Triad Packaging, Inc. v. SupplyOne, Inc.

Citations: 925 F. Supp. 2d 774; 2013 WL 603194; 2013 U.S. Dist. LEXIS 22192Docket: Civil No. 5:10CV5-RLV

Court: District Court, W.D. North Carolina; February 18, 2013; Federal District Court

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The Court is addressing several motions related to a legal dispute involving an Asset Purchase Agreement (APA) between Triad Packaging, Inc. (TPI), Durham Box Company (DBC), and SupplyONE Holdings Company, Inc. The motions include SupplyONE’s requests for judgment on the pleadings and for summary judgment on various claims, including quasi-contract, fraud, breach of contract, and unfair trade practices. The case centers on negotiations that began in November 2007, led by Louis S. Wetmore, who represented TPI and DBC. The discussions culminated in the APA executed on October 8, 2008, involving detailed due diligence that spanned approximately ten months. During this period, financial disclosures were made by Wetmore to SupplyONE, revealing significant liabilities and concerns about the collectability of receivables. Key individuals in the negotiations included Wetmore, SupplyONE's Senior Vice President William M. Laughlin, and Vice President John Caruso. The case highlights the complexities of business acquisitions, particularly regarding financial transparency and the responsibilities of the parties involved.

Laughlin proposed acquiring TPI and DBC as a strategic addition to SupplyOne’s operations in North Carolina, suggesting the closure of TPI’s Conover plant and relocation of production to Rockwell, while using the South Carolina facility as a distribution center. He indicated that SupplyOne would need to share some synergies to prevent bankruptcy for TPI’s owner. On April 13, 2008, Wetmore disclosed a competing offer from Container Supply Corporation (CSC) valued over $3.7 million, highlighting the importance of certainty of closing and upfront payment. The following day, SupplyOne made a verbal offer for all TPI and DBC assets, with Laughlin reporting a deal was reached. Wetmore believed all material terms were agreed upon, leading him to discontinue talks with CSC. On April 17, Laughlin sent the SupplyOne Board a comprehensive package for review, including a strategic fit memorandum and a draft Letter of Intent, emphasizing the urgency due to Wetmore's competing offer. Although Caruso was responsible for presenting the acquisition to the Board, he could not recall specific meeting details. On April 18, correspondence among Board members indicated a request for more information about the acquisition, which was viewed positively, although additional details were sought, a common practice.

Concerns arose within the Board regarding TPI's cash flow issues, suggesting that accounts payable might need reclassification as part of the purchase price. Despite these concerns, Caruso confirmed that the acquisition price of $3,500,000 was already established. The initial intentions of the parties were documented in a non-binding Letter of Intent (LOI) dated April 29, 2008, which outlined that the purchase price would be $3,500,000 and specified binding agreements related to confidentiality, non-solicitation, and professional fees. The LOI emphasized that it served as a guide for negotiations and could be terminated by either party without liability, requiring written notice. 

During the due diligence phase, SupplyOne sought to contact certain customers and suppliers, pending approval from TPI’s and DBC’s shareholders. Both TPI and DBC were expected to operate normally during this period. The LOI included a non-solicitation clause preventing the Plaintiffs from engaging in acquisition discussions with other parties until the end of the due diligence period, which would last until July 31, 2008, unless a definitive agreement was reached sooner. 

Closing conditions included obtaining necessary corporate approvals, ensuring the transaction involved both TPI and DBC, resolving obligations under the Pinnacle supply agreement, and acknowledging that the purchase price was based on historical performance information provided to SupplyOne. SupplyOne's obligations prior to closing included drafting the definitive asset purchase agreement and securing corporate approvals. The second phase of due diligence occurred from April until the closing on October 8, 2008, with Wetmore providing additional due diligence materials by late May 2008. Tensions regarding the Pinnacle supply agreement emerged, leading Laughlin to request either an indemnity for due diligence costs or a delay in closing, which Wetmore eventually provided in hopes of completing the acquisition by the end of July 2008.

