EXECUTION COPY
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RECAPITALIZATION AGREEMENT
This Recapitalization Agreement (this "Agreement"), is made and entered
into on March 3, 1998, among Xxxxxx Xxxx--TPG Partners L.P. and Xxxxxx Xxxx I
Parallel, L.P. (collectively, the "Buyer"), Diamond Brands Incorporated, a
Minnesota corporation ("DBI"), and each of the owners of equity interests or
options to purchase equity interests in DBI, all of which are listed on Exhibit
A hereto (collectively, the "Shareholders").
DBI and its wholly-owned subsidiaries, Xxxxxxx Inc., a Maine corporation
("Xxxxxxx"), and Empire Candle, Inc., a Kansas corporation ("Empire") (each such
subsidiary a "Subsidiary" and, collectively, the "Subsidiaries") are engaged in
the business of manufacturing, selling and distributing various consumer goods,
including, without limitation, toothpicks, candles, matches, clothes pins and
plastic cutlery (the "Business").
DBI and the Shareholders desire to have Buyer invest in preferred stock of
DBI and to use the proceeds of such investment, along with the proceeds of
borrowing by DBI, to (i) refinance outstanding funded debt of DBI, (ii)
repurchase a majority of the outstanding Common Stock of DBI, (iii) purchase
outstanding stock options of DBI, and (iv) pay related transactional expenses.
Buyer desires to make such investment on the terms set forth in this Agreement.
Certain capitalized terms used in this Agreement have the meanings given
those terms in Section 14.
The parties agree as follows:
1. The Investment.
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1.1 Authorization. DBI shall authorize the issuance and sale to Buyer of
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that number of shares of Series A Cumulative Preferred Stock of DBI, which will
have the terms outlined on Exhibit B hereto, equal to the Purchase Price
(determined in accordance with Section 1.3) (the "Preferred Shares") divided by
the Liquidation Preference (as defined in Exhibit B). The terms of the related
warrants to be issued to Buyer (the "Warrants") are also outlined on Exhibit B
hereto. At Closing, and prior to any exercise as required in Section 1.2, the
Warrants shall represent the right to purchase 77.5% of the common equity of DBI
on a fully diluted basis, assuming the repurchase of shares and DBI Options
pursuant to Sections 2.1 and 2.2 has been completed.
1.2 Purchase and Sale. Subject to the terms and conditions set forth
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herein, at the Closing (as defined herein), DBI shall sell to Buyer and Buyer
shall purchase the Preferred Shares in consideration for the Purchase Price as
determined in accordance with Section 1.3 hereof. In addition, at the Closing,
Buyer shall exercise Warrants to purchase that number of shares of DBI Common
Stock (as defined herein) as equals 28% of the total outstanding DBI
Common Stock after such exercise and after the repurchase of shares pursuant to
Section 2.1 and shall pay the exercise price related thereto. For all purposes,
the Warrants shall be deemed issued and exercised prior to the repurchase of
shares pursuant to Section 2.1.
1.3 Purchase Price.
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(A) The Purchase Price to be paid by Buyer for the Preferred Shares
(the "Purchase Price") will be an amount equal to:
(1) the amount that would be necessary to satisfy in full all of
DBI's funded debt immediately prior to the Closing ("Debt"), including
without limitation, any line of credit, capital lease obligations,
notes to shareholders and long-term debt, including the current
portion thereof (the "Debt Amount"); plus
(2) an amount equal to (A) $276,000,000 (the "Enterprise
Value"), minus (B) the Debt Amount, plus (C) the Working Capital
Adjustment (as defined below) (the amount equal to (A) minus (B) plus
(C) is herein referred to as the "Equity Value"; the amount equal to
the Equity Value plus the exercise price of all unexercised options to
purchase DBI Common Stock ("DBI Options") immediately prior to the
Closing divided by the aggregate of (x) the number of outstanding
shares of DBI Common Stock, $.01 par value, of DBI ("DBI Common
Stock") immediately prior to the Closing plus (y) the number of shares
of DBI Common Stock which could be purchased pursuant to all
unexercised DBI Options immediately prior to the Closing, is herein
referred to as the "Per Share Equity Value"); plus
(3) the sum of $12,000,000 [estimated fees and expenses]; minus
(4) the sum of $15,000,000 [Retained Stock value]; minus
(5) approximately $227,000,000, which will be borrowed by DBI
from Buyer and/or other sources at or before the Closing.
(B) The Working Capital Adjustment will be the amount (which may be a
negative amount) equal to (i) the "Closing Date Working Capital Amount"
minus (ii) the average monthly working capital for the last full 12 months
prior to the Closing Date minus $1,600,000 (the "Baseline Working
Capital"). The "Closing Date Working Capital" will be equal to the
difference as of the close of business on the day immediately preceding the
Closing Date of (x) the book value of DBI's current assets minus (y) the
book value of DBI's current liabilities (other than the current portion of
funded debt), including accruals for all brokers' fees, employee bonuses
and expenses related to the transactions contemplated hereby (other than
fees and expenses related to the funding of
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the transactions contemplated hereby or to the funding of the Business on
or after the Closing), all determined in accordance with GAAP, except if
the Closing is prior to May 7, 1998 by reason of the giving of the
Shareholders' Notice (as defined in Section 3.2), the take down fees (but
not the commitment fees) plus the legal and accounting costs primarily
related to the take down of the subordinated indebtedness required to fund
the transactions contemplated hereby, shall be accrued as a liability. In
addition, for purposes of determining Closing Date Working Capital, (i) the
employee bonuses accrued as a liability will reflect the net effect of the
expense deduction for income tax purposes which DBI will realize after the
Closing; and (ii) the Closing Date Working Capital will reflect the tax
benefit to be realized by DBI after the Closing from the payment of the
Option Value. The Closing Date Working Capital will not be reduced for any
inventory reduction pursuant to the terms of Section 7.5.
1.4 Payment of Purchase Price.
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(A) At the Closing, Buyer will pay to DBI, as consideration for the
issuance of the Preferred Shares, an estimate of the Purchase Price (the
"Estimated Purchase Price"), determined by estimating the Working Capital
Adjustment based upon DBI's records.
(B) Within sixty days after the Closing, DBI shall deliver to Buyer
and Shareholders Representative (as defined herein), a calculation of the
Purchase Price using the actual Working Capital Adjustment but no other
changes to the Estimated Purchase Price. Within thirty days after delivery
of such calculation, Buyer or Shareholders Representative may assert that
the calculations delivered by DBI are inaccurate and specify the amount of
and the basis for the inaccuracy (the "Disputed Amount") in a written
notice delivered to DBI and the other party. During such thirty-day period,
and thereafter until the Closing Statement (as defined below) is
acknowledged by Buyer and Shareholders Representative, Shareholders
Representative and Buyer and their respective agents and advisors shall
have full access to all records applicable to the determination of the
Working Capital Adjustment. If neither Buyer nor Shareholders
Representative delivers such written assertion to DBI within such thirty
days, Buyer and Shareholders shall be conclusively presumed to agree to
DBI's calculation.
(C) If either Buyer or Shareholders Representative delivers such
written assertion to DBI within such thirty day period, Buyer and
Shareholders Representative shall negotiate in good faith with respect to
the Disputed Amount and if they are unable to reach agreement within thirty
days after delivery of Buyer's or Shareholders Representative's assertion,
the dispute shall be settled by submitting such dispute to Ernst & Young
LLP (the "Accountants"), with a direction to deliver Accountant's
determination within thirty days of such submission. The decision of
Accountants as to the Purchase Price shall be final and binding on the
parties. Buyer and the Shareholders shall each pay one-half of the costs of
Accountants. The final Purchase Price as adjusted
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in accordance with this Section, will be reflected on a final statement
acknowledged by Buyer and Shareholders Representative (the "Closing
Statement").
(D) Within ten (10) business days following the final determination
of the Working Capital Adjustment in accordance with the provisions of this
Section:
(1) if the actual Purchase Price exceeds the Estimated Purchase
Price, DBI will pay the amount of such excess in cash to the
Shareholders from whom DBI Common Stock was purchased pursuant to
Section 2.1 or DBI Options were canceled pursuant to Section 2.2, in
accordance with his or her Percentage Interest (as set forth opposite
his or her name on Exhibit C); or
(2) if the actual Purchase Price is less than the estimated
Purchase Price, then each Shareholder from whom DBI Common Stock was
purchased pursuant to Section 2.1 or DBI Options were canceled
pursuant to Section 2.2 shall refund to DBI his or her Percentage
Interest (as set forth opposite his or her name on Exhibit C) of such
deficit from the escrowed funds under the Price Adjustment Escrow
Agreement (as defined herein).
All payments required to be made by DBI or the Shareholders pursuant
to Section 1.4(D) shall bear interest from the Closing Date through the
date of payment at the rate of 8% per annum.
1. Equity Repurchases and Refinancing.
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2.1 Common Stock Repurchases. Assuming receipt of the necessary funds, at
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the Closing DBI will repurchase from the Shareholders and the Shareholders will
sell, pro rata in accordance with their interests, outstanding DBI Common Stock
with an aggregate value (the "Common Stock Repurchase Amount") equal to the
estimated Equity Value minus $15,000,000 minus the Option Value. The purchase
price per share shall be equal to the estimated Per Share Equity Value,
determined by estimating the Working Capital Adjustment based upon DBI's
records. Such purchase price will be paid in cash to each Shareholder upon the
surrender of the certificate(s) representing the DBI Common Stock owned by such
Shareholder. The Per Share Equity Value will be subject to adjustment as
provided in Section 1.4(D). The Common Stock Repurchase Amount, less the amount
required to be placed in escrow under the terms of Section 3.3(A)(1), shall be
paid by DBI to the Shareholders by wire transfer of immediately available funds
to such accounts designated by the Shareholders prior to Closing.
2.2 Cancellation of Options. Assuming receipt of the necessary funds, at
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the Closing DBI will purchase and cancel all of the DBI Options for a price
determined for each option by multiplying (i) the amount by which the Per Share
Equity Value exceeds the applicable exercise price of such option by (ii) the
number of shares of DBI Common Stock as to which the Option
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is then exercisable (the "Option Value"). The Option Value, less the amount
required to be placed in escrow under the terms of Section 3.3(A)(1), will be
paid in cash to each holder of a DBI Option, upon the surrender of the DBI
Option accompanied by a duly executed Assignment and Termination Agreement,
which each holder of a DBI Option agrees to deliver at Closing. The Option Value
will be subject to adjustment as provided in Section 1.4(D).
2.3 Retained Stock. The Shareholders will, as of the Closing, continue to
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hold the outstanding DBI Common Stock (the "Retained Stock") not repurchased
under the terms of Section 2.1 above. At the Closing, the Retained Stock shall
represent 22.5% of the common equity of DBI on a fully diluted basis (including
the Warrants), subject to the issuance of management options, which shall dilute
the ownership of the Shareholders and Buyer proportionately.
2.4 Financing. Assuming receipt of the necessary funds, at Closing DBI
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will refinance the Debt.
2.5 Indemnification Escrow. At the Closing, the Shareholders will deposit
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a portion of the Retained Stock into an escrow in accordance with Section 10.5.
1. The Closing.
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3.1 Closing. The purchase and sale of the Preferred Shares and the
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consummation of the transactions contemplated by this Agreement (the "Closing")
shall occur at the offices of Xxxxxxxxx & Xxxxxx P.L.L.P. in Minneapolis,
Minnesota at 10:00 a.m. on May 7, 1998, or such earlier or later time (or such
other location) which is agreed upon by Buyer and DBI in writing or as provided
in Section 3.2 (the "Closing Date"). All transactions at the Closing shall be
deemed to take place simultaneously as of the opening of business on the Closing
Date.
3.2 Early Closing. Upon written notice by the Shareholders Representative
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to the Buyer (the "Shareholders' Notice"), the Shareholders may demand that
Buyer take down the funds pursuant to the commitments attached as Schedule 6.9
to fund the transactions contemplated by this Agreement. In the event a
Shareholders' Notice is given, the Closing shall occur on the later of (i)
fifteen calendar days after delivery of the Shareholders' Notice to Buyer; or
(ii) the date which is three business days after receipt by Buyer and DBI of
necessary approvals under the HSR Act, but in any event, not prior to twenty-
eight days after the date of this Agreement, or on such earlier date agreed upon
by Buyer and DBI.
3.3 Deliveries by Buyer. At the Closing, Buyer shall deliver the
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following:
(A) An amount equal to the Estimated Purchase Price, in immediately
available funds, by wire transfer to:
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(1) an account designated by the Escrow Agent under the Escrow
Agreement (as defined herein) of the amount of $500,000 (a pro rata
reduction of the Common Stock Repurchase Amount and Option Value in
accordance with each Shareholder's Percentage Interest) to be held for
a period of up to 150 days under the Escrow Agreement in substantially
the form of Exhibit D hereto (the "Price Adjustment Escrow
Agreement"), to support the obligations of the Shareholders pursuant
to Section 1.4(D)(2) of this Agreement; and
(2) an account designated by DBI prior to the Closing, the
balance of the Estimated Purchase Price.
(B) An Officer's Certificate as to the accuracy at Closing of all of
Buyer's representations and warranties as if made at and as of Closing, the
fulfillment of all of Buyer's agreements and covenants and the satisfaction
of all Closing conditions to be performed by Buyer;
(C) An opinion of legal counsel to Buyer dated as of the Closing
Date, in form reasonably satisfactory to DBI, which opinion is to the
effect that:
(1) Each Buyer is a limited partnership validly existing under
the laws of Delaware and has all requisite company power and authority
to conduct its business as, to such counsel's knowledge, such business
is now conducted;
(2) Buyer has all requisite power and authority to permit it to
execute and deliver this Agreement and perform its obligations
hereunder;
(3) The execution, delivery and performance of this Agreement by
Buyer and each of the documents delivered by Buyer hereunder have been
duly authorized and approved by all necessary partnership action. This
Agreement and each of the documents delivered by Buyer hereunder have
been duly executed and delivered and constitute legal, valid and
binding obligations of Buyer, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, rearrangement, reorganization and other debtor
relief legislation and to the application of general equity
principles; and
(4) Neither the execution and delivery of this Agreement nor
consummation of the transactions contemplated hereby will, except as
identified in such opinion, (a) require Buyer to file, register with
or obtain any approval or action of any governmental entity or agency,
(b) conflict with, result in a breach of, violate or constitute a
default under the governing documents of Buyer or any applicable law
or regulation.
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(D) A Stockholders Agreement in the form of Exhibit E;
(E) The Escrow Agreement in substantially the form of Exhibit F (the
"Indemnification Escrow Agreement");
(F) Such other instruments or documents as may be reasonably
requested by DBI to carry out the transactions contemplated hereby.
3.4 Deliveries by DBI. At the Closing, DBI shall deliver the following to
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Buyer; provided DBI shall have fulfilled its obligations under Section 3.3(D) if
it uses all reasonable efforts to deliver the agreements described therein:
(A) Stock certificates for the Preferred Shares;
(B) Evidence of the repurchase of DBI Common Stock in accordance with
Section 2.1, in form reasonably acceptable to Buyer;
(C) Duly executed Assignments and Termination Agreements with respect
to all DBI Options, in form reasonably acceptable to Buyer;
(D) Employment agreements between DBI and the members of its
management listed on Schedule 3.3(D), in form reasonably acceptable to
Buyer;
(E) Resignations of all of the directors of DBI and the Subsidiaries
as are requested by Buyer prior to the Closing.
(F) Evidence of the appointment or election to the Board of Directors
of DBI of the directors designated by Buyer;
(G) A copy of DBI's Articles of Incorporation, certified by the
Secretary of State of Minnesota;
(H) A certificate of the secretary of DBI certifying as to (i) the
bylaws of DBI, (ii) the resolutions of the Board of Directors of DBI
authorizing the consummation of the transactions contemplated hereby and
that such resolutions have not been amended or rescinded and remain in full
force and effect, and (iii) the incumbency of the signatories on behalf of
DBI to this Agreement and the other documents delivered hereunder.
(I) A Certificate from the Secretary of State of Minnesota, dated as
of a date within thirty days prior to the Closing Date, to the effect that
DBI is in existence and in good standing;
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(J) An opinion of legal counsel to DBI dated as of the Closing Date,
in form reasonably satisfactory to Buyer, which opinion is to the effect
that:
(1) DBI is a corporation validly existing under the laws of
Minnesota and has all requisite corporate power and authority to
conduct its business as, to such counsel's knowledge, such business is
now conducted;
(2) DBI has all requisite corporate power and authority to
permit it to execute and deliver this Agreement and to perform its
obligations hereunder;
(3) The execution, delivery and performance of this Agreement
and each of the documents delivered by DBI hereunder have been duly
authorized and approved by all necessary corporate action. This
Agreement and each of the documents delivered by DBI hereunder have
been duly executed and delivered and constitute legal, valid and
binding obligations of DBI, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, rearrangement, reorganization and other debtor
relief legislation and to the application of general equity
principles;
(4) The authorized Capital Stock of DBI consists of (i) ______
shares of Common Stock, of which there are ________ shares issued and
outstanding of record; and (ii) _______ shares of Series A Cumulative
Preferred Stock, of which there are ______ shares issued and
outstanding of record. Schedule 5.5 to this Agreement contains a
complete list of record shareholders of DBI as well as the number of
shares of DBI Common Stock held of record by each such shareholder, in
each case as registered on the books and records of DBI. Schedule 5.5
to this Agreement lists the record owners of the DBI Options. All such
issued and outstanding shares are validly issued and (assuming receipt
by DBI of the consideration called for by the minutes authorizing the
issuance of each shares) are fully paid and nonassessable and issued
without violation of any preemptive or other right to purchase granted
by statute or the applicable organizational documents. Except as set
forth in such Schedule 5.5, to such counsel's knowledge, there are no
other shares of capital stock of DBI, or securities convertible into
or exchangeable or exercisable for shares of capital stock
outstanding. Upon issuance at the Closing and payment therefor in
accordance with the terms of this Agreement, the Preferred Shares will
be duly authorized, validly issued, fully paid and nonassessable
shares of DBI, issued without violation of any preemptive or other
right to purchase granted by statute or DBI's organizational
documents; and
(5) Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby, will, except as
identified in such opinion, (A) require DBI to file, register with or
obtain any approval or
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action of any governmental entity or agency, (B) conflict with, result
in a breach of, violate or constitute a default under the
organizational documents of DBI or any Subsidiary or any applicable
law or regulation;
(K) All consents of third parties required pursuant to Section 4.1(D);
(L) The Purchase Price Escrow Agreement; and
(M) Such other instruments or documents as may be reasonably requested
by Buyer to carry out the transactions contemplated hereby.
3.5 Deliveries by the Shareholders. At the Closing, the Shareholders will
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deliver:
(A) Certificates representing the DBI Common Stock to be repurchased
in accordance with Section 2.1;
(B) The Price Adjustment Escrow Agreement;
(C) The Stockholders Agreement; and
(D) The Indemnification Escrow Agreement and certificates representing
the shares of DBI Common Stock to be deposited thereunder in accordance
with Section 10.5 accompanied by stock powers duly executed in blank.
1. Closing Conditions.
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4.1 Buyer's Conditions. The obligation of Buyer to consummate the
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purchase and sale of the Preferred Shares is subject to the satisfaction, or
written waiver by Buyer, of all of the following conditions as of the Closing
Date, except that the condition in Sections 4.1(D) may not be waived:
(A) Representations and Warranties. The representations and
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warranties made by DBI and the Shareholders in this Agreement must be true
and correct in all material respects as of the date of this Agreement and,
except as specifically contemplated by this Agreement, on and as of the
Closing Date, except to the extent of changes caused by the transactions
expressly contemplated by this Agreement; provided this condition shall not
apply with respect to any matter properly and specifically reflected in the
Working Capital Adjustment or which would not be a material adverse change
as described in Section 4.1(C). DBI and the Shareholders must have
performed or complied, in all material respects, with all obligations and
covenants required by this Agreement to be performed or complied with by
DBI or the Shareholders by the Closing Date.
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(B) No Pending Action. No action or proceeding before any court or
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governmental body shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this Agreement
or any of the transactions contemplated hereby, declare unlawful the
transactions contemplated by this Agreement or cause such transactions to
be rescinded or affect the right of Buyer to own the Preferred Shares or of
DBI to own or use its assets or conduct the Business.
(C) No Material Adverse Change. Since December 31, 1997, there
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shall not have been any material adverse change in the business,
properties, financial condition, results of operations, assets, prospects
of the current Business during the successive twelve months, or liabilities
of DBI and its Subsidiaries, taken as a whole; provided this condition
shall not apply with respect to any matter not reasonably likely to result
in a net cost to DBI in excess of $5,000,000 following Closing (excluding
any cost reflected in the Working Capital Adjustment) and in a material
impairment of the operations of DBI as currently conducted or the right or
ability of DBI to issue the Preferred Stock and Warrants containing the
terms set forth on Exhibit B.
(D) Governmental Authorizations. DBI shall have received all
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required authorizations, consents and approvals of governments and
governmental agencies and third parties with respect to the consummation by
DBI of the transactions contemplated hereby, except where the failure to
obtain such third party consents would not reasonably be expected to result
in a material liability to DBI or its Subsidiaries or materially interfere
with the Business, create a lien on any assets of DBI or any of its
Subsidiaries, or affect the right or ability of DBI to issue the Preferred
Shares and Warrants containing the terms set forth on Exhibit B.
4.2 DBI's and Shareholders' Conditions. The obligations of DBI and the
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Shareholders to consummate the transactions contemplated hereby are subject to
the satisfaction or written waiver by DBI of all of the following conditions as
of the Closing Date, except that the condition in Section 4.2(C) may not be
waived:
(A) Representations and Warranties. The representations and
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warranties of Buyer made in this Agreement must be true and correct in all
material respects as of the date of this Agreement and on and as of the
Closing Date, and Buyer must have performed or complied, in all material
respects, with the obligations (including those specified in Section 12.4)
and covenants required by this Agreement to be performed or complied with
by Buyer by the Closing Date;
(B) No Adverse Actions. There must be no injunction or order of any
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court or administrative agency of competent jurisdiction in effect as of
the Closing Date which restrains or prohibits the transactions contemplated
hereby; and
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(C) Governmental Authorizations. Buyer shall have received all
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required authorizations, consents and approvals of governments and
governmental agencies and third parties with respect to the consummation by
Buyer of the transactions contemplated hereby, except where the failure to
obtain such third party consents would not reasonably be expected to result
in a material liability to DBI or its Subsidiaries or materially interfere
with the Business, create a Lien on the assets of DBI or its Subsidiaries
or the DBI Common Stock or the ability of DBI to issue the Preferred Shares
or the Warrants.
5. Representations and Warranties of DBI. DBI represents and warrants to
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Buyer as follows:
5.1 Organization and Authority. DBI is a corporation duly organized,
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validly existing and in good standing under the laws of the state of Minnesota.
Xxxxxxx is a corporation duly organized, validly existing and in good standing
under the laws of the state of Maine. Empire is a corporation duly organized,
validly existing and in good standing under the laws of the state of Kansas.
DBI and each of the Subsidiaries is duly qualified as a foreign corporation in
every jurisdiction where failure to so qualify would result in a Material
Adverse Effect. DBI and each of the Subsidiaries has the corporate power and
authority to carry on its business as now conducted and to consummate the
transactions contemplated hereby. All corporate acts and proceedings required
to be taken by DBI and each of the Subsidiaries to authorize the execution,
delivery and performance of, and the consummation of the transactions
contemplated by, this Agreement have been duly and properly taken. DBI has
delivered to Buyer complete and correct copies of the charter and bylaws of DBI
and each Subsidiary.
5.2 Due Execution. This Agreement has been duly executed and delivered by
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DBI and constitutes a valid and binding obligation of DBI, enforceable against
DBI in accordance with its terms, except that
(A) such enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable principles
now or hereafter in effect relating to or affecting the enforcement of
creditors' rights or debtors' obligations generally, and
(B) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought.
5.3 No Conflicts. Except as disclosed on Schedule 5.3, the execution and
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delivery of this Agreement does not, and the consummation of the transactions
contemplated by, and the compliance with the terms of, this Agreement will not,
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit or to a
lien, encumbrance, penalty or payment under, or require any consent,
authorization or approval under
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(A) any provision of the articles of incorporation or bylaws of DBI
or any of the Subsidiaries;
(B) any Material Contract; or
(C) any judgment, order or decree or any statute, law, ordinance,
rule, regulation, material license or permit applicable to DBI, any
Subsidiary or the Business, other than:
(1) compliance with and filings under the HSR Act and any
applicable foreign laws; and
(2) those that may be required solely by reason of Buyer's (as
opposed to any other party's) participation in the transactions
contemplated by this Agreement.
5.4 Governmental Consents. Based, in part, upon the representations and
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warranties of Buyer in Section 6.7, no consent, approval, license, permit, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required to be obtained or made by or
with respect to DBI or any of the Subsidiaries in connection with the execution
and delivery of this Agreement, or the consummation by DBI of the transactions
contemplated by this Agreement, other than:
(A) compliance with and filings under the HSR Act and any applicable
foreign laws;
(B) qualification under applicable state securities laws; and
(C) filing of a Certificate of Rights and Preferences with the
Secretary of State of Minnesota with respect to the Preferred Shares; and
(D) those that may be required solely by reason of Buyer's (as opposed
to any other party's) participation in the transactions contemplated by
this Agreement.
5.5 Capitalization.
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(A) Schedule 5.5 accurately identifies all of the authorized capital
stock of DBI and each of the Subsidiaries and the number of shares of such
capital stock outstanding and the record holders of that stock. The DBI
Common Stock constitutes 100% of the issued and outstanding capital stock
of DBI. All of the issued and
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outstanding DBI Common Stock is validly issued, fully paid and
nonassessable and issued without violation of any preemptive right. Except
for the DBI Options, as disclosed on Schedule 5.5, there are no outstanding
subscriptions, options, warrants, calls, rights, convertible securities or
other agreements or commitments of any character relating to ownership
interests in DBI, or any other securities of DBI or of any of the
Subsidiaries or otherwise obligating DBI or any of the Subsidiaries to
issue, transfer, register or sell any such securities, except Warrants and
Preferred Shares hereunder. DBI owns 100% of the issued and outstanding
capital stock of the Subsidiaries. Except for the Subsidiaries, DBI holds,
directly or indirectly, no beneficial interests in any corporation or other
entity except as set forth on Schedule 5.5.
(B) As of the Closing, the Preferred Shares will be duly authorized
and validly issued, fully paid and nonassessable and issued without
violation of any preemptive right.
5.6 No Restrictions. To the Knowledge of DBI, other than transfer
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restrictions imposed by applicable state or federal securities laws, or by
contracts which will be terminated on or prior to the Closing Date which are
listed on Schedule 5.6, there are no transfer restrictions, subscriptions,
options, warrants, rights, calls, contracts, voting trusts, irrevocable proxies,
voting arrangements, commitments, understandings or agreements relating to the
sale, voting or transfer of any of the DBI Common Stock.
5.7 Financial Statements. DBI has delivered to Buyer, true and correct
--------------------
copies of the Financial Statements. The Financial Statements have been prepared
in accordance with the applicable books and records of DBI and the Subsidiaries
and the audited Financial Statements have been prepared in conformity with
generally accepted accounting principles, consistently applied during the
related periods (except as expressly noted in the notes to the Financial
Statements). The balance sheet contained in each of the Financial Statements
fairly presents, in all material respects, the financial condition of DBI, on a
consolidated basis, as of the respective dates set forth in those balance
sheets, and each income statement and statement of cash flows included in each
of the Financial statements fairly presents, in all material respects, the
results of operations and the cash flows of DBI, on a consolidated basis, for
the respective periods set forth therein.
5.8 Undisclosed Liabilities. Neither DBI nor any of the Subsidiaries has
-----------------------
any material liabilities or obligations, except for (i) those reflected on or
reserved against in the Financial Statements; (ii) those incurred in the
ordinary course of business since the date of the latest Financial Statements;
or (iii) those set forth on Schedule 5.8.
5.9 Absence of Certain Changes. Except as disclosed on Schedule 5.9,
--------------------------
since December 31, 1997, neither DBI nor any Subsidiary has incurred any debts,
obligations or liabilities, absolute, accrued or contingent and whether due or
to become due, except in the ordinary course of business, none of which would
have a Material Adverse Effect; paid any
13
obligation or liability, or discharged or satisfied any Liens other than in the
usual and ordinary course of business; entered into any Material Contract other
than in the ordinary course of business; declared or made any payment to or
distribution to its shareholders as such, or purchased or redeemed any of its
shares of capital stock or obligated itself to do so; mortgaged, pledged or
subjected to Lien any material asset of DBI or any Subsidiary; sold, transferred
or leased any material asset except for the sale of inventory in the ordinary
course of business; suffered any material physical damage, destruction or loss
not covered by insurance; encountered any strike or labor union organizing
activities, or issued or sold any shares of capital stock or other securities or
granted any options with respect thereto; nor has DBI or any Subsidiary agreed
to do any of the foregoing, except the Warrants and Preferred Shares hereunder.
5.10 Title to Properties and Encumbrances. Except as disclosed on
------------------------------------
Schedule 5.10, DBI and its Subsidiaries have good and valid title, subject to no
Lien, to all of their respective properties and assets, including without
limitation the properties and assets reflected in the most recently dated
Financial Statements, except for properties disposed of in the ordinary course
of business since the date of the most recently dated Financial Statements.
5.11 Property, Plant and Equipment. The property, plant and equipment of
-----------------------------
DBI and its Subsidiaries are in operating condition adequate to permit the
conduct of the Business in substantially the manner in which the Business is
currently conducted. Except as disclosed on Schedule 5.10, DBI or a Subsidiary
has good title to, or a valid leasehold interest in, all of the assets used in
the conduct of the Business.
5.12 Contracts. Schedule 5.12 identifies all of the Material Contracts.
---------
Except as disclosed on Schedule 5.12:
(A) each Material Contract is a valid and binding obligation of DBI or
the Subsidiary as the case may be, and, to the Knowledge of DBI, is in full
force and effect and enforceable, subject to applicable insolvency,
fraudulent transfer, reorganization, other laws affecting creditors' rights
generally from time to time in effect and subject to general principles of
equity; and
(B) DBI and each Subsidiary have performed, as of the date of this
Agreement, all of their respective obligations required to be performed to
date under the Material Contracts and are not (with or without the lapse of
time, the giving of notice, or both) in breach or default under any of the
Material Contracts.
5.13 Intellectual Property. Except as disclosed on Schedule 5.13, either
---------------------
DBI or one of the Subsidiaries owns all of the Intellectual Property free and
clear of all Liens. Schedule 5.13 identifies all letters patent and patent
applications, registered trademarks, and copyright registrations and
applications owned by DBI or the Subsidiaries. Except as disclosed on Schedule
5.13, neither the Business nor any products sold by the Business infringes on
the
14
intellectual property rights of any Person. Except as disclosed on Schedule
5.13, no claims are pending or, to the Knowledge of DBI, threatened in writing
against DBI or any of the Subsidiaries by any Person with respect to the
ownership, validity, enforceability or use of any of the Intellectual Property
or, to the Knowledge of DBI, otherwise challenging or questioning the validity
or effectiveness of any of the Intellectual Property.
5.14 Litigation.
----------
(A) Schedule 5.14(A) identifies all of the lawsuits, claims, actions,
suits, proceedings and, to the Knowledge of DBI, investigations pending,
or, to the Knowledge of DBI, threatened which relate to the Business, DBI
or any of the Subsidiaries; and
(B) Except as disclosed on Schedule 5.14(B), neither DBI nor any of
the Subsidiaries is subject to any judgment, order or decree of any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign.
5.15 Compliance with Applicable Laws.
-------------------------------
(A) Except as disclosed on Schedule 5.15(A), DBI, each Subsidiary and
the Business are in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations and all conditions of applicable
licenses and permits and any past non-compliance with such laws has been
remedied to the extent required by such laws or to the satisfaction of
applicable governmental agencies.
(B) Except as disclosed on Schedule 5.15(A), neither DBI nor any of
the Subsidiaries has received any written, or, to the Knowledge of DBI,
oral communication from a governmental authority that alleges that DBI, a
Subsidiary or the Business is not currently in compliance, in all material
respects, with any Environmental Laws, including the rules and regulations
relating thereto, or any other applicable statute, law, ordinance, rule,
order, regulation, license or permit.
(C) Schedule 5.15(B) identifies all material permits, licenses and
governmental authorizations obtained by DBI or any of the Subsidiaries
relating to the current conduct of the Business. Except as disclosed on
Schedule 5.15(B), the Business is in compliance with the provisions of
such permits, licenses and governmental authorizations.
5.16 Taxes. DBI and each Subsidiary have each timely filed all tax or
-----
assessment reports and tax returns that are required by any law or regulation to
be filed by DBI or any Subsidiary, and all those reports and returns are
accurate and complete. DBI and each Subsidiary have duly paid or deposited all
taxes due and payable, or which have been assessed against DBI
15
or any Subsidiary or which DBI or any Subsidiary is obligated to withhold from
amounts owing to any employee. All taxes relating to the current year operations
through the end of the most recently concluded fiscal month of DBI prior to the
Closing Date have been accrued or reflected in the books and records of DBI and
each Subsidiary. Except as disclosed on Schedule 5.16, no taxing or assessment
authority has indicated to DBI in writing any intent to conduct an audit or
other investigation or asserted any unresolved deficiencies with respect to tax
liabilities of DBI or any Subsidiary for any period and DBI has no Knowledge of
any facts or circumstances which would give rise thereto.
5.17 Labor Relations. Except as disclosed on Schedule 5.17, neither DBI
---------------
nor any Subsidiary has any:
(A) unfair labor practice charge or complaint or other proceeding
pending or, to its Knowledge, threatened against DBI or any of the
Subsidiaries before the National Labor Relations Board;
(B) labor strike, slowdown or stoppage pending or, to the Knowledge
of DBI, threatened against or affecting DBI or any of the Subsidiaries;
(C) pending collective bargaining negotiations relating to the
employees of DBI or any of the Subsidiaries;
(D) pending petitions for recognition of a labor union or association
as the exclusive bargaining agent for any or all of the employees of DBI or
any of the Subsidiaries, and, to the Knowledge of DBI, there has not been
any general solicitation of representation cards by any union seeking to
represent the employees of DBI or any of the Subsidiaries as their
exclusive bargaining agent;
(E) collective bargaining agreements; or
(F) material arbitrations, grievances, suits or administrative
proceedings before any government entity relating to labor or employment
matters involving any employees of DBI or any of the Subsidiaries.
5.18 ERISA.
-----
(A) Schedule 5.18 accurately identifies all Plans. DBI has delivered
or caused to be delivered to Buyer a copy of each Plan. Except as disclosed
on Schedule 5.18, (i) no Plan has been terminated within the past twenty-
four months; and (ii) there is no investigation, action, suit, arbitration
or other legal, administrative or other proceeding pending, or to the
Knowledge of DBI, threatened, against any Plan or any assets of any Plan.
16
(B) Except as provided in Schedule 5.18, each Plan is in compliance
with all applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of 1986,
as amended (the "Code"), as well as each Plan's terms and conditions.
Except as provided in Schedule 5.18, there have been no "prohibited
transactions" and no "reportable events" within the meaning of the ERISA
and the Code within the last twenty-four months with respect to any Plan.
Neither DBI nor any of the Subsidiaries have incurred any "accumulated
funding deficiency" within the meaning of ERISA or incurred any liability
to the Pension Benefit Guaranty Corporation in connection with a Plan (or
other class of benefit that the Pension Benefit Guaranty Corporation has
elected to insure).
5.19 Brokers or Finders. DBI has not engaged the services of any broker
------------------
or finder with respect to the transactions contemplated by this Agreement, and
no Person has, or will have, as a result of the consummation of the transactions
contemplated by this Agreement, any right, interest or valid claim against or
upon DBI for any commission, fee or other compensation as a finder or broker
thereof, except that Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation ("DLJ")
has been retained by DBI in connection with the transactions contemplated by
this Agreement, as described on Schedule 5.19.
5.20 Transactions With Affiliates. Except as disclosed on Schedule 5.20,
----------------------------
no director or officer of DBI or any Subsidiary (i) has any contractual
relationship or arrangements with, or commitments to, DBI or any Subsidiary;
(ii) has any direct or indirect interest in any right, property or assets which
are used by DBI or any Subsidiary in the conduct of its business; or (iii) owns
any securities of, or has any direct or indirect interest in, any entity which
conducts a material amount of business with DBI or any Subsidiary, other than
ownership of not more than 1% of a public company.
5.21 Customers and Suppliers. Schedule 5.21 contains a list of the sales
-----------------------
to the twenty largest customers of DBI within the twelve months ended December
31, 1997 and of purchases from and the identity of the ten largest suppliers to
DBI during such period. Except as set forth in Schedule 5.21, since January 1,
1997: (a) DBI has not received from any of the top five customers listed on
Schedule 5.21 notice that such customer intends to discontinue all or
substantially all of its purchasing from DBI, and (b) DBI has not received from
any of the major suppliers of DBI notice that any significant supplier intends
to discontinue delivery of supplies to DBI.
5.22 Improper Payments. Neither DBI or any Subsidiary, nor any officer,
-----------------
agent or employee of DBI, nor, to the Knowledge of DBI or any Subsidiary, any
distributor, licensee or any other person acting on behalf of DBI or any
Subsidiary, (a) has made any unlawful domestic or foreign political
contributions; (b) has made any payment or provided services which were not
legal to make or provide or which DBI or any Subsidiary or any such officer,
employee or other
17
person should have known were not legal for the payee or the recipient of such
services to receive; (c) has received any payments, services or gratitudes which
were not legal to receive or which DBI or any Subsidiary or such person should
have known were not legal for the payor or the provider to make or provide; (d)
has had any transactions or payments required to be reflected in its financial
statements which are not recorded in its accounting books and records or
disclosed in its financial statements; (e) has had any off-book bank or cash
accounts or "slush funds"; (f) has made any payments to governmental officials
in their individual capacities for the purpose of affecting their action or the
action of the government they represent to obtain special occasions; or (g) has
made illegal payments to obtain or retain business. Neither DBI or any
Subsidiary nor, to the Knowledge of DBI, any of the employees, have received or
paid a "kickback" or any improper or illegal rebate, commission or other payment
in connection with the Business.
5.23 Insurance. Schedule 5.23 contains a complete and correct list and
---------
summary description (including the name of the insurer, coverage, premium,
deductible and expiration date) of all policies of insurance which are in force,
including the amounts thereof, maintained by DBI or any Subsidiary or in which
DBI or any Subsidiary is a named insured or on which DBI or any Subsidiary is
paying premiums. Subject to the deductibles set forth in Schedule 5.23, such
policies are in full force and effect and, based on the past experience of DBI,
are adequate to provide coverage against risks of a material nature to which DBI
or any Subsidiary would normally be exposed in the operation of its business.
5.24 Product Claims. Schedule 5.24 contains an accurate and complete
--------------
statement of all written warranties, warranty policies, service and maintenance
agreements of DBI or any Subsidiary. A summary of the customer claims for
defective products or poor performance related to the Business since January 1,
1996 is included in Schedule 5.24.
5.25 Product Liability. Schedule 5.25 contains an accurate and complete
-----------------
list and summary description of all existing liabilities, claims or obligations
arising from or alleged to arise from any injury to persons or property as a
result of the ownership, consumption, possession or use of any product sold by
DBI or any Subsidiary, or service rendered by DBI or any Subsidiary, or any
failure on the part of DBI or any Subsidiary to deliver product or render
service, on or prior to the Closing Date. All such claims are fully covered by
product liability insurance, subject to any applicable deductibles on Schedule
5.23. There are no recalls, threatened or pending, of any product of DBI or any
Subsidiary.
5.26 Software and Information Systems. Schedule 5.26 identifies or
--------------------------------
describes all material computer software, programs and information systems
("Software") used by the Company or any Subsidiary, all of which is licensed
from third parties. Schedule 5.26 describes the procedures and actions to be
taken by DBI with respect to the continued effective use of its software and
information systems after December 31, 1999. Neither DBI nor its Subsidiaries
is in violation of any third party software license.
18
5.27 Environmental Matters.
---------------------
(A) Except as identified in Schedule 5.27, DBI and each Subsidiary
has previously and is currently complying with its obligations under all
Environmental Laws in connection with the operation of the Business, its
occupancy of facilities and otherwise, except for such non-compliance which
has been remedied to the extent required by the Environmental Laws or to
the satisfaction of applicable governmental agencies. Except as identified
in Schedule 5.27, neither DBI nor any Subsidiary has received any written
or, to the Knowledge of DBI, any oral notice alleging any potential non-
compliance with or potential liability pursuant to any Environmental Laws
or with respect to any Materials of Environmental Concern.
(B) Except as identified in Schedule 5.27, no Materials of
Environmental Concern have ever been unlawfully generated, treated, stored,
or disposed of by DBI or any Subsidiary at any facility owned, leased,
operated or utilized by DBI or any Subsidiary (a "Facility"). No
underground storage tanks, as defined in RCRA or under applicable state
law, are present at any Facility or are operated by DBI or any Subsidiary
at any Facility, and, to the Knowledge of DBI, no such tanks were
previously abandoned or removed, except as identified in Schedule 5.27.
Except as identified on Schedule 5.27, there are no Materials of
Environmental Concern or other condition or use of any Facility, whether
natural or man-made, which poses a significant threat of damage to the
health of persons, to property, to natural resources, or to the
environment.
(C) Except as identified in Schedule 5.27, with respect to the
Business, each Facility and its assets, neither DBI or any Subsidiary nor
the Business has any liability or unfulfilled obligation, whether fixed,
unliquidated, absolute, contingent or otherwise, under any Environmental
Laws, including any liability, responsibility or obligation for fines or
penalties, or for investigation, expense, removal, or remedial action to
effect compliance with or discharge any duty, obligation or claim under any
such laws or regulations, and, to the Knowledge of DBI, no such claims,
actions, suits, proceedings or investigations under such laws or
regulations exist or may be brought or threatened. Except as identified in
Schedule 5.27, (i) there has not been, and is not occurring at any
Facility, or any location to which DBI or any Subsidiary ever sent any
materials, or its current or former operations, any release or threatened
release, as those terms are defined in CERCLA, of any Materials of
Environmental Concern resulting from the operations of DBI or any
Subsidiary; and (ii) to the Knowledge of DBI, such a release is not
occurring and has not occurred at any time in the past. Except as
identified in Schedule 5.27, neither DBI nor any Subsidiary has ever
arranged for disposal or treatment, arranged with a transporter to or
accepted for transport any Materials of Environmental Concern, to a
facility, site or location, which, pursuant to CERCLA or any similar state
or local law, (i) has been placed or has been publicly proposed by
authorities having jurisdiction to be
19
placed, on the National Priorities List or its state equivalent; or (ii)
which is subject to a claim, administrative order or other request to take
removal or remedial action by any person having jurisdiction and authority
in the matter.
(D) Schedule 5.27 identifies all environmental audits or assessments
or occupational health studies undertaken by or on behalf of DBI or any
Subsidiary or legal counsel therefor or, to the Knowledge of DBI,
governmental agencies with respect to each Facility and the Business, in
the past five years.
(E) For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(1) "Environmental Laws" (A) means all federal, state and local
------------------
laws, statutes, decisions, rules, ordinances, regulations, moratoria,
orders and requirements ("Laws") relating to (i) pollution or the
protection of the environment (including air, surface water, ground
water, soil, land surface or subsurface strata), or (ii) disposal,
emissions, discharges, spills, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, import, export, treatment,
storage, disposal, transport or handling of Materials of Environmental
Concern, and (B) shall include the Resource Conservation and Recovery
Act, as amended ("RCRA"); the Comprehensive Environmental Response
Compensation and Liability Act, as amended ("CERCLA"); the Federal
Water Pollution Control Act, as amended; the Occupational Safety and
Health Act, as amended; the Clean Air Act, as amended; the Safe
Drinking Water Act, as amended; the Toxic Substances Control Act, as
amended; the Emergency Planning and Community Right-to-Know Act; the
Hazardous Materials Transportation Act, as amended; all Laws related
thereto, all implementing Laws and all similar state and local Laws
with respect to each of the foregoing acts.
(2) "Materials of Environmental Concern" means any and all
----------------------------------
hazardous chemicals and materials, and any and all hazardous
substances as defined in CERCLA, hazardous wastes as defined in RCRA,
petroleum and petroleum products, radioactive materials, and any and
all other hazardous chemicals, materials, constituents, pollutants or
contaminants regulated under any Environmental Laws.
5.28 Receivables. All of the accounts receivable of DBI and each
-----------
Subsidiary as of the Closing will be valid claims against customers for goods or
services delivered or rendered in the ordinary course of business.
20
5.29 Disclosure. The representations and warranties made by DBI in this
----------
Agreement, or in any certificate, statement or other document furnished to Buyer
by DBI pursuant to this Agreement, and the written information and documents
provided by DBI to Buyer on or before the date hereof, excluding specifically
the memorandum prepared by DLJ, all as modified by the Schedules to this
Agreement and all as taken as a whole, in light of the circumstances made, do
not contain untrue statements of material facts and do not omit to state
material facts necessary to make the statements therein in light of the
circumstances under which they were made, not misleading. DBI makes no
representation or warranty with respect to any forecasts, plans, estimates,
budgets or projections contained in any of the foregoing except that such
prospective information prepared by DBI was prepared in good faith. To the
Knowledge of DBI, DBI is not aware of any facts pertaining to DBI, any
Subsidiary or the Business which are reasonably likely to have a Material
Adverse Effect.
6. Representations and Warranties of Buyer. Buyer represents and warrants to
---------------------------------------
DBI and the Shareholders as follows:
6.1 Organization and Authority. Buyer is a limited liability company duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. All company acts and proceedings required to be taken by Buyer to
authorize the execution, delivery and performance of, and the consummation of
the transactions contemplated by, this Agreement have been duly and properly
taken.
6.2 Due Execution. This Agreement has been duly executed and delivered by
-------------
Buyer and constitutes a valid and binding obligation of Buyer, enforceable
against it in accordance with its terms, except that
(A) such enforceability may be subject to bankruptcy, insolvency,
reorganization, moratorium or other laws, decisions or equitable principles
now or hereafter in effect relating to or affecting the enforcement of
creditors' rights or debtors' obligations generally; and
(B) the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefore may be
brought.
6.3 No Conflicts. The execution and delivery of this Agreement does not,
------------
and the consummation of the transactions contemplated by, and the compliance
with the terms of, this Agreement will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of, Buyer under any provision of, or
require any consent, authorization or approval under
21
(A) any provision of the governing documents of Buyer;
(B) any contract, agreement, instrument or other document to which
Buyer is a party or by which any of its properties or assets are bound; or
(C) any material judgment, order or decree or any material statute,
law, ordinance, rule or regulation applicable to Buyer or its assets, other
than
(1) compliance with and filings under the HSR Act and any
applicable foreign laws; and
(2) those that may be required solely by reason of DBI's (as
opposed to any other party's) participation in the transactions
contemplated by this Agreement.
6.4 Governmental Consents. No consent, approval, license, permit, order
---------------------
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required to be obtained or made by or
with respect to Buyer in connection with the execution and delivery of this
Agreement, or the consummation by Buyer of the transactions contemplated by this
Agreement, other than
(A) compliance with and filings under the HSR Act and any applicable
foreign laws; and
(B) those that may be required solely by reason of DBI's (as opposed
to any other party's) participation in the transactions contemplated by
this Agreement.
6.5 Actions and Proceedings. There are no:
-----------------------
(A) outstanding judgments, orders, writs, injunctions or decrees of
any court, governmental agency or arbitration tribunal against Buyer which
may have a materially adverse effect on the ability of Buyer to consummate
the transactions contemplated by this Agreement; or
(B) actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, to the knowledge of Buyer,
threatened against Buyer, which have or could have a material adverse
effect on the ability of Buyer to consummate the transactions contemplated
hereby.
22
6.6 Brokers or Finders. Buyer has not engaged the services of any broker
------------------
or finder with respect to the transactions contemplated by this Agreement, and
no Person has, or will have, as a result of the consummation of the transactions
contemplated by this Agreement, any right, interest or valid claim against or
upon Buyer for any commission, fee or other compensation as a finder or broker
thereof.
6.7 Investment Intent; Experience. Buyer has sufficient knowledge and
-----------------------------
experience in financial and business matters to enable it to evaluate the merits
and risks of the transactions contemplated by this Agreement and has so
evaluated the merits and risks of the transactions contemplated by this
Agreement to its satisfaction. Buyer is acquiring the Preferred Shares and
Warrants for its own account, for investment purposes and not with a present
view for resale or for distribution of all or any portion of the Preferred
Shares or Warrants. The Buyer understands that the Preferred Shares and
Warrants have not been, and will not be, registered under the Securities Act of
1933, as amended, as of the Closing or under any state securities laws. The
Preferred Shares and Warrants are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
and such certificates will bear a legend restricting the transfer thereof.
Buyer is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (4)
under the Securities Act of 1933. Buyer is able to bear the economic risks
inherent in holding the Preferred Shares and Warrants.
6.8 Principal Office. The state in which Buyer's principal office is
----------------
located is the State of California.
6.9 Financing. Buyer has the financing commitments attached hereto as
---------
Schedule 6.9. As of the date hereof, such commitments are in full force and
effect and contain the complete understanding of the parties thereto with
respect to the matters described therein. Buyer will not terminate such
commitments unless it has secured substitute commitments sufficient to provide
the financing under Section 12.4
7. Covenants of DBI and the Shareholders. DBI and the Shareholders covenant
-------------------------------------
and agree as follows:
7.1 Access. Prior to the Closing, DBI must give Buyer, and Buyer's
------
representatives, employees, counsel and accountants, reasonable access, during
normal business hours and upon reasonable notice to Xxxxxx X. Xxxxxx, III or
Xxxxxx X. Xxxxxxx, to the books and records of DBI and the Subsidiaries, such
access will not unreasonably interfere with the normal operations of DBI or the
Business and all requests for access to management personnel must be approved in
advance by Xxxxxx X. Xxxxxxx or Xxxxxx X. Xxxxxx, III. Access to management
personnel will not be unreasonably withheld and may only be requested to the
extent necessary to facilitate financing or the consummation of the transactions
contemplated by this Agreement and will, in any event, require the participation
of Xxxxxx X. Xxxxxxx who will be reasonably available.
23
7.2 Ordinary Conduct. Except as permitted by the terms of this Agreement,
----------------
from the date of this Agreement to the Closing Date, DBI shall and shall cause
the Subsidiaries to conduct the Business in the ordinary course consistent with
past practice. Without the prior written consent of Buyer, neither DBI nor any
Subsidiary will do any of the following:
(A) sell, lease, license or otherwise dispose of, or agree to sell,
lease, license or otherwise dispose of, any interest in any of its assets
that are material, individually or in the aggregate, to the Business,
except for the sales of inventory in the ordinary course of business
consistent with past practice;
(B) create, incur, assume or guarantee any indebtedness for money
borrowed or increase the amount of any indebtedness outstanding under any
line of credit, loan agreement, mortgage, or other borrowing arrangement in
existence on the date of this Agreement, except in the ordinary course of
business consistent with past practice;
(C) amend any existing Material Contract, or enter into any new
contract that would constitute a Material Contract, other than purchase and
sale orders in the ordinary course of business or necessary for the
maintenance of property relating to the Business;
(D) except as provided in Section 8.5 or, in connection with the
exercise of outstanding stock options, declare or pay any dividend or other
distribution on its capital stock, issue or agree to issue any such stock
or other securities or redeem or repurchase any of its securities;
(E) fail to maintain its assets in operating condition sufficient for
operations of the Business as currently operated;
(F) fail to comply with any obligation under any Material Contracts;
(G) except as otherwise provided herein, fail to use reasonable
efforts to keep available the services of the present employees of the
Business and preserve the goodwill of customers, suppliers and others
having business relationships with the Business;
(H) fail to maintain its books, accounts and records in the usual,
regular and ordinary manner on a basis consistent with past practice;
(I) enter into, amend or terminate employment, bonus, severance or
retirement contract, plan or arrangement, or increase or agree to increase
any salary or other form of compensation or benefits payable or to become
payable to any executive employee, except, with respect to non-executive
employees, in the ordinary course of business consistent with past
practice;
24
(J) except as provided in DBI's 1998 Capital Budget, including a
software operating lease described on Schedule 5.26 (which will include
installation and consulting costs), purchase, acquire or lease, or agree or
commit to purchase, acquire or lease any asset in an individual amount in
excess of $25,000, other than purchases of raw materials and supplies in
the ordinary course of business, consistent with past practices; or
(K) enter into any agreement to do any of the foregoing.
From the date of this Agreement to the Closing Date, each Shareholder and
DBI shall not (and DBI shall instruct its officers, representatives, agents and
advisors not to) solicit, encourage or negotiate any proposal from or with, or
supply information to, persons other than Buyer or its representatives with
respect to, or in connection with, the acquisition of DBI or any Subsidiary or
its business or material assets or ownership interests therein, and will
promptly advise Buyer of any acquisition proposal or inquiry with respect to
such a proposal that DBI receives.
7.3 Non-Disclosure. Except as required by law or court order, no
--------------
Shareholder will disclose, or use directly or indirectly, to or for the benefit
of any person or entity other than DBI, and each Shareholder will use all
reasonable efforts to prevent any affiliate from disclosing, any confidential or
proprietary information, data or materials of DBI or any Subsidiary, except to
the extent such information is in the public domain through no fault of the
Shareholder. Each Shareholder may disclose such information to his or her
auditors, attorneys, financial advisors, bankers and other consultants and
advisors. Each Shareholder agrees that any breach of this Section 7.3 will
result in irreparable damage to DBI for which DBI will have no adequate remedy
at law, and, therefore if such a breach should occur, hereby consents to any
temporary or permanent injunction or decree of specific performance by any court
of competent jurisdiction in favor of DBI enjoining any such breach, without
prejudice to any other right or remedy to which DBI shall be entitled.
7.4 Non-Competition. During the period commencing on the Closing Date and
---------------
continuing for five (5) years, each Shareholder designated on Exhibit C as being
bound by this Section 7.4 shall not, directly or indirectly, anywhere in the
United States, Canada or Mexico, (a) engage in any activities, as an owner,
investor (except for an investment of less than five percent in a publicly held
company), partner, consultant or otherwise, in competition with the Business, as
currently conducted by DBI; or (b) induce or attempt to persuade any employee,
agent or customer of DBI or any Subsidiary to terminate such employment agency
or business relationship.
If this covenant is determined by any court of competent jurisdiction to be
invalid or unenforceable for any reason, including, without limitation, by
reason of such agreement extending for too great a period of time or over too
great a geographical area, or by reason of its being too extensive in any other
respect, such agreement, to the specific extent that it is
25
unenforceable, this covenant shall be deemed automatically modified and shall be
interpreted to extend only over the maximum extent as to which it is valid and
enforceable in order to effectuate the parties' intent to the greatest extent
possible. Any such modification or interpretation shall have no effect on the
validity or enforceability of any remaining provisions of this Agreement.
Each Shareholder agrees that any breach of this Section 7.4 will result in
irreparable damage to DBI for which DBI will have no adequate remedy at law,
and, therefore if such a breach should occur, hereby consents to any temporary
or permanent injunction or decree of specific performance by any court of
competent jurisdiction in favor of DBI enjoining any such breach, without
prejudice to any other right or remedy to which DBI shall be entitled.
7.5 Empire Inventory. On the first anniversary of the Closing Date or
----------------
such earlier date as the Empire Inventory is liquidated, DBI shall pay to the
Shareholders in the manner provided in Section 1.4(D) an amount equal to the
amount recovered by DBI or Empire Candle ("Recovered Amount") with respect to
the inventory purchased by Empire Candle from Empire Manufacturing Company in
February 1997 (the "Empire Inventory") including any recovered fees and expenses
of collection incurred after the Closing less any amount by which DBI's net
proceeds (not required to be paid to any person) from the liquidation of the
Empire Inventory (assuming for such purposes that the net proceeds from
liquidation of any Empire Inventory still held by DBI on the date of such
payment to the Shareholders is zero) is less than $1,000,000. In no event shall
the Shareholders receive more than $1,000,000 of the Recovered Amount plus
recovered fees and expenses of collection incurred after the Closing. If such
recovery is received prior to Closing, any inventory written off as a result of
such recovery will remain as an asset for purposes of the Closing Date Working
Capital. The Shareholders shall be entitled to control the claim and settlement
with respect to such Empire Inventory; provided that any such settlement does
not obligate DBI except as to delivery of any proceeds from the liquidation of
the Empire Inventory. DBI will provide such assistance as may be reasonably
requested by the Shareholders in this matter. All fees and expenses of
collection will be borne by the Shareholders, except to the extent in the
Recovered Amount. DBI will use all reasonable efforts to liquidate the Empire
Inventory as soon as reasonably practicable.
8. Covenants of Buyer. Buyer covenants as follows:
------------------
8.1 Non-Disclosure. Prior to the Closing Date, Buyer may not disclose,
--------------
and must take all necessary action to prevent all Recipients from disclosing,
any Confidential Information to any Person and Buyer may not use, and Buyer must
take all reasonable action to prevent any Recipient from using (other than in
connection with the transactions contemplated by this Agreement), any
Confidential Information, without the prior written consent of an officer of
DBI, except disclosures made exclusively:
26
(A) to Buyer's employees, agents and representatives who have a need
to know such Confidential Information for the performance of their duties
as employees, agents or representatives;
(B) to enforce Buyer's rights and remedies under this Agreement; or
(C) to the extent required by law, but only if Buyer first notifies
Xxxxxx X. Xxxxxxx in writing of that required disclosure and uses Buyer's
best efforts to cooperate with Xxxxxx X. Xxxxxxx to obtain a protective
order or other similar determination with respect to such Confidential
Information.
8.2 Return of Information. If the transactions contemplated by this
---------------------
Agreement are not consummated by May 7, 1998, Buyer must promptly return, and
use reasonable efforts to cause all other Recipients to return, to DBI all
Confidential Information and any copies of, and notes and extracts regarding,
Confidential Information, and all documents and other information supplied to
Buyer or any other Recipient by DBI.
8.3 Survival. Notwithstanding any other provision in this Agreement to
--------
the contrary, the obligations of confidentiality contained in Sections 8.1 and
8.2 will survive the termination of this Agreement for a period of five years.
8.4 Director and Officer Liability. For six years after the Closing Date,
------------------------------
Buyer will not take any action to cause DBI not to, and DBI will not fail to,
indemnify and hold harmless the present and former officers and directors of DBI
in respect of acts or omissions occurring prior to the Closing to the extent
provided under DBI's Articles of Incorporation, Bylaws and any Indemnification
Agreements in effect on the date of this Agreement true and complete copies of
which have been delivered to Buyer. But, if any claim or claims are asserted or
made within that six-year period, all rights to indemnification in respect of
any such claim or claims will continue until final disposition of any and all
such claims.
8.5 Tax Matters. In the event that any taxing authority conducts an audit
-----------
to determine the amount of any taxes of DBI or any Subsidiary for any period
ending on or before the Closing Date, during which period an S election was in
effect with respect to DBI, or asserts any tax liability for such period, the
Shareholders Representative shall have the exclusive authority to direct,
compromise or contest such audit or asserted tax liabilities as he shall, in his
sole discretion, deem proper. In such event, Buyer and DBI shall cause DBI or
the respective Subsidiary to empower (by power of attorney or such other
documentation as may be appropriate) Shareholders Representative or his designee
to represent DBI or the Subsidiary in any audit or administrative or judicial
proceeding insofar as such audit or proceeding involves any asserted liability
for taxes for the period specified above. Notwithstanding the foregoing, the
Shareholders Representative shall keep DBI fully informed regarding the audit or
asserted tax liability described above. Without the prior written consent of the
Shareholders Representative,
27
DBI will not, except as required by law, regulation or order, amend any foreign,
federal, state or local income tax return where such amendment is made after the
Closing Date and the effect of which is to increase any income taxes payable by
shareholders of DBI for any period on or before the Closing Date. Where such
amendment is required by law, DBI shall provide adequate notice to the
Shareholders Representative to allow review of such amendment prior to filing.
DBI will prepare the final income tax return for DBI, and the related forms K-1
through the Closing Date. Notwithstanding any provision in this Agreement to the
contrary, DBI may make cash distributions to its shareholders for the estimated
tax liability of those shareholders for income earned by DBI through the Closing
Date, as mutually determined in good faith by DBI and Buyer. In addition, DBI
may distribute an additional amount equal to the Shareholders' Accumulated
Adjustment Account prior to Closing, provided such distribution is reflected in
the calculation of Equity Value by a corresponding increase in the Debt Amount.
8.6 Fees. At the Closing, DBI must pay all fees of DLJ and all legal and
----
accounting fees incurred by DBI, whether incurred on behalf of DBI or any of the
holders of the Shares and the DBI Options, which relate to the transactions
contemplated in this Agreement, accrual for which will be reflected in the
Closing Date Working Capital Amount.
9. Mutual Covenants. The parties covenant and agree as follows:
----------------
9.1 Publicity. DBI, Buyer and the Shareholders agree that no public
---------
release or announcement concerning the transactions contemplated by this
Agreement may be issued by DBI, on the one hand, or Buyer, on the other, without
the prior written consent of the other parties (which consent may not be
unreasonably withheld), except as such release or announcement may be required
by the applicable laws, rules or regulations of any United States or foreign
securities exchange, in which case the party required to make the release or
announcement must allow the other party reasonable time to comment on such
release or announcement in advance of such issuance. Any consent required by the
Shareholders shall be made by the Shareholders Representative. Notwithstanding
the foregoing, DBI and Buyer agree to hold in confidence and not disclose the
information set forth on Exhibit A or C with respect to one or more Shareholders
without the written consent of such Shareholder, except as may be required by
law or necessary for Buyer to consummate the transactions contemplated hereby,
to prosecute claims against any Shareholder or to defend against any claim.
9.2 Best Efforts. Subject to the terms of this Agreement, each party will
------------
use its best efforts to cause the closing of the transactions contemplated in
this Agreement to occur by the Closing Date, it being acknowledged that time is
of the essence. Buyer and DBI will use their best efforts to obtain any
consents required under Section 4.1(D).
9.3 Record Retention. DBI will retain its records existing on the Closing
----------------
Date for a period of five years from the Closing Date, or for any longer period
as may be required by any
28
government agency or ongoing litigation, and will make such records available to
the former shareholders of DBI as may be reasonably required by the Shareholder
Representative.
9.4 Antitrust Notification. If required, DBI and Buyer shall, as promptly
----------------------
as practicable following the execution and delivery of this Agreement, file with
the United States Federal Trade Commission (the "FTC") and the United States
Department of Justice (the "DOJ") the notification and report forms (the "HSR
Filing") required for the transactions contemplated by this Agreement and any
supplemental information requested in connection therewith pursuant to the HSR
Act. Those notification and report forms and any supplemental information will
be in substantial compliance with the requirements of the HSR Act. Each of DBI
and Buyer shall furnish to the other such necessary information and reasonable
assistance as the other may request in connection with its preparation of any
filing or submission which is necessary under the HSR Act. DBI and Buyer shall
keep each other apprised of the status of any communications with, and inquiries
or requests for additional information from, the FTC and the DOJ and must
promptly comply with any such inquiry or request. Each of DBI and Buyer shall
use its best efforts to obtain as promptly as possible any clearance required
under the HSR Act for the transactions contemplated hereby.
10. Survival and Indemnity.
----------------------
10.1 Survival. All representations, warranties, covenants and agreements
--------
contained in this Agreement shall be deemed to be material and to have been
relied upon by the parties hereto, and all of the representations and warranties
herein shall survive the Closing and the consummation of the transactions
contemplated in this Agreement for a period of fifteen (15) months after the
Closing Date, except that the representations and warranties in Section 5.16
(taxes) shall survive until the expiration of the statutes of limitation
applicable to claims of such types related to any period ending on or before the
Closing Date and the representations and warranties in Section 5.27
(environmental) and the indemnities in Section 10.2(iii) - (vi) shall survive
for thirty (30) months after the Closing Date. All such representations and
warranties shall expire upon the expiration of the survival period specified in
this Section 10.1. All covenants contained in this Agreement shall survive the
Closing indefinitely or until satisfied, except those which by their terms have
a different effective period. No claim for the recovery of any indemnifiable
Loss or Expense for a breach of a representation or warranty may be asserted by
the Buyer against Shareholders after such representation or warranty shall have
expired, provided, however, that claims first asserted in writing within the
pre-expiration period shall survive until resolved.
10.2 Indemnity.
---------
(A) Shareholders, severally in proportion to their ownership of
Retained Stock, shall indemnify, defend and hold harmless Buyer and its
affiliates (including, after the Closing, DBI and the Subsidiaries),
directors, officers and employees (each an
29
"Indemnified Party") from and against and pay (a) any and all liabilities,
losses, costs and damages (including, without limitation, direct damages,
interest, fines, penalties, monetary sanctions or other relief)
(collectively, "Loss"), and (b) any and all attorneys' and accountants'
fees and expenses, court costs and other out-of-pocket expenses
(collectively, "Expense"), incurred or suffered by any such Indemnified
Party arising from or relating to (i) any breach of any warranty, or the
inaccuracy of any representation, made by DBI in this Agreement; (ii) the
failure by DBI or any Shareholder to perform any of the covenants or
agreements made by it in this Agreement (excluding any covenant to be
performed by DBI on or after the Closing); or (iii) whether or not
disclosed by DBI as of the Closing Date, the use, treatment, or storage at,
or release from, any of the premises owned or used by DBI or any Subsidiary
("Premises") prior to the Closing, of any Materials of Environmental
Concern, (iv) any of DBI or any Subsidiary or any agent, representative, or
other person or entity acting for or on behalf of DBI or any Subsidiary
having at any time prior to the Closing engaged in or restrained from
engaging in any activity, or holding, exercising, or failing to exercise
any power or authority such as to, at any time, subject DBI or any
Subsidiary in any manner to any liability (including, but not limited to
costs of investigation, remediation, property damage, personal injury
damage, punitive awards, penalties, or fines) arising from any ownership,
possession, use, storage, transportation, disposal, or release of any
Materials of Environmental Concern from or at any location prior to the
Closing, (v) the existence or maintenance of any fuel or other storage tank
on or under the Premises at any time prior the Closing; (vi) the presence
prior to the Closing of any hazardous substance, asbestos containing
materials, or polychlorinated biphenyl substance in, under or upon any of
the Premises, the presence of which is, at the Closing, in violation of any
Environmental Law; (vii) the litigation matters identified as items 1, 2
and 3 of Schedule 5.14(A), except to the extent of any reserve for
litigation on the Closing Date Working Capital, other than such portion of
the reserve specifically attributable to other litigation; or (viii)
related to any restrictions on the use by Xxxxxxx of the names "Woodsies"
or "Xxxxxxx" in the Business, other than a restriction on the use of the
name "Xxxxxxx" for lawn games.
(B) Buyer shall indemnify, defend and hold harmless the Shareholders
from and against and pay any Loss or Expense incurred or suffered by any
Shareholder arising from or relating to (i) any breach of any warranty or
the inaccuracy of any representation made by Buyer in this Agreement; or
(ii) the failure by Buyer to perform any of the covenants or agreements
made by it in this Agreement.
10.3 Defense of Third Party Claims. In the event that after the Closing,
-----------------------------
an Indemnified Party becomes involved in any litigation (hereinafter in this
Section 10.3 called "Litigation") in which an adverse result may give rise to
Shareholders' obligation to indemnify hereunder, Buyer will give prompt written
notice to Shareholders Representative of the pendency of any such Litigation,
and the following provisions shall be applicable: (i) Shareholders
Representative
30
shall have the right to participate in and control the contest and defense of
such Litigation at the Shareholders' own cost and expense, including the cost
and expense of attorneys' fees in connection therewith, and (ii) in the event
that Shareholders Representative does not assume control of the contest and
defense of the Litigation, then Buyer may use, but shall not be obligated to
use, its efforts to contest and defend such Litigation at its cost and expense
(but subject to its rights to indemnification hereunder), and in such case
Shareholders will assist Buyer to such extent as it reasonable in its contest
and defense of such Litigation. No settlement of any claim for which
indemnification is sought hereunder shall be made without the written consent of
other party hereto, which consent shall not be unreasonably withheld.
10.4 Limitations.
-----------
(A) If the Closing occurs, the liability of the Shareholders under
Section 10.2 shall be limited as follows: (i) the Shareholders shall have
no liability under Section 10.2 until the aggregate Loss and Expense
arising out of the matters as set forth in Section 10.2 in the aggregate
exceed $1,000,000 (the "Threshold Amount") and then only to the extent of
such excess; (ii) except as provided in Section 10.5, any recovery by an
Indemnified Party for Loss or Expense under Section 10.2 shall be sought
solely from the Retained Stock in the Escrow described in Section 10.5,
which shall be valued at the Per Share Equity Value, as adjusted pursuant
to Section 1.4(D); (iii) except as provided in Section 10.5, the
Shareholders shall have no liability under Section 10.2 for aggregate
Losses and Expenses which exceed $10,000,000 (the "Liability Cap"); (iv)
any proceeds from insurance paid to DBI or Buyer which relate to any fact,
event or circumstance requiring indemnity pursuant to Section 10.2 shall
constitute a credit which shall be offset against the total Losses and
Expenses (before the application of the Threshold Amount); (v) any Loss or
Expense calculated for purposes of Section 10.2 shall be calculated taking
into account any offsetting federal, state, local or foreign tax benefits
that are realized because of such Loss or Expense to an Indemnified Party;
and (vi) the Shareholders shall have no liability under Section 10.2 with
respect to any costs or expenses of any remediation or environmental
equipment repair, upgrade or addition undertaken by DBI unless (x) ordered
or demanded by a court, governmental body or agency; or (y) such
remediation, repair, upgrade or addition is required to be undertaken by
applicable Environmental Law; or (z) necessary in order for DBI to be in
compliance with applicable Environmental Laws and resulting from an
investigation (if there is an investigation) and remediation or
environmental equipment repair, upgrade or addition which would be
voluntarily undertaken under customary business practices in the industry.
In addition, Shareholders shall not be obligated to indemnify Buyer
pursuant to Section 10.2 for any loss or expense resulting from and related
to the violation of any applicable Environmental Law by DBI or any
Subsidiary after the Closing or, to the extent of the accrual therefor set
forth in the Closing Date Working Capital, for any current ongoing
monitoring or closure plan costs of DBI and its Subsidiaries.
31
(B) If the Closing occurs, the liability of Buyer under Section 10.2
shall be limited as follows: (i) Buyer shall have no liability under
Section 10.2 until the aggregate Loss and Expense arising out of the
matters as set forth in Section 10.2 in the aggregate exceed $1,000,000 and
then only to the extent of the excess; and (ii) Buyer shall have no
liability under Section 10.2 for aggregate Losses and Expenses which exceed
$10,000,000.
10.5 Escrow Matters. For purposes of administering claims by Buyer under
--------------
this Section 10, at Closing each Shareholder shall place in escrow, under the
terms of the Indemnification Escrow Agreement attached as Exhibit F, two-thirds
of the number of shares of Retained Stock held by such Shareholder at the
Closing. Except as provided below, the Retained Stock shall be held in escrow
for a period of thirty (30) months after the Closing Date. After DBI completes a
public offering of its Common Stock, or an event under 3.2.1 or 3.2.2 of the
Stockholders Agreement occurs, the entire balance of the Retained Stock (or, if
an event under 3.2.1 or 3.2.2 of the Stockholders Agreement, up to the amount
removed to comply with such provisions) may be removed from the escrow and
replaced by the amount of cash received from the sale of such shares, but not in
excess of $20,000,000, in which case the Liability Cap shall be adjusted upward
by the amount by which the cash received upon sale, up to $20,000,000, exceeds
the Liability Cap. After the Retained Stock is released from escrow, the
Shareholders shall be free to sell such Retained Stock without lien or other
encumbrance of Buyer arising under the terms of this Agreement.
10.6 Exclusive Remedy. Buyer acknowledges and agrees that, from and after
----------------
the Closing, its sole and exclusive remedy with respect to any and all claims
related to the subject matter of this Agreement (other than claims of fraud)
shall be pursuant to the indemnification provisions set forth in this Section
10.
11. Further Assurances. From time to time, as and when requested by any party,
------------------
any other party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions, as such other party may reasonably
deem necessary to consummate the transactions contemplated by this Agreement.
12. Termination.
-----------
12.1 Notwithstanding any provision in this Agreement contrary, this
Agreement may be terminated, and the transactions contemplated by this Agreement
abandoned, at any time on or prior to the Closing Date
(A) by mutual written consent of DBI and Buyer;
32
(B) by DBI if any of the conditions set forth in Section 4.2 have
not been satisfied, through no fault of DBI, or waived in writing by DBI,
on the Closing Date;
(C) by Buyer if any of the conditions set forth in Section 4.1 have
not been satisfied, through no fault of Buyer, or waived in writing by
Buyer, on the Closing Date; or
(D) by either DBI or Buyer if the Closing does not occur on or prior
to May 8, 1998, but only if, prior to that date, the party requesting
termination used all reasonable efforts and acted in good faith to close
the transactions contemplated by this Agreement and to satisfy all
conditions precedent to the closing of these transactions.
12.2 If DBI or Buyer desires to terminate this Agreement pursuant to
Section 12.1, that party must give written notice to the other parties. Upon
receipt of that notice, this Agreement will be terminated without further action
by any party.
12.3 If this Agreement is terminated as provided in this Section 12, this
Agreement will become void and of no further force and effect, except for the
provisions of:
(A) Sections 8.1, 8.2 and 8.3;
(B) Section 9.1;
(C) this Section 12; and
(D) Sections 13.1, 13.2, 13.3 and 13.4.
12.4 Nothing contained in this Section 12 will release any party from any
liability for any breach by such party of any of the terms or provisions of this
Agreement or impair the right of any party to compel specific performance by
another party of its obligations under this Agreement. Without limiting the
foregoing, Buyer agrees that if all of the conditions in Section 4.1 are
satisfied, DBI and the Shareholders are able and willing to effect the Closing
and Buyer is required to effect the Closing hereunder, but is unable to do so
due to Buyer's failure to secure financing necessary to allow DBI to refinance
the Debt and to pay the Common Stock Repurchase Amount, the Option Value and the
Purchase Price at the Closing, which Buyer acknowledges is, in each case, its
obligations to secure (and is a condition precedent to DBI's and the
Shareholders' obligations hereunder), Buyer will be in breach of this Agreement
and DBI and the Shareholders will have all remedies provided by law with respect
to the failure to consummate the transactions contemplated hereby,
notwithstanding any limitations in Schedule 10.4(B) which shall apply from and
after Closing.
13. General Provisions.
------------------
33
13.1 Certain Expenses. Except as otherwise provided in this Agreement,
----------------
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated by this Agreement must be paid by the party incurring
those costs or expenses.
13.2 Attorneys' Fees. Should any litigation be commenced concerning this
---------------
Agreement, or the rights and duties of any party with respect to it, the party
prevailing will be entitled, in addition to such other relief as may be granted,
to a reasonable sum for such party's attorneys' fees and expenses determined by
the court in such litigation or in a separate action brought for that purpose.
This Section 13.2 will survive indefinitely.
13.3 Notices. All notices, and replies to such notices, required under
-------
this Agreement must be in writing, properly addressed to the other party, signed
by the party giving notice, and may be delivered by hand, sent by facsimile
transaction, sent by a nationally-recognized overnight delivery service, or sent
by certified mail, return receipt requested. Notices are effective upon receipt.
Notices sent by mail are deemed to be received on the date of receipt indicated
by the return verification provided by the U.S. Postal Service. Notice sent by a
nationally-recognized overnight delivery service are deeded to be received on
the next business day after date of sending. Notices sent by facsimile
transaction are deemed to be received the date on which sent and are
conclusively presumed to have been received if the sender's copy of the
facsimile transaction contains the "answer back" of the other party's facsimile
transaction. Notice must be given, mailed or sent to the parties at the
following addresses, or at such other address as may be given by proper notice.
This Section 13.3 will survive indefinitely.
If to DBI (pre-closing) or Shareholders Representative, addressed to:
Xxxxxx Xxxxx Industries, Inc.
0000 XXX Xxxxxx
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, III
Fax No.: 000-000-0000
with a copy to (which copy does not constitute notice):
Xxxxxxxxx & Xxxxxx P.L.L.P.
0000 XXX Xxxxxx
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Fax No.: 000-000-0000
34
If to Buyer or (DBI post-closing), addressed to:
c/o Xxxxxx Xxxx & Company LLC
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0-000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxxxxx X. Xxxxxx & Xxxxxxx X. Xxxx
Fax No.: (000) 000-0000
with a copy to (which copy does not constitute notice):
XxXxxxxxx, Will & Xxxxx
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx, P.C.
Fax No.: (000) 000-0000
13.4 Miscellaneous. No amendment to this Agreement is effective unless it
-------------
is in writing and signed by each party. The headings contained in this
Agreement, or in any Schedule or Exhibit, are for reference purposes only and do
not affect in any way the meaning or interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, all of which are
considered one and the same agreement, and are effective when one or more of
those counterparts have been signed by each of the parties and delivered to the
other parties. This Agreement constitutes the entire agreement and understanding
between the parties with respect to the subject matter of this Agreement and
supersedes all prior agreements and understandings relating to that subject
matter. The parties agree that neither has made any representations, warranties,
covenants or undertakings other than as expressly provided for in this Agreement
and the Schedules and Exhibits attached hereto. If any provision of this
Agreement, or the application of any such provision to any Person or
circumstance, is held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision of this Agreement. No party may assign or
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of each of the other parties, except that Buyer may
assign its rights hereunder to another entity or individual and may designate
additional "accredited investors" to purchase the Preferred Shares and/or
Warrants, provided such purchasers make the same representation as is in Section
6.7 and do not otherwise, solely by their participation, adversely affect DBI's
ability under the federal and state securities laws to issue such securities.
This Agreement is for the sole benefit of the parties and their permitted
assigns and nothing in this Agreement is intended to give to any Person, other
than such parties and persons, any legal or equitable rights under this
Agreement. This Agreement is governed in accordance with the internal laws of
the state of Minnesota, without regard to the conflict of laws statutes or
provisions of any jurisdiction. This Section 13.4 will survive the Closing Date
indefinitely.
35
14. Shareholders Representative.
---------------------------
(A) Each of the Shareholders hereby irrevocably constitutes and
appoints Xxxxxx X. Xxxxxx, III, and Xx. Xxxxxx hereby accepts such
appointment, as their agent and attorney-in-fact with full power of
substitution and revocation to do any and all things and execute any and
all documents on his or her behalf which may be necessary, convenient or
appropriate with respect to: (i) amendments to this Agreement, provided
that no amendment shall materially adversely affect the rights of any one
Shareholder relative to any other Shareholders; (ii) the execution of
documents and certificates pursuant to this Agreement; (iii) determination
of the Working Capital Adjustment; (iv) receipt and forwarding of notices
and communications pursuant to this Agreement; and (v) negotiation and
compromise of any indemnity claims made by Buyer hereunder. The
Shareholders Representative is authorized (i) to take all actions which the
Shareholders Representative considers necessary or desirable in connection
with the defense, pursuit or settlement of any determinations relating to
the matters described above, including to xxx, defend, negotiate, settle
and compromise any such claims for indemnification made by Buyer pursuant
to this Agreement or any of the agreements or transactions contemplated
hereby; (ii) to engage and employ agents and representatives (including
accoutants, legal counsel and other professionals) and to incur such other
expenses as he shall deem necessary or prudent in connection with the
administration of the foregoing; and (iii) to take all other actions and
exercise all other rights which the Shareholders Representative (in his
sole discretion) considers necessary or appropriate in connection with the
foregoing. Notwithstanding anything to the contrary contained in this
Agreement, the Shareholders Representative shall have no duties or
responsibilities except as expressly set forth herein, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
on behalf of any Shareholder shall otherwise exist against the Shareholders
Representative.
(B) The Buyer and DBI shall be fully protected in dealing with Xx.
Xxxxxx under this Agreement and may rely upon the authority of Xx. Xxxxxx
to act as the Shareholders Representative. The Shareholders Representative
is authorized to act on the Shareholders' behalf notwithstanding any
dispute or disagreement among the Shareholders. The appointment of Xx.
Xxxxxx is coupled with an interest and is irrevocable by any Shareholder in
any manner or for any reason, unless written revocation is personally
delivered to Xx. Xxxxxx and the Buyer on or prior to the time that action
on behalf of the Shareholders is taken or payments or deliveries are made,
in which case such revocation shall only apply to actions taken or proposed
to be taken after receipt of such notice. This power of attorney shall not
be affected by the death, disability or incapacity of any Shareholder.
36
(C) If at any time there is no person acting as Shareholders
Representative for any reason, the Shareholders holding a majority interest
in the Retained Stock shall choose a person to act as Shareholders
Representative under this Agreement.
(D) Neither the Shareholders Representative nor any agent employed by
him shall be liable to any Shareholder relating to the performance of his
duties under this Agreement for any errors in judgment, negligence,
oversight, breach of duty or otherwise except to the extent it is finally
determined in a court of competent jurisdiction by clear and convincing
evidence that the actions taken or not taken by the Shareholders
Representative constituted fraud or were taken or not taken in bad faith.
The Shareholders Representative shall be indemnified and held harmless by
the Shareholders against all costs, expenses and damages paid or incurred
in connection with any action, suit, proceeding or claim to which the
Shareholders Representative is made a party by reason of the fact that he
was acting as the Shareholders Representative pursuant to this Agreement;
provided, however, that the Shareholders Representative shall not be
entitled to indemnification hereunder to the extent it is finally
determined in a court of competent jurisdiction by clear and convincing
evidence that the actions taken or not taken by the Shareholders
Representative constituted fraud or were taken or not taken in bad faith.
The Shareholders Representative shall be protected in acting upon any
notice, statement or certificate believed by him to be genuine and to have
been furnished by the appropriate person and in acting or refusing to act
in good faith on any matter.
15. Certain Definitions.
-------------------
15.1 "Confidential Information"
(A) "Confidential Information" means:
(1) with respect to DBI, all financial, technical, commercial or
other information disclosed by DBI to Buyer or Buyer's respective
directors, officers, employees, advisors or affiliates (such Person a
"Recipient") in connection with the transactions contemplated by this
Agreement;
(2) the fact of the transactions contemplated by this Agreement;
and
(3) each of the terms, conditions and other provisions contained
in this Agreement and the agreements or documents delivered pursuant
to this Agreement.
(B) Notwithstanding Section 15.1(A), Confidential Information does
not include any information that:
37
(1) is in the public domain at the time of disclosure to the
Recipient or becomes part of the public domain after such disclosure
through no action or fault of any Recipient;
(2) is already know by Recipient from independent sources at the
time of disclosure to such Recipient other than
(a) as a result of a breach of any provision of this
Agreement; or
(b) from any source who, after reasonable investigation by
Recipient, is not bound by any confidentiality agreement with, or
other contractual, legal or fiduciary duty of confidentiality to,
DBI or either of the Subsidiaries; or
(3) is subsequently disclosed to a Recipient by any Person who
is not a party to this Agreement (but only if that Recipient does not
have actual knowledge after reasonable investigation that such Person
is prohibited from disclosing such information, either by reason of
contract or legal or fiduciary obligation) and who has a legal right
to transmit that information.
15.2 "Financial Statements" means the audited consolidated financial
statements of DBI for the fiscal years ended December 31, 1995, 1996 and 1997,
and unaudited consolidated financial statements of DBI for the one-month interim
period ended January 31, 1997, including the consolidated balance sheet
statements, income statements, statements of shareholders equity and statements
of cash flows of DBI for each of the periods then ended.
15.3 "GAAP" means United States generally accepted accounting principles,
applied on a consistent basis.
15.4 "HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976.
15.5 "Intellectual Property" means, with respect to DBI, and the
Subsidiaries all of the following (and all amendments, modifications, and
improvements thereto):
(A) letters patent and patent applications;
(B) tradenames, trademarks or service marks, and all registrations
and applications related thereto, common law trademarks, and all goodwill
associated therewith;
(C) copyrights and copyright registrations and applications; and
38
(D) discoveries, ideas, technology, know-how, trade secrets,
processes, formulas, drawings and designs, computer programs or software.
15.6 "Knowledge" means, with respect to DBI or any Subsidiary, the
knowledge of any officer or director of DBI or any Subsidiary.
15.7 "Lien" means any lien, encumbrance, security interest, pledge,
mortgage, option, charge or similar restriction.
15.8 "Material Contracts" means those contracts and agreements (all of
which are identified on Schedule 5.12) to which DBI or any of the Subsidiaries
is a party that:
(A) relates to the borrowing of money or the guaranty of any
obligation for the borrowing of money;
(B) involves the receipt or payment of more than $25,000 in any one
year and is not terminable on 30 or fewer days' notice at any time without
a penalty;
(C) prohibits or limits the ability of DBI or any of the
Subsidiaries to engage in any business or compete with any Person; or
(D) obligates DBI or any of the Subsidiaries to purchase goods or
services for consideration in excess of $25,000.
15.9 "Material Adverse Effect" means any effect on DBI or any of the
Subsidiaries that is in the aggregate materially adverse to the Business or the
operations or financial condition of DBI and the Subsidiaries taken as a whole.
15.10 "Person" means any natural person or entity.
15.11 "Plan" means any "employee benefit plan," "employee pension benefit
plan," "defined benefit plan" or "multiemployer benefit plan" which DBI or any
Subsidiary maintains, contributes to, or is required to maintain or contribute
to. As used in this Agreement, the terms "employee benefit plan," "employee
pension benefit plan," "defined benefit plan," and "multiemployer benefit plan"
have the respective meanings assigned to each of them in Section 3 of ERISA and
any applicable rules and regulations promulgated under ERISA.
39
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
XXXXXX XXXX--TPG PARTNERS L.P.
By________________________________
Its_______________________________
XXXXXX XXXX I PARALLEL, L.P.
By________________________________
Its_______________________________
DIAMOND BRANDS INCORPORATED
By________________________________
Its_______________________________
40
EXHIBITS
Exhibit A Shareholders
Exhibit B Terms of Preferred Shares and Warrants
Exhibit C Shareholder Information
Exhibit D Price Adjustment Escrow Agreement
Exhibit E Stockholders Agreement
Exhibit F Indemnification Escrow Agreement
SCHEDULES
Schedule 3.3(D) Key Employees
Schedule 5.3 Conflicts
Schedule 5.5 Capitalization
Schedule 5.6 Restrictions
Schedule 5.8 Undisclosed Liabilities
Schedule 5.9 Certain Changes
Schedule 5.10 Encumbrances
Schedule 5.12 Material Contracts
Schedule 5.13 Intellectual Property
Schedule 5.14(A) Litigation
Schedule 5.14(B) Consent Decrees; Orders
Schedule 5.15(A) Compliance With Laws
Schedule 5.15(B) Permits
Schedule 5.16 Tax Matters
Schedule 5.17 Labor Relations
Schedule 5.18 ERISA
Schedule 5.19 Brokers
Schedule 5.20 Transactions with Affiliates
Schedule 5.21 Customers and Suppliers
Schedule 5.23 Insurance
Schedule 5.24 Product Warranty; Claims
Schedule 5.25 Product Liability
Schedule 5.26 Software Licenses
Schedule 5.27 Environmental Matters
Schedule 6.9 Financing Commitments
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