EXHIBIT 2.1
AMENDMENT NO. 3 TO ACQUISITION AGREEMENT AND PLAN OF MERGER
This Amendment No. 3 to Acquisition Agreement and Plan of Merger (this
"Amendment"), dated as of May 18, 2005, among IBF Fund Liquidating LLC, a
Delaware limited liability company ("IBF"), U.S. Xxxxx, Inc., a Delaware
corporation (the "Company"), USM Acquisition Sub, Inc., a Delaware corporation
("Merger Sub"), and Sunset Brands, Inc., a Nevada corporation (the "Purchaser"),
amends the Acquisition Agreement and Plan of Merger, dated as of February 18,
2005, among IBF, the Company, Merger Sub and the Purchaser (as amended by
Amendment No. 1 thereto, dated as of March 7, 2005, as further amended by
Amendment No. 2 thereto, dated as of April 18, 2005, the "Merger Agreement").
Capitalized terms used and not defined herein have the meanings set forth in the
Merger Agreement.
WHEREAS, Purchaser desires to assure that it has sufficient time to
complete the transactions contemplated by the Merger Agreement and, in exchange
for the additional consideration and assurances contemplated by this Amendment,
the Company and IBF are willing to extend such time period until June 15, 2005;
and
WHEREAS, the parties hereto wish to amend the Merger Agreement as
provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Amendment to Merger Agreement.
(a) Section 1.6 b.(i) of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"Cash. Cash consideration, if any (the "Cash"), in
the aggregate amount equal to (1) Seventeen Million Dollars
($17,000,000) less (2) the aggregate amount of Company Debt repaid at
Closing (not to exceed $17,000,000) less (3) the amount of the Deposit
Cash released to the Company pursuant to Section 1.7; and"
(b) Section 1.7 of the Merger Agreement is hereby amended
and restated to read in its entirety as follows:
"Section 1.7. Deposit. No later than April 20, 2005,
the Purchaser shall deliver to Continental Stock Transfer & Trust
Company or such other entity as shall be mutually agreed by Purchaser
and the Shareholder Representative (the "Deposit Escrow Agent"), to be
held in an escrow account established pursuant to the Deposit Escrow
Agreement (the "Deposit Account") (i) One Million Dollars ($1,000,000)
in cash (the "Deposit Cash"), (ii) 500,000 shares of Sunset Common (as
defined below) in the name of the Company (the "Deposit Shares"), which
shares shall not be deemed issued or outstanding unless and until
required to be released to the Company in accordance with the terms of
the Deposit Escrow Agreement, and (iii) a confession of judgment
promissory note executed by the Purchaser in favor of the Company in
the original principal amount of One Million Five Hundred Thousand
Dollars ($1,500,000) in
substantially the same form as Exhibit C attached hereto and
incorporated herein by this reference (the "Escrow Note" and, together
with the Deposit Cash and the Deposit Shares, the "Deposit"), which
Escrow Note shall not be deemed to be issued or outstanding unless and
until required to be released to the Company in accordance with the
terms of the Deposit Escrow Agreement. The Deposit, together with any
interest thereon but less any applicable escrow fees and expenses to
which the Deposit Escrow Agent is entitled pursuant to an escrow
agreement entered into as of March 7, 2005 by the Purchaser, the
Company, the Shareholder Representative (as representative of the
Selling Parties) and the Deposit Escrow Agent (as amended, the "Deposit
Escrow Agreement"), shall constitute the "Xxxxxxx Money" and shall be
held by the Deposit Escrow Agent pursuant to the Deposit Escrow
Agreement. The Purchaser shall have the right to prepay at any time,
without premium, all or any portion of the principal indebtedness
evidenced by the Escrow Note, together with accrued interest on the
principal so prepaid to the date of such prepayment. Such prepayment
shall be made by the Purchaser by depositing the amount to be prepaid
(the "Prepayment Amount") into the Deposit Account, which shall become
part of the Deposit Cash and the Xxxxxxx Money, and shall be held and
disbursed in accordance with the terms of the Deposit Escrow Agreement.
The principal amount of the Escrow Note shall be reduced by $2.00 for
each $1.00 so deposited into the Deposit Account by the Purchaser.
Subject to and in accordance with the terms of the Deposit Escrow
Agreement, at the Closing, the Deposit Escrow Agent shall (x) release
the Deposit Shares and Escrow Note to Purchaser, each of which shall be
deemed cancelled and of no further force and effect upon release to
Purchaser and (y) deposit any portion of the Prepayment Amount that has
not previously been released to the Company, if any, into the Escrow
Account. On May 19, 2005, the Deposit Escrow Agent shall release the
Deposit Cash to the Company. In the event this Agreement is terminated
in accordance with Section 9.1 f. on or after the Expiration Date, the
Xxxxxxx Money, together with any income, gain, dividends or
distributions earned or received on the Xxxxxxx Money, shall be
released to the Company on June 30, 2005."
