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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) March 31, 1998
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MOTORS AND GEARS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Illinois
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(State or Other Jurisdiction of Incorporation)
33-24317 36-4109641
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(Commission File Number) (I.R.S. Employer Identification No.)
ArborLake Centre, Suite 550, 1751 Lake Cook Road, Deerfield, Illinois 60015
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(Address of Principal Executive Offices) (Zip Code)
(847) 945-5591
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit No. Document Description
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2.1 Share Purchase Agreement, dated March 2, 1997, by and
among Motors and Gears Holdings, Inc. and the
stockholders of FIR Group Holdings Italia, S.r.l.
2.2 Purchase Agreement, dated November 17, 1997, by and among
Motion Holdings, Inc. and the shareholders of Motion
Control Engineering, Inc.
2.3 Agreement for purchase and sale of stock of Electrical
Design and Control Company by and among ED&C Holdings, Inc.
and the shareholders of Electrical Design and Control Company
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MOTORS AND GEARS, INC.
Dated: March 31, 1998 By: /s/ Norman Bates
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Norman Bates
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Document Description
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2.1 Share Purchase Agreement, dated March 2, 1997,
by and among Motors and Gears Holdings, Inc. and
the stockholders of FIR Group Holdings Italia,
S.r.l.
2.2 Purchase Agreement, dated November 17, 1997, by and
among Motion Holdings, Inc. and the shareholders of
Motion Control Engineering, Inc.
2.3 Agreement for purchase and sale of stock of
Electrical Design and Control Company by and among
ED&C Holdings, Inc. and the shareholders of
Electrical Design and Control Company
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SHARE PURCHASE AGREEMENT
for the direct and indirect sale of
all the shares of
FIR GROUP COMPANIES
to
FIR GROUP HOLDINGS ITALIA, S.r.l.
DATED: MARCH 21, 1997
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SHARE PURCHASE AGREEMENT
entered into this 21st day of March 1997
BETWEEN
Mr. Carlo Bergamaschi, an Italian citizen, married under property
separation regime domiciled at Parma, Via Sarzana n. 5, fiscal code No. BRG
CRL 30A11 H384P; and
Mr. Paolo Bergamaschi, an Italian citizen, domiciled at Parma Via
Sarzana n. 5, fiscal code No.BRG PLA 69C27 G337C; and
Mr. Andrea Salati, an Italian citizen, married under property
separation regime domiciled at Parma, Via Sarzana n. 5, fiscal code No.SLT
NDR 65M08 G337I,
the above collectively referred to as the "Bergamaschi Group", and
TULIPA GESTAO e SERVICOS S.A., a Company formed under the laws of Portugal,
with registered office at Sao Pedro, Funchal, Madeira, Portugal, Rua Da
Carreira No.138, Register of Companies No.808;
All of the above, including the Bergamaschi Group, collectively
referred to as the "Sellers",
AND
FIR Group Holdings Italia, S.r.l., a limited liability company formed under
the law of Italy and in the process of being registered with the Register
of Undertakings of Milan, hereinafter referred to as "Holdings" and Motor
and Gear Holdings Inc., a Delaware corporation, hereinafter referred to as
"Holdings-USA", solely as guarantor as hereinafter described.
The Sellers and Holdings being the Parties hereto.
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Preamble:
WHEREAS, the Sellers own, and at the Closing shall own, directly
and indirectly, in the aggregate, not less than all of the shares of
capital stock of the FIR Group Companies, consisting of the following:
(a) CIME S.p.A. ("CIME"), a Company formed under the laws of Italy
with registered office at Viazzano (Varano de Melegari), Via Piani
Riva, 6, Italy, capital stock Lit. 200,000,000 divided into
200,000 shares, par value Lit.1,000 each (presently and at the
Closing owned 85% by Tulipa and 15% by the Bergamaschi Group), and
(b) SELIN S.p.A. ("SELIN"), a Company formed under the laws of Italy
with registered office at Genova, c/o Studio Commercialisti
Associati, Piazza della Vittoria, 8/20, Italy, capital stock Lit.
200,000,000 divided into 200,000 shares, par value Lit. 1,000 each
(presently and at the Closing owned 98% by CIME and 2% by Paolo
Bergamaschi), and
(c) FIR S.p.A., ("FIR"), a Company formed under the laws of Italy with
registered office at Casalmaggiore (PR) Via Roma 19,Italy, capital
stock Lit. 9,800,000,000 divided into 9,800,000 shares, par value
Lit. 1,000 each (presently and at the Closing owned 50% by SELIN
and 50% by Tulipa)
(CIME, SELIN and FIR being hereinafter sometimes individually referred as a
FIR Group Company and collectively referred to as the "FIR Group
Companies")
WHEREAS Sellers are willing to sell their shares in the FIR Group
Companies, and Holdings is willing to purchase the Sellers' shares in the
FIR Group Companies.
NOW, THEREFORE, the Parties hereto agree as follows acknowledging
to each other that the above premises and Exhibits attached hereto are an
integral part to this Agreement:
Article 1 -- Definitions
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1.1 Laws; Accounting Principles.
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For the purpose of this Agreement, "laws" shall include, without
limitation, all United States, Italian, and foreign, federal, state and
local laws, statutes, rules, regulations, codes, notices, decisions or
demand letters issued, entered or promulgated pursuant to any United
States, Italian, and foreign, federal, state or local law. For the purpose
of this Agreement, "Accounting Principles", "GAAP" or "generally accepted
accounting principles" shall, unless otherwise stated, mean such
principles, applied on a consistent basis, as set forth in Opinions of the
accounting arinciples governing body of the Italian Institute of Certified
Public Accountants and/or in statements of the Financial Accounting
Standards regulatory board which are applicable in the circumstances as of
the date in question, for use and application in Italy.
Article 2 -- Purchase and Sale of the Shares
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2.1 Purchase and Sale.
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Subject to the terms and conditions of this Agreement, the Sellers
hereby undertake to assign and sell, on the Closing Date, the following
shares to Holdings:
(a) Mr. Carlo Bergamaschi undertakes to sell and assign 10,000 shares
of CIME;
(b) Mr. Paolo Bergamaschi undertakes to sell and assign
10,000 shares of CIME and 4,000 shares of SELIN;
(c) Mr. Andrea Salati undertakes to sell and assign 10,000 shares
of CIME;
(d) TULIPA undertakes to sell and assign170,000 shares of
CIME and 4,900,000 shares of FIR.
All of the shares to be sold and assigned hereunder being
hereinafter referred to as the "Stock". Holdings undertakes to purchase and
accept the assignment of the Stock on the terms and conditions set forth
herein.
Article 3 -- Purchase Price, Reduction, Adjustments, and Closing Date
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3.1 Base Purchase Price, Reduction and Adjustment.
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(a) Base Purchase Price. The Parties agree that the aggregate base
purchase price payable at the Closing for the Stock to be sold and
purchased hereunder is Lit. 82,110,000,000, (the "Base Purchase Price") and
shall be subject to reduction and adjustment as set forth in subsections
(b)(i), (c) and (d) hereof. In no event the adjustments pursuant to( c) and
(d) shall exceed, in the aggregate, the amount of the Price Deposit
Account, as defined below.
(b)(i) Price Reduction for Unpaid Indebtedness. The Base Purchase
Price shall be reduced by an amount equal to all unpaid principal and
interest (including interest, costs, loss or penalty due as a result of any
interest rate exchange agreements, change in ownership or early payment of
debt) on all indebtedness of the FIR Group Companies owed on March 31, 1997
to third party financial institutions. Exhibit A hereto sets forth the
names and an estimate of the unpaid balances due to such institutions on
February 28, 1997.
(b)(ii) Price Date, Financials and Computations Immediately after
the Price Date, at no cost to the Sellers, Holdings will have prepared by
Coopers & Lybrand an audited balance sheet of the Fir Group Companies
(hereinafter in Section 3, "FGC") as of the Price Date and a statement of
income for the eight months ended on the Price Date, together with a
calculation of FGC's DFCE and the EBIT (defined in Section 3.1(d) below)
(the "Price Date Financials and Computations"). The Sellers and Holdings
will provide for all year-end expense and other accounting adjustments on a
pro-rata basis prior to the preparation of the Price Date Financials and
Computations. Sellers' accountants shall be allowed to participate in the
preparation of the Price Data Financials and Computations. The Price Date
Financials and Computations will be completed within 120 days after
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the Price Date and delivered to the Sellers for review. Any dispute
regarding the Price Date Financials and Computations shall be resolved in
accordance with Article 13.
In preparing the Price Date Financials Coopers & Lybrand shall
apply such specific GAAP as were applied by FGC in preparing the audited
consolidated financials as of 31/07/1996.
In preparing the Computations, Coopers & Lybrand shall apply the
methods and principles specifically described in Exhibit C.
(c) DFCE Price Adjustment. The Base Purchase Price shall be
adjusted in the manner set forth in this Section 3.1(c) (the "DFCE Price
Adjustment Amount").
(i) DFCE. "DFCE" shall mean debt free common equity of
the FIR Group Companies at March 31, 1997 (the "Price Date") and shall
equal (x) the aggregate Lira amount of FGC's Total Assets (as defined
below) less (y) the aggregate Lira amount of all FGC's liabilities except
net worth, unpaid indebtedness as defined above in article 3(1)(b)(i) and
income taxes payable. For example purposes only, FGC's DFCE as of July 31,
1996, is set forth on Exhibit B. In the calculation of DFCE, FGC will use
Italian GAAP, including all year end accruals and adjustments and shall
include and reflect the Acquisition of TEA consolidated on a line by line
basis (defined below). The minimum DFCE at the Price Date shall be
Lit.____________, or such amount as will result from the audited
consolidated balance sheet as of July 31st 1996 prepared by Coopers &
Lybrand pursuant to section 11.6.(d)(i).
(ii) Definition of Total Assets. "Total Assets" shall
mean the amount of all assets other than cash and cash equivalents (net of
reserves for bad debts and similar "contra-asset" items) and tax credits of
FGC as reflected in the Price Date Financials and Computations (defined
below).
(iii) Postclosing DFCE Adjustments Immediately after the
completion of the Price Date Financials and Computations, and the review
and acceptance of the same by the Sellers or upon the resolution of any
disputes regarding the same in accordance with the above, to the extent
that there is a deficiency in the DFCE requirement described in Subsection
3.1(c)(i), such deficiency ("DFCE Deficiency") shall be paid by the Escrow
Agent to Holdings from the Price Deposit Account in accordance with the
Escrow Agreement, provided however that in no event the amounts so payable
shall exceed the amount of the Price Deposit Account or such portion
thereof as is still outstanding following any EBIT Price Adjustment
pursuant to article 3.1.(d) below.And further provided that the DFCE
Deficiency shall not be subject to the Basket Limitation (defined in
Section 7.1(c)). To the extent there is a surplus over the minimum DFCE
requirement, such surplus shall be paid over to the Sellers, by Holdings.
(d) EBIT Price Adjustment. The Base Purchase Price payable at
Closing shall be subject to adjustment in the manner set forth in this
Section 3.1(d) (the "EBIT Price Adjustment"). The Sellers and Holdings
agree to adjust the Base Purchase Price by an amount equal to and
determined by application of the following formula:
(i) "EBIT" means the consolidated net income of FGC
before amortization of goodwill, including goodwill allocated to real
estate and pallets, extraordinary items and interest expense and income
taxes as shown in the Price Date Financials and Computations.
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(ii) "A" means shortage of 1996 EBIT of FGC as described
in Section 6.6(d) from that shown on the audited 1996 income statement
prepared by Coopers & Lybrand as described in Section 11.6(d)(i).
(iii) "B" means shortage of August to March ("A/M") 1997
EBIT, as determined by Coopers & Lybrand in the Price Date Financials and
Computations of FGC (including the contributions to EBIT by the TEA
Acquisition from January 1, 1997 to the Price Date), from A/M 1997 EBIT
target.
(iv) "A/M 1997 EBIT Target" means Lit. 7,904,000,000.
(v) The formula is the sum of A + B divided by 20 and the
result multiplied by 12 and then multiplied by 3 = X
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(vi) "X" equals the EBIT Price Adjustment.
The EBIT Price Adjustment amount, if any, shall be paid over to
Holdings or the Sellers by the Escrow Agent from the Price Deposit Account
within fifteen working days after same is computed by Coopers & Lybrand, if
not objected to in writing by the Sellers or Holdings. In the event of a
written objection to such computation by either party, the Escrow Agent
shall hold and invest that portion of the price adjustment amounts which is
in dispute and shall deliver the balance of the escrow funds to Holdings
and Sellers, as their interest may appear. The disputed amount shall be
resolved and distributed in accordance with Article 13 hereof. Interest and
increases on the funds held by the Escrow Agent shall be paid pro rata to
Holdings and Sellers in accordance with their distributive share of the
Escrow Funds, as finally determined.
(e) Interest on the Final Price. Holdings shall pay to the Sellers
interest on the amount of the Base Purchase Price, less the reduction
pursuant to Section 3.1(b), paid to Sellers pursuant to this Section 3.1,
at an annual rate equal LIBOR at Price Date computed from the Price Date to
the Closing Date.
3.2 Payment of Base Purchase Price.
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(a) Closing.
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(i) At the Closing, which shall take place on the Closing
Date defined in Article 3.6 below, Lit.82,110,000,000 less the reduction
for indebtedness described in Section 3.1(b)(i), plus interest pursuant to
Article 3.1.(e) shall be paid by Holdings to Sellers simultaneously with
the endorsementand delivery of the Stock by Sellers to Holdings.
(ii) Simultaneously, Lit. 11,755,000,000 (the "Price
Deposit Account") shall be paid over by Sellers to the Escrow Agent to be
held pursuant to the Escrow Agreement (Exhibit D-3) to secure, and be
available to pay, Holdings or Sellers any DFCE Price Adjustment (as defined
in Section 3.1(c)) or any EBIT Price Adjustment (as defined in Section
3.1(d) hereof).
(iii) Simultaneously, the Sellers shall deposit (a) Lit.
5,500,000,000 of the Base Purchase Price (the "Warranty Deposit Account")
with the Escrow Agent as provided in Article 7.3 below pursuant to the
Escrow Agreement D-1to guarantee the obligations of the Sellers under
Article 5 through 8 of this Agreement, and
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(iv) Simultaneously the Sellers shall deposit Lit.
483,000,000 of the Base Purchase Price (the "Environmental Deposit Amount")
with the Escrow Agent as provided in section 7.5 below, to be held pursuant
to the Environmental Escrow Agreement in the form attached hereto on
Exhibit D-2.
(b) The Escrow Agreements shall be in the form attached hereto as
Exhibit D-1, D-2 and D-3 with such changes as may be reasonably required by
the Escrow Agent (as defined therein).
3.3 Additional Purchase Price.
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(a) As additional purchase price, Holdings agrees to pay to
Sellers within sixty (60) days after July 31, 2000 the amount of Lit.
4,830,000,000 if, and only if, the Annual Net Sales (as hereinafter
defined) for the year ended July 31, 2000 of the going concern of FGC, Tea
and Fratelli Moretti, if acquired equal or exceed Lit. 80,000,000,000.
(b) In addition to the above Lit. 4,830,000,000 payment, at the
time of the payment in Section 3.3(a), Holdings shall pay to Sellers an
amount equal to Lit. 322 for each Lit. 1,000 in Annual Net Sales in excess
of Lit. 80,000,000,000 in Annual Net Sales for the year ended July 31,
2000, of the going concern of FGC, Tea and Fratelli Moretti, if acquired.
Provided, however, the maximum additional payment from Holdings to Sellers
pursuant to this Section 3.3 (b) shall be Lit. 3,220,000,000, representing
Annual Net Sales of Lit. 90,000,000,000 (or a total of Lit. 8,050,000,000
including the Lit. 4,830,000,000 in 3.3 (a) above). For purposes of this
Section 3.3 (b), Annual Net Sales shall be defined as "the net amount of
the invoice rendered for each sale of product exclusive of freight and
transportation costs (including insurance), returns, customs, duties, and
any applicable sales or similar taxes" and shall be determined by reference
to Annual Net Sales of businesses owned and operated by FGC at the time of
Closing (as hereinafter defined) hereunder, and not by reference to any
acquisitions of any businesses or subsidiaries other than Fratelli Moretti
after the Closing. In the event that Holdings or the FIR Group Companies
acquire the stock or substantially all of the assets of another business
enterprise (other than Fratelli Moretti) after the closing (an
"Acquisition"), the Net Sales of the Acquisition shall be elimated for
purposes of this additional purchase price computation.
3.4 Other Obligations. It is agreed that the Purchase Price is inclusive of
the consideration for all of the other obligations of the Sellers pursuant
to this Agreement, including those set forth in Article 10 hereof.
3.5 Purchase Price Allocation. The Purchase Price shall be allocated among
the Sellers in accordance with Exhibit E attached hereto.
3.6 Closing Date and Conditions to Closing. Closing (the "Closing") shall
be held on April 30, 1997, or on such other date (the "Closing Date")
mutually agreed upon at such place or places as Holdings shall designate.
Each party has the right at any time to extend the Closing Date for a
period of up to fourteen (14) business days from the date stated above, by
written notice to the other party or parties. Prior to the Closing and as a
condition thereto, Holdings shall have caused the Sellers to be released of
the guarantees issued in favor of the banks extending credit to the FIR
Group Companies prior to Closing.
Article 4 -- Antitrust Compliance
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4.1 Antitrust.
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The Parties acknowledge that the transaction contemplated herein
is not subject to the authorization of the Italian antitrust authorities.
Article 5 - Books, Contracts and Records of the FIR Group Companies
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5.1 Books, etc.
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The Sellers undertake, represent and warrant that originals, or
true, complete and correct copies, of all books, contracts and records of
the FIR Group Companies have been or shall be, within 20 days from the
execution of this Agreement, made available to Holdings by Sellers, and
that such books, contracts and records are accurate and correct.
Article 6 - Warranties and Representations
In addition to all other representations and warranties made by
the Sellers elsewhere herein, the Sellers jointly and severally represent
and warrant to Holdings the following:
6.1 Regarding the FIR Group Companies.
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(a) The FIR Group Companies are corporations duly organized,
validly existing and in good standing under the applicable laws, and are
duly qualified to carry on their business in the places and manners in
which they are presently conducted.
(b) None of the FIR Group Companies is insolvent or in a situation
contemplated by Art. 2446 or 2447 of the Italian Codice Civile, or has been
declared bankrupt and no action or request is pending to declare any of the
FIR Group Companies bankrupt or to make any of the FIR Group Companies
subject to any proceeding contemplated by Italian Bankruptcy law or similar
statutes.
(c) The FIR Group Companies' Deeds of Incorporation and By-laws in
force have been duly adopted, approved, published and recorded in
compliance with all requirements of all applicable laws.
(d) Neither the Deeds of Incorporation nor the By-laws of the FIR
Group Companies, nor any agreements between any FIR Group Company and a
Seller and/or a third party will affect Holding's control of the FIR Group
Companies or ownership of the Shares or the Stock after the completion of
the transactions contemplated herein.
(e) Except as set forth in Exhibit F, FIR Group Companies have no
subsidiaries, Affiliates or investments in any other entity or business
operation. The term "Affiliates" includes each shareholder, director,
officer and employee of FIR Group Companies, the family members of
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Sellers, and any director, officer or employee of FIR Group Companies, and
any corporation, partnership or other entity in which FIR Group Companies,
any Sellers, any family member of Sellers or director or officer of FIR
Group Companies has any financial interest or is a controlling person, as
that term is used in connection with the federal securities laws of the
United States, if such person or entity has, or in the past had, a
contractual relationship with or is transacting, or has in the past
transacted, business with FIR Group Companies. FIR Group Companies have no
Affiliate whose liabilities or obligations will be assumed by Holdings.
Exhibit F sets forth a complete list (including the parties) and copies (or
a detailed summary in the case of an oral agreement) of all oral or written
contracts, arrangements or other agreements to which FIR Group Companies or
any Affiliate is, will be or has been a party at any time from August 1,
1992, to the Closing Date, and to which any other Affiliate or FIR Group
Companies was or is also a party.
6.2 Regarding the Stock and the other shares of the FIR Group Companies.
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(a) The Stock and the shares of SELIN and FIR held, respectively,
by CIME and SELIN are duly and validly issued, fully paid in and
non-assessable.
(b) The CIME shares are owned as follows:
Mr. Carlo Bergamaschi owns 10,000 shares
Mr. Paolo Bergamaschi owns 10,000 shares
Mr. Andrea Salati owns 10,000 shares
TULIPA owns 170,000 shares
(c) The SELIN shares are owned as follows:
Mr. Paolo Bergamaschi owns 4,000 shares
CIME owns 196,000 shares
(d) The FIR shares are owned as follows:
TULIPA owns 4,900,000 shares
SELIN owns 4,900,000 shares
(e) The shares of Stock owned by the Sellers as set forth in
Section 6.2(b) through (d) hereof represent all of the issued and
outstanding capital stock of the FIR Group Companies. There are no issued
and outstanding options, warrants, rights, securities, contracts,
commitments, understandings or arrangements by which any of the FIR Group
companies is bound to issue any additional shares of its capital stock or
options to purchase shares of its capital stock.
(f) Each Seller is the sole owner of the Stock belonging to
him/it; and at the Closing all of such Stock shall, as a condition to
Closing, be free and clear of any pledges, claims, rights, actions, liens
or encumbrances; no person firm or entity has negotiations pending
concerning or has any option or right, even if conditional, to purchase or
to be offered to purchase or otherwise acquire in whole or in part, the
Stock or any securities convertible therein or any interest, or right of
whatever nature, therein, respectively belonging to them.
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(g) The Sellers have full power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby.
(h) Except as described in Exhibit G, at Closing the FIR Group
Companies will not have any capital shares or other participation in any
corporation, partnership, or association.
(i) Under an agreement between FIR (formerly MEVA) and a pool of
banks led by Cariplo, the financing granted to FIR (formerly MEVA) in the
original amount of Lit 23,000,000,000 (presently outstanding in the amount
of Lit. 13,800,000,000) is immediately repayable in the event any of the
shareholders of record as of September 13, 1994 ceases to be a shareholder
of FIR or the aggregate participation of all such shareholders of records
is reduced below 51% of the capital stock of the FIR Group Companies unless
the new shareholders are accepted in writing by said lead bank.
(j) Each of the FIR Group Companies is and always has been
resident for tax purposes only in Italy. No FIR Group Company is liable to
pay tax in any country other than Italy. In any country in which a FIR
Group Company conducts business other than Italy, such Company is entitled
to the benefits of an applicable double tax agreement pursuant to which
such business does not constitute a permanent establishment within the
meaning of such double tax agreement. Each FIR Group Company has performed
all acts necessary to claim all the benefits of those double tax agreements
to which it is entitled, including any and all filings and other
communications with the relevant taxing authorities as may be required or
advisable.