The Letter of Intent (LOI) was initially set to expire on July 31, 2008, but was extended to September 15, 2008, as communicated by Laughlin to Wetmore on June 24, 2008. Wetmore agreed to indemnify SupplyOne for up to $75,000 for due diligence costs if he opted not to proceed with the transaction. The agreement required Wetmore's signature on the modified terms. During the postponement of the Closing from July to October 2008, concerns arose from TPI and DBC customers about the acquisition, particularly the risk of SupplyOne discontinuing certain business lines, which could leave customers scrambling for alternatives. Wetmore noted the uncertainty regarding SupplyOne's operational philosophies and potential customer losses due to the acquisition.

Internal communications revealed SupplyOne's management was worried about not achieving the anticipated savings from the acquisition. Caruso expressed skepticism about participating in the purchase, suggesting he would not contribute financially. After initial due diligence, it became clear that closing down the TPI Conover facility was not feasible, leading to a reassessment of the acquisition strategy. Despite these developments, Wetmore was initially unaware of the internal doubts and continued to engage with SupplyOne.

In early August 2008, SupplyOne's CEO visited the Conover facility, and later that month, Wetmore informed SupplyOne about the loss of a significant customer, Canac Cabinet, without suggesting changes to the deal. By September 4, 2008, Laughlin indicated that the previously agreed price was no longer justifiable, citing declining sales and loss of major accounts as factors. Ultimately, the parties renegotiated the purchase price to approximately $3 million, although Wetmore contested the notion that this adjustment constituted a negotiation.

Supply-One's late withdrawal of a more favorable offer effectively compelled the acceptance of a less advantageous proposal from Laughlin in September 2008. By that time, Plaintiffs had begun losing customers and employees after announcing the sale to Supply-One, which had already engaged with Plaintiffs’ customers. Laughlin's proposal included a lower purchase price and a reduction in net assets. On September 12, 2008, Supply-One presented a draft Asset Purchase Agreement (APA) that shocked Wetmore due to its new terms. The APA stipulated that Supply-One would purchase TPI and DBC's assets for $3,094,350.52, subject to adjustments for minimum asset values and unsold inventory or uncollected accounts receivable (A/R). The APA also required warranties on A/R, asserting their legitimacy and collectability, and on inventory quality, ensuring it was usable and not obsolete. Supply-One was obligated to use its best efforts to meet its contractual duties.

After delays, the closing occurred on October 8, 2008. A dispute arose by April 2009 regarding a shortfall in the value of assets delivered, leading to Supply-One claiming much of the inventory was obsolete and some A/R uncollectible. Supply-One demanded $500,000 from Wetmore, who refused, prompting Supply-One to offset its financial obligations under the APA. On December 21, 2009, Supply-One filed a Claim Notice with the Escrow Agent, which Plaintiffs contested. Consequently, approximately $275,000 in escrowed funds intended for Wetmore remained unpaid. On December 28, 2009, TPI and Wetmore initiated litigation against Supply-One for unjust enrichment, breach of contract, fraud, and unfair trade practices. Supply-One was served by December 31, 2009, and subsequently removed the case to federal court, responding with counterclaims against TPI and DBC for breach of contract and warranty, which the court treated as a Third-Party Complaint despite not being formally labeled as such.

The Court collectively refers to TPI, DBC, and Wetmore as Plaintiffs unless specific facts or legal arguments are exclusively related to DBC. Original jurisdiction is established under 28 U.S.C. § 1332 due to diversity of citizenship, and the removal statute requirements under 28 U.S.C. § 1441(a) have been met. The parties have filed multiple motions ready for the Court's determination. Summary judgment is warranted only if the movant demonstrates no genuine dispute over material facts and entitlement to judgment as a matter of law, per Fed. R. Civ. P. 56(a). Parties must substantiate their positions with record materials, including depositions and affidavits (Fed. R. Civ. P. 56(c)(1)). In this case, the Court will evaluate cross-motions for summary judgment separately, resolving factual disputes in favor of the opposing party (Rossignol v. Voorhaar, Desmond v. PNGI Charles Town Gaming).

