 637-2201
or to such other address or addresses as the parties may from time to time
designate in writing.
10.3 Assignment. Neither party hereto shall assign this Agreement or any
part hereof without the prior written consent of the other party, except that
Purchaser may, without the consent of the Sellers, assign any of its rights
hereunder to any directly or indirectly wholly-owned subsidiary of Purchaser
that also agrees to be jointly and severally liable all of Purchaser's
obligations under this Agreement, provided, however, that in no event will any
such assignment relieve Purchaser of its obligations under this Agreement.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective permitted successors and
assigns.
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10.4 Rights of Third Parties. Except for the rights of Transferred
Employees under the Retention Plan, nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give any Person,
other than the parties hereto, any right or remedies under or by reason of this
Agreement.
10.5 Expenses. Each party hereto shall bear its own expenses incurred in
connection with this Agreement and the transactions herein contemplated whether
or not such transactions shall be consummated, including, without limitation,
all fees of its legal counsel, financial advisers and accountants; provided,
however, that all transfers, conveyance and similar taxes imposed as a result of
the sale of the Assets, including, without limitations, any applicable real
estate transfer tax and any similar taxes, shall be paid in the following
manner: (i) Purchaser shall pay the first $50,000, (ii) the Sellers shall pay
the next $50,000, and (iii) Purchaser, on the one hand, and the Sellers, on the
other hand, shall share equally all remaining amounts. In the event the
transactions contemplated hereby are not consummated each party hereto shall pay
its own costs and expenses including, without limitation, all fees of its legal
counsel, financial advisors and accountants.
10.6 Construction. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York (except for matters to which
the Delaware General Corporation Law would apply, which shall be governed to
that extent by the laws of the State of Delaware). Unless otherwise stated,
references to Sections, Articles, Schedules or Annexes refer to the Sections,
Articles, Schedules and Annexes to this Agreement, and any information disclosed
in one Schedule shall be deemed to be disclosed in other Schedules if, and only
if, appropriately cross-referenced or if the relevance thereof to such other
Schedules is reasonably apparent. As used herein, the phrase "to the knowledge"
of any Person shall mean the actual knowledge of such Person's executive
officers. The parties to this Agreement participated jointly in the negotiation
and drafting of this Agreement. If any ambiguity or question of intent or
interpretation shall arise with respect to this Agreement, then this Agreement
shall be construed as if drafted jointly by the parties and no presumption or
burden of proof will arise favoring or disfavoring any party to this Agreement
by virtue of the authorship of any provision of this Agreement.
10.7 Captions; Counterparts. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
10.8 Entire Agreement. This Agreement (together with the Schedules and
Annexes to this Agreement, which, although they may be bound separately,
constitute part of this Agreement) and the Confidentiality Agreement constitute
the entire agreement among the parties and supersede any other agreements,
whether written or oral, that may have been made or entered into by or among any
of the parties hereto or any of their respective Subsidiaries relating to the
transactions contemplated hereby. No representations, warranties, covenants,
understandings, agreements, oral or otherwise, relating to the transactions
contemplated by this Agreement exist between the parties except as expressly set
forth in this Agreement and the Confidentiality Agreement.
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10.9 Amendments. This Agreement may be amended or modified in whole or in
part, only by a duly authorized agreement in writing executed in the same manner
as this Agreement and which makes reference to this Agreement.
10.10 Publicity. All press releases or other public communications of any
nature whatsoever relating to the transactions contemplated by this Agreement
issued prior to or concurrent with the Closing, and the method of the release
for publication thereof, shall be subject to the prior mutual approval of
Purchaser and the Sellers, which approval shall not be unreasonably withheld by
any party; provided, however, that, nothing herein shall prevent any party from
publishing such press releases or other public communications as such party may
consider necessary in order to satisfy such party's legal or contractual
obligations after such consultation with the other parties hereto as is
reasonable under the circumstances.
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IN WITNESS WHEREOF the parties have hereunto caused this Agreement to
be duly executed as of the date first above written.
NORTH ATLANTIC TRADING COMPANY, INC.
By: /s/ David Brunson
----------------------------------
Name: David Brunson
Title: President and Chief
Financial Officer
STAR SCIENTIFIC, INC.
By: /s/ Jonnie R. Williams
----------------------------------
Name: Jonnie R. Williams
Title: Chief Executive Officer
STAR TOBACCO, INC.
By: /s/ Paul H. Lamb III
----------------------------------
Name: Paul H. Lamb, III
Title: President
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