(k) No FIR Group Company is or has been a member of a
consolidated, combined or unitary group for tax purposes in any taxing
jurisdiction.
(l) At no time prior to the Closing Date has any United States
corporation, partnership, trust, estate, citizen or resident been a
shareholder of any FIR Group Company.
6.3 Regarding the Assets of the FIR Group Companies.
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(a) Except as described in Exhibit H/a, the FIR Group Companies
have full and undisputed title to all their properties and assets and in
the case of real property good and marketable title, free and clear of any
claims, rights, actions, liens, encumbrances, mortgages, pledges and
privileges. The FIR Group Companies own all of the assets, tangibles and
intangibles, recorded or unrecorded, required to operate their businesses
consistent with past practices. All of such assets are reflected in the
1996 Consolidated Financial Statements or have been acquired since the date
thereof. Other than the real properties reflected in the 1996 Consolidated
Financial Statements, the FIR Group Companies have not owned or leased any
real property since 1987. All machinery and equipment (including machinery
and equipment under lease) presently used by the Fir Group Companies are in
normal operating conditions, showing normal wear and tear, and all
necessary maintenance and repair work has been duly conducted.
(b) All leases pursuant to which the FIR Group Companies lease
real estate, or other assets (the "Leases") are in good standing and are
valid and effective in accordance with their respective terms and no breach
has occurred thereunder which has not been remedied. Except for
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the FIR Group Companies, no other person or entity has any right to, or
does in fact, enjoy in whole or part, any of the real estate or other
assets covered by the Leases or utilized by the FIR Group Companies in
their operations. A copy of all Leases are attached as Exhibit H/b. No such
lease requires any consent or approval as a result of the transactions
contemplated by this Agreement.
(c) All raw materials and semifinished goods are in good
conditions, fit for the use for which they have been purchased or begun
being manufactured; with regard to finished products, all of them are in
good condition, comply with their respective specifications and are
marketable.
(d) All accounts receivable shown in the financial statements of
the FIR Group Companies as of July 31, 1996 and shown in the accounting
records of the FIR Group Companies as of the day of execution of this
Agreement and as of the Closing Date (the "Accounts Receivable") were, are
and shall be actually due to the FIR Group Companies and have been or shall
be collected if the due date is after Closing, within 180 days of their due
dates in an aggregate amount not lower than their face value net of the
aggregate reserves for bad debts. The Accounts Receivable not collected on
their due dates prior to the Closing and still owing on the day of the
Closing shall be collected within 180 days from such date of Closing. No
Account Receivable is subject to any claim, dispute or set off. Upon
expiration of the above terms of 180 days, Holdings shall be entitled to
debit the Warranty Deposit Amount (as defined in Section 3.2(a)(iii)) for
all accounts which remain uncollected after 180 days subject to the
provisions of Section 7.1(b). In case Holdings does not cause the creditor
FIR Group Company to initiate a legal proceeding, the Sellers shall have
the right to so proceed in the name and on behalf of the FIR Group Company
entitled to the payment of such receivable and in general participate in
the collection procedure. Sellers shall be entitled to be assigned any
receivable which is debited against the Warranty Deposit Amount by the FIR
Group Company.
(e) At no time has any FIR Group Company owned, held, leased, or
had any interest in real property located in the United States or had any
earnings invested in tangible property located in the United States, stock
of a United States corporation, an obligation of a United States person, or
any right to use any intangible in the United States.
6.4 Regarding Know-how and Industrial Property.
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(a) Except as disclosed in Exhibit H/c the FIR Group Companies are
in a position to operate their businesses without requiring any know-how,
trademark and/or patent licenses from third parties.
(b) No FIR Group Company or Affiliate has licensed any know-how,
trademark or patent owned by any of the FIR Group Companies to third
parties.
(c) Each of the FIR Group Companies has full title and ownership
of its corporate name under the applicable laws. All application and
renewal fees, costs and charges for patents and trademarks of the FIR Group
Companies have been paid on time.
6.5 Regarding the Liabilities Related to Products of the FIR Group
Companies.
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Except as disclosed in Exhibit H/d there are no liabilities,
accrued or unaccrued, of the FIR Group Companies, including products
liability, arising from the sale of the products manufactured and/or sold
by them, which products were and will be manufactured and/or sold in
compliance with all the applicable laws and regulations.
6.6 Regarding the Consolidated Financial Statements of the FIR Group
Companies.
----------------------------------------------------------------
(a) The:
(i) FIR Group - 1996 Consolidated Balance Sheet as of 31
July 1996 (the "1996 Balance Sheet"), and the FIR Group - 1996 Consolidated
Income Statement for the twelve months ended 31 July 1996 (the "1996 Income
Statement") (together referred to as the "1996 Consolidated Financial
Statements" and attached here to as Exhibit H/e), have been prepared by IFI
REVI SOCIETA DI REVISIONE and drawn up in compliance with the Italian GAAP
(as herein defined);
(ii) 1995 Balance Sheet as of 31 July 1995 (the "1995
Balance Sheet"), and the 1995 Income Statement for the twelve months ended
31 July 1995 (the "1995 Income Statement") of each of the FIR Group
Companies (together referred to as the "1995 Financial Statements"); and
(iii) 1994 Balance Sheet as of 31 July 1994 (the "1994
Balance Sheet") of each of the FIR Group Companies
present a true and correct accounting representation and results of
operations of the FIR Group Companies and their affiliated companies and
describe correctly and give a true and faithful picture of the economic,
financial and proprietary consolidated (available for 1996) situation of
the FIR Group Companies as of the dates and for the periods herein stated.
(b) The FIR Group - 1995 and 1994 internally-prepared Consolidated
Balance Sheets as of July 31, 1995 and 1994, respectively, and the FIR
Group 1995 and 1994 (seven months) internally- prepared Consolidated Income
Statements for the twelve months ended July 31, 1995 and the seven months
ended July 31, 1994, respectively, present true and correct management
accounting representations and results of operations of the FIR Group
Companies and their affiliated companies and describe correctly and give a
true and faithful picture of the economic, financial and proprietary
consolidated situation of the FIR Group Companies as of the dates and for
the periods stated to the best of the knowledge of Sellers.
(c) Except to the extent reflected or reserved for in the
Consolidated Financial Statements referred to above under Article 6.6(a)(i)
the FIR Group Companies had no liabilities or obligations of any nature,
which were incurred by them prior to the respective dates of the above
mentioned 1996 Consolidated Financial Statements, or arose from
transactions entered into or facts, acts or omissions occurring, on or
prior to that date, except those incurred in the ordinary course of
business and consistent with past practices, but not required under the
Italian GAAP to be reflected, or reserved for, in the above described 1996
Consolidated Financial Statements.
(d) The FIR Group Companies EBIT for the year ended
July 31, 1996 was and is Lit. 12,929,900,000.
11
<PAGE>
6.7 Regarding Bookkeeping, Taxes and Legal Compliance.
--------------------------------------------------
Except as disclosed in Exhibit H/f:
(a) The FIR Group Companies have regularly, fully and timely paid
all net income, capital gains, gross income, gross receipts, sales, use,
transfer, value added, ad valorem, franchise, profits, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits and any other taxes or customs duties,
any interest, penalties, additions to tax or additional amounts assessed or
similarly charged by any taxing authority in any jurisdiction upon FIR
Group Company ("Taxes" and, in the singular, a "Tax") which have become due
and payable from time to time and appropriate funds have been created in
the accounting books and/or financial statements of the FIR Group Companies
as any Tax contribution became due and not yet payable. The FIR Group
Companies have duly and timely filed all Tax returns and documents required
to be filed prior to the Closing including, without limitation, returns and
documents covering all the aforesaid Taxes, and such returns and documents
are complete, correct and accurate in all respects. For all periods through
July 31, 1996, all Tax returns filed by the FIR Group Companies have been
examined by the applicable taxing authorities or have been closed by the
applicable statute of limitations. A copy of any such returns filed for
each taxable period that remain open to audit, review or examination by the
relevant taxing authorities and the five most recent closed taxable periods
have been provided to Holdings prior to the Closing Date. None of the Tax
returns so delivered currently is the subject of any audit, administrative
proceeding, judicial proceeding or dispute. There are no facts or
circumstances likely to give rise to or be the subject of any such dispute.
Neither Sellers nor any FIR Group Company has executed or filed with any
taxing authority any agreement or other document extending or having the
effect of extending the period for assessment or collection of any Taxes
imposed on or with respect to any FIR Group Company, and no power of
attorney granted by a Seller or a FIR Group Company with respect to any
such Taxes is currently in force.
(b) All books and records of the FIR Group Companies have been
truly and accurately kept in full compliance with the Italian Accounting
Principles and the applicable laws and regulations.
(c) The FIR Group Companies and their businesses have been
conducted in full compliance with past and present laws and regulations
applicable to them and/or their business activities, including without
limitation environmental matters and exchange control matters. Except as
shown on Exhibit H/f, they have not handled or disposed of hazardous
materials waste in the past ten years and their sites contain no
underground tanks or pipes. None of their properties contain in the soils
any harzardous materials which are required to be remediated by Italian
law, except those which will in fact be remediated pursuant to Section 7.5
hereof. No hazardous materials have migrated to any adjoining property
owned by third party or to any water supply source used by any third party.
(d) The FIR Group Companies have obtained all permits, licenses
and authorizations,
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including but not limited to, those relating to environmental matters which
are necessary for the conduct of their business. FIR Group Companies are in
all material aspects in full compliance with all terms and conditions of
the required permits.
6.8 Regarding Insurance; Regarding Wages, Employees and Labor Relations.
--------------------------------------------------------------------
(a) The FIR Group Companies have insured their assets and against
their potential liabilities, as shown in the policies, a list of which is
attached hereto as Exhibit H/g. All such policies shall be timely renewed
upon their expiration.
(b) All personnel of the FIR Group Companies have been timely and
fully paid their salaries; all taxes and other refund amounts have been
withheld, and relative to such salaries have similarly been timely and
fully paid to the competent authorities. Adequate funds or reserves have
been created in the financial statements of the FIR Group Companies to
provide for the severance indemnity due to the personnel upon resignation
or retirement. There are no pension or unpaid social security liabilities
of the FIR Group Companies. The FIR Group Companies have furnished to
Holdings, as Exhibit H/h, a list of and copies of all employee benefit
manuals; fringe benefit plans; retirement, welfare and pension plans;
health and medical insurance plans; labor collective bargaining agreements;
profit-sharing plans; and all similar types of employee benefit plans or
programs. Except as set forth in Exhibit H/h, there have been no strikes or
work stoppages each longer than five consecutive working days by any union
or labor organization since August 1, 1992. There is no dispute or
controversy with any union or other organization of the FIR Group
Companies' employees. FIR Group Companies currently have satisfactory
relationships with their employees. Exhibit H/h lists each former employee
and/or officer of FIR Group Companies whose aggregate annualized
compensation exceeded Lit. 60,000,000 and whose employment by FIR Group
Companies has ceased for any reasons since August 1, 1992. Set forth
opposite the name of each such employee and/or officer are: the positions
held; the beginning and ending employment dates; and the reason for the
cessation of the employment.
(c) Subcontractor data. Attached hereto as Exhibit H/(i) is
certain data prepared by Sellers regarding subcontractor relationship of
the FIR Group Companies which data Sellers represent is true, correct and
complete. None of the past or present subcontractors are actually (or will
be characterized by any court to be) employees of the FIR Group Companies
under Italian law.
6.9 Regarding Litigations.
----------------------
Except as described in Exhibit H/j, the FIR Group Companies are
not parties to any litigation, arbitration, regulatory or administrative
proceeding or investigations (including but not limited to tax and fiscal
authorities) pending or threatened.
6.10 Regarding Guarantees.
---------------------
No guarantee issued by any of the FIR Group Companies and
outstanding shall be in favor of third parties other than the Companies.
6.11 Regarding Governmental Authorities.
-----------------------------------
13
<PAGE>
Neither the Sellers nor the FIR Group Companies is required to
submit any notice, report or other filing with, and no consent, approval or
authorization is required, by any governmental or regulatory authority in
connection with their execution, delivery, consummation or performance of
this Agreement or the transactions contemplated hereby.
6.12 Regarding No Undisclosed Liabilities, Claims, etc.
--------------------------------------------------
Except for (a) liabilities fully reflected or reserved against in
the 1996 Consolidated Financial Statements; and (b) regular and usual
liabilities and obligations incurred in the ordinary course of business
consistent with past practices after the date of the 1996 Consolidated
Financial Statements, the FIR Group Companies have no liabilities,
obligations or claims (absolute, accrued, fixed or contingent, matured or
unmatured, or otherwise), including liabilities, obligations or claims
which may become known or which arise only after the Price Date or the
Closing and which result from actions, omissions or occurrences of the FIR
Group Companies prior to the Price Date or the Closing.
6.13 Regarding Absence of Certain Changes.
-------------------------------------
Since the date of the 1996 Consolidated Financial Statements, there
has not been;
(a) any material adverse change in the business, financial
condition, earnings or operations of the FIR Group Companies' businesses;
(b) any damage, destruction or loss, whether covered by insurance
or not, adversely affecting the FIR Group Companies' properties and
business;
(c) any declaration, setting aside or payment of any dividend
whether in cash, stock or property with respect to the FIR Group Companies'
capital stock, or any redemption or other acquisition of such stock by any
FIR Group Company;
(d) any increase in the compensation payable or to become payable
by any FIR Group Company to its directors, officers, key employees,
Affiliates or Sellers or any adoption of or increase in any bonus,
insurance, pension or other employee benefit plan, payment or arrangement
made to, for or with any such party;
(e) any entry by any FIR Group Companies into any commitment or
transaction, including, without limitation, any borrowing or capital
expenditure other than in accordance with the Schedule of Capital
Expenditures (Exhibit H/k);
(f) any change by any FIR Group Companies in accounting methods,
practices or principles;
(g) any termination or waiver of any rights of value to the business
of any FIR Group Companies;
(h) any other transaction or event other than in the ordinary
course of the FIR Group
14
<PAGE>
Companies' businesses;
(i) any adoption or amendment of any collective bargaining, bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, or other plan, agreement, trust, fund or arrangement for the
benefit of employees, exception made for the coming into force of the
National Metal Workers Collective Agreement in 1997; or
(j) any agreement or understanding made or entered into to do any
of the foregoing.
6.14 Regarding Contracts.
--------------------
Exhibit H/l contains a schedule of, and copies of, all Contracts to which
any FIR Group Company is a party. The term "Contracts" shall include, but
shall not be limited to, all oral (which shall be summarized in Exhibit
H/m) and written contracts, agreements, agency agreements, loan agreements,
mortgages, indentures, deeds of trust, guarantees, commitments, joint
venture agreements, purchase and/or sale agreements, collective bargaining,
union, consulting and/or employment contracts, leases of real or personal
property, easements, distribution or dealer agreements, service agreements,
license agreements and advertising agreements except there shall not be
included agreements which do not exceed, in the case of any one agreement,
an obligation or benefit of Lit. 10,000,000 and, in the case of all
agreements, an aggregate obligation of Lit. 30,000,000. The FIR Group
Companies are not in default or alleged to be in default under any Contract
nor are Sellers aware of any default by any other party to any Contract,
and there exists no event, condition or occurrence which, after notice or
lapse of time, or both, would constitute a default under any Contract. All
of the Contracts are in full force and effect and constitute legal, valid
and binding obligations of the parties thereto in accordance with their
terms, and will remain in full force and effect after the Closing without
any notice to or consent by any other party. Copies of all agreements,
contracts and documents delivered and to be delivered hereunder by Sellers
or the FIR Group Companies are and will be true and complete copies of such
agreements, contracts and documents. All written summaries of oral
agreements will be true and complete.
6.15 Regarding Absence of Certain Business Practices.
------------------------------------------------
Neither Sellers, or any person or entity related to or affiliated
with the Sellers, any officer, employee or agent of the FIR Group Companies
or the Sellers, any other person or entity acting on behalf of or
associated with the FIR Group Companies or the Sellers, nor any other
entity directly or indirectly owned or controlled by the Sellers or the FIR
Group Companies, acting alone or together, has
(a) received, directly or indirectly, any rebates, payments,
commissions, promotional allowances or any other economic benefit,
regardless of its nature or type, from any customer, supplier, trading
company, shipping company, governmental employee or other entity or
individual with whom the FIR Group Companies have done business directly or
indirectly; or
(b) directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, trading company, shipping
company, governmental employee or other person
15
<PAGE>
or entity who is or may be in a position to help or hinder the business of
the FIR Group Companies (or assist the FIR Group Companies in connection
with any actual or proposed transaction) which
(i) might subject the FIR Group Companies to any damage
or penalty in any civil, criminal or governmental litigation or proceeding,
(ii) if not given in the past, might have had an adverse
effect on the assets, business or operations of the FIR Group Companies as
reflected in the 1996 Consolidated Financial Statements or ,
(iii) if not continued in the future, might adversely
affect the assets, business, operations or prospects of the FIR Group
Companies or which might subject the FIR Group Companies to suit or penalty
in any private or governmental litigation or proceeding.
Article 7 - Indemnity
---------------------
7.1 Indemnification and Hold Harmless.
----------------------------------
(a) The Sellers shall indemnify and hold harmless Holdings and
each of its shareholders, officers and directors for any loss, damage, cost
and/or expense borne by them or the FIR Group Companies and relative to
events which occurred prior to the Closing and which would not have been
borne if the representations and warranties given above had been fully
accurate ("Loss") subject to the exemptions and limitations set forth
below, provided, however, that no such exemption or limitation of any kind
shall apply to the representations and warranties set forth in Sections
6.1and 6.2 hereof, nor with respect to any intentional act or
misrepresentation committed by Sellers.
(b) Any indemnifiable Loss shall be calculated after set-off with
any provision included in the Consolidated Financial Statements against any
such or different loss, and after deduction of windfalls deriving from
events occurred prior to the closing, and the income and other taxes that
would have been paid by the FIR Group Companies if the Loss had not
occurred, after giving effect to the receipt of any indemnity payment for
tax purposes.
(c) Sellers shall not be liable for any Loss notified to them
later than December 31, 2000, and shall not be liable unless and until in
the aggregate, the Loss exceeds Lit. 80,500,000 (the "Basket Limitation").
7.2 Limitations on Indemnity.
-------------------------
Except as set forth in Section 7.1(a), in no event shall the
indemnity due by Sellers for the representations and warranties given
herein exceed the amount of the Warranty Deposit Account deposited with the
Escrow Agent at the time the claim is notified. With regard to
Environmental matters, any indemnity due by Sellers shall first be drawn
from the Environmental Escrow Fund mentioned in section 7.5 below and then,
to the extent necessary, from the Warranty Deposit Account and in no event
should exceed the amount in such Account.
16
<PAGE>
7.3 Escrow Agreement and Procedures Thereunder.
-------------------------------------------
(a) At the Closing, Sellers and Holdings shall enter into the
Escrow Agreements provided for in Section 3.2 hereof and in the form of
Exhibit D-1, D-2 and D-3 hereto. The Escrow Agent shall hold and administer
three separate and distinct escrow accounts (collectively the "Escrow
Accounts", singularly "Account"). One Account shall be referred to herein
as the Price Deposit Account, another as the Warranty Deposit Account and
the third ad the Environmental Escrow Fund. The total amount initially
deposited into the Escrow Accounts shall be Lit. 17,738,000,000 (the
"Initial Escrow Amounts"). The Initial Escrow Amounts and any interest
earned thereon shall be referred to as "Escrow Funds". The Initial Escrow
Amounts shall be deposited by Sellers with the Escrow Agent under the
Escrow Agreements at Closing as follows:
Account Amount
------- ------
Price Deposit Account Lit. 11,755,000,000
Warranty Deposit Account Lit. 5,500,000,000
Environmental Escrow
Fund
Lit. 483,000,000
(b) The Escrow Accounts shall be held, invested and distributed in
accordance with the Escrow Agreement.
(c) The Warranty Deposit Account shall remain in escrow, unless
released as herein provided:
(i) Holdings shall be entitled, at any time and from time
to time that it has a claim or claims subject to indemnification, payment
or distribution to make a written notice of claim ("Notice of Claim") on
the Warranty Deposit Account to the Escrow Agent and the other party,
through their representatives. The Escrow Agent shall disburse Escrow Funds
from the Warranty Deposit Account to Holdings with respect to such claim or
claims upon the expiration of (15) fifteen working days after receipt by
the Escrow Agent of such Notice of Claim, unless prior to the expiration of
such 15working day period, the Escrow Agent shall have received a written
notice of objection ("Notice of Objection") from Sellers, specifying, with
particularity, the basis for such objection. A claim or claims paid
pursuant to this Section 7.3 (c) (i ) shall be "Paid Claims." A claim can
be made and funds be drawn by Holdings for any requirements of Holdings to
pay orders of payment issued by tax, social security or other governmental
agencies or courts relative to an indemnifiable claim.
(ii) If a Notice of Objection is filed with the Escrow
Agent, the claim or claims described in the Notice of Claim shall be the
subject of arbitration in accordance with Article 13 hereof and the Escrow
Agent shall retain or disburse the Escrow Funds from the Warranty Deposit
Account which are the subject of the claim or claims in accordance with the
order of the arbitrators with respect thereto (the "Arbitrators Order"). A
claim or claims which are the subject of, and pending receipt of, an
Arbitrators Order shall be "Pending Claims."
(iii) On the first anniversary of the Closing hereunder,
Lit. 1,375,000,000 of the Escrow Funds in the Warranty Deposit Account less
the cumulative amount of any Paid Claims or Pending Claims for the
preceding one-year period ("Period 1") on such Warranty Deposit Account
17
<PAGE>
shall be paid to Sellers by the Escrow Agent. In the event that the
cumulative amount of Paid Claims or Pending Claims on such Warranty Deposit
Account for Period 1 exceed Lit. 1,375,000,000, no Escrow Funds in such
Warranty Deposit Account shall be paid to Sellers from such Warranty
Deposit Account from such Warranty Deposit Account.
(iv) On December 31, 1998, an additional
Lit.1,375,000,000 of the Escrow Funds in the Warranty Deposit Account plus
any such Escrow Funds described in Section 7.3 (c)(iii) which, during
Period 2 (being the period from the anniversary of the Closing to December
31, 1998), cease to be subject to Pending Claims on such Warranty Deposit
Account less the cumulative amount of any such Paid Claims or Pending
Claims on such Warranty Deposit Account for Period 1 and Period 2 shall be
paid to Sellers by the Escrow Agent. In the event that the cumulative
amount of such Paid Claims or Pending Claims for said Periods 1 and 2
exceed such Escrow Funds in such Warranty Deposit Account available for
payment for the Periods 1 and 2, no such Escrow Funds shall be paid to
Sellers from such Warranty Deposit Account.