The governing law, as stated in Section 12.7 of the Asset Purchase Agreement (APA), is Delaware law; however, the parties analyze breach of contract issues under North Carolina law, disregarding the APA's provision. North Carolina generally honors contractual agreements regarding the governing law unless the chosen law contradicts its fundamental policies. The law of the chosen state applies unless it lacks a substantial relationship to the parties or the transaction, or its application contravenes a fundamental policy of a materially interested state. In this instance, despite the APA's choice of law provision, the parties rely on North Carolina law, as the acquisition involved North Carolina corporations and most negotiations occurred within the state.

The record lacks an explicit representation that the Asset Purchase Agreement (APA) was executed or finalized in North Carolina. However, Section 3 of the APA and pre-October 8, 2008 correspondence suggest that the closing was intended to occur in North Carolina at the seller's counsel's offices, justifying the application of North Carolina law. Regarding SupplyOne's motions, facts are evaluated favorably towards the Plaintiffs. 

Plaintiffs' first claim for relief is based on unjust enrichment, which follows equitable or quasi-contract principles as outlined in Booe v. Shadrick. The North Carolina Supreme Court asserts that unjust enrichment requires the conferral of a measurable benefit, not given officiously or gratuitously, and consciously accepted by the defendant. Such claims are neither tort nor contract but arise from law to prevent unjust enrichment, particularly when no express contract governs the matter.

SupplyOne argues that quasi-contract claims are only valid when no express contract exists regarding the same issue, a principle supported by North Carolina case law. While an express contract does not always preclude an unjust enrichment claim, it is more likely to succeed when one party seeks compensation for services that provided a benefit to the other. However, SupplyOne contends that no services were provided and no benefit accrued pending the APA's execution, which governs the parties' obligations and contains an integration clause stating it encompasses the entire agreement, superseding prior understandings.

The Letter of Intent (LOI) is not classified as a 'Transaction Document,' meaning the Asset Purchase Agreement (APA) takes precedence over the LOI and any prior agreements. Legal principles dictate that parties are presumed to intend the clear expressions in their contract language, which must be interpreted accordingly. Plaintiffs assert that the APA's integration clause does not bar claims related to tortious conduct occurring before the APA's execution, arguing reliance on prior representations, including purchase price and closing dates, led them to forgo other opportunities. They seek to impose a contract based on this reliance. Plaintiffs reference TSC Research, LLC v. Bayer Chemicals Corp., where claims tied to a letter of intent survived dismissal due to being part of a single breach of contract claim. North Carolina law stipulates that mere negotiations do not constitute a contract unless all essential terms are specified. Additionally, agreements with unmet conditions precedent are unenforceable, but a contract to form a future contract may be upheld if it includes all critical terms. In TSC Research, the court found the letter of intent enforceable despite being labeled as 'an agreement to agree,' as it was accompanied by a licensing agreement and evidence of partial performance.

The letter of intent (LOI) indicates a commitment from the parties to negotiate in good faith for final approval of a licensing agreement, treating it as if it were finalized. TSC Research made initial payments to the plaintiff under this agreement. However, the LOI was never executed as a binding contract, making it the only documented agreement. The formal terms were later established in the Asset Purchase Agreement (APA), which, unless invalidated, undermines the plaintiff’s alternative quasi-contract claim. 

For the plaintiff to succeed in their breach of contract claim, they must prove the existence of a valid contract and its breach, which includes demonstrating an offer, acceptance, consideration, and mutual assent. The court determined that the LOI was not intended as a final agreement, as it was designated as 'non-binding' and indicated that a definitive APA would follow. The complexity of the transaction warranted a more detailed agreement, reflected in the extensive APA. The LOI could be terminated by either party at any time, reinforcing its preliminary nature. 

The APA contains an integration clause that clarifies the status of prior agreements, and North Carolina courts uphold such clauses as valid, establishing a presumption that the APA represents the final agreement. Previous rulings indicate that a letter of intent subject to a future agreement is not enforceable as a contract.