(c) Section 1.8 of the Merger Agreement is hereby amended
and restated to read in its entirety as follows:
"Section 1.8 Holdback. At the Closing, Purchaser
shall deposit with Continental Stock Transfer & Trust Company or such
other entity as shall be mutually agreed by Purchaser and the
Shareholder Representative (the "Escrow Agent") (A) an amount in cash
equal to the excess of $1,300,000 over the amount of the Prepayment
Amount deposited in the Escrow Account by the Deposit Escrow Agent
(such amount, together with such portion of the Prepayment Amount, the
"Holdback Cash"), and (B) Merger Units (the "Holdback Units" and
collectively, with the Holdback Cash, the "Holdback") having an
aggregate value equal to One Million Two Hundred Thousand Dollars
($1,200,000), with such Holdback to be held for the satisfaction of any
Purchaser Claim (as hereinafter defined) and the Working Capital
Adjustment, if any. The Holdback Units shall be issued in the names of
the Selling Parties in accordance with the Distribution Percentages (as
defined below). Upon determination of the Final Working Capital
Adjustment, the Escrow Agent shall disburse to the Purchaser and/or the
Selling
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Parties Holdback Cash and/or Holdback Units in accordance with the
provisions of Section 1.9 below. The remaining Holdback after payment
of the Final Working Capital Adjustment (the "Indemnity Holdback"),
shall be held and disbursed in accordance with the provisions of
Section 1.10 below. For the purposes of this Agreement, the cash and
securities held by the Deposit Escrow Agent in the Deposit Account and
by the Escrow Agent in the Escrow Account shall be valued as follows:
(i) all Holdback Units held by the Escrow Agent in the Escrow Account
shall be valued at the price per Unit at which they were sold pursuant
to the Series B Financing (e.g. $1,200,000 at the time of deposit with
the Escrow Agent); (ii) all shares of Sunset Common issued upon the
conversion of Merger Shares or Merger Warrants comprising the Holdback
Units shall be valued at the face value of the Merger Shares so
converted or the exercise price of the Merger Warrants so converted;
and (iii) all cash (including interest earned thereon) received upon
the sale of any Sunset Common or as a result of the payment of any
dividends by Purchaser on any Holdback Units in the Escrow Account
shall be valued at its face amount."
(d) The first paragraph of Section 1.10 of the Merger
Agreement is hereby amended and restated to read in its entirety as follows:
"Escrow. At the Closing, (i) the Deposit Escrow Agent
shall deposit with the Escrow Agent the portion of the Prepayment
Amount then in the Deposit Account, if any, and (ii) Purchaser shall
deposit with the Escrow Agent (A) an amount in cash equal to the excess
of $1,300,000 over the amount of the Prepayment Amount deposited in the
Escrow Account by the Deposit Escrow Agent pursuant to clause (i)
hereof, and (B) warrant and stock certificates evidencing the Holdback
Units. The parties agree that Purchaser may, and may instruct its
transfer agent to, place stop transfer orders on the Holdback Units for
so long as they are subject to the Escrow Agreement. The portion of the
Holdback Units deposited with the Escrow Agent by or on behalf of each
of the Selling Parties shall be determined on a pro rata basis in
proportion to each such Selling Party's Distribution Percentage as
reflected in Exhibit A to this Agreement, as such Exhibit may be
updated by the Company prior to Closing. The terms by which the Escrow
Agent shall hold and distribute the Holdback Units shall be set forth
in an escrow agreement to be entered into on the Closing Date by the
Purchaser, the Company, the Shareholder Representative (as
representative of the Selling Parties) and the Escrow Agent (the
"Escrow Agreement"). The Escrow Agreement shall be in a customary form
reasonably acceptable to the parties thereto and shall provide as
follows:"
(e) Section 5.14 of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"No Duplication of Expenses. Notwithstanding anything
to the contrary set forth in this Agreement, in no event shall there be
a Working Capital Adjustment made with respect to (i) any amounts paid
or payable by IBF pursuant to Section 2.24, 5.12 or 10.5, or (ii) the
amount of the Deposit Cash released to the
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Company pursuant to Section 1.7. Any amount of Company Debt repaid with
the Deposit Cash released to the Company shall be deemed to be
outstanding (and to constitute a current liability) for purposes of any
Working Capital Adjustment."
(f) Section 6.4 a. of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"a. Representations and Warranties of the Seller; Compliance
With Covenants. The representations and warranties in Article II and
Article III shall be true and correct when made and at and as of May 18,
2005 with the same effect as though made at and as of such time, with
such exceptions as are not in the aggregate material and with the
exceptions identified in Exhibit 6.4 a. hereto. Each of the Selling
Parties (including IBF) and the Company shall have duly performed and
complied in all material respects with all agreements contained herein
required to be performed or complied with it at or before the Closing
including, without limit, those contained in Section 5.2 of this
Agreement."