(v) On December 31, 1999, an additional Lit.1,375,000,000
of the Escrow Funds in the Warranty Deposit Account plus any Escrow Funds
on such Warranty Deposit Account described in Sections 7.3(c)(iii) and
7.3(c)(iv) which, during Period 3 (being the period from January 1, 1999 to
December 31, 1999), cease to be subject to Pending Claims on such Warranty
Deposit Account less the cumulative amount of any such Paid Claims or
Pending Claims for Periods 1, 2 and 3 shall be paid to Sellers by the
Escrow Agent. In the event that the cumulative amount of Paid Claims or
Pending Claims for said Periods 1, 2 and 3 exceed the Escrow Funds in such
Warranty Deposit Account available for payment for Periods 1, 2 and 3, no
Escrow Funds shall be paid to Sellers from such Warranty Deposit Account.
(vi) After December 31, 2000 and upon the resolution of
all Pending Claims on such Warranty Deposit Account, the balance of the
Escrow Funds in the Warranty Deposit Account shall be paid to Sellers.
(d) The Price Deposit Account shall be distributed in accordance
with Sections 3.1(c) and (d) hereof.
(e) The Environmental Escrow Fund should be distributed in
accordance with Section 7.5.
(f) As provided in the Escrow Agreement, all fees and expenses of
theEscrowAgent shall be paid from interest earned on the Escrow Funds.
7.4 Tax Indemnification.
--------------------
(a) Sellers shall be liable for (i) all Taxes of the FIR Group
Companies for the taxable periods ending on or before the Closing Date and
(ii) the portion of any Taxes for a period not ending on or before the
Closing Date that is attributable to the operations of the FIR Group
Companies prior to the Closing Date and that exceeds the amount of such
Taxes that have been fully accrued for in the Closing Financial Statements.
(b) All Taxes attributable to the operations of the FIR Group
Companies after the Closing Date shall be borne by the FIR Group Companies,
or Holdings, and any refunds or credits in respect
18
<PAGE>
of such Taxes shall be the property of the FIR Group Companies, or
Holdings, as the case may be. For the purposes of determining the amount of
the liability for Taxes attributable to the period from July 31, 1996
through the Closing Date, the income, deductions, credits, allowances and
other items for the taxable year that includes the Closing Date shall be
allocated pro rata to the period in the taxable year occurring on or before
the Closing Date and to the period in that taxable year occurring after the
Closing Date.
(c) The Sellers shall prepare or cause to be prepared in an
interim report the results of operations of the FIR Group Companies from
July 31, 1996 through the Closing Date on a basis consistent with the
existing procedures for preparing Tax returns and in a manner consistent
with prior years' practice with respect to the treatment of specific items
on a Tax return, other than in the case of an applicable change in law
affecting such Tax return or the treatment of any item thereon. Holdings
shall, or shall cause the FIR Group Companies to, be responsible for
preparing and filing all Tax returns and reports of the FIR Group Companies
for periods ending: (i) after the Closing Date and (ii) on or prior to the
Closing Date when the Tax returns relating to such tax periods are due
after the Closing Date (after taking into account any applicable extensions
of time to file), which returns shall be prepared and filed timely and on a
basis consistent with existing procedures for preparing such returns and in
a manner consistent with prior years' practice with respect to the
treatment of specific items on the return, other than in the case of any
applicable change in law affecting such Tax return or the treatment of any
item thereon. Any deficiency for Taxes for which the Sellers are liable as
provided in Section 7.4(a) hereof in connection with the returns described
in the immediately preceding sentence shall be deemed a Loss and be subject
to indemnification as set forth in sections 7.1 and 7.2 hereof
(d) Holdings, the FIR Group Companies and the Sellers (and their
respective tax, accounting and legal service providers) shall provide each
other with such assistance as may reasonably be requested by any of them in
connection with the preparation of any return or report of Taxes, any audit
or other examination by any taxing authority, or any judicial or
administrative proceedings relating to liability for Taxes. Holdings, the
FIR Group Companies, the Sellers (and their respective tax, accounting and
legal service providers) will retain for the full period of any statute of
limitations and provide the others with any records or information that may
be relevant to such preparation, audit, examination, proceeding or
determination.
(e) Holding and Sellers hereby agree that in the event a claim
with respect to Taxes is made pursuant to this Agreement, each party shall
furnish or cause to be furnished to any of them all books, records, tax
returns and other information reasonably requested by such other party that
relate to such claims, and each party agrees to file on behalf of the other
party any returns, forms or other statements that relate to such claims.
(f) Sellers hereby agree that any and all tax agreements,
arrangements or undertakings between Sellers, on the one hand, and any FIR
Group Company, on the other hand, that relate to any payment or liability
by any FIR Group Company for its Taxes shall terminate as of the Closing
Date and any rights or obligations resulting from such agreements shall be
eliminated as of the Closing Date.
19
<PAGE>
(g) If in connection with any examination, investigation, audit or
other proceeding of any Tax return for a taxable period ending prior to the
Closing Date, any governmental body or authority issues to a FIR Group
Company, or Holdings, a written notice of deficiency, a proposed
adjustment, an assertion of claim or demand concerning the tax period
covered by such return, Holdings shall notify Sellers of its receipt of
such communication from the governmental body or authority. The failure or
delay of Holdings to so notify Sellers shall not reduce or otherwise affect
the obligations of Sellers hereunder. Sellers shall, at their expense, have
the sole and exclusive right, power and authority to contest any such
assessment, proposal, claim, demand or other proceeding and to represent
and act for and on behalf of the relevant FIR Group Company in connection
with any notice, proposal, investigation, assessment, audit, examination or
any other proceedings of any kind whatsoever in connection with any Tax
return for a taxable period of any FIR Group Company ending on or prior to
the Closing Date. Sellers agree to keep Holdings informed of the progress
of any such proceeding and to consult with Holdings in good faith in
connection therewith. Sellers further agree that they will not settle or
resolve any issue related to Taxes which, is so settled or resolved, would
have an effect on any FIR Group Company or Holdings for periods ending
after the Closing Date, without the prior written consent of Holdings. If
any examination, investigation, audit or other proceeding relates to a Tax
return for a period that ends after the Closing Date, the FIR Group
Companies, or Holdings, shall control and resolve such examination,
investigation, audit or other proceeding.
(h) If there is an adjustment to any return or report of Taxes for
any FIR Group Company that creates a deficiency in any Taxes for which
Sellers are liable under the provisions of this Section 7.4, or if Sellers
shall receive a refund with respect to Taxes that is the property of a FIR
Group Company, or Holdings, under the provisions hereof, Sellers shall
either (i) pay to Holdings as an adjustment to the Base Purchase Price the
refund received by Sellers (plus interest thereon actually received from
any governmental authority) or (ii) be liable to Holdings for such
deficiency as a loss subject to indemnification under Section 7.1 hereof .
If there is an adjustment to any return or report of Taxes for a FIR Group
Company that results in a refund realized by Holdings which is the property
of Sellers under the provisions hereof, Holdings shall pay the amount of
such refund to Sellers as an adjustment to the Base Purchase Price (plus
any interest thereon actually received from any governmental authority).
(i) The terms and provisions of this Section 7.4 shall control and
govern with respect to the matters covered thereby notwithstanding any
terms and provisions of Section 7.1 and 7.3 to the contrary.
7.5 Environmental Idemnity.
-----------------------
(a) Sellers and Holdings agree that there currently exist certain
possible environmental conditions in the soil of the Casalmaggiore plant
(the "Site") of the Fir Group Companies which may require additional
testing and possible remediation under Italian law. The parties agree to
proceed with the required testing and possible remediation in accordance
with the terms of this Section 7.5. Any environmental indemnity exceeding
the Environmental Escrow paid shall be paid out of the Warranty Deposit
Account to the extent that money is available therein.
20
<PAGE>
(b) Holdings has retained Montgomery Watson SpA (Milano) ("M/W")
to test the Site for environmental conditions that may require remediation
under the laws of Italy. M/W has delivered a preliminary report indicating
certain possible conditions of the Site that may require remediation and
recommending further testing.
(c) At the Closing Sellers will deliver to Escrow Agent pursuant
to the Environmental Escrow Agreement the amount of Lit. 483,000,000 to be
held and administered as provided herein and therein.
(d) A firm of Environmental advisors (the Advisors) acceptable to
both parties shall, within ninety (90) days from Closing, deliver a Second
Preliminary Report recommending further testing and any remediation of the
Site that may be required by law. Such Second Report shall be subject to
approval by Sellers and Holdings and be subject to arbitration of disputes
by Sellers and Holdings. The Environmental Escrow Funds shall be utilized
by the Escrow Agent to pay for (i) the fees for the Second and further
Reports, for any agreed upon further testing or monitoring of the Site and
(ii) for the costs of any required remediation of the Site. No legal fees
of Seller or Holdings (other than those of Holdings relating to the
interpretation of environmental laws) shall be paid from the Environmental
Escrow Funds. Within twelve (12) months of the Closing Date, the Advisors
shall deliver a Final Environmental Report on the Site, which report will
be subject to approval by Sellers and Holdings, subject to arbitration of
disputes by Sellers and Holdings. The Final Report shall provide if
required for a Remediation Plan for the Site, including Maximum Estimated
Costs of same. The amount of the Maximum Costs shall be held in the Escrow
account and all amounts in excess of same in said account shall be paid by
Escrow Agent to Sellers not later than 15 months of the Closign Date. The
Escrow Agent shall pay funds to third parties for the cost of testing and
remediation as approved by the parties or instituted by an Arbitration
Order, all pursuant to the Final Environmental Report.
7.6 FIR Representations, Warranties and Guaranties.
-----------------------------------------------
(a) Holdings acknowledges that FIR is the holder of
representations and warranties given by the previous owners of the Fir
Group Companies relating to the period ending September 1994 and that such
representations and warranties are assisted by Bank guarantees (the FIR
Representations, Warranties and Guarantees) (Exhibit H/n).
(b) The parties agree that they shall jointly examine any claim
submitted by Holdings against Sellers in order to determine whether such
claims may be enforced against the previous owners by Fir under the Fir
Representations, Warranties and Guarantees. In the event both parties agree
that the claims may be so enforced, then Holdings shall cause Fir to
enforce such claims, without prejudice to Sellers liability in the event
the claim cannot be enforced and without prejudice to Holdings right to
draw provisionally on the Warranty Deposit Account in the event the
enforcement is not completed within six month, subject to restitution to
Sellers upon completion. Notwithstanding the foregoing agreement to delay
enforcement of an indemnifiable claim against the Sellers for six (6)
months, such claim may be made and shall be effective on the date made to
freeze in the Warranty Deposit Account.
21
<PAGE>
(c) In the event Holdings does not agree on the enforcement of the
Fir Representations, Warranties and Guarantees with regard to the claim
submitted then Holdings shall nevertheless as a condition to drawing on the
Warranties Deposit Account cause Fir to enforce such Representations,
Warranties and Guarantees for the account and at the expenses of Sellers.
Article 8 -- Interim Management
-------------------------------
8.1 Covenants of Sellers.
---------------------
As to the interim period between July 31, 1996 and the Closing
Date the Sellers represent and warrant the following:
(a) The business of the FIR Group Companies has been and shall be
conducted only in the ordinary course of business and in accordance with
past practices, which were in accordance with the law. From the date of
signature of this Agreement, Sellers shall cause the FIR Group Companies to
consult with Holdings prior to entering into any transaction or negotiation
or taking any action that may have a material effect on the FIR Group
Companies. The Holdings officer to be consulted for the purposes hereof
shall be Mr. Joseph Linnen or such other person as will be designated by
such officer or Holdings in writing.
(b) The business and organization of the FIR Group Companies have
not been and shall not be adversely affected by actions or omissions under
the reasonable control of the Sellers or the FIR Group Companies.
(c) No employees receiving an annual compensation of Lit.
70,000,000 or more, consultants, agents or representatives have been or
shall be hired or dismissed and none of the respective rights and
obligations thereof have been or shall be modified, except as required by
the law or national collective agreements.
(d) No indebtedness, contract, commitment or unusual transaction
has been nor shall be entered into by or on behalf of the FIR Group
Companies extending beyond the Closing Date, or involving the sale or
disposition of a capital asset, except commitments which are normal in the
ordinary course of the FIR Group Companies' business for the purchase of
supplies and orders from or contracts with customers. Investments made or
committed for an amount exceeding Lit.
200.000.000 are disclosed in Exhibit H/o hereto.
(e) The Sellers have maintained and shall maintain the FIR Group
Companies solvent and in good standing and have taken and shall take no
action that may lead to any change in the FIR Group Companies Deeds of
Incorporation or By-laws or the share ownership of the FIR Group Companies.
(f) Except as disclosed in Exhibit H/p hereto no dividend,
distribution, extraordinary bonus or payment or other operation affecting
the capital of the FIR Group Companies has been or shall be declared,
resolved or paid to the Sellers with respect to the shares of the FIR Group
22
<PAGE>
Companies.
(g) No transaction has taken or shall take place between the FIR
Group Companies and the Sellers except commercial transactions at arms
length in the ordinary course of the business of the FIR Group Companies.
(h) No exceptional increase in the inventory of the FIR Group
Companies has taken or shall take place.
(i) No shareholder resolution other than necessary under
the applicable law has been, or shall be adopted, no shareholders agreement
shall be entered into or amended, as the case may be, and no By-laws of any
of the FIR Group Companies shall be changed.
(j) Sellers shall cause Holdings to have full access to the FIR
Group Companies' premises, records and interim financial information
pending the Closing.
8.2 Applicability of Indemnification.
---------------------------------
The Interim Management covenants set forth herein shall be subject to the
indemnification procedure set forth in Article 7.
Article 9 -- Boards of the FIR Group Companies
----------------------------------------------
9.1 Actions of Directors and Shareholders.
--------------------------------------
Sellers shall cause all members of the board of directors of the
FIR Group Companies to tender their resignations on or before the day of
the Closing and shall cause a meeting of the board of directors or of the
shareholders of the FIR Group Companies, as Holdings shall request, to be
called for the day of the Closing in order to allow Holdings to replace as
many directors of the FIR Group Companies as Holdings shall deem fit.
9.2 Actions of Board of Statutory Auditors.
---------------------------------------
Sellers shall furthermore cause their representatives on the board
of statutory auditors of the FIR Group Companies to tender their
resignations on or before the day of the Closing.
Article 10 -- Other Agreements
------------------------------
10.1 Consultants, Brokers and Finders.
---------------------------------
Sellers and Holdings each represent and warrant to the other that they
have not retained any consultant, broker or finder in connection with the
transactions contemplated by this Agreement, except for Societe Generale
retained by Sellers and Frederic L. Agneessens of Greendrive Capital
23
<PAGE>
and Anthony S. Pranzo of Pranzo, Inc. retained by Holdings. Sellers and
Holdings each hereby agree to indemnify, defend and hold the other party
and its officers, directors, employees and affiliates, harmless from and
against any and all claims, liabilities or expenses for any brokerage fees,
commissions or finders fees due to any consultant, broker or finder
retained by the indemnifying party other than those set forth above.
10.2 Noncompetition Agreement.
-------------------------
At the Closing, Holdings and Carlo Bergamaschi will enter into a
Noncompetition Agreement in the form set forth in Exhibit I.
10.3 Noncompetition Agreement.
-------------------------
At the Closing, Holdings and the Sellers other than Carlo
Bergamaschi, will enter into Noncompetition Agreements in the form set
forth in Exhibit J.
Article 11 -- Conditions to the Obligations of Holdings
-------------------------------------------------------
Each and every obligation of Holdings under this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of
the following conditions unless waived in writing by Holdings:
11.1 Representations and Warranties; Performance.
--------------------------------------------
The representations and warranties made by the Sellers herein
shall be true and correct in all material respects on the date of this
Agreement and on the Closing Date with the same effect as though made on
such date; the Sellers shall have performed and complied with all material
agreements, covenants and conditions required by this Agreement to be
performed and complied with by them prior to the Closing Date; Sellers
shall have, and shall have caused the President and chief financial officer
of FIR Group Companies to have delivered to Holdings a certificate, dated
the Closing Date, in the form to be designated Exhibit K hereto, certifying
to such matters and the other conditions contained in this Article 11.
11.2 Consents and Approvals.
-----------------------
All consents from and filings with third parties, regulators and
governmental agencies required to consummate the transactions contemplated
hereby, or which, either individually or in the aggregate, if not obtained,
would cause a material adverse effect on FIR Group Companies' financial
condition or business shall have been obtained and delivered to Holdings.
11.3 Opinion of Sellers' Counsel.
----------------------------
Holdings shall have received an opinion of Sellers' counsel, dated
the Closing Date, in the form to be mutually agreed upon and attached
hereto as Exhibit L.
24
<PAGE>
11.4 No Material Adverse Change.
---------------------------
There shall have been no material adverse change since the
Financial Statement Date in the business, financial condition, earnings or
operations of FIR Group Companies' business.
11.5 No Proceeding or Litigation.
----------------------------
No action, suit or proceeding before any court or any governmental
or regulatory authority shall have been commenced or threatened, and no
investigation by any governmental or regulatory authority shall have been
commenced or threatened against any of Sellers, FIR Group Companies,
Holdings or any of their respective principals, officers or directors
seeking to restrain, prevent or change the transactions contemplated hereby
or questioning the validity or legality of any of such transactions or
seeking damages in connection with any of such transactions.
11.6 Financial Condition at Closing.
-------------------------------
(a) At the Closing, FIR Group Companies will have the necessary
fixed assets, intangible and tangible, to continue their business in its
normal course and consistent with past practices.
(b) No dividends, shareholder distributions, bonuses, debt
repayments, or excessive compensation shall have been declared or paid by
FIR Group Companies from March 1, 1997 to the Closing, unless otherwise
mutually agreed or otherwise in the normal course of business.
(c) FIR Group Companies shall have closed the acquisition of TEA
in accordance with the draft acquisition agreement attached hereto as
Exhibit M.
(d)1) Holdings' auditor shall conduct a certified audit of FIR
Group Companies as at July 31, 1996 and 1995, the results of which shall
not result in a reduction for 1996 of the FIR Group Companies' EBIT of more
than Lit. 1,000,000,000 or for 1995 or 1996 of their Net Worth of Lit.
2,000,000,000 as compared to the financial statements for such period
delivered hereunder, provided however that reductions resulting from the
application of principles of consolidation different from those applied by
Sellers to the individual balance sheets shall not be taken into
consideration. This condition to Closing will expire, if not availed of by
April 7, 1997 and shall not remain a condition thereafter. Net Worth shall
mean all assets less all liabilities. EBIT shall have the same meaning as
in Section 3.1 hereof. This audit will use Italian generally accepted
accounting principles and the accrual basis of accounting. Holdings will
bear the cost of this audit.
(d)2) Offsite Environmental Due Diligence. Holding shall have
completed by April 7, 1997 reasonable due diligence with respect to offsite
environmental matters at Casalmaggiore site and shall be satisfied in its
reasonable discretion that no liability or claims exist on behalf of any
third party of more than Lit.11,000,000,000 in the aggregate. This
condition to Closing will expire, if not availed of by April 7, 1997 and
shall not remain a condition thereafter.
11.7 Good Faith Deposit; Liability Limitation
----------------------------------------
On April 8, 1997 Holdings shall deposit with the Escrow Agent the sum
of Lit.3,544,000,000 to be held by the Escrow Agent to secure the
performance of Holdings obligations hereunder. Such
25
<PAGE>
deposit shall be repaid by the Escrow Agent to Holdings if Holdings
complies with all of the terms of this agreement, either at the Closing, or
earlier if Holdings rightfully terminates this agreement. If Holdings
wrongfully terminates this agreement or fails to perform its obligation to
deliver the Base Purchase Price at the Closing, the Escrow Agent shall
deliver the deposit amount to Sellers. If the deposit amount is delivered
to Sellers hereunder, Holdings shall have no further or additional
liability to Sellers of any kind under this agreement.
11.8 Other Documents.
----------------
Sellers will furnish or cause FIR Group Companies to furnish
Holdings with such other and further documents and certificates of its
officers and others as Holdings shall reasonably request to evidence
compliance with the conditions set forth in this Agreement.
11.9 Other Agreements.
-----------------
The Agreements described in Article 10 shall have been entered
into and delivered.
Article 12 -- Miscellaneous
---------------------------
12.1 Partial Invalidity.
-------------------
If one or more provisions of this Agreement should be or become
invalid or unenforceable, this shall not affect the validity and
enforceability of the remaining provisions of this Agreement. In such event
the Parties shall cooperate to substitute for the invalid or unenforceable
provision another valid and enforceable provision the business effect of
which comes as close as possible to the intended business purpose of the
invalid or unenforceable provision.
12.2 Notices. All notices hereunder shall be given to the respective
Parties hereto as follows:
Sellers:
Tulipa S.A.
c/o Svasa
Attention Donato Dall'Ava
Via Zurigo 46
CH 6900 Lugano
Switzerland
Telephone: ++41 91 92.22.231
Telecopier: ++41 91 92.22.232
with copies to:
Alberto Montanari, Esq.
Viale Monte Santo, 1
26
<PAGE>
20124 Milan
Italy
Telephone: ++39.2.29.00.56.55
Telecopier: ++39.2.29.00.58.06
Holdings and Holdings-USA:
Mr. Thomas H. Quinn
Mr. Joseph Linnen
Mr. Gordon Nelson
FIR Group Holdings, Inc.
c/o Jordan Industries, Inc.
Arbor Lake Centre, Suite 550
Lake Cook Road
Deerfield, Illinois 60015
USA
Telephone: ++1.847.945.5591
Telecopier: ++1.847.945.5698
with copies to:
G. Robert Fisher, Esq.
BRYAN CAVE LLP
3500 One Kansas City Place
1200 Main Street,
Kansas City, Missouri 64105-2100
USA
Telephone: ++1.816.374-3200
Telecopier: ++1.816.374-3300
and
Gerardo M. Boniello, Esq.
Alberto M. Fornari, Esq.
Baker & McKenzie
Piazza Meda, 3
20121 Milan
Italy
Telephone: ++39.2.76. 01.39.21
Telecopier: ++39.2.76.00.83.22
or to such other person or address as either Party hereto shall designate
by written notice to the other Parties hereto. All notices shall be given
in writing or by telefax and shall be deemed to be received when delivered
if sent by registered mail and when transmitted if sent by telefax.