In Durham Coca-Cola Bottling Co. v. Coca-Cola Bottling Co. Consolidated, the court evaluated the enforceability of a letter of intent (the 'Durham Proposal') signed by all shareholders and directors of the target company, which did not require third-party approvals for the sale. The court highlighted that the proposal anticipated a future 'definitive acquisition agreement.' Despite any intentions for the proposal to serve as a final agreement, the ruling followed the precedent established in Boyce v. McMahan, stating that an acceptance of a proposal for a future contract, with terms to be determined later, is non-binding. The court noted that parties seeking to be bound only upon executing a formal document purposely negotiate for a satisfactory written agreement, and it cannot unilaterally declare binding contracts based on minor or technical changes.

Additionally, the ruling emphasized that the use of terms like 'final definitive agreement' implies that prior documents were neither final nor binding. In a subsequent case, JDH Capital, LLC v. Flowers, the court rejected claims that a letter of intent became enforceable through an oral agreement and partial performance, affirming that conditional language in agreements, such as 'subject to' due diligence and corporate approvals, indicates non-binding intentions. Plaintiffs challenging the validity of the Asset Purchase Agreement (APA) due to alleged fraud were informed that the APA’s integration clause did not preclude them from contesting its validity based on fraud. Citing Godfrey v. Res-Care, Inc., the court clarified that parol evidence could be used to demonstrate that a written contract was fraudulently induced, as fraud claims are distinct from the contract's terms. Ultimately, the court ruled that, due to insufficient evidence of fraud, the APA governs the parties' obligations, affirming that all parties to a contract must act in good faith and fulfill their contractual duties.

The implied covenant of good faith within a contract must align with enforceable contractual terms and cannot replace existing terms. Allegations of negotiating in bad faith for a new or amended agreement are insufficient for a breach of the implied covenant unless they relate to existing contractual obligations. Certain allegations by the plaintiffs can be examined as potential breaches of good faith. A key allegation involves SupplyOne allegedly delaying the closing of a deal to negotiate a lower purchase price of $3.5 million for TPI, which underpins their fraud claim. 

Additionally, the Asset Purchase Agreement (APA) includes provisions requiring Wetmore to compensate SupplyOne for asset shortfalls and to repurchase uncollected accounts receivable and unsold inventory within 180 days post-closing. As the drafter of the APA, SupplyOne bears the responsibility for any ambiguities, which should be construed against it. Specifically, the minimum net current assets were established at $727,000, with a requirement for SupplyOne to deliver a balance sheet reflecting net current assets within 60 days after closing. If the assets are below the minimum, the seller parties must pay SupplyOne to cover the deficiency.

Section 2.7 of the legal document outlines the process for post-closing adjustments to the purchase price based on any Net Current Asset Deficiency as identified in the Closing Date Balance Sheet. It establishes a verification period for the parties to review the balance sheet information, with unresolved discrepancies to be referred to a mutually agreed-upon accounting firm. Plaintiffs argue that SupplyOne's failure to provide the Closing Date Balance Sheet hindered their ability to challenge the figures, thereby excusing them from further contractual obligations. Plaintiffs assert that SupplyOne should be barred from benefiting from price adjustments under Section 2.7, citing the doctrine of anticipatory breach, which relieves a party from performance obligations when the other party indicates an unwillingness to fulfill the contract. SupplyOne does not dispute the non-provision of the balance sheet but contends that Plaintiffs have not demonstrated any prejudice because they possessed most of the relevant information. Additionally, SupplyOne claims that any breach was not material. Plaintiffs reference an email from January 28, 2009, discussing a preliminary balance sheet, emphasizing the importance of timely establishing a balance sheet for proper financial evaluation. Section 2.7(b) mandates that Plaintiffs purchase uncollected Accounts Receivable and unsold obsolete Inventory within 180 days post-closing, with a joint assessment of these assets and their valuation on the Closing Date, and requires the return of uncollected or unsold items classified as obsolete after the 180-day period.