(g) Section 9.1 b. of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"b. (i) by Seller, if a material breach of any material
provision of this Agreement has been committed by Purchaser, or (ii) by
Purchaser, if a material, willful breach of any material covenant of
Seller or the Company has been committed by Seller or the Company, in
each case, and such breach has not been waived or cured by the
non-breaching parties within twenty (20) Business Days following written
notice thereof from the non-breaching party; for purposes of
clarification, Purchaser shall have no right to terminate this Agreement
pursuant to this Section 9.1 based on a breach of any representation or
warranty of Seller or the Company;
(h) Section 9.1 c. of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"c. by Purchaser at any time on or after June 15, 2005 (the
"Expiration Date") in the event that the conditions to be satisfied by
the Selling Parties set forth in Section 6.2 or any of the conditions
set forth in Section 6.4 have not been satisfied or waived by the
Purchaser, unless such failure is as a direct result of the Purchaser's
actions or failure to act;"
(i) Section 9.2 a. of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"Purchaser, on the one hand, and Seller, on the other hand,
shall promptly cause to be returned to the other all documents and
information obtained in connection with this Agreement and the proposed
transactions contemplated hereby (including documents and information
obtained in connection with Purchaser's or Seller's, as the case may be,
investigation of the other)."
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(j) Section 9.2 e. of the Merger Agreement is hereby
amended and restated to read in its entirety as follows:
"e. In the event this Agreement is terminated by the
Seller pursuant to Section 9.1 f. above, then, notwithstanding anything
in the Deposit Escrow Agreement to the contrary, the Company shall be
entitled to receive the Xxxxxxx Money from the Escrow Agent on June 30,
2005. Seller's right of termination under Section 9.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies,
and Seller's right to pursue all legal remedies will survive such
termination unimpaired."
(k) At or following two Business Days preceding the earlier to
occur of (x) the Closing Date and (y) the date on which the Merger Agreement is
terminated, IBF may provide Purchaser with the following (the "Extension Cost
Notice"): (i) written invoices evidencing incremental legal fees incurred by IBF
and the Company in connection with the negotiation or documentation of the
transactions contemplated by the Merger Agreement for services rendered
subsequent to April 18, 2005 up to the date of the Extension Cost Notice, and
(ii) a summary of interest incurred on the Company Debt for periods from April
18, 2005 to the date of the Extension Cost Notice (the amounts in clauses (i)
and (ii) above being referred to herein collectively as the "Extension Costs").
At the Closing (if the Extension Cost Notice is delivered not less than two
Business Days prior to the Closing Date) or, if the Extension Cost Notice is not
delivered at least two Business Day prior to the Closing Date, on the second
Business Day following receipt of the Extension Cost Notice, Purchaser shall pay
(or, if after the Closing, cause the Surviving Corporation to pay) to IBF the
amount of the Extension Costs set forth in the Extension Cost Notice not to
exceed $150,000 in the aggregate. Notwithstanding anything to the contrary set
forth in this Amendment or in the Merger Agreement, Purchaser shall be solely
responsible for the repayment of the Extension Costs up to a maximum of $150,000
in the aggregate, and no portion of the Extension Costs shall be paid with any
portion of the Merger Consideration or taken into account determining the amount
of Company Debt, Bank Obligations, Seller Debt, Excess Seller Debt or Working
Capital.
2. Miscellaneous.
(a) The Merger Agreement is ratified and confirmed in all
respects and shall remain in full force and effect in accordance with its terms
as amended by this Amendment.
(b) Except for the specific amendments set forth in
Section 1 above, nothing herein shall be deemed to be an amendment or waiver of
any covenant or agreement contained in the Merger Agreement, and the parties
hereto hereby agree that all of the covenants and agreements contained in the
Merger Agreement are hereby ratified and confirmed in all respects.
(c) This Amendment may be executed in two or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
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(d) This Amendment shall be construed, performed and
enforced in accordance with the laws of the State of Delaware.
(e) The parties hereto shall, at any time and from time
to time following the execution of this Amendment, execute and deliver all such
further instruments and take all such further action as may be reasonably
necessary or appropriate in order to carry out the provisions of this Amendment.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
U.S. XXXXX, INC., a Delaware corporation
By /s/ XXXXXXX VERDE
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Name: Xxxxxxx Verde
Title: President
SUNSET BRANDS, INC., a Nevada corporation
By /s/ XXXX XXXXXXX
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Name: Xxxx Xxxxxxx
Title: President and CEO
USM ACQUISITION SUB, INC., a Delaware corporation
By /s/ XXXX XXXXXXX
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Name: Xxxx Xxxxxxx
Title: President
IBF FUND LIQUIDATING LLC, individually and as
Shareholder Representative
By /s/ XXXXXX X. XXXXXXXXX
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Name: Xxxxxx X. Xxxxxxxxx
Title: Manager