27
<PAGE>
12.3 Documents.
----------
All agreements and other documents which have been submitted to
Holdings by the Sellers prior to Closing have been identified as such and
initialed by the Parties for purposes of identification. Holdings confirms
receipt of them.
12.4 Assignment.
-----------
Except that Holdings may assign the Agreement to one of its
affiliated companies or entities or to its financial institutions, or merge
with one of its affiliated companies, this Agreement and any rights or
claims hereunder shall not be assignable.
12.5 Costs.
------
Each party to this Agreement shall pay its own costs of and
expenses incidental to this Agreement. The cost of the stamp duties payable
on the transfer of the shares and relative notarial fees, as well as the
cost of registration of this Agreement, if any, shall be paid by Holdings.
12.6 Announcements.
--------------
No announcement shall be made by any party hereto relating to the
transaction described herein without the prior written consent of the other
party not unreasonably withheld.
12.7 Waiver.
-------
Failure to assert any right or claim shall not be construed as a
waiver to assert such right or claim or any other right or claim.
12.8 Integration.
------------
This Agreement and its Exhibits constitute the entire
understanding of the parties relating thereto.
12.9 Amendments.
-----------
Any amendments to this Agreement shall be in writing and signed by
all parties hereto and indicating the intent to amend this Agreement.
28
<PAGE>
Article 13 -- Arbitration and Applicable Law
--------------------------------------------
13.1 Arbitration.
------------
All disputes arising out of or in connection with this Agreement
or any agreement ancillary hereto or executed at the Closing, including any
question regarding its existence, validity or termination, shall be finally
settled under the Rules of Arbitration of the International Chamber of
Commerce of Paris by three arbitrators in accordance with said Rules.
13.2 Selection of Arbitrators.
-------------------------
Holdings and the Sellers shall each nominate one arbitrator for
confirmation by the competent authority under the applicable Rules
(Appointing Authority). Both arbitrators shall agree on the third
arbitrator within 30 days. Should the two arbitrators fail, within the
above time-limit, to reach agreement on the third arbitrator, he shall be
appointed by the Appointing Authority. Any nomination of an arbitrator by
or on behalf of the Sellers must be by joint agreement between them; if the
Sellers fail, within the time-limit fixed by the Appointing authority, to
agree on such joint nomination, said arbitrator shall immediately be
appointed by the Appointing Authority.
13.3 Location and Procedural Law.
----------------------------
The seat of arbitration shall be Milan, Italy and the procedural
law of Italy shall apply where the Rules are silent.
13.4 Language.
---------
The language to be used in the arbitration proceeding shall be
English.
13.5 Substantive Law.
----------------
All disputes shall be settled in accordance with the provisions of
this Agreement, otherwise in accordance with the substantive law in force
in Italy without reference to other laws. The application of the United
Nations Convention on contracts for the International Sale of goods of
April 11, 1980 shall be excluded.
This Share Purchase Agreement is executed in six copies whereby
each Party shall receive one signed original.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on this 21st day of March, 1997.
29
<PAGE>
SELLERS
--------------------------------
Carlo Bergamaschi
--------------------------------
Paolo Bergamaschi
--------------------------------
Andrea Salati
TULIPA S.A.
By: _________________________________
Name: _________________________________
Title: _________________________________
HOLDINGS
FIR Group Holdings Italia, S.r.l.
By: _________________________________
Name: __________________________________
Title: __________________________________
30
<PAGE>
GUARANTEE
---------
The undersigned, Motor and Gear Inc. ("Holdings-USA") hereby guarantees the
performance by FIR Group Holdings Italia, S.r.l. of its obligations hereunder.
MOTOR AND GEAR INC.
By: _______________________________
Name: _______________________________
Title: _______________________________
31
<PAGE>
SCHEDULE OF EXHIBITS TO
AGREEMENT FOR PURCHASE AND SALE OF
SHARES OF FIR GROUP COMPANIES
Exhibit Title
------- -----
Exhibit A Estimate of Indebtedness to Third Party Financial
Institutes on February 28, 1997
Exhibit B DFCE Example
Exhibit C Methods and Principles of Computations of DFCE and
EBIT
Exhibit D1 Warranty Deposit Account Escrow Agreement
Exhibit D2 Environmental Escrow Agreement
Exhibit D3 Price Deposit Account Escrow Agreement
Exhibit E Purchase Price Allocation
Exhibit F List of Subsidiaries or Affiliates and Agreements
Among Them
Exhibit G Exceptions re: Capital Shares or Other Participation
Exhibit H/a Details on Title to Properties and Assets
Exhibit H/b List of Leases
Exhibit H/c Exceptions to Industrial Property and Know-How
Exhibit H/d List of Liabilities relating to the Sale of Products
Exhibit H/e 1996 Consolidated Financial Statements
1
<PAGE>
Exhibit H/f Exceptions to Representations and Warranties in
Section 6.7
Exhibit H/g List of Insurance Policies
Exhibit H/h List of Employee Benefit Plans; Exceptions to
Strikes or Work Stoppages; List of Former Employees/
Officers Compensation Exceeding Lit. 60,000,000
Exhibit H/i Subcontractor data
Exhibit H/j List of Pending Litigations
Exhibit H/k Schedule of Capital Expenditures
Exhibit H/l Schedule of Contracts
Exhibit H/m Summary of Oral Contracts
Exhibit H/n FIR Representations, Warranties and Guarantees
Exhibit H/o List of Investments Exceeding Lit. 200,000,000
Exhibit H/p List of Dividends, Distributions and Payments
Affecting the Capital of the FIR Group Companies
Exhibit I Noncompetition Agreement between Holdings and Carlo
Bergamaschi.
Exhibit J Noncompetition Agreement between Holdings and Tulipa
S.A.
Exhibit K Certificate Regarding Representations and Warranties
Given by FIR Group Companies
Exhibit L Opinion of Seller's Counsel
Exhibit M TEA Draft Acquisition Agreement
2
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "Agreement"), dated November 17, 1997, by and
among Motion Holdings, Inc., a Delaware corporation ("Buyer"), and The
Javad and Shirin Rahimian Family Trust, The Majid and Maryam Rahimian
Family Trust, Don B. Alley (collectively the "Employee Sellers") and The
Ali and Mehry Rahimian Family Trust, The Ali and Mehry Rahimian Irrevocable
Trust #1, The Ali and Mehry Rahimian Irrevocable Trust #2, The Ali and
Mehry Rahimian Irrevocable Trust #3, The Ali and Mehry Rahimian Irrevocable
Trust #4, The Ali and Mehry Rahimian Irrevocable Trust #5, and The Ali and
Mehry Rahimian Irrevocable Trust #6 (collectively, the "Nonemployee
Sellers," and together with the Employee Sellers, the "Sellers").
RECITALS:
WHEREAS, Sellers are the record and beneficial owners of 10,000 shares
(the "Shares") of common stock, par value $0.01 per share (the "Common
Stock"), of Motion Control Engineering, Inc., a California corporation
("Company"), representing all of the issued and outstanding shares of
capital stock of Company;
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, all of the Shares, all in accordance with the provisions of
this Agreement;
WHEREAS, the Board of Directors of Buyer has approved the acquisition of
Company by Buyer pursuant to this Agreement; and
WHEREAS, Buyer and Sellers desire to make certain representations,
warranties and agreements in connection with the sale and acquisition of
the Shares and also desire to set forth various conditions precedent
thereto.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, the term:
-----------
(a) "ACMs" has the meaning set forth in Section 3.20(e).
(b) "Accounting Firm" has the meaning set forth in Section 2.4.
<PAGE>
(c) "Additional Purchase Price" means an amount equal to the
product of the net income of the Company for the period between January 1,
1997 and the Closing Date, which amount shall not include the Deemed Gain
on Sale of Assets or any other income resulting from the Section 338(h)(10)
Elections, the results of which are reflected in Closing Balance Sheet,
times the Tax Rate.
(d) "Adjustment Schedule" has the meaning set forth in Section 2.4.
(e) "affiliate" means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, another Person.
(f) "Agreement" has the meaning set forth in the Preamble of
this Agreement.
(g) "Audit Date" means September 30, 1997.
(h) "Audited Financials" has the meaning set forth in Section 5.14.
(i) "Benefitted Party" has the meaning set forth in Section 9.13.
(j) "Buyer" has the meaning set forth in the Preamble of this
Agreement.
(k) "CERCLIS" has the meaning set forth in Section 3.20(d).
(l) "Closing" has the meaning set forth in Section 7.1.
(m) "Closing Balance Sheet" means the balance sheet of the
Company as of the close of business two business days immediately preceding
the Closing Date, prepared by the Company in accordance with GAAP applied
on a consistent basis.
(n) "Closing Date" has the meaning set forth in Section 7.1.
(o) "Closing Financial Statements" has the meaning set forth in
Section 2.4.
(p) "Code" means the Internal Revenue Code of 1986, as amended
(including any successor code), and the rules and regulations promulgated
thereunder.
(q) "Common Stock" has the meaning set forth in the Recitals of
this Agreement.
(r) "Company" has the meaning set forth in the Recitals of this
Agreement.
(s) "Company Indemnified Parties" has the meaning set forth in
Section 5.9(b).
(t) "Contract" means any oral or written contract, agreement,
indenture, note, bond, loan, instrument, lease, conditional sales contract,
mortgage, license, franchise, insurance policy, commitment or other
arrangement or agreement.
2
<PAGE>
(u) "Debt" means the long-term indebtedness of the Company,
including any short-term portion thereof, as reflected on the Closing
Balance Sheet.
(v) "Debt Adjustment" means the amount of Debt of the Company,
except that "Debt", for purposes of this definition, shall not include
amounts outstanding under the equipment loan facility of the Bank of
America Business Loan Agreement, dated July 24, 1995, by and between the
Company and Bank of America National Trust and Savings Association, to the
extent the Company has sufficient cash or cash equivalents on hand as of
the Closing Date to repay such outstanding amount..
(w) "Debt Adjustment Discharge" means payment by the Company to
discharge Debt of the Company which comprises the Debt Adjustment with
funds contributed by the Buyer to the Company at the Closing.
(x) "Deemed Gain on Sale of Assets" means the taxable gain from
treatment of the stock sale as an asset sale as a result of the Section
338(h)(10) election.
(y) "Distribution Adjustment" means an amount equal to the sum
of distributions by the Company after January 1, 1997 through and including
the Closing Date, as reflected on the Closing Balance Sheet, other than
distributions to pay Taxes of shareholders of the Company attributable to
income of the Company for calendar 1996.
(z) "DOJ" has the meaning set forth in Section 3.6.
(aa) "Earn-Out Rights" means the aggregate of the interests of the
Sellers under the Earn-Out Rights Plan.
(bb) "Earn-Out Rights Plan" means the Earn-Out Rights Plan,
dated as of the Closing Date, substantially in the form of Exhibit A
attached hereto.
(cc) "Employee Benefit Plans" has the meaning set forth in
Section 3.13(a).
(dd) "Employee Sellers" has the meaning set forth in the Preamble
of this Agreement.
(ee) "Employment Agreement" means an Employment and
Noncompetition Agreement, dated as of the Closing Date, substantially in
the form of Exhibit C attached hereto.
(ff) "Environmental Claims" has the meaning set forth in
Section 3.20(c).
(gg) "Environmental Condition" means the presence or release of
Hazardous Materials in or into the environment at concentrations requiring
investigation or remediation under Environmental Laws.
(hh) "Environmental Laws" means all applicable federal, state or
local statutes, codes, rules or regulations relating to the protection of
the environment and/or natural resources.
3
<PAGE>
(ii) "Environmental Permits" has the meaning set forth in
Section 3.20(b).
(jj) "Environmental Reports" means the environmental assessments
listed on Schedule 3.20.
(kk) "ERISA" has the meaning set forth in Section 3.13(a).
(ll) "Escrow Agent" means escrow agent party to the Escrow
Agreement.
(mm) "Escrow Agreement" means the Escrow Agreement relating to
the Earn-Out Rights Plan, executed as of the Closing Date, substantially in
the form of Exhibit B attached hereto with any revisions on which the
parties agree.
(nn) "Financial Statements" has the meaning set forth in
Section 3.7.
(oo) "GAAP" has the meaning set forth in Section 3.7.
(pp) "Governmental Authority" means any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
(qq) "Hazardous Materials" means any material or substance
regulated or controlled by any Environmental Law, including, without
limitation, the Comprehensive Environmental Response Compensation and
Liability Act and the Resource Conservation Recovery Act and similar
federal and analogous state laws.
(rr) "HSR Act" has the meaning set forth in Section 3.6.
(ss) "Indemnification Agreements" has the meaning set forth in
Section 5.9(b).
(tt) "Indemnified Party" has the meaning set forth in
Section 9.12(e).
(uu) "Indemnifying Party" has the meaning set forth in
Section 9.12(e).
(vv) "Initial Payment" is $49,280,000 plus the Net Adjustment.
----
(ww) "Insurance Policies" has the meaning set forth in
Section 3.19.
(xx) "Intellectual Property Rights" has the meaning set forth in
Section 3.17(a).
(yy) "knowledge" of Sellers means the actual knowledge of Javad
Rahimian, Majid Rahimian or Don B. Alley.
4
<PAGE>
(zz) "Laws" means all foreign, federal, state and local laws,
statutes, rules, regulations, codes, ordinances, orders, judicial decrees,
writs, injunctions, notices or decisions issued, entered or promulgated
pursuant to any foreign, federal, state or local law.
(aaa) "Lease" means a Lease, dated as of the Closing Date,
substantially in the form of Exhibit D attached hereto with any revisions
required to conform to the economics of the prior lease for the applicable
property.
(bbb) "Lessor" means MacArthur Pointe, Ltd.
(ccc) "Liabilities" has the meaning set forth in Section 9.12(d).
(ddd) "Liens" has the meaning set forth in Section 3.11(b).
(eee) "Losses" has the meaning set forth in Section 9.12(c).
(fff) "Material Adverse Effect" means a material adverse effect
on the business, operations, liabilities, properties, assets or financial
condition of the Company taken as a whole.
(ggg) "Net Adjustment" means the Additional Purchase Price plus
the Section 338(h)(10) Payment minus the sum of (i) the Distribution
Adjustment, (ii) the Debt Adjustment Discharge, (iii) the Supplemental
Adjustment and (iv) the Working Capital Adjustment.
(hhh) "Non-Competition Agreement" means each Non-Competition
Agreement, dated as of the Closing Date, substantially in the form of
Exhibit E attached hereto.
(iii) "Nonemployee Sellers" has the meaning set forth in the
Preamble to this Agreement.
(jjj) "Notice of Disagreement" has the meaning set forth in
Section 2.4.
(kkk) "Ordinary Income Adjustment" means the portion of the
Deemed Gain on Sale of Assets not characterized as Capital Gain.
(lll) "Officers' Certificate" means the Officers' Certificate,
dated as of the date of Closing, substantially in the form of Exhibit H
attached hereto.
(mmm) "Offsetting Tax Benefit" has the meaning set forth in
Section 9.13.
(nnn) "Pass Through Returns" has the meaning set forth in
Section 9.18.
(ooo) "Pass Through Taxes" means Sellers' Taxes with respect to
Company income for its taxable periods ending on or before December 31,
1996.
(ppp) "Patent and Trademark Rights" has the meaning set forth in
Section 3.17(a).
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(qqq) "PCBs" has the meaning set forth in Section 3.20(e).
(rrr) "Person" means an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or, as
applicable, any other entity.
(sss) "Protocol" means the Protocol in the form of Exhibit F
attached hereto.
(ttt) "Purchase Price" has the meaning set forth in Section 2.2.
(uuu) "Purchase Price Allocation Schedule" has the meaning as set
forth in Section
9.19(b).
(vvv) "Reliance Letter" has the meaning as set forth in
Section 4.7.
(www) "Retention Amounts" has the meaning set forth in
Section 9.20.
(xxx) "Section 338(h)(10) Elections" has the meaning set forth
in Section 9.19(a).
(yyy) "Section 338(h)(10) Forms" has the meaning set forth in
Section 9.19(b).
(zzz) "Section 338(h)(10) Payment" has the meaning set forth in
Section 9.19(d).
(aaaa) "Sellers" has the meaning set forth in the Preamble of this
Agreement.
(bbbb) "Shares" has the meaning set forth in the Recitals of this
Agreement.
(cccc) "Subsidiary" means any Person of which at least a majority
of the outstanding shares or other equity interests having ordinary voting
power for the election of directors or comparable managers of such Person
are owned, directly or indirectly, by another Person.
(dddd) "Supplemental Adjustment" means an amount equal to the
excess, if any, of (i) fees and expenses paid by the Company to BA
Partners, O'Melveny & Myers LLP and Arthur Andersen LLP, as such fees and
expenses relate to the transaction contemplated by this Agreement as
reflected on the Closing Balance Sheet over (ii) the amount paid by the
Sellers to the Company pursuant to Section 5.15 as reimbursement for such
fees and expenses.
(eeee) "Tax Benefit" has the meaning set forth in Section 9.13.
(ffff) "Taxes" means any net income, capital gains, gross income,
gross receipts, sales, use, transfer, ad valorem, franchise, profits,
license, capital, withholding, payroll, employment, excise, goods and
services, severance, stamp, occupation, premium, property, windfall profits
or other tax or customs duties, or any interest, any penalties, additions
to tax or additional amounts incurred or accrued under applicable tax law
or assessed or charged by any taxing authority (domestic or foreign). For
purposes of the definition of Tax, any interest, penalties, additions to
Tax or additional amounts that relate to Taxes for any period, or a portion
of any
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period, shall include any interest, penalties, additions to Tax, or
additional amounts relating to Taxes for such periods, regardless of when
such items are incurred, accrued, assessed or similarly charged.
(gggg) "Tax Rate" means 26.3502%.
(hhhh) "Tax Returns" means any report, return or statement
required to be supplied to a taxing authority in connection with Taxes.
(iiii) "USTs" has the meaning set forth in Section 3.20(e).
(jjjj) "Working Capital" means the current assets of the Company
minus the current liabilities of the Company as set forth on the Closing
Balance Sheet.
(kkkk) "Working Capital Adjustment" means an amount equal to the
excess, if any, of (i) $8,600,000 over (ii) Working Capital.
ARTICLE II
THE ACQUISITION
SECTION 2.1 Purchase and Sale of Shares. On the terms and subject to
the conditions hereof, at the Closing, (i) Sellers will sell, assign,
transfer and convey to Buyer, and Buyer will purchase and acquire from
Sellers, all right, title and interest of Sellers in and to the Shares,
free and clear of all Liens and (ii) each Seller will enter into a separate
Non-Competition Agreement.
SECTION 2.2 Consideration for the Shares. The aggregate purchase price
payable by Buyer (the "Purchase Price") for the Shares and the
Non-Competition Agreements shall be as follows:
(a) the Initial Payment; and
(b) the Earn-Out Rights.
The Purchase Price shall be distributed to all the Sellers, pro rata, based
upon the number of Shares owned by such Sellers as set forth on Schedule
3.21.
SECTION 2.3 Allocation of Consideration. The Initial Payment shall be
allocated as follows: (i) $335,000 shall be allocated to each of The Javad
and Shirin Rahimian Family Trust, The Majid and Maryam Rahimian Family
Trust and Don B. Alley in consideration of the delivery of a
Non-Competition Agreement from each such Employee Seller; (ii) $1.00 shall
be allocated to each of the Nonemployee Sellers in consideration of the
delivery of a Non- Competition Agreement from each such Nonemployee Seller;
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and (iii) the remainder of the Initial Payment shall be allocated to all
the Sellers, pro rata, based upon the number of Shares owned by such
Sellers.
SECTION 2.4 Post-Closing Audit.
(a) Within 20 days after the Closing Date, Buyer shall deliver
to Seller the Company's audited financial statements (the "Closing
Financial Statements") for the fiscal period ending as of the Closing Date,
with sufficient detail to determine the calculation of each of the
Additional Purchase Price, Working Capital Adjustment and Section
338(h)(10) Payment as of such time (the "Adjustment Schedule"). The Closing
Financial Statements and the Adjustment Schedule shall be certified by
Buyer's auditors (which shall be Arthur Andersen LLP in Sacramento) to the
effect that the Closing Financial Statements have been audited and prepared
in accordance with GAAP applied on a consistent basis and in accordance
with the practice of the Company's auditors prior to the Closing Date, and
that the Adjustment Schedule has been prepared based on the Closing
Financial Statements. The Closing Financial Statements and the Adjustment
Schedule shall become final and binding upon the parties 15 days following
Sellers' receipt thereof or earlier if Seller so elects by delivering a
notice to Buyer, unless Sellers give written notice of its disagreement
("Notice of Disagreement") to Buyer prior to the termination of such 15-day
period. Any Notice of Disagreement shall specify in reasonable detail the
nature of any disagreement so asserted. If a timely Notice of Disagreement
is received by Buyer, then the Closing Financial Statements and the
Adjustment Schedule (as revised in accordance with clause (x) or (y) below)
shall become final and binding upon the parties on the earliest of (x) the
date Sellers and Buyer resolve in writing any differences they have with
respect to the matters specified in the Notice of Disagreement or (y) the
date all matters in dispute are finally resolved in writing by the
Accounting Firm (as defined below) pursuant to this Section 2.4. During the
10 days following delivery of a Notice of Disagreement, Seller and Buyer
shall seek in good faith to resolve in writing any differences which they
may have with respect to the matters specified in the Notice of
Disagreement. At the end of such 10-day period, Seller shall submit to an
independent "big-six" accounting firm (the "Accounting Firm"), other than
Buyer's accounting firm (in connection with this transaction or otherwise),
for review and resolution of all matters which remain in dispute which were
included in the Notice of Disagreement, and the Accounting Firm shall make
a final determination as to all such matters. The fees and expenses of the
Accounting Firm shall be shared equally by Buyer and Seller. The Accounting
Firm shall use its best efforts to review and resolve all matters which
remain in dispute as soon as possible.
(b) If the sum of the Additional Purchase Price, Working Capital
Adjustment and Section 338(h)(10) Payment as finally determined pursuant to
Section 2.4(a) is greater than the sum of the Additional Purchase Price,
Working Capital Adjustment and Section 338(h)(10) Payment calculated by
reference to the Closing Balance Sheet, Buyer shall, within three days of
such final determination pursuant to Section 2.4(a) pay to Sellers, in
immediately available funds, the amount of such difference, together with
interest thereon at 8% per annum from the Closing Date. If the sum of the
Additional Purchase Price, Working Capital Adjustment and Section
338(h)(10) Payment as finally determined pursuant to Section 2.4(a) is less
than the sum of the Additional Purchase Price, Working Capital Adjustment
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and Section 338(h)(10) Payment as determined by reference to the Closing
Balance Sheet, Sellers shall, within three days of such final determination
pursuant to Section 2.4(a), pay to Buyer, in immediately available funds,
the amount of such difference, together with interest thereon at 8% per
annum from the Closing Date. The limitations on indemnification set forth
in Section 9.12(c) shall not apply to any payment made pursuant to this
Section 2.4(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Employee Sellers, jointly and severally, and the Nonemployee
Sellers, severally, represent and warrant to Buyer as set forth below.