The Buyer is required to provide a statement to the Seller Parties detailing the value of unsold Inventory and uncollected Accounts Receivable (A/R), with the Seller Parties obligated to reimburse the Buyer for these items' full value within five business days of receipt. At closing, both parties must jointly establish starting values for A/R and Inventory. After a 180-day period for best efforts, SupplyOne assumes responsibility for providing statements of unsold Inventory and uncollected A/R. The Buyer is expected to exert best efforts to sell Inventory and collect A/R, but the APA lacks a clear definition of "best efforts," leaving interpretation to the jury.

Plaintiffs argue that SupplyOne cannot enforce its obligations against Wetmore due to its own failure to use best efforts for collections and sales. They present an affidavit from David Balke, C.P.A., regarding TPI’s A/R collection practices. Evidence suggests SupplyOne lacked a robust approach and necessary information, particularly regarding jointly determined starting values. Although there were plans to merge SupplyOne’s Rockwell with TPI, Rockwell's officers appeared ill-equipped to fulfill their obligations, as key personnel, including the Accounting Manager, did not participate in due diligence. This resulted in limited understanding of post-acquisition responsibilities for A/R and Inventory.

Moreover, there were no established policies on A/R collection or definitions of "best efforts." Testimony from Rockwell's General Manager indicated a lack of involvement in evaluating TPI's accounting practices during due diligence. It was understood within SupplyOne that any unsold or uncollected items would be bought back by Wetmore. In June 2009, SupplyOne executives acknowledged the inventory was unauditable, although the reasons for this remain unclear. Wetmore had invited SupplyOne to an on-site inventory count, which they did not attend, and post-transfer, Wetmore’s access to relevant inventory information was restricted.

The inventory in question was tailored to specific customers, with many having blanket purchasing orders or stocking agreements that aligned with a salesperson’s responsibilities. Sales staff used inventory reports to manage customer-specific shipping arrangements. Plaintiffs claim a breach of the “best efforts” requirement, citing an email from Rockwell’s Hammer, dated June 16, 2009, which discusses potential waivers of Wetmore’s repurchase obligation under certain conditions. However, Hammer indicated that he did not feel obligated to assist with collections related to Triad receivables, citing a conflict of interest with a SupplyOne customer. Wetmore suggested that Rockwell failed to take necessary actions, asserting that "best efforts" could have led to success, as he managed to ship most obsolete inventory and collect on nearly all uncollectible accounts. 

Additionally, there is a dispute regarding AP Exhaust Systems, outlined in Section 2.7 of the Asset Purchase Agreement (APA), which states that inventory and accounts receivable related to AP Exhaust should be excluded from the Purchased Assets and that the value would be deducted from the purchase price. The APA also clarifies that AP Exhaust A/R are subject to litigation and excluded from transaction representations. Plaintiffs argue that AP Exhaust and its outstanding A/R should have been included in the assets transferred to SupplyOne, while the APA's language specifies that these accounts were not purchased. This has resulted in confusion over SupplyOne's accounting of Plaintiffs’ A/R.

Plaintiffs presented a "Funds Flow Memorandum" signed at closing, which valued the AP Exhaust accounts receivable (A/R) at $142,432.31. They argue that the initial $727,000 minimum asset value should be adjusted to $584,567.69 to account for the exclusion of this A/R. SupplyOne challenges this position as unclear but acknowledges an email from Caruso indicating that they believed the purchase price adjustments included a reduction in thresholds. The disagreement centers on whether Wetmore should receive credit for the excluded AP Exhaust in net asset calculations. The court finds that there are genuine factual disputes regarding the Closing Date Balance Sheet values, making it unclear how to determine the starting point for post-closing price adjustments. Additionally, whether a material breach occurred concerning Section 2.7 and whether SupplyOne exerted its “best efforts” under Section 6.10 are issues for the jury. 

SupplyOne's motion for summary judgment on Plaintiffs' breach of contract claim is denied, as are its counterclaims regarding Plaintiffs' warranty breaches concerning A/R and Inventory. Both parties made warranties under the Asset Purchase Agreement (APA) regarding the assets involved. SupplyOne claims Wetmore breached warranties regarding the A/R being collectible and the Inventory being of good quality and not obsolete.

Further, Wetmore alleges breaches of an Employment Contract with SupplyOne, claiming inadequate access to sales information, which is essential for determining his compensation based on sales from acquired customers. He also cites issues with SupplyOne's tracking of sales and decision-making regarding sales opportunities. Plaintiffs assert that SupplyOne became less cooperative after disagreements over post-closing price adjustments. These issues are also to be resolved by a jury. Lastly, Plaintiffs have a third claim for relief based on fraud.

Plaintiffs allege that SupplyOne deceived Wetmore into accepting an agreement that SupplyOne intended to breach. Their claims of fraud are based on SupplyOne's failure to perform under the agreement, including imposing extra due diligence responsibilities on Wetmore, delaying the closing date, and seeking better contract terms after the delay. To establish fraud in the inducement, Plaintiffs must provide evidence showing five elements: 1) a false representation or concealment of a material fact; 2) actions reasonably calculated to deceive; 3) intent to deceive; 4) actual deception; and 5) resulting damages. A mere failure to fulfill a contractual promise does not constitute fraud. The Plaintiffs' claims lack sufficient factual support, as their assertion of false representation relies heavily on SupplyOne's lack of immediate disclosure regarding concerns about the acquisition in summer 2008. The Letter of Intent (LOI) indicated that due diligence would begin promptly after proposal acceptance, with no specific completion deadline. Due diligence typically takes four to six weeks, and there is no evidence suggesting that the process was hindered by Plaintiffs. Wetmore agreed to a postponement of the closing, and even assuming SupplyOne did not fully disclose its reasons, this does not equate to fraud. Plaintiffs also argue that SupplyOne acted in bad faith by negotiating a lower purchase price post-due diligence, but SupplyOne's actions were consistent with standard business practices in light of economic conditions. Additionally, there is no evidence that the original $3.5 million deal was insincere, and the rationale for seeking a lower price, while disputed, is not material to the fraud claim.

SupplyOne argues that its decision to reduce the purchase price was primarily influenced by declining sales of TPI and DBC during the post-LOI due diligence period. Wetmore counters that SupplyOne's main motivation for the acquisition was its increased volume capacity and the capability of its Rockwell facility to integrate TPI’s operations. Despite this, Wetmore accepted a lower purchase price and indicated agreement by signing the Asset Purchase Agreement (APA). SupplyOne successfully obtained summary judgment on the Plaintiffs’ fraud claim.

Regarding the fourth claim under North Carolina's Unfair and Deceptive Trade Practices Act (N.C. Gen. Stat. § 75-1.1), the court outlines the necessary elements for a plaintiff to succeed: proof of an unfair or deceptive act affecting commerce and resultant injury. A practice is deemed unfair if it contravenes public policy or is unethical, while a deceptive practice misleads or has the potential to mislead. The case references prior rulings establishing that a claim for unfair and deceptive practices often relies on a substantive cause of action, and Wetmore's testimony indicates that his claim is based on the same facts as the breach of contract claim, which did not survive summary judgment.

The Plaintiffs allege that SupplyOne intentionally breached the original agreement, but this claim also failed. The court asserts that a typical breach of contract does not constitute an unfair or deceptive trade practice under § 75-1.1. Furthermore, the Plaintiffs did not provide sufficient evidence of significant aggravating circumstances associated with the breach, as it appeared that SupplyOne merely reassessed its acquisition strategy in light of changing market conditions in 2008 and 2009. The court concludes that while SupplyOne may have had a stronger negotiating position, there is no evidence to support the claim of deceit or unfair treatment, leading to the granting of summary judgment for SupplyOne on the unfair and deceptive trade practices claim.

Plaintiffs and the Third-Party Defendant have filed motions for summary judgment regarding Defendants’ counterclaims of breach of contract and breach of warranty, arguing that Defendant SupplyOne materially breached the Asset Purchase Agreement (APA) before any breach by Plaintiffs. They assert that SupplyOne did not fulfill certain conditions precedent tied to the APA, specifically regarding Net Asset Value, Accounts Receivable, and Inventory as outlined in Sections 2.7(a), 6.10, and 6.11. However, the court finds that genuine disputes of material fact exist, preventing summary judgment for either party on these issues. Consequently, the court orders the following: 

1. Granting SupplyOne's motions concerning Plaintiffs’ claims of unjust enrichment, quasi-contract, fraud, and unfair trade practices.
2. Denying SupplyOne's motions for summary judgment on Plaintiffs' breach of contract claim and its own breach of contract counterclaim.
3. Denying Plaintiffs' motions for summary judgment.
4. Denying motions for hearing.
5. Scheduling jury selection for May 7, 2013, at 9:30 a.m.
6. Setting deadlines for Motions in Limine and their responses.

Additionally, the document clarifies that a docket entry regarding Third-Party Defendant Durham Box Company and Plaintiff Louis Wetmore reflects the original filing by Triad Packaging. It highlights the business dynamics between TPI and DBC, noting TPI's steady customer base and the regional manufacturing advantages in the packaging industry. Lastly, it outlines SupplyOne's acquisition process, which includes target identification and document preparation.

Acquisition preparation involves several steps: either Laughlin or Caruso can draft initial documents, senior management assesses interest, and tentative Board approval is sought. Laughlin prepares a letter of intent and introduces Caruso to the acquisition target's owner, transferring primary responsibilities to Caruso. Caruso conducts due diligence, including document requests for detailed financial information and on-site evaluations. Reports from managers and vice presidents are compiled for Caruso, who then reviews these materials with Laughlin to address any issues before finalizing a Board package for SupplyOne's President and the Board's approval.

Caruso notes that board meeting materials are typically prepared in hard copy and distributed a week in advance, with acquisition proposals accompanied by comprehensive binders detailing due diligence findings, funding sources, and strategic recommendations. The Board votes on these proposals, and while they can be updated on changes, a second vote is unnecessary once initial approval is given. SupplyOne, partially owned by Stephens Capital, has a standard accounts payable cycle of 30 days. Caruso explains that if the target company has overdue vendor payments, SupplyOne budgets for these as additional costs post-acquisition. These concerns were previously addressed by Laughlin in a revised model before the Letter of Intent was executed. TPI has a supply agreement with Pinnacle, requiring it to source most of its corrugated sheet needs from them.

The Pinnacle supply agreement and Wetmore's ability to resolve it were significant factors in delays experienced by TPI, as SupplyOne refused to honor TPI's agreement with Pinnacle, believing it could save costs by switching suppliers. Under the Letter of Intent (LOI), Pinnacle was required to reduce its supply requirements to 8 million square feet per month, matching the lowest prices offered to other suppliers. Wetmore, as TPI's sole shareholder and majority shareholder of DBC, faced challenges from stakeholders, including concerns from several customers like Ethan Allen and Lowe's, regarding the agreement's integrity. Wetmore asserted that he informed SupplyOne of TPI's loss of the Ethan Allen account prior to finalizing the deal. 

The Asset Purchase Agreement (APA) outlined a complex payment structure involving promissory notes, escrow funds, and a cash payment, with a portion allocated to settle non-trade debts of TPI and DBC. Specific payment terms included: $100,000 in convertible subordinated unsecured promissory notes, $175,000 to an escrow agent, and the remaining balance wired to the plaintiffs within three days before closing. By May 2009, SupplyOne aimed to reassign $56,933.69 in accounts receivable and approximately $75,000 in inventory to Wetmore. 

Indemnification procedures under Section 10 of the APA required a Claim Notice, Claim Response, and set a $50,000 threshold for damages, allowing offsets against amounts owed to SupplyOne. Section 12.5 stated that remedies specified in Section 10 would be exclusive for issues covered therein, while preserving the right to pursue legal or equitable remedies for breaches not addressed by Section 10, including specific performance, rescission, or restitution.

The criteria for including DBC as a Third-Party Defendant are met, as DBC could be liable to SupplyOne for part or all of the claims brought against SupplyOne. DBC is likely a necessary party under Federal Rule of Civil Procedure (Fed. R. Civ. P.) 19(a)(1) and has waived any objection to being named as such. The plaintiffs, Triad Packaging and Wetmore, are citizens of North Carolina, while SupplyOne is a Delaware citizen with its principal place of business in Pennsylvania, establishing diversity jurisdiction under 28 U.S.C. § 1332(c). The amount in controversy exceeds $75,000, exclusive of interest and costs. SupplyOne's Third-Party Complaint does not defeat this diversity since DBC is also a North Carolina citizen. The principal place of business for diversity purposes is determined by where high-level officers coordinate corporate activities.

SupplyOne cites North Carolina law in its Memorandum in Support of Summary Judgment regarding the Plaintiffs’ breach of contract claim, specifically interpreting Section 2.7(a) of the Asset Purchase Agreement (APA). The plaintiffs also reference North Carolina law, including the Uniform Commercial Code related to the Implied Warranty of Merchantability. Early in litigation, SupplyOne sought judgment on the pleadings for claims based on equitable or quasi-contract principles, but the case is now considered under Rule 56 due to a complete record.

In addition to the APA, other relevant documents include an Escrow Agreement, Lease Agreement, Employment Agreements for Wetmore and others, a Convertible Unsecured Subordinated Promissory Note allowing Wetmore an option for ownership in SupplyOne, and related Subordination Agreements. Plaintiffs allege fraud in their Third Claim for Relief, asserting that their First Claim for Relief constitutes affirmative defenses to the APA's formation. They argue that a jury could infer an enforceable agreement existed prior to the APA, which would render their quasi-contract claim moot. A condition precedent is defined as an event that must occur before a contractual right arises, with a breach or non-occurrence preventing the promisee from acquiring a right without imposing liability.

The legal excerpt addresses several key issues regarding the enforceability of a letter of intent (LOI) and an Asset Purchase Agreement (APA) in the context of a commercial transaction. The TSC Research transaction is characterized as a complex multi-million dollar asset acquisition that necessitates a comprehensive agreement and thorough due diligence, distinguishing it from simpler cases. The court found a prior case, JDH Capital, LLC v. Flowers, where a non-binding LOI was deemed unenforceable because it was intended to lead to a more complete agreement. Similarly, the presence of a "no-shop clause" in the Durham Coca-Cola Bottling case suggested that the LOI could not bind parties, as it implied further negotiations were necessary.

Plaintiffs argued that the APA should not be enforced due to unconscionability, which requires demonstrating extreme inequality in the bargain that would shock a reasonable person's judgment. This claim hinges on allegations of implied contracts stemming from the LOI, oral agreements, or conduct by the parties. The APA mandates certain actions, such as the preparation of a Closing Date Balance Sheet and the payment of a Net Current Asset Deficiency.

Discrepancies arose regarding the classification of inventory, particularly concerning items deemed "obsolete." The APA does not clarify this classification, and differing interpretations about unsold inventory were noted. Additionally, SupplyOne contested the timeliness of Balke's identification as an expert witness regarding industry standards for accounts receivable and inventory. Finally, Section 6.11 of the APA stipulates that both parties may require post-closing access to each other's information for audits, compliance, and legal claims.

Seller Parties and Buyer agree to provide each other with access to relevant documents and information for three years post-Closing, upon written request and at the requesting party's expense. This access is intended to facilitate transaction completion, audits, tax returns, compliance with regulations, and claim management. The Business Court dismissed the argument that the due diligence clause made the proposal incomplete, affirming that contractual obligations can be conditioned on discretionary actions, which must be exercised reasonably and in good faith. Testimony from SupplyOne's Caruso emphasized that the primary due diligence criterion is cash realization, highlighting his lack of access to Laughlin’s pricing calculations and defining the purchase price in terms of earnings.