SECTION 3.1 Organization and Qualification. Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, with all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as it is
now being conducted. Company is qualified or licensed to do business and is
in good standing in every jurisdiction where the nature of the business
conducted by it or the properties owned or leased by it requires
qualification. Sellers have delivered to Buyer complete and correct copies
of the Articles of Incorporation and Bylaws of Company.
SECTION 3.2 Authorization. Each of the Sellers has full legal capacity
to execute and deliver this Agreement and to perform their obligations
hereunder. This Agreement has been duly and validly executed and delivered
by each of the Sellers and constitutes a valid and binding obligation of
the Sellers, enforceable against each of them in accordance with its terms,
except to the extent that such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally, and 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.
SECTION 3.3 No Violation. Except as set forth in Schedule 3.3, neither
the execution and delivery of this Agreement by the Sellers and the
performance by the Sellers of their respective obligations hereunder nor
the consummation by the Sellers of the transactions contemplated hereby
will (a) violate, conflict with or result in a violation or breach of, or
constitute a default (with or without due notice or lapse of time or both)
under the terms, conditions or provisions of any Contract to which any of
the Sellers or the Company is a party, (b) violate any Laws applicable to
the Sellers or the Company, or (c) violate, conflict with or result in a
breach of the certificate of incorporation or bylaws of the Company.
SECTION 3.4 Capitalization of Company. The authorized capital stock of
Company consists of 10,000 shares, all of which are designated Common
Stock. As of the date hereof, Company has 10,000 shares of Common Stock
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issued and outstanding (constituting the Shares), all of which have been
validly issued, are fully paid and non-assessable and none of which were
issued in violation of any preemptive rights. Except as set forth on
Schedule 3.4, there are no options, warrants, calls, subscriptions,
conversion or other rights, agreements or commitments obligating Company to
issue any additional shares of capital stock or any other securities
convertible into, exchangeable for or evidencing the right to subscribe for
any shares of capital stock of Company.
SECTION 3.5 Subsidiaries and Equity Investments. Company does not have
any Subsidiaries or any direct or indirect equity ownership in any Person
other than as set forth in Schedule 3.5.
SECTION 3.6 Consents and Approvals. Except as set forth in Schedule
3.6, no filing or registration with, no notice to and no permit,
authorization, consent or approval of any Governmental Authority is
necessary for the consummation by the Sellers of the transactions
contemplated by this Agreement other than (a) consents and approvals of or
filings or registrations with the Antitrust Division of the United States
Department of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (b)
requirements of federal and state securities laws, and (c) those already
obtained.
SECTION 3.7 Financial Statements. Sellers have delivered to Buyer (a) a
copy of the balance sheet of Company as of December 31, 1996, together with
the related reviewed statements of operations and retained earnings and
cash flows for the year then ended (such financial statements being
hereinafter referred to as the "Financial Statements"). The Financial
Statements (i) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") throughout the
period covered thereby, except as otherwise noted thereon or disclosed in
Schedule 3.7, and (ii) present fairly the financial position, results of
operations and cash flows of Company as of such date and for the period
then ended.
SECTION 3.8 Absence of Undisclosed Liabilities. Except for matters
relating to the transactions contemplated by this Agreement, there are no
liabilities or financial obligations of Company that are required to be
reflected on a balance sheet prepared in accordance with GAAP, other than
liabilities and obligations (a) provided for or reserved against in the
Financial Statements, (b) arising after December 31, 1996 in the ordinary
course of business, or (c) disclosed in Schedule 3.8.
SECTION 3.9 Absence of Certain Changes. Except for matters arising in
the ordinary course of business or as disclosed in Schedule 3.9, and except
for matters relating to the transactions contemplated by this Agreement,
since July 31, 1997, Company has not (a) suffered any adverse change in its
business, operations or financial position other than in the ordinary
course of business, (b) conducted its business other than in the ordinary
and usual course, (c) incurred any long-term indebtedness for borrowed
money or issued any debt securities or assumed, guaranteed or endorsed the
obligations of any other Person, (d) (i) sold, transferred or otherwise
disposed of any of its material property or assets to Persons other than
customers of Company or (ii) mortgaged or encumbered any of its property or
assets; (e) increased the compensation payable or to become payable by the
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Company to its directors, officers, key employees, affiliates or any of the
Sellers; (f) changed its accounting methods, practices, or principles,
except in accordance with the audit conducted on the Audit Date; (g)
adopted or amended any collective bargaining, bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, or
other plan, agreement, trust, fund, Employee Benefit Plan or any other
arrangement for the benefit of employees; or (h) entered into any Contract
to do any of the foregoing.
SECTION 3.10 Litigation. Except (a) as set forth in Schedule 3.10, (b)
for claims under workers' compensation or similar laws, (c) for routine
claims for employee benefits and (d) for claims for money damages
aggregating not more than $50,000, there is no action, suit or proceeding
pending or, to the knowledge of Sellers, threatened against Company before
any Governmental Authority. Company is not in default under any judgment,
decree, injunction or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against
Company.
SECTION 3.11 Real Property; Liens and Encumbrances.
-------------------------------------
(a) Company does not own any real property. Schedule 3.11
contains a complete and accurate list of all real property leased by
Company as of the date hereof.
(b) Except as set forth in Schedule 3.11, all properties and
assets owned by Company are free and clear of all liens, pledges, claims,
escrows, options, indentures, security interests, mortgages, assessments,
easements, rights of way, covenants, restrictions, rights of first refusal,
defects in title, encroachments, encumbrances and other burdens of any kind
or character (collectively, "Liens") except (i) statutory Liens not yet
delinquent or the validity of which are being contested in good faith by
appropriate actions, (ii) purchase money Liens arising in the ordinary
course, (iii) Liens for taxes not yet delinquent and (iv) Liens reflected
in the Financial Statements (which have not been discharged).
(c) The Company has good and marketable title to all the
personal property and assets, tangible or intangible, shown on the
Financial Statements, except to the extent sold or disposed of in
transactions entered into in the ordinary course of business consistent
with past practices since the date of the Financial Statements. None of
such assets are subject to any (i) contracts of sale or lease, except
contracts for the sale of inventory in the ordinary and regular course of
business; or (ii) Liens, except as set forth in Schedule 3.11 or permitted
under Section 3.11(b) hereof.
(d) The inventories of finished goods, work-in-progress and raw
materials of the Company included on the Audited Financials and to be
included on Closing Balance Sheet are valued at the lower of cost or market
with cost being determined using a moving average method the average, which
approximates the first-in, first-out (FIFO) method. The Company has the
proper amount of inventories to conduct its business consistent with past
practices. There has not been, since the date of the Financial Statements,
any provision for markdowns or shrinkage with respect to inventories other
than in the ordinary and regular course of business consistent with past
practices or as otherwise consented to by Buyer.
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SECTION 3.12 Certain Agreements. Except as described in Schedule 3.12,
Company is not a party to any Contract with any officer, director or
employee of Company or with any affiliate of the Company or any Seller (a)
the benefits of which are contingent, or the terms of which are altered,
upon the occurrence of the transactions contemplated by this Agreement, (b)
providing severance benefits or other benefits after the termination of
employment regardless of the reason for such termination of employment, or
(c) any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement. Except as disclosed in
Schedule 3.12, Company is not a party to any (i) Contract relating to the
borrowing of money or the guarantee of any obligation for the borrowing of
money or (ii) other Contract or commitment of Company, in each case,
involving an expenditure or commitment in excess of $50,000. Company is not
in default under any of the Contracts or obligations described in Schedule
3.12.
SECTION 3.13 Employee Benefit Plans.
(a) Schedule 3.13 sets forth a true and complete list of each
"employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), each written
employment, severance, retention, termination, consulting or retirement
contract, and each bonus or other incentive compensation, stock purchase,
stock option, stock award or other equity-based compensation, or vacation
plan or policy (other than any governmental program), and any related
trust, as to which Company has any obligation or liability, contingent or
otherwise (collectively, "Employee Benefit Plans"). Sellers have provided
to Buyer true, correct and complete copies of the following documents with
respect to each of the Employee Benefit Plans for which such documents
exist: (i) the Employee Benefit Plan and related trust documents, and
amendments thereto, (ii) the most recent Form 5500, (iii) the last Internal
Revenue Service determination letter, and (iv) summary plan descriptions
and modifications thereto.
(b) Company does not maintain or contribute to, or has not
maintained or contributed to, any "multiemployer plan," as such term is
defined in Section 3(37) or Section 4001(a)(3) of ERISA, or any defined
benefit plans covered by Title IV of ERISA. Each Employee Benefit Plan
which is intended to be qualified under Section 401(a) and, if applicable,
Section 401(k) of the Code, is so qualified.
(c) Except as disclosed in Schedule 3.13, no action, suit or
proceeding relating to any Employee Benefit Plan (other than claims for
benefits for which the plan administrative procedures have not been
exhausted and "qualified domestic relations orders" as defined in Section
414(p) of the Code) is pending or, to the best of Sellers' knowledge,
threatened against Company before any court, arbitrator or administrative
or governmental body. Company has not failed to make contributions to any
Employee Benefit Plan that are required to be made under the terms of such
Employee Benefit Plans or under applicable law. To the best of Sellers'
knowledge, none of Company, any officer of Company, or any of the Employee
Benefit Plans (or any trusts created thereunder or any trustee or
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administrator thereof) has engaged in a "prohibited transaction," as such
term is defined in Section 4975 of the Code or under ERISA, which could
reasonably subject Company, any officer of Company, any of such plans or
any trust to any material tax or penalty on prohibited transactions or any
other liability imposed by such Section 4975 or under ERISA.
(d) To the best of Sellers' knowledge, each of the Employee
Benefit Plans, comply in all material respects with the provisions of ERISA
and the Code and all other statutes, orders, governmental rules and
regulations applicable to such Employee Benefit Plans. Company has
performed all of its obligations currently required to have been performed
under all Employee Benefit Plans.
(e) To the best of Sellers' knowledge, each Employee Benefit
Plan has been administered to date in compliance with the requirements of
ERISA and the Code.
(f) To the best of Sellers' knowledge, all group health plans of
the Company (including any plans of affiliates of the Company that must be
taken into account under Section 4980B of the Code) have been operated in
material compliance with the group health continuation coverage
requirements of Section 4980B of the Code and Title I, Part 6 of ERISA.
(g) To the best of Sellers' knowledge, all written employment,
severance, retention, termination, consulting or retirement contract, and
each bonus or other incentive compensation, stock purchase, stock option,
stock award or other equity-based compensation, or vacation plan or policy
(other than any governmental program), and any related trust, as to which
Company has any obligation or liability, contingent or otherwise, are
legal, valid and binding and in full force and effect, and there are no
defaults thereunder. None of the rights of the Company thereunder will be
impaired by the consummation of the transactions contemplated by this
Agreement, and all of the rights of the Company thereunder will be
enforceable by Buyer at and after the Closing without the consent or
agreement of any other party.
SECTION 3.14 Taxes.
(a) For purposes of this Section 3.14, "Company" shall be deemed
to include any subsidiary of Company, any predecessor of Company or any
Person or entity from which Company incurs a liability for Taxes as a
result of transferee liability.
(b) Except as set forth in Schedule 3.14:
(i) Company has timely filed true, correct and complete
Tax Returns, reports or estimates, all prepared in accordance with
applicable laws, for all years and periods (and portions thereof) and
for all jurisdictions (whether federal, state, local or foreign) in
which any such returns, reports or estimates were due. All Taxes, as
due and payable in respect of such returns, reports and estimates have
been paid, and there is no current liability for any Taxes due in
connection with any such Tax Returns. Attached hereto as Schedule
3.14(b)(i) are copies of all federal, state and foreign Tax Returns
filed by Company for the past five years.
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(ii) Company has never been a member of any consolidated,
combined or unitary group for federal, state, local or foreign Tax
purposes.
(iii) Company is not a party to any joint venture,
partnership or other arrangement that could be treated as a partnership
for federal income Tax purposes.
(iv) Company has (i) withheld all required amounts from
its employees, agents, contractors and nonresidents and remitted such
amounts to the proper agencies; and (ii) filed all federal, state,
local and foreign Tax Returns with respect to employee income Tax
withholding, social security and unemployment Taxes and premiums, all
in compliance with the withholding Tax provisions of the Code as in
effect for the applicable year and other applicable federal, state,
local or foreign laws.
(v) The federal income Tax Returns of Company have been
examined by the Internal Revenue Service (the "IRS"), or have been
closed by the applicable statute of limitations, for all periods
through 1993; the state Tax Returns of Company have been examined by
the relevant agencies or such returns have been closed by the
applicable statute of limitations for all periods through 1992; no
deficiencies or reassessments for any Taxes have been proposed,
asserted or assessed against Company by any federal, state, local or
foreign taxing authority.
(vi) Company has not executed or filed with any taxing
authority (whether federal, state, local or foreign) any agreement or
other document extending or having the effect of extending the period
for assessment, reassessment or collection of any Taxes, and no power
of attorney granted by Company with respect to any Taxes is currently
in force.
(vii) No federal, state, local or foreign Tax audits or
other administrative proceedings, discussions or court proceedings are
presently pending with regard to any Taxes or Tax Returns of Company
and no additional issues are being asserted against Company in
connection with any existing audits of Company.
(viii) Company has not entered into any agreement
relating to Taxes which affects any taxable year ending after the
Closing Date.
(ix) Company has not agreed to and it is not required to
make any adjustment by reason of a change in accounting methods that
affects any taxable year ending after the Closing Date. Neither the IRS
nor any other agency has proposed any such adjustment or change in
accounting methods that affects any taxable year ending after the
Closing Date. Company has no application pending with any taxing
authority requesting permission for any changes in accounting methods
that relate to its business or operations and that affects any taxable
year ending after the Closing Date.
(x) Company is not and never has been a party to any Tax
sharing agreement or similar arrangement for the sharing of Tax
liabilities or benefits.
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(xi) None of Sellers or Company is a foreign person
within the meaning of Code section 1445.
(xii) Company has not consented to the application of
Code section 341(f).
(xiii) There is no Contract, plan or arrangement covering
any employee or former employee of Company that, individually or
collectively, could give rise to the payment by Company of any amount
that would not be deductible by reason of Code section 280G.
(xiv) No asset of Company is tax-exempt use property
under Code section 168(h).
(xv) No portion of the cost of any asset of Company has
been financed directly or indirectly from the proceeds of any
tax-exempt state or local government obligation described in Code
section 103(a).
(xvi) None of the assets of Company is property that
Company is required to treat as being owned by any other Person
pursuant to the safe harbor lease provision of former Code section
168(f)(8).
(xvii) Company does not have and has not had a permanent
establishment in any foreign country and does not and has not engaged
in a trade or business in any foreign country.
(xviii) Neither the Code nor any other provision of law
requires the Buyer to withhold any portion of the Purchase Price.
(xix) Company duly elected to be treated as an S
corporation pursuant to Code section 1362(a), and the laws of the State
of California, effective as of September 1, 1990. This election has not
been revoked and is currently effective, and no event has occurred that
would terminate Company's S corporation status (other than this
transaction). No taxing authority has challenged the effectiveness of
this election.
(xx) The Sellers will not claim any federal income Tax
deduction with respect to any corporate level California income or
franchise Taxes that are based on any income of the Company that
accrues after January 1, 1997.
SECTION 3.15 Compliance with Applicable Law. Except as set forth in
Schedule 3.15, the business of Company is not being conducted in violation
of any applicable Laws.
SECTION 3.16 Brokers' Fees and Commissions. Except for BA Partners, a
division of BancAmerica Robertson Stephens, which is an affiliate of
BankAmerica Corporation, none of Sellers, Company and their respective
directors, officers, partners, employees or agents has employed any
investment banker, broker or finder in connection with the transactions
contemplated hereby.
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SECTION 3.17 Proprietary Rights.
(a) Schedule 3.17 contains a complete and accurate list of (i)
all registered patents and trademarks of Company, (ii) all patent and
trademark applications of Company which have been filed and are currently
pending, and (iii) all licenses or other valid rights to use all United
States and foreign patents, trademarks, trade names, service marks,
copyrights and applications therefor (collectively, "Intellectual Property
Rights") which Company owns or possesses (the "Patent and Trademark
Rights").
(b) Except as set forth in Schedule 3.17, (i) as of the date of
this Agreement, the validity of the Patent and Trademark Rights and the
title thereto of Company are not being questioned in any litigation to
which Company is a party, nor to the knowledge of Sellers, is any such
litigation threatened, (ii) as of the date of this Agreement, to the
knowledge of Sellers, the conduct of the business of Company from January
1, 1994 to the date of this Agreement has not conflicted, and does not
conflict, with any valid patents, trademarks, trade name, service marks or
copyrights of others in any way which is reasonably likely to have a
Material Adverse Effect, and (iii) to the Sellers' knowledge, the Company
has the right to use all Intellectual Property Rights used in, or necessary
for, the operation of its business as currently conducted.
SECTION 3.18 Labor Relations. Except as listed or described on Schedule
3.18, (i) there have been no strikes, work stoppages or any demands for
collective bargaining by any union or labor organization of the Company's
employees since January 1, 1994, (ii) there is no collective bargaining
relationship between the Company and any union, and (iii) there is no
dispute or controversy with any union or other organization of the
Company's employees.
SECTION 3.19 Insurance. All insurance policies (the "Insurance
Policies") with respect to the property, assets, operations and business of
Company are listed in Schedule 3.19 and are in full force and effect.
Except as set forth in Schedule 3.19, as of the date of this Agreement,
there are no pending claims against the Insurance Policies by Company as to
which the insurers have denied liability. Sellers make no representation or
warranty that the Insurance Policies will be continued or are continuable
after the Closing.
SECTION 3.20 Environmental Matters. Except as disclosed on Schedule
3.20 or in the Environmental Reports delivered to Buyer:
(a) the operations of Company are in compliance with all
applicable Environmental Laws;
(b) Company has obtained all permits, licenses and other
authorizations that are required under applicable Environmental Laws
("Environmental Permits") to conduct its business;
(c) no judicial or administrative proceedings or investigations
are pending or, to the knowledge of Sellers, threatened against Company and
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no written notice, citation, summons or order has been delivered to Company
by any Governmental Authority or private entity pursuant to any applicable
Environmental Laws (collectively, "Environmental Claims");
(d) no real property currently (or to the knowledge of Sellers,
formerly) owned, operated or leased by Company has been involved with any
release of Hazardous Materials, or is listed or has been formally proposed
for listing on the National Priorities List, the Comprehensive
Environmental Response Compensation and Liability and Information System
("CERCLIS") or any analogous state lists;
(e) there are not now on, in or under any real property owned,
leased or operated by Company (i) any underground storage tanks ("USTs"),
(ii) any asbestos-containing materials ("ACMs"), (iii) any polychlorinated
biphenyls ("PCBs"), or (iv) Hazardous Materials;
(f) Company has not caused or experienced any past or present
events, conditions, circumstances, plans or other matters which: (i) arise
from inventory of or waste from Hazardous Materials; or (ii) arise from any
off-site disposal, release or threatened release of Hazardous Materials;
(g) Company has not received notice, actual or threatened, that
it is a "potentially responsible party" for the costs of investigation,
removal or remediation for any real property listed on the National
Priorities List or any analogous state list; and
(h) Sellers have provided Buyer with copies of any environmental
investigation, study or audit conducted by Sellers or Company in relation
to any real property owned or leased by Company.
SECTION 3.21 Ownership of Shares. Sellers are the holders of record of
all the outstanding shares of capital stock of Company and own beneficially
that number of Shares set forth opposite their names on Schedule 3.21
hereto. Sellers own the Shares set forth on Schedule 3.21 free and clear of
any liens, claims or encumbrances. Sellers are not a party to any voting
trust, proxy or other agreement with respect to the voting of any Shares
which will remain in force or effect after the Closing.
SECTION 3.22 Bank Accounts. Schedule 3.22 lists all bank accounts, lock
boxes, post office boxes and safe deposit boxes maintained in the name of
or controlled by the Company and the names of the persons having access
thereto.
SECTION 3.23 Absence of Certain Business Practices. To the Sellers'
knowledge, no officer, employee or agent of the Company has (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefit, regardless of its nature or type,
from any customer, supplier, trading company, shipping company,
governmental employee or other entity or individual with whom the Company
has done business directly or indirectly; or (b) directly or indirectly,
given or agreed to give any gift or similar benefit to any customer,
supplier, trading company, shipping company, governmental employee or other
person or entity who is or may be in a position to help or hinder the
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business of the Company (or assist the Company in connection with any
actual or proposed transaction) which will subject the Company to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding.
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as set forth below.
SECTION 4.1 Organization and Qualifications. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with all requisite corporate power and authority to own,
lease and operate its properties and to carry on its businesses as now
being conducted. Buyer is qualified or licensed to do business and is in
good standing in every jurisdiction where the nature of the business
conducted by it or the properties owned or leased by it requires
qualification.
SECTION 4.2 Authorization. Buyer has full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. No other corporate proceeding on the part of Buyer is
necessary to authorize the execution and delivery of this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by Buyer and constitutes a valid
and binding obligation of Buyer, enforceable against it in accordance with
its terms, except to the extent that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally, and 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 therefor may be brought.
SECTION 4.3 No Violation. Neither the execution and delivery of this
Agreement by Buyer and the performance by Buyer of its obligations
hereunder nor the consummation by Buyer of the transactions contemplated
hereby will (a) violate, conflict with or result in any breach of any
provision of the Certificate of Incorporation or Bylaws of Buyer, (b)
violate, conflict with or result in a violation or breach of, or constitute
a default (with or without due notice or lapse of time or both) under the
terms, conditions or provisions of any note, bond, mortgage, indenture or
deed of trust, or any license, lease or agreement to which Buyer is a party
or (c) violate any order, writ, judgment, injunction, decree, statute, rule
or regulation of any court or Governmental Authority applicable to Buyer.
SECTION 4.4 Consents and Approvals. No filing or registration with, no
notice to and no permit, authorization, consent or approval of any third
party or any Governmental Authority is necessary for the consummation by
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Buyer of the transactions contemplated by this Agreement other than (a)
consents and approvals of or filings or registrations with the DOJ pursuant
to the HSR Act, (b) requirements of federal and state securities laws and
(c) those consents already obtained.
SECTION 4.5 Brokers' Fees and Commissions. Except for Larry Buetel and
Company, neither Buyer nor any of its affiliates, Subsidiaries, directors,
officers, employees or agents has employed any investment banker, broker or
finder in connection with the transactions contemplated hereby.
SECTION 4.6 Purchase for Investment. Buyer is acquiring the Shares for
its own account for investment purposes and not with a view to the
distribution of the Shares. Buyer has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits
and risks of its investment in the Shares. Buyer is an "accredited
investor" as defined in Rule 501 of the Securities Act of 1933, as amended.
Buyer will not, directly or indirectly, dispose of the Shares except in
compliance with applicable federal and state securities laws.
SECTION 4.7 Financing. Through access to the cash and financing
available to Motors and Gears, Inc., Buyer has sufficient funds available
to satisfy, among other things, the obligation to pay (a) the Initial
Payment and other components of the Purchase Price and (b) all expenses
incurred by Buyer in connection with the transactions contemplated hereby.
Buyer has furnished to Sellers a reliance letter, dated the date hereof, of
Motors and Gears, Inc., substantially in the form of Exhibit J (the
"Reliance Letter").
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of Company Prior to the Closing. Except
as contemplated by this Agreement, as set forth in Schedule 5.1 or with the
prior written consent of Buyer (which consent shall not be unreasonably
withheld), during the period from the date of this Agreement to the
Closing, Sellers shall cause the Company to conduct its business and
operations according to Company's ordinary and usual course of business and
to use all reasonable efforts consistent therewith to preserve intact
Company's properties, assets and business organizations, to keep available
the services of Company's officers and employees and to maintain
satisfactory relationships with customers, suppliers, distributors and
others having commercially beneficial business relationships with Company,
in each case in the ordinary course of business. Without limiting the
generality of the foregoing, and except as otherwise provided in this
Agreement, the Sellers shall not permit the Company to do any of the
following prior to the Closing, without the prior written consent of Buyer
(which consent shall not be unreasonably withheld):
(a) issue, sell or pledge, or authorize or propose the issuance,
sale or pledge of additional shares of capital stock of any class or
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interests, or securities convertible into any such shares or interests, or
any rights, warrants or options to acquire any such shares or interests or
other convertible securities;
(b) redeem, purchase or otherwise acquire any outstanding shares
of the capital stock of Company;
(c) propose or adopt any amendment to the Articles of
Incorporation or Bylaws of Company;
(d) incur any long-term indebtedness for borrowed money or issue
any debt securities or, except in the ordinary course of business, assume,
guarantee or endorse the obligations of any other Person;
(e) increase in any manner the rate or terms of compensation of
any of the Sellers, nor shall the Company so increase the rate or terms of
compensation of any of its other directors, officers or other employees,
except such increases as are granted in the ordinary course of business
consistent with past practice or as may be necessary to meet the
competition;
(f) except in the ordinary course of business, (i) sell,
transfer or otherwise dispose of any of its property or assets or (ii)
mortgage or encumber any of its property or assets;
(g) enter into other commitments or Contracts, except
commitments or Contracts made in the ordinary course of business;
(h) declare, set aside or pay any dividend or other distribution
in respect of the Shares; provided, however, that Company may make such
cash distributions to Sellers from time to time as necessary to allow
Sellers to pay their Tax obligations related to income of Company;
(i) except in the ordinary course of business or with respect to
capital projects begun prior to the date hereof, enter into any agreement
or commitment involving an aggregate capital expenditure or commitment
exceeding $100,000; or
(j) agree in writing to take any of the foregoing actions.
SECTION 5.2 Closing Balance Sheet. Sellers shall deliver to Buyer the
Closing Balance Sheet as soon as practicable after the close of business
two business prior to the Closing Date.
SECTION 5.3 Access to Information. Between the date of this Agreement
and the Closing Date, upon reasonable notice and at reasonable times
without significant disruption to the businesses of Company, Company will
give Buyer and its authorized representatives reasonable access to all
offices and other facilities, and to all books and records of Company and
will permit Buyer to make and will fully cooperate with regard to such
inspections as it may reasonably require, all in accordance with the
Protocol, and will cause its officers to furnish Buyer such financial and
operating data and other information with respect to the businesses and
properties of Company as Buyer may from time to time reasonably request,
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all in accordance with the Protocol. Sellers shall cause Company,
commencing on the close of business two days prior to the Closing Date, to
provide Buyer and its authorized representatives access to all offices and
other facilities, and to all books and records of Company and will permit
Buyer to make and will fully cooperate with regard to such inspections as
it may require and will furnish Buyer and its authorized representatives
such financial and operating data and other information with respect to the
businesses and properties of Company as Buyer may reasonably request to
review the preparation of the Closing Balance Sheet and to calculate the
Net Adjustment. Buyer shall maintain confidential all information furnished
by the Company or the Sellers and, in the event of termination of the
Agreement pursuant to Article VIII, shall return to Sellers or the Company
all information theretofore furnished by Sellers or the Company and shall
destroy all writings or other media containing such information or
materials derived from, commenting upon or summarizing such information.
After the Closing Date, upon reasonable notice and at reasonable
times without significant disruption to the businesses of Company, Buyer
and Company will give Sellers and their authorized representatives
reasonable access to all offices and other facilities, and to all books and
records of Company necessary to review the preparation of the Closing
Financial Statements and Adjustment Schedule pursuant to Section 2.4 hereof
and to prepare amended tax returns referred to in Section 9.13 hereof, and
will cause officers of the Company to furnish to Sellers such financial and
other operational data and other information as Sellers may reasonably
request in connection with the preparation of such amended tax returns.
SECTION 5.4 All Reasonable Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper and advisable under applicable laws
and regulations to consummate and make effective as promptly as practicable
the transactions contemplated by this Agreement. If at any time after the
Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, including, without limitation, the execution of
additional instruments, the parties to this Agreement shall take all such
necessary action.
SECTION 5.5 Consents and Approvals. The parties hereto each will
cooperate with one another and use all reasonable efforts to prepare all
necessary documentation (including, without limitation, furnishing all
information required under the HSR Act), to effect promptly all necessary
filings and to obtain all necessary permits, consents, approvals, orders
and authorizations of, or any exemptions by, all third parties and
Governmental Authorities necessary to consummate the transactions
contemplated by this Agreement. Each party will keep the other parties
apprised of the status of any inquiries made of such party by the DOJ or
any other Governmental Authority or members of their respective staffs with
respect to this Agreement or the transactions contemplated hereby.
SECTION 5.6 Public Announcements. Buyer and Sellers will consult with
each other and will mutually agree (the agreement of each party not to be
unreasonably withheld) upon the content and timing of any press release or
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other public statements with respect to the transactions contemplated by
this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and agreement.
SECTION 5.7 Disclosure Supplements. From time to time prior to the
Closing, Sellers will supplement or amend the Disclosure Schedules
delivered in connection herewith with respect to any matter which, if
existing or occurring at or prior to the date of this Agreement, would have
been required to be set forth or described in such Disclosure Schedules or
which is necessary to correct any information in such Disclosure Schedules
which has been rendered inaccurate by an event occurring after the date
hereof. Any such supplement or amendment to the Disclosure Schedules shall
be reasonably satisfactory to Buyer; provided, that any such supplement or
amendment to the Disclosure Schedules delivered to the Buyer shall be
deemed approved by Buyer if Buyer does not provide written notice to
Sellers within seven (7) days after delivery of such supplement or
amendment that such supplement or amendment is not reasonably satisfactory
to Buyer. If the Closing occurs, Buyer waives any right or claim it may
otherwise have or have had on account of any matter so disclosed in such
supplement or amendment.
SECTION 5.8 No Implied Representations or Warranties. Buyer hereby
acknowledges and agrees that neither Sellers nor Company is making any
representation or warranty whatsoever, express or implied, except those
representations and warranties of the Sellers explicitly set forth in this
Agreement or in the Disclosure Schedules or in any certificate contemplated
hereby and delivered by the Sellers in connection herewith. Subject to the
foregoing, the assets and businesses of Company being acquired by Buyer at
the Closing as a result of this Agreement and the transactions contemplated
hereby shall be acquired by Buyer on an "as is, where is" basis and in
their then present condition, and Buyer shall rely solely upon its own
examination thereof. In any event, except as explicitly set forth herein,
none of Sellers or Company, or any of their respective officers, directors,
partners, employees, affiliates or representatives, as the case may be, has
made or is making any representation, express or implied, as to the value
of any asset or business being so acquired, or any warranty of
merchantability, suitability or fitness for a particular purpose or
quality, with respect to any of the tangible assets being so acquired, or
as to the condition or workmanship thereof, or as to the absence of any
defects therein, whether latent or patent.
SECTION 5.9 Employee Benefit Matters.
(a) Benefit Arrangements. Buyer agrees that on and after the
Closing Date it will cause Company to promptly and in good faith honor all
written employment, severance, retention, termination, consulting and
retirement agreements to which Company is presently a party (all of which
are listed in Schedule 5.9(a)), including, without limitation, the
retention agreements described in Schedule 3.13, as such agreements may
hereafter be modified with the consent of the other party or as otherwise
permitted by such agreements.
(b) Indemnification and Insurance. Buyer agrees that all rights
to indemnification or exculpation now existing in favor of the employees,
agents, directors or officers of Company (the "Company Indemnified
Parties") as provided in the Articles of Incorporation or Bylaws of Company
(or other comparable governing documents), or as provided in an agreement
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between a Company Indemnified Party and Company (the "Indemnification
Agreements") (all of which are listed in Schedule 5.9(b)) shall continue in
full force and effect for a period of not less than seven years from the
Closing Date; provided, however, that, in the event any claim or claims are
asserted or made within such seven-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
disposition of any and all such claims; provided, however, that such
Company Indemnified Parties shall have no rights to indemnification or
exculpation under this Section 5.9(b) for any losses arising out of a
breach of this Agreement by such Company Indemnified Party except to the
extent covered by any insurance maintained by the Company. Any
determination required to be made with respect to whether a Company
Indemnified Party's conduct complies with the standards set forth in the
Articles of Incorporation or Bylaws of Company (or other comparable
governing documents) or under the Indemnification Agreements shall be made
by independent counsel selected by the Company Indemnified Party reasonably
satisfactory to Buyer (whose fees and expenses shall be paid by Company).
(c) Binding on Successors. In the event Company or any of its
successors or assigns (i) consolidates with, or merges into, any other
Person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all
of its properties, assets or stock to any Person, then and in each such
case, proper provision shall be made so that the successors and assigns of
Company (or their successors and assigns) shall assume the obligations set
forth in Section 5.9.
SECTION 5.10 Solvency After the Closing. After the Closing, Buyer
agrees that it shall not, and that it shall cause Company not to, take or
cause to be taken or omit to take any action which could result in a
determination pursuant to state or federal law that, after giving effect to
the transactions contemplated hereby (or after giving effect to such
transactions and to such other subsequent actions or omissions), Company
(a) was insolvent at the time of the Closing, (b) became insolvent as a
result of the transactions contemplated hereby, (c) was left with
unreasonably small capital with which to engage in its business or (d)
incurred debts beyond its ability to pay such debts as they mature, such
that the payment of the Purchase Price may be deemed a "fraudulent
conveyance" or impermissible dividend or distribution under applicable law
or otherwise subject to claims of certain creditors of Company or its
trustees in a bankruptcy proceeding.
SECTION 5.11 Confidentiality. Prior to the Closing, Buyer shall, keep
confidential, and shall use its best efforts to cause to be kept
confidential by its affiliates and representatives, all information
concerning Company or Sellers disclosed prior to the date of this Agreement
or hereafter to any such Persons in connection with this Agreement and the
consummation of the transactions contemplated hereby and the relating
financing, and none of such information shall be used in any manner other
than in connection with this Agreement and the other agreements
contemplated hereby, except to the extent (i) required by any Governmental
Authority, (ii) such information is generally known in the industries in
which the Company is engaged or (iii) is lawfully obtainable from other
sources. In the event of the termination of this Agreement, Buyer shall
return to Sellers (or destroy and certify such destruction to the Company
and Sellers in writing) all documents and materials (and reproductions
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thereof) furnished to Buyer or its affiliates or representatives in
connection with this Agreement for the transactions contemplated hereby.
SECTION 5.12 Resignation of Officers and Directors. Prior to or at the
Closing, Sellers will cause each of the officers and directors of Company
identified by Buyer to resign effective as of the Closing.
SECTION 5.13 Lease Agreements. Sellers shall cause Lessors to enter
into the Lease.
SECTION 5.14 Audited Financials. The Buyer shall initiate an audit of
the Company's financial statements for fiscal year 1996 and the fiscal
period ended as of the Audit Date (the "Audited Financials"). The
accounting firm conducting the audit shall be the Sacramento office of
Arthur Andersen and the financial statements shall be prepared in
accordance with GAAP. Buyer shall bear the cost of this audit. The audit
shall be completed by November 20, 1997. A copy of the audit shall be
delivered to each Seller.
SECTION 5.15 Certain Payments. Prior to or at the Closing, Sellers
shall pay to the Company an amount equal to all fees and expenses of BA
Partners, O'Melveny & Myers LLP and Arthur Andersen LLP, relating to the
transaction contemplated by this Agreement, paid by Company.
SECTION 5.16 Discharge of Debt. Contemporaneously with the Closing,
Buyer shall pay or otherwise discharge the Debt pursuant to Sections 1.1(w),
1.1(bg)(ii) and 2.2(a).
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligations Under this
Agreement. The respective obligations of each party under this Agreement
shall be subject to the fulfillment at or prior to the Closing of the
following conditions:
(a) Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or
been terminated;
(b) No injunction, restraining order or other ruling or order
issued by any court of competent jurisdiction or Governmental Authority or
other legal restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect;
(c) Any and all permits, consents, waivers, clearances,
approvals and authorizations of all third parties and Governmental
Authorities which are necessary or advisable in connection with the
consummation of the transactions contemplated hereby shall have been
obtained;
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(d) The Escrow Agent shall have executed and delivered the
Escrow Agreement;
(e) The Audited Financials shall be reasonably satisfactory to
each of Buyer and Sellers; and
(f) The Buyer shall have completed a review of the Closing
Balance Sheet, the results of which shall be satisfactory to each of Buyer
and Sellers.
SECTION 6.2 Conditions to the Obligations of Buyer Under this
Agreement. The obligations of Buyer under this Agreement shall be further
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) Except for the Section 5.15 hereof, each of the obligations
of Sellers and Company required to be performed by them at or prior to the
Closing pursuant to this Agreement shall have been duly performed and
complied with in all material respects, and the representations and
warranties of the Sellers contained in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made at and as of the Closing Date (except as to
any representation or warranty which specifically relates to an earlier
date), and Buyer shall have received a certificate to that effect signed by
each of the Employee Sellers to the best of their knowledge and Buyer shall
have received a certificate of each Seller that Section 3.21 is true and
correct insofar as it applies to such Seller;
(b) Supplements or amendments to the Disclosures Schedules, if
any, shall have been approved by the Buyer in accordance with Section 5.7
hereof;
(c) Each Seller shall have executed and delivered a
Non-Competition Agreement;
(d) The Employee Sellers shall have executed and delivered the
Escrow Agreement;
(e) Each Employee Seller shall have executed and delivered an
Employment Agreement;
(f) Certain officers of the Company, as agreed upon by Buyer and
Sellers, shall each have entered into an employment agreement in form and
substance reasonably satisfactory to Buyer;
(g) The Lease shall have been executed and delivered;
(h) The Buyer shall have received, within six (6) business days
after the date of this Agreement, any Disclosure Schedule not delivered on
the date of this Agreement and such Disclosure Schedule shall be reasonably
satisfactory to Buyer; provided, that any such Disclosure Schedule
delivered after the date of this Agreement shall be deemed approved by
Buyer if Buyer does not provide written notice to Sellers within seven (7)
days after delivery of such Disclosure Schedule that such Disclosure
Schedule is not reasonably satisfactory to Buyer;
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(i) The Buyer shall have received an executed withholding
certificate from each Seller in the form of Exhibit G attached hereto;
(j) The Buyer shall have completed a due diligence review of the
Company in accordance with the Protocol the results of which shall be
reasonably satisfactory to Buyer;
(k) The marketing survey conducted by Markowitz & McNaughton,
Inc. shall be satisfactory to Buyer;
(l) Buyer shall have received the Officers' Certificate;
(m) Buyer shall have reviewed and approved Sellers'
determination of the Deemed Gain on Sale of Assets and Section 338(h)(10)
Payment; and
(n) Sellers will furnish or cause the Company to furnish to
Buyer such other documents and certificates of the Company's officers as
Buyer shall reasonably request to evidence compliance with the conditions
set forth in this Agreement.
SECTION 6.3 Conditions to the Obligations of Sellers Under this
Agreement. The obligations of Sellers under this Agreement shall be further
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) Each of the obligations of Buyer required to be performed by
it at or prior to the Closing pursuant to the terms of this Agreement shall
have been duly performed and complied with in all material respects, and
the representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made at and as of the
Closing Date (except as to any representation or warranty which
specifically relates to an earlier date), and Sellers shall have received a
certificate to that effect signed by an officer of Buyer to the best of his
or her knowledge;
(b) Company and Buyer shall have executed and delivered an
Employment Agreement for each of the Employee Sellers;
(c) The Company and Buyer shall have executed and delivered the
Escrow Agreement;
(d) Sellers shall have received an opinion substantially in the
form of Exhibit I hereto from counsel to Buyer;
(e) Sellers and/or Sellers' representatives shall have reviewed
and approved Buyer's determination of the Modified Aggregate Deemed Sales
Price and the Purchase Price Allocation Schedule; and
(f) The Reliance Letter shall have been confirmed as of the
Closing Date.
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ARTICLE VII
CLOSING
SECTION 7.1 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of O'Melveny
& Myers LLP, 400 South Hope Street, Los Angeles, California 90071, 15th
Floor, subject to the satisfaction or waiver of the conditions set forth in
Article VI, on the later of December 5, 1997, or two business days after
the receipt of all requisite governmental approvals, or at such other time
and place and on such other date as Buyer and Sellers shall agree (the
"Closing Date"). At the Closing:
(a) Sellers shall deliver or cause to be delivered to Buyer the
following:
(i) the certificates described in Section 6.2;
(ii) a certificate or certificates representing all of
the Shares in appropriate form for transfer to Buyer or accompanied by
stock powers duly executed in blank;
(iii) all documents, including without limitation,
executed UCC-3 termination statements, as are necessary to release all
Liens on the Company's assets, except the UCC-1 financing statement
filed in favor of Aromat Corporation; and
(iv) all other previously undelivered documents required
to be delivered by Sellers to Buyer at or prior to the Closing pursuant
to the terms of this Agreement.
(b) Buyer shall deliver or cause to be delivered to Sellers the
following:
(i) the certificate described in Section 6.3(a);
(ii) all other previously undelivered documents required
to be delivered by Buyer to Sellers at or prior to the Closing pursuant
to the terms of this Agreement; and
(iii) an executed Earn-Out Rights Plan.
(c) Buyer shall pay the Initial Payment and the Section
338(h)(10) Payment to Sellers, by wire transfer of immediately available
funds to such account or accounts as Sellers shall designate at least two
(2) days prior to the Closing Date.
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ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing:
(a) by mutual consent of Sellers and Buyer; or
(b) by either Sellers or Buyer;
(i) if there is a material breach by the other party of
any representation, warranty, covenant or agreement contained herein
which is not cured or curable within ten days after written notice of
such breach is given to the party committing such breach by the other
party;
(ii) if any approval, consent or waiver of a Governmental
Authority required to permit consummation of the transactions
contemplated by this Agreement shall have been denied;
(iii) if a court of competent jurisdiction or
Governmental Authority shall have issued an order, decree or ruling or
taken any other action (which order, decree or ruling the parties
hereto shall use their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other
action shall have become final and nonappealable; or
(iv) if the Closing shall not have occurred on or before
December 31, 1997;
provided, however, that the right to terminate this Agreement shall not be
available to any party whose breach of this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or before such
date.
SECTION 8.2 Procedure and Effect of Termination. In the event of
termination and abandonment of the transactions contemplated hereby
pursuant to Section 8.1, written notice thereof shall forthwith be given to
the other parties to this Agreement and this Agreement shall terminate and
the transactions contemplated hereby shall be abandoned, without further
action by any of the parties hereto. If this Agreement is terminated as
provided herein, each party shall bear its own expenses and no party hereto
shall have any liability or further obligation to any other party to this
Agreement resulting from such termination except (a) that the provision of
Section 5.3, this Section 8.2 and the proviso of Section 8.1(b) shall
remain in full force and effect and (b) no party waives any claim or right
against a breaching party to the extent that such termination results from
the breach by a party hereto of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Amendment and Modification. This Agreement may be amended,
modified or supplemented by a written instrument signed by all of the
parties hereto.
SECTION 9.2 Waiver of Compliance; Consents. Any failure of Buyer, on
the one hand, or of Sellers or the Company, on the other hand, to comply
with any obligation, covenant agreement or condition contained herein may
be waived in writing by Sellers or Buyer, respectively, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any other failure.
SECTION 9.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in full force
and effect.
SECTION 9.4 Expenses and Obligations. All costs and expenses incurred
in connection with the consummation of the transactions contemplated by
this Agreement by Buyer shall be paid by Buyer, and all costs and expenses
incurred in connection with the consummation of the transactions
contemplated by this Agreement by Sellers or Company shall be paid by
Sellers.
SECTION 9.5 Parties in Interest. This Agreement shall be binding upon
and, except as provided below, inure solely to the benefit of each party
hereto, and nothing in this Agreement, except as set forth below, express
or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9.6 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given upon the earlier of delivery
thereof if by hand or upon receipt if sent by mail (registered or
certified, postage prepaid, return receipt requested) or on the second next
business day after deposit if sent by a recognized overnight delivery
service or upon transmission if sent by telecopy or facsimile transmission
(with request of assurance of receipt in a manner customary for
communication of such type) as follows:
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(a) If to Buyer, to:
Motion Holdings, Inc.
c/o Motors & Gears, Inc.
ArborLake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
Attention: Thomas H. Quinn, President
Joseph C. Linnen, Vice President
Telephone: (847) 945-5591
Facsimile: (847) 945-5698
with a copy to:
Bryan Cave LLP
One Kansas City Place
1200 Main, Suite 3500
Kansas City, Missouri 64105
Attention: G. Robert Fisher, Esq.
Telephone: (816) 374-3200
Facsimile: (816) 374-3300
(b) If to Sellers or Company, to:
Motion Control Engineering, Inc.
11354 Whiterock Road
Rancho Cordova, California 95742
Attention: Javad Rahimian
Telephone: (916) 638-4011, ext. 244
Facsimile: (916) 638-9836
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Attention: Edward J. McAniff
Telephone: (213) 669-6470
Facsimile: (213) 669-6407
SECTION 9.7 Governing Law; Dispute Resolution.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to the
conflicts-of-laws rules thereof.
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(b) Any dispute between any of the parties hereto or any claim
by a party against another party arising out of or relating to this
Agreement or relating to any alleged breach hereof including, without
limitation, the calculation of the Audited Financials, shall be determined
by arbitration in accordance with the rules then in force of the American
Arbitration Association, subject to the modifications set forth in this
Section 9.7(b). The arbitration proceedings shall take place in Sacramento
or such other location as the parties in dispute may agree upon. The
arbitration proceedings shall be subject to the substantive laws of the
State of Illinois. There shall be one arbitrator, as shall be agreed upon
by the parties in dispute within twenty (20) calendar days of delivery of
written notice of the dispute, who shall be an individual skilled in the
business aspects of the subject matter of this Agreement and of the dispute
and is not a lawyer. In the absence of such an agreement in the 20-day
period referred to in the preceding sentence, each party to the dispute
shall select one arbitrator within ten (10) calendar days after the
termination of such 20-day period and the arbitrators so selected shall
select a third arbitrator who shall be an individual skilled in the
business aspects of the subject matter of this Agreement and of the dispute
and is not a lawyer. The failure of a party to designate an arbitrator
within such 10-day period shall constitute a waiver of that party's right
to select an arbitrator and the arbitrator selected by the other party
shall be the sole arbitrator of the arbitration proceedings. In the event
the arbitrators cannot agree upon the selection of a third arbitrator
within forty-five (45) calendar days of delivery of written notice of the
dispute, such third arbitrator shall be appointed by the American
Arbitration Association at the request of any of the parties in dispute.
The American Arbitration Association shall appoint, within ten (10)
calendar days of such request, a third arbitrator skilled in the business
aspects of the subject matter of this Agreement and of the dispute and is
not a lawyer. The arbitration proceedings shall begin within fifteen (15)
calendar days of the final selection of the arbitrator or arbitrators. In
any arbitration in which the decision, or a portion of the decision, of the
arbitrator(s) can be expressed numerically, each party shall, ten (10)
business days prior to any proceedings before the arbitrator(s), propose a
settlement number to the other party. During the five (5) business days
prior to the start of such proceedings, the parties shall consult with each
other in an effort to reach agreement. With respect to any such numerical
dispute, each party shall, on the first day of such proceedings before the
arbitrator(s), submit a settlement number to the arbitrator(s) and to the
other party. The decision, or the portion of the decision, of the
arbitrator(s) is limited to one of the two proposed settlement numbers.
Each party shall have twenty (20) calendar days to present to the
arbitrator(s) its case in chief, ten (10) calendar days to reply in writing
to the other party's case in chief, five (5) calendar days to prepare for
presentation to the arbitrator(s) and ten (10) calendar days to present its
case. The arbitrator(s) shall deliver a written decision within thirty (30)
days of the last day specified for presentation by the parties and, in any
event, within 125 days after appointment of such arbitrator(s). Any
decision rendered by the arbitrator(s) shall be accompanied by a written
opinion in support thereof. Such decision shall be final and binding upon
the parties in dispute without right of appeal. Judgment upon any such
decision may be entered into in any court having jurisdiction thereof, or
application may be made to such court for a judicial acceptance of the
decision in an order of enforcement. Costs of the arbitration shall be
assessed by the arbitrator(s) against all or any of the parties in dispute
and shall be paid promptly by the party or parties so assessed. Each party
to a dispute agrees to cooperate and use its best efforts to obtain the
final decision of the arbitrator(s) within 125 days after appointment of
such arbitrator(s).
;
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SECTION 9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 9.9 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.10 Entire Agreement. This Agreement, the Disclosure Schedules
and exhibits attached hereto embody the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein or
therein. There are no agreements, representations, warranties or covenants
other than those expressly set forth herein or therein. This Agreement and
the Disclosure Schedules and exhibits attached hereto supersede all prior
agreements and understandings between the parties with respect to such
subject matter.
SECTION 9.11 Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that Buyer may assign its rights and
obligations hereunder to an affiliate of Buyer, and may assign all or a
portion of its rights hereunder, subject to any defenses that Sellers may
have, to one or more of its lenders; provided, that Buyer shall remain
liable with respect to its liabilities and obligations hereunder.
SECTION 9.12 Survival of Representations and Warranties, Etc.
-----------------------------------------------
(a) The representations and warranties set forth in this
Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby until June 30, 1999, except that the
representations and warranties set forth in Section 3.14 hereof shall
survive for the statute of limitations applicable to such Tax
representation plus a period of fifteen (15) days.
(b) No claim for the recovery of indemnifiable damages based
upon the inaccuracy of such representations and warranties may be asserted
by a party after such representations and warranties have expired;
provided, however, that claims first asserted by a party in writing within
the applicable period shall not thereafter be barred.
(c) The Employee Sellers, jointly and severally, and the
Nonemployee Sellers, severally, agree to indemnify and hold harmless Buyer
and each of its respective officers, directors, employees, successors and
assigns, and Buyer agrees to indemnify and hold harmless each Seller, and
each of his, her or its respective successors or assigns, and Company, and
each of its respective officers, directors, employees, successors and
assigns, in respect of any and all claims, actions, suits or other
proceedings and any and all losses, costs, expenses, liabilities, fines,
penalties, interest, and damages (including reasonable fees and expenses of
counsel, accountants and consultants and all other reasonable costs and
expenses of investigation, defense or settlement of claims and amounts paid
in settlement) (collectively, "Losses") incurred by, imposed on or borne by
such party, resulting from the breach of any representation, warranty or
covenant by the Seller or Buyer, as applicable, contained in this
Agreement; provided, however, that Sellers, or Buyer as applicable, will
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only be liable for Losses to the extent such Losses, in the aggregate,
exceed $1,000,000. Notwithstanding the foregoing and except for Losses
incurred by, imposed on or borne by Buyer resulting from the breach of the
representations and warranties of Sellers set forth in Section 3.14 or in
the provisions set forth in Section 9.21 hereof, in no event shall the
aggregate liability of a Seller exceed 25% of the Purchase Price received
by such Seller. The foregoing limitations on indemnification shall not
apply to any Losses resulting from violations under Sections 3.2, 3.4, or
3.21 and such representations and warranties shall survive for the
applicable statute of limitation.
(d) If a claim by a third party is made against an indemnified
party (the "Indemnified Party"), and if such Indemnified Party intends to
seek indemnity with respect thereto under this Agreement from the other
party (the "Indemnifying Party"), the Indemnified Party shall promptly, but
in any event, within ten (10) business days, notify the Indemnifying Party
in writing of such claims setting forth such claims in reasonable detail.
The failure to give such notice shall not relieve the Indemnifying Party of
any liability hereunder except to the extent that the Indemnifying Party is
actually prejudiced thereby. The Indemnifying Party shall have thirty (30)
days after receipt of such notice to undertake, conduct and control,
through counsel of its own choosing and at its own expense, the settlement
or defense thereof (except in such instances where the settlement includes
matters other than strictly the payment of money, in which case such
settlement shall not be entered into without the written consent of the
Indemnified Party, which consent shall not be unreasonably withheld or
delayed). The Indemnified Party may participate in (but not control) such
settlement or defense through counsel chosen by such Indemnified Party,
provided that the fees and expenses of such counsel shall be borne by such
Indemnified Party. So long as the Indemnifying Party is reasonably
contesting any such claim in good faith, the Indemnified Party shall not
pay or settle any such claim. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay or settle any such claim,
provided that in such event it shall waive any right to indemnity therefor
by the Indemnifying Party. If the Indemnifying Party does not notify the
Indemnified Party in writing within thirty (30) days after the receipt of
the Indemnified Party's notice of a claim of indemnity hereunder that it
elects to undertake the defense thereof, the Indemnified Party shall have
the right to contest, settle or compromise the claim but shall not thereby
waive any right to indemnity therefor pursuant to this Agreement.
(e) Notwithstanding anything to the contrary contained in this
Agreement, any indemnification owed under this Agreement shall be reduced
as provided in Section 9.13 and by the amount of any reimbursements
actually received by the Indemnified Party from any insurance carriers or
from third parties.
SECTION 9.13 Certain Refunds and Tax Benefits. Any refunds for Taxes
(other than Pass Through Taxes) that are received by the Company, after the
Closing Date shall be property of the Company and shall not be for the
benefit of the Sellers. Any refund for federal or state income Taxes of any
Seller that is attributable to the earnings of the Company for the period
between January 1, 1997 and the Closing Date shall be the property of the
Company. Sellers shall be permitted to file amended tax returns for years
ending on or before December 31, 1996 for the purpose of claiming
additional tax credits for research and development expenses, provided,
that the Sellers have substantial authority for claiming such additional
tax credits.
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SECTION 9.14 Exclusive Remedy. Except as set forth in Section 2.4
hereof, Buyer and Sellers agree that, to the fullest extent permitted by
law, the sole and exclusive remedy of the Buyer and Sellers after the
Closing with respect to any claim or cause of action asserted by the Buyer
or Sellers against the other relating to or arising from breaches of the
representations, warranties or covenants contained in this Agreement or any
list, certificate or other instrument furnished by or to be furnished by or
on behalf of such party or its affiliates, if any, to the other party or
any of such party's representatives in connection with the transactions
contemplated by this Agreement shall be limited to the rights of the Buyer
and Sellers under, and shall be subject to the terms and conditions of the
provisions set forth in, Section 9.12.
SECTION 9.15 Jurisdiction and Venue. The parties hereto agree that any
suit, action or proceeding seeking to enforce the decision of the
arbitrator rendered pursuant o Section 9.7 hereof shall be instituted only
in the United States District Courts for the Northern District of
California and the District of Illinois. Each party waives any objection it
may have now or hereafter to the laying of the venue of any such suit,
action or proceeding, and irrevocably submits to the jurisdiction of any
such court in any such suit, action or proceeding.
SECTION 9.16 Tax Audits.
(a) The Buyer and the Sellers hereby agree that in the event a
claim with respect to Taxes is made pursuant to this Agreement, each party
shall furnish to any of them all books, records, tax returns and other
information reasonably requested by such other party that relate to such
claims, and each party agrees to file on behalf of the other party, if
reasonably requested, any appropriate returns, forms or other statements
that relate to such claims. For the purpose of this Section 9.16(a), a
claim with respect to Taxes shall include a request for determination
relating to a refund or credit.
(b) Except as provided below, if in connection with any
examination, investigation, audit or other proceeding in respect of any Tax
Return covering the operations of the Company through the Closing Date, any
governmental body or authority issues to the Company a written notice of
deficiency, a notice of reassessment, a proposed adjustment, an assertion
of claim or demand concerning the tax period covered by such Tax Return,
the Company shall notify Sellers of its receipt of such communication from
the governmental body or authority within fifteen (15) business days after
receiving such notice of deficiency, reassessment, adjustment or assertion
of claim or demand. No failure or delay of the Company in the performance
of the foregoing shall reduce or otherwise affect the obligations of the
Sellers pursuant to this Section 9.16, except to the extent that such
failure or delay shall have adversely affected Sellers' ability to defend
against, settle or satisfy any liability or claim for Taxes that Sellers
are obligated to pay hereunder. Except as provided below, Sellers shall, at
their expense, have the nonexclusive right to participate in the contest of
any such assessment, proposal, claim, reassessment, demand or other
proceedings in connection with any Tax Return covering operations of the
Company for periods ending on, before or including the Closing Date. The
Company will not be obligated to settle or resolve any issue related to
Taxes for such a period, which, if so settled or resolved, could have an
effect on the Company or Buyer for periods after Closing Date, unless
Sellers agree in writing with Buyer, or the Company, as the case may be, in
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terms reasonably satisfactory to the Buyer or the Company, as the case may
be, to indemnify the Buyer and the Company from any cost, damage or loss
relating to such settlement or resolution. Similarly, neither the Company
nor the Buyer will settle or resolve any dispute relating to Taxes for such
a period, which if so settled or resolved, could have an effect on the
Sellers for periods before the Closing Date, unless the Company or the
Buyer agree in writing with the Sellers in terms reasonably satisfactory to
Sellers to indemnify Sellers for any cost, damage or loss relating to such
settlement or resolution.
(c) If there is an adjustment to any return or report of Taxes
for the Company which creates a deficiency in any Taxes for which Sellers
are liable under this Agreement or by operation of law or if Sellers shall
receive a refund with respect to Taxes that is for the benefit of Buyer or
the Company under the provisions of this Agreement, Sellers shall pay to
the Buyer or the Company, as the case may be, either (i) the amount of such
deficiency in Taxes, or (ii) the refund received by Sellers (plus any
interest thereon actually received from any governmental agency). No
liability of Sellers under this Section 9.16(c) shall be payable until the
occurrence of any action by any Tax authority that is final or, if not
final, is acquiesced in by Sellers during the course of any audit or any
proceeding relating to Taxes. The Company and Buyer shall similarly be
obligated for any Taxes or refunds owed to Sellers. All payments required
to be made pursuant to this Section 9.16(c) shall be made within ten (10)
days of receipt in the case of a refund, and within thirty (30) days of the
occurrence of the event described in the immediately preceding sentence, in
all other cases.
(d) The Buyer, the Company, and the Sellers shall provide each
other with such assistance as may be reasonable requested by each of them
in connection with any audit or other examination by any taxing authority,
or any judicial or administrative proceeding relating to liability for
Taxes. The Buyer, the Company, and the Sellers will retain for the full
period of any statute of limitations and provide the others with any
records or information which may be relevant to the preparation of a Tax
Return or an audit, examination, proceeding, or determination. The party
requesting assistance hereunder shall reimburse the assisting party for
reasonable out-of-pocket expenses incurred in providing such assistance.
SECTION 9.17 Transfer Taxes. Sellers shall pay, or cause to be paid,
any Tax, charge, fee or other similar cost or expense of any kind required
or customary in the applicable jurisdiction in connection with the transfer
of the Shares pursuant to this Agreement, whether such Tax, charge, fee or
other cost is imposed on Sellers, Company or Buyer.
SECTION 9.18 Certain Tax Returns. The Sellers shall properly and timely
prepare (or cause to be prepared), at the sole cost and expense of Company,
all federal income Tax Returns of Company (and any state, local or foreign
income Tax Returns that treat Company as a pass through entity) with
respect to taxable periods that end on or before the Closing Date (the
"Pass Through Returns"), and Company shall timely file any Pass Through
Returns which are prepared in a manner consistent with this Section 9.18.
The Company shall pay any corporate level Taxes due with respect to such
Tax Returns, which payment shall not alter any right of indemnification the
Company may have under Section 9.21 hereof. The Pass Through Returns shall
be prepared in a manner which is consistent with past practices, except as
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otherwise required by applicable law. Income, gain, loss, deduction and
credit of Company shall be allocated between the Pass Through Returns and
any succeeding taxable period on the basis of a closing of the books of
Company at the close of business on the day preceding the Closing Date in
accordance with Section 1362(e)(6)(D) of the Code. Buyer and Company agree
to cooperate with the Sellers in connection with the preparation of the
Pass Through Returns, including without limitation by providing the Sellers
(and their agents) with access to all books and records which are
reasonably related to the preparation of the Pass Through Returns. None of
Buyer and Company will file any amended Pass Through Tax Returns or other
Tax Returns with respect to Pass Through Taxes without obtaining the prior
written consent of the Sellers; with the exception of amended tax returns
prepared by Sellers to claim additional tax credit for research and
development expenses.
SECTION 9.19 Section 338 Election.
--------------------
(a) Each of the Sellers agree to join, in an appropriate and
timely manner, with the Buyer in making elections under Section 338(h)(10)
of the Code (and, to the extent necessary to allow for an election under
section 338(h)(10) of the Code, an election under Section 338(g) of the
Code) and any corresponding election under state, local, or foreign law
(the "Section 338(h)(10) Elections") with respect to Buyer's acquisition of
the Shares.
(b) Each of the Sellers agrees to cooperate with the Buyer to
take all actions necessary or appropriate to effect and preserve timely
Section 338(h)(10) Elections, including, but not limited to, participating
in the filing of IRS Form 8023-A and any related or comparable forms for
state, local, or foreign law purposes (the "Section 338(h)(10) Forms").
Buyer shall be responsible for preparing, and filing with the appropriate
agency, all Section 338(h)(10) Forms and for preparing a schedule (the
"Purchase Price Allocation Schedule") allocating the Modified Aggregate
Deemed Sales Price (as defined Treasury Regulation section
1.338(h)(10)-1(f)) among the assets of the Company. Sellers and/or Sellers'
representatives shall review and approve Buyer's determination of the
Modified Aggregate Deemed Sales Price and the Purchase Price Allocation
Schedule prior to the Closing Date. Sellers' and/or Sellers' representative
shall use this material for the purpose of determining the Deemed Gain on
Sale of Assets and the Section 338(h)(10) Payment. These determinations of
the Deemed Gain on Sale of Assets and the Section 338(h)(10) Payment shall
be subject to the Buyer's review and approval prior to the Closing Date.
(c) Each of the Sellers and the Buyer agree to report, or caused
to be reported, and to take no position on any return, or in any audit,
examination, or other proceeding that is inconsistent with the Section
338(h)(10) Elections or the Purchase Price Allocation Schedule.
(d) The Buyer and the Company agree to hold each of the Sellers
harmless from any and all Taxes imposed or incurred by the Sellers for any
Taxes resulting directly from the Section 338(h)(10) Elections, other than
those Taxes resulting directly from the Section 338(h)(10) Elections that
would have not occurred but for a breach of a representation contained in
Section 3.14. Buyer will pay Sellers a Section 338(h)(10) payment (the
"Section 338(h)(10) Payment"), consisting of (1) the Ordinary Income
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Adjustment times the Tax Rate, plus (2) Sellers' out-of-pocket legal and
accounting fees associated with accommodating the Section 338(h)(10)
Election in an aggregate amount not to exceed $52,000, plus (3) 1.344 times
Sellers' underpayment of estimated tax penalties under Code Section 6654,
in an aggregate amount not to exceed $150,000, resulting from Sellers'
inability to perform their customary 1997 year-end tax planning after the
Closing Date.
(e) The obligation of Buyer and each of the Sellers pursuant to
this Section 9.19 shall expire upon the expiration of the applicable
statute of limitations plus a period of fifteen (15) days.
SECTION 9.20 Tax Benefits Related to Retention Agreements. Pursuant to
Section 5.9(a) of this Agreement, certain amounts may be paid on or after
the Closing Date to officers and other employees of Company ("Retention
Amounts"). Buyer agrees that upon the realization by Buyer, Company, or
their successors or affiliates of any Tax Benefit with respect to the
Retention Amounts attributable to any taxable period beginning on or after
the Closing Date, Buyer shall pay to the Sellers the amount of such Tax
Benefit so realized within forty-five (45) days after the filing of any Tax
Return or claim for refund in which any such Tax Benefit is realized (or,
in the case of Retention Amounts with respect to employees of the Company,
within forty-five (45) days after any audit adjustment becomes final with
respect to the deduction of Retention Amounts which allows such deduction
in a later taxable period than is herein contemplated). For purposes of
this provision, a Tax Benefit with respect to Retention Amounts shall be
deemed to be realized in the taxable period in which such Retention Amounts
first become deductible, and shall be treated as realized in full in such
period at the maximum federal income Tax rate applicable to corporations
with respect to such taxable period.
SECTION 9.21 Tax Indemnification.
(a) Subject to Buyer's obligation to pay the Additional Purchase
Price, the Sellers shall be liable and indemnify Buyer and the Company for
all Taxes of the Company (i) for all taxable periods ending on or before
the Closing Date and (ii) for any period not ending on or before the
Closing Date, the portion of the Taxes attributable to the period ending on
the Closing Date. Notwithstanding the foregoing, the Sellers shall not be
liable for any Taxes of the Company that directly result from the Code
Section 338(h)(10) Elections other than those Taxes resulting directly from
the Code Section 338(h)(10) Elections that would not have occurred but for
a breach of a representation contained in Section 3.14.
(b) All Taxes attributable to the operations of the Company for
all periods (or portions thereof) after the Closing Date shall be borne by
the Company. For any period that includes but does not end on the Closing
Date, (i) the liability for any Taxes determined by reference to income,
capital gains, gross income, gross receipts, sales, net profits, windfall
profits or similar items or resulting from a sale, transfer, or other
disposition of assets shall be allocated between the Sellers and the
Company based on the date on which such items accrued and (ii) the
liability for all other Taxes shall be allocated between the Sellers and
the Company, pro rata based upon the number of days in a taxable period for
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which each party is liable for Taxes hereunder. With respect to any item
described in Code Section 1366(a), the tax liability of the Sellers shall
be determined as provided in Code Section 1362(e)(6)(D).
(c) The Sellers agree that the Taxes referred to in Section
3.14(xx) will not be reported as a deductible item on the Pass Through
Returns and Sellers agree to indemnify the Buyer and the Company if the
Sellers breach the representation contained in Section 3.14(xx) hereof.
Sellers also agree to pay to the Buyer the benefit of any federal income
Tax deduction attributable to the Taxes referred to in Section 3.14(xx) if
it is ultimately determined that the Sellers and not the Company are
entitled to the federal income Tax deduction for such Taxes. The Sellers
also agree to cooperate with the Company with respect to any audit of this
issue, including filing amended Tax Returns to claim a deduction for such
Taxes if requested by the Company. Company shall pay expenses associated
with the aforementioned audit and/or amended Tax Returns.
(d) The obligations of Sellers pursuant to this Section 9.21
shall expire upon the expiration of the applicable statute of limitations
plus a period of fifteen (15) days.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed on its behalf by its duly authorized officers, all
as of the day and year first above written.
BUYER Motion Holdings, Inc.
By:____________________________________
Name: Joseph C. Linnen
Title: Vice President
S-1
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The Javad and Shirin Rahimian Family Trust
By: Javad Rahimian and Shirin Rahimian,
as Trustors and Trustees
______________________________________
Javad Rahimian
______________________________________
Shirin Rahimian
S-2
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The Majid and Maryam Rahimian Family Trust
By: Majid Rahimian and Maryam Rahimian,
as Trustors and Trustees
___________________________________________
Majid Rahimian
___________________________________________
Maryam Rahimian
S-3
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Don B. Alley
____________________________________________
S-4
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The Ali and Mehry Rahimian Family Trust
By: Ali Rahimian and Mehry Rahimian,
as Trustors and Trustees
___________________________________________
Ali Rahimian
___________________________________________
Mehry Rahimian
S-5
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__________________________________________________
D. B. Craig, Trustee of The Ali and Mehry Rahimian
Irrevocable Trust #1
__________________________________________________
D. B. Craig, Trustee of The Ali and Mehry Rahimian
Irrevocable Trust #2
__________________________________________________
D. B. Craig, Trustee of The Ali and Mehry Rahimian
Irrevocable Trust #3
__________________________________________________
D. B. Craig, Trustee of The Ali and Mehry Rahimian
Irrevocable Trust #4
__________________________________________________
D. B. Craig, Trustee of The Ali and Mehry Rahimian
Irrevocable Trust #5
__________________________________________________
D. B. Craig, Trustee of The Ali and Mehry Rahimian
Irrevocable Trust #6
S-6
<PAGE>
EXHIBIT F
PROTOCOL
1. All due diligence to take place off-site.
2. No faxes will be sent to the Company unless otherwise directed. All
correspondence will be directed to BA Partners, O'Melveny & Myers LLP
or Sellers' designated representative.
3. Limitations will be placed on scheduled items such as material Contracts.
4. All direct correspondence and requests from Buyer will be directed to
Javad Rahimian, designated representative of the Sellers.
5. Buyer will use (i) Arthur Andersen (Sacramento) for all on-site audit
work, and (ii) Ernst & Young for all off-site review and observation.
EXHIBIT F - Page 1
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EXHIBIT G
WITHHOLDING CERTIFICATE
I, ____________________, hereby certify the following:
1. I am not a nonresident alien for purposes of U.S. income
taxation;
2. My U.S. taxpayer identification number (Social Security
number) is ____________________; and
3. My home address is
-------------------------------
-------------------------------
I understand that this certification may be disclosed to the
Internal Revenue Service.
Under penalty of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true,
correct, and complete.
-------------------------------
[Name]
-------------------------------
[Date]
Exhibit G - Page 1
<PAGE>
EXHIBIT H
FORM OF OFFICERS' CERTIFICATE
-----------------------------
The undersigned, the President and chief executive officer, and
Executive Vice President and chief operating officer, respectively, of
Motion Control Engineering, Inc. (the "Company"), each hereby certify, to
the best of their knowledge, to Motion Holdings, Inc. ("Holdings") that the
representations and warranties made by the Sellers (as defined below) in
the Purchase Agreement, dated as of November 17, 1997 (the "Agreement"), by
and among The Javad and Shirin Rahimian Family Trust, The Majid and Maryam
Rahimian Family Trust, Don B. Alley, The Ali and Mehry Rahimian Family
Trust, The Ali and Mehry Rahimian Irrevocable Trust #1, The Ali and Mehry
Rahimian Irrevocable Trust #2, The Ali and Mehry Rahimian Irrevocable Trust
#3, The Ali and Mehry Rahimian Irrevocable Trust #4, The Ali and Mehry
Rahimian Irrevocable Trust #5 and The Ali and Mehry Rahimian Irrevocable
Trust #6 (collectively, the "Sellers"), and Holdings, are true and correct
on the date hereof and Sellers have performed and complied with all
agreements, covenants and conditions required by the Agreement and to be
performed and complied with by Sellers prior to the date hereof. This
Officers' Certificate does not constitute an amendment to the Agreement.
Dated: December __, 1997
------------------------------
Javad Rahimian
President and
chief executive officer
------------------------------
Majid Rahimian
Executive Vice President and
chief operating officer
Exhibit H - Page 1
<PAGE>
EXHIBIT J
FORM OF RELIANCE LETTER
MOTORS & GEARS, INC.
Arborlake Centre, Suite 550
1751 Lake Cook Road
Deerfield, Illinois 60015
November ___, 1997
Mr. Javad Rahimian
Motion Control Engineering, Inc.
11354 Whiterock Road
Rancho Cordova, California 95742
Re: Purchase Agreement by and among Motion Holdings, Inc. a Delaware
corporation ("Buyer") and all of the stockholders of Motion Control
Engineering, Inc. (the "Purchase Agreement")
Dear Javad:
This letter confirms that Motors & Gears, Inc. is the parent
corporation of Buyer and that Buyer, through its access to the funds of
Motors & Gears, has sufficient cash and credit available to fund the
closing of the transactions contemplated by the Purchase Agreement other
than those associated with the Earn-Out Rights Plan.
Very truly yours,
MOTORS & GEARS, INC.
Gordon Nelson
Vice President
Exhibit J - Page 1
<PAGE>
CONFIDENTIAL
PURCHASE AGREEMENT
BY AND AMONG
MOTION HOLDINGS, INC.
THE JAVAD AND SHIRIN RAHIMIAN FAMILY TRUST,
THE MAJID AND MARYAM RAHIMIAN FAMILY TRUST,
DON B. ALLEY,
THE ALI AND MEHRY RAHIMIAN FAMILY TRUST,
THE ALI AND MEHRY RAHIMIAN IRREVOCABLE TRUST #1,
THE ALI AND MEHRY RAHIMIAN IRREVOCABLE TRUST #2,
THE ALI AND MEHRY RAHIMIAN IRREVOCABLE TRUST #3,
THE ALI AND MEHRY RAHIMIAN IRREVOCABLE TRUST #4,
THE ALI AND MEHRY RAHIMIAN IRREVOCABLE TRUST #5,
AND
THE ALI AND MEHRY RAHIMIAN IRREVOCABLE TRUST #6
Dated November 17, 1997
<PAGE>
[CAPTION]
<TABLE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 Definitions................................................................................... 1
ARTICLE II
THE ACQUISITION
SECTION 2.1 Purchase and Sale of Shares................................................................... 7
SECTION 2.2 Consideration for the Shares.................................................................. 7
SECTION 2.3 Allocation of Consideration................................................................... 7
SECTION 2.4 Post-Closing Audit............................................................................ 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
SECTION 3.1 Organization and Qualification................................................................ 9
SECTION 3.2 Authorization................................................................................. 9
SECTION 3.3 No Violation.................................................................................. 9
SECTION 3.4 Capitalization of Company..................................................................... 9
SECTION 3.5 Subsidiaries and Equity Investments........................................................... 10
SECTION 3.6 Consents and Approvals........................................................................ 10
SECTION 3.7 Financial Statements.......................................................................... 10
SECTION 3.8 Absence of Undisclosed Liabilities............................................................ 10
SECTION 3.9 Absence of Certain Changes.................................................................... 10
SECTION 3.10 Litigation.................................................................................... 11
SECTION 3.11 Real Property; Liens and Encumbrances......................................................... 11
SECTION 3.12 Certain Agreements............................................................................ 12
SECTION 3.13 Employee Benefit Plans........................................................................ 12
SECTION 3.14 Taxes......................................................................................... 13
SECTION 3.15 Compliance with Applicable Law................................................................ 15
SECTION 3.16 Brokers' Fees and Commissions................................................................. 15
SECTION 3.17 Proprietary Rights............................................................................ 16
SECTION 3.18 Labor Relations............................................................................... 16
SECTION 3.19 Insurance..................................................................................... 16
SECTION 3.20 Environmental Matters......................................................................... 16
SECTION 3.21 Ownership of Shares........................................................................... 17
SECTION 3.22 Bank Accounts................................................................................. 17
SECTION 3.23 Absence of Certain Business Practices......................................................... 17
i
<PAGE>
<CAPTION>
ARTICLE IV
REPRESENTATIONS AND
WARRANTIES OF BUYER
<S> <C> <C>
SECTION 4.1 Organization and Qualifications............................................................... 18
SECTION 4.2 Authorization................................................................................. 18
SECTION 4.3 No Violation.................................................................................. 18
SECTION 4.4 Consents and Approvals........................................................................ 18
SECTION 4.5 Brokers' Fees and Commissions................................................................. 19
SECTION 4.6 Purchase for Investment....................................................................... 19
SECTION 4.7 Financing..................................................................................... 19
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business of Company Prior to the Closing........................................... 19
SECTION 5.2 Closing Balance Sheet......................................................................... 20
SECTION 5.3 Access to Information......................................................................... 20
SECTION 5.4 All Reasonable Efforts........................................................................ 21
SECTION 5.5 Consents and Approvals........................................................................ 21
SECTION 5.6 Public Announcements.......................................................................... 21
SECTION 5.7 Disclosure Supplements........................................................................ 22
SECTION 5.8 No Implied Representations or Warranties...................................................... 22
SECTION 5.9 Employee Benefit Matters...................................................................... 22
SECTION 5.10 Solvency After the Closing.................................................................... 23
SECTION 5.11 Confidentiality............................................................................... 23
SECTION 5.12 Resignation of Officers and Directors......................................................... 24
SECTION 5.13 Lease Agreements.............................................................................. 24
SECTION 5.14 Audited Financials............................................................................ 24
SECTION 5.15 Certain Payments.............................................................................. 24
SECTION 5.16 Discharge of Debt............................................................................. 24
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.1 Conditions to Each Party's Obligations Under this Agreement................................... 24
SECTION 6.2 Conditions to the Obligations of Buyer Under this Agreement................................... 25
SECTION 6.3 Conditions to the Obligations of Sellers Under this Agreement................................. 26
ARTICLE VII
CLOSING
SECTION 7.1 Closing....................................................................................... 27
ii
<PAGE>
<CAPTION>
ARTICLE VIII
TERMINATION AND ABANDONMENT
<S> <C> <C>
SECTION 8.1 Termination................................................................................... 28
SECTION 8.2 Procedure and Effect of Termination........................................................... 28
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Amendment and Modification.................................................................... 29
SECTION 9.2 Waiver of Compliance; Consents................................................................ 29
SECTION 9.3 Validity...................................................................................... 29
SECTION 9.4 Expenses and Obligations...................................................................... 29
SECTION 9.5 Parties in Interest........................................................................... 29
SECTION 9.6 Notices....................................................................................... 29
SECTION 9.7 Governing Law; Dispute Resolution............................................................. 30
SECTION 9.8 Counterparts.................................................................................. 32
SECTION 9.9 Headings...................................................................................... 32
SECTION 9.10 Entire Agreement.............................................................................. 32
SECTION 9.11 Assignment.................................................................................... 32
SECTION 9.12 Survival of Representations and Warranties, Etc............................................... 32
SECTION 9.13 Certain Refunds and Tax Benefits.............................................................. 33
SECTION 9.14 Exclusive Remedy.............................................................................. 34
SECTION 9.15 Jurisdiction and Venue........................................................................ 34
SECTION 9.16 Tax Audits.................................................................................... 34
SECTION 9.17 Transfer Taxes................................................................................ 35
SECTION 9.18 Certain Tax Returns........................................................................... 35
SECTION 9.19 Section 338 Election.......................................................................... 36
SECTION 9.20 Tax Benefits Related to Retention Agreements.................................................. 37
SECTION 9.21 Tax Indemnification........................................................................... 37
</TABLE>
DISCLOSURE SCHEDULES
Schedule 3.3 - Violations
Schedule 3.4 - Capitalization of Company
Schedule 3.5 - Subsidiaries and Equity Investments
Schedule 3.6 - Consents and Approvals
Schedule 3.7 - Financial Statements
Schedule 3.8 - Undisclosed Liabilities
Schedule 3.9 - Certain Changes
Schedule 3.10 - Litigation
Schedule 3.11 - Leased Property; Liens and Encumbrances
Schedule 3.12 - Certain Agreements
Schedule 3.13 - Employee Benefit Plans
iii
<PAGE>
Schedule 3.14 - Taxes
Schedule 3.14(b)(i) - Tax Returns
Schedule 3.15 - Compliance with Applicable Laws
Schedule 3.17 - Proprietary Rights
Schedule 3.18 - Labor Relations
Schedule 3.19 - Insurance
Schedule 3.20 - Environmental Matters
Schedule 3.21 - Ownership of Shares
Schedule 3.22 - Bank Accounts
Schedule 5.1 - Conduct of Business of Company Prior to the
Closing
Schedule 5.9(a) - Benefit Arrangements
Schedule 5.9(b) - Indemnification Agreements
EXHIBITS
Exhibit A - Form of Earn-Out Rights Plan
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Employment and Noncompetition Agreement
Exhibit D - Form of Lease
Exhibit E - Form of Non-Competition Agreement
Exhibit F - Protocol
Exhibit G - Withholding Certificate
Exhibit H - Form of Officers' Certificate
Exhibit I - Form of Opinion of Counsel to Buyer
Exhibit J - Form of Reliance Letter
iv
AGREEMENT FOR PURCHASE AND SALE OF STOCK
of
E. D. AND C. COMPANY, INC.
Among
ERIC MONSON, TINA LAVIRE, MARTA MONSON (as Beneficiary of the
Marta Monson Voting Trust) and FREDERICK W. HEATH (as Trustee of
the Marta Monson Voting Trust)
and
ELECTRICAL DESIGN AND CONTROL COMPANY
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF STOCK
THIS AGREEMENT (this "Agreement"), dated as of the _______ day of
October, 1997, is made by and among ERIC MONSON, TINA LAVIRE, MARTA MONSON
(as Beneficiary of the Marta Monson Voting Trust) and FREDERICK W. HEATH
(as Trustee of the Marta Monson Voting Trust), being the holders of all of
the outstanding shares of stock of E. D. AND C. COMPANY, Inc., a Michigan
corporation (hereinafter "the Company"), all of said individuals being
hereinafter collectively referred to as the "Sellers," and ELECTRICAL
DESIGN AND CONTROL COMPANY, a Delaware corporation (hereinafter
"Holdings").
ARTICLE I
PURCHASE AND SALE; PRICE
1.1 Purchase and Sale of the Shares. At the Closing (hereinafter
defined) and in the manner herein provided, Sellers shall sell and deliver
all of the shares of capital stock of the Company (hereinafter collectively
called the "Shares") to Holdings, and Holdings shall purchase the Shares
from Sellers on the terms and conditions set forth herein.
1.2 Purchase Price. Subject to the terms and conditions of this
Agreement and in reliance on the representations and warranties of the
Sellers herein contained, and in consideration of the sale, conveyance,
transfer and delivery of the Shares provided for in this Agreement,
Holdings agrees to pay to the Sellers at the Closing an aggregate purchase
price (the "Purchase Price") of $18,500,000 plus the amounts payable to
Sellers described in Section 1.2(c) below to be paid as follows:
(a) $14, 500,000 by delivery to the Sellers by wire
transfer to an account designated by the Sellers in writing on the
Closing Date;
(b) $4,000,000 by delivery of a 9.0% subordinated note (in the form
designated as Exhibit 1.2 hereto) in the aggregate principal amount of
$4,000,000 to the Sellers (the "Subordinated Note"); and
<PAGE>
(c) If and when required by Section 1.4(b) hereof, Holdings shall pay
the Sellers all or a portion of the Reserve Amount (hereinafter defined)
and the Additional Purchase Price Amount (hereinafter defined), together
with such other amounts as Holdings is required to pay to Sellers under
Section 1.4(b) hereof, by delivery to the Sellers of a certified or
cashier's check or by wire transfer or transfers to an account or accounts
designated by the Sellers.
1.3 Payment of Liabilities; Definitions.
(a) Liabilities.
(i) Payment of Liabilities Other Than Permitted Liabilities. The
Sellers acknowledge and agree that the Purchase Price has been calculated,
and is being paid, based on the agreement that the Company will have paid
or provided for payment in full immediately prior to the Closing all
liabilities and obligations of the Company other than the Permitted
Liabilities. "Permitted Liabilities" shall mean (A) the current portion of
trade accounts payable, accrued payroll, accrued payroll taxes, accrued
sales taxes and accrued operating expenses, the total of which at the
Closing shall not in the aggregate exceed $1,200,000 and (B) any payments
and obligations due after the Closing Date under the "Contracts" (defined
in Section 2.10 hereof) except any contract obligations assumed in
accordance with Part A.
(ii) Excluded Liabilities. "Excluded Liabilities" shall mean all
liabilities of the Company other than the Permitted Liabilities, including,
without limitation, all interest bearing debt, mortgages, shareholder
loans, dividends payable, other capital debt, income taxes payable, any
capital expenditure or other liability incurred outside the normal course
of business or any similar obligation (collectively, the "Excluded
Liabilities"). The Sellers shall give prior Notice (hereinafter defined) to
Holdings before permitting the Company to incur any Excluded Liabilities.
In the event any Excluded Liabilities which are determined to be valid
obligations of the Company exist at the Closing after giving Sellers a
reasonable opportunity to contest any such Excluded Liabilities which they
deem invalid, then the Purchase Price shall be reduced by the aggregate
amount of said Excluded Liabilities on a dollar for dollar basis and
Holdings shall then assume and pay said Excluded Liabilities. If the
Purchase Price has already been paid when such liabilities or obligations
are discovered by Holdings, then the Sellers will immediately pay such
liabilities or obligations or repay Holdings for any expenditure incurred
by Holdings in relation to such liabilities or obligations.
(b) Calculations; Definitions.
(i) Calculation of DFCE. "DFCE" shall mean debt free common equity and
shall equal (x) the aggregate dollar amount of the Company's Total Assets
(hereinafter defined) less (y) the aggregate dollar amount of the Permitted
Liabilities. For example purposes only, the Company's DFCE as of July 31,
1997 is set forth on Exhibit 1.3. In the calculation of DFCE, the Company
will use GAAP (hereinafter defined) and provide for all year-end expense
adjustments on a pro-rata basis. Notwithstanding anything herein to the
contrary, for purposes of the DFCE example and the calculation of DFCE at
the Closing, all bonus amounts for employees of the Company shall be fully
accrued and reflected through the date of calculation and Holdings agrees
to pay or cause the Company to pay in the ordinary course all accrued bonus
amounts reflected in the Closing Date DFCE.
(ii) Definition of Total Assets. "Total Assets" shall mean the amount
of all assets (net of reserves for bad debts, depreciation and similar
"contra-asset" items) of the Company other than the Excluded Assets
(defined below).
<PAGE>
(iii) Definition of Laws. "Laws" shall mean, without limitation, all
foreign, federal, state and local laws, statutes, rules, regulations,
codes, ordinances, plans, orders, judicial decrees, writs, injunctions,
notices, decisions or demand letters issued, entered or promulgated
pursuant to any foreign, federal, state or local law.
(iv) Definition of GAAP or Generally Accepted Accounting Principles.
"GAAP" or "generally accepted accounting principles" shall mean such
principles, applied on a consistent basis, as set forth in Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards
Board which are applicable in the circumstances as of the date in question.
For purposes of this definition, the requirement that such principles be
applied on a "consistent basis" shall mean that accounting principles
observed in the current period are comparable in all material respects to
those applied in the preceding periods, except as change is permitted or
required under or pursuant to such accounting principles.
1.4 Financial Requirements Regarding Purchased DFCE; Post Closing
Adjustments.
(a) Financial Requirements. Notwithstanding anything in this Agreement
to the contrary, the DFCE at the Closing shall not be less than $4,000,000,
plus all earnings and profits of the Company from July 31, 1997 to the
Closing Date (hereinafter defined) less $600,000 (which is the amount
described in Exhibit 2.9 distributed to Sellers in October, 1997).
(b) Post-Closing Adjustments. Immediately after the Closing, at no
cost to the Sellers, Holdings will have prepared by Ernst & Young LLP a
balance sheet of the Company as of the Closing Date, together with a
calculation of DFCE at the Closing Date (the "Closing Financials and
Computations"). The Closing Financials and Computations will include a
calculation of the Additional Purchase Price Amount described in Exhibit
1.4 hereto ("Additional Purchase Price Amount"). The Closing Financials and
Computations will be completed within 120 business days after the Closing
Date and delivered to the Sellers for review. If the Sellers have any
objections to or otherwise dispute the Closing Financials and Computations,
the parties agree that the provisions of Section 12.7 hereof will apply in
resolving said dispute. Immediately after the completion of the Closing
Financials and Computations, and the review and acceptance of the same by
the Sellers, or, if applicable the resolution in accordance herewith of any
dispute between the parties with respect to the Closing Financials and
Computations, the parties agree that the Reserve Amount, or portions
thereof, shall be retained by Holdings to satisfy any deficiency in the
DFCE requirement described in Section 1.4(a) above (the "Deficiency").
Immediately thereafter, Holdings shall pay to the Sellers the remaining
Reserve Amount, if any, or all of the Reserve Amount, if appropriate and
the Additional Purchase Price Amount, together with interest on said
refunded Reserve Amount, if any, and the Additional Purchase Price Amount
calculated from the Closing Date at a rate of interest equal to the rate of
interest in effect at Closing for 90-day United States Treasury
obligations. To the extent that the Deficiency at Closing exceeds the
Reserve Amount, such Deficiency shall not constitute Damages (hereinafter
defined in Article XI), but shall be immediately due and payable to
Holdings in cash by the Sellers. The term "Reserve Amount" shall mean
$500,000, which amount shall be retained by Holdings and disbursed pursuant
to this Agreement.
<PAGE>
(c) Pro-Rata Adjustments. The Sellers and Holdings will provide for
all year-end expense adjustments on a pro-rata basis in the preparation of
the Closing Financials and Computations and disbursement of the Reserve
Amount and the Additional Purchase Price Amount in accordance with Section
1.4(b) above.
1.5 Allocations of the Purchase Price Among Sellers.
The Purchase Price shall be paid and allocated among the Sellers as
provided in the allocation set forth on Exhibit 1.5 hereto.
1.6 Accounts and Notes Receivable. Sellers will deliver to Holdings a
schedule of all accounts and notes receivable (and the face amounts
thereof) which are outstanding on the Closing Date. Except for the items
described in Exhibit 1.6 ("Excluded Assets"), all accounts and notes
receivable listed on the schedule delivered at the Closing will constitute
valid claims against third parties not affiliated with the Company arising
in the ordinary course of business of the Company. The parties hereto agree
that the Company shall distribute the Excluded Assets to Sellers prior to
the Closing Date. The parties further agree that any accounts and notes
receivable which are outstanding on the Closing Date and which are
uncollected as of the date nine months after the Closing Date shall
constitute Damages under Article XI hereof, to the extent the same exceed
the reserve for doubtful accounts on the Closing Financials and
Computations. Holdings shall assign to Sellers any unpaid accounts and
notes receivable of the Company which are paid by Sellers in accordance
herewith. All amounts which are collected from an account or note debtor
after the Closing Date shall be first applied to reduce the oldest
outstanding balance on such account or with such note debtor.
1.7 Product Claims and Returns. Sellers shall be responsible for
customer claims relating to services rendered by the Company prior to the
Closing Date, and customer claims relating to, or returns of, products of
the Company sold and shipped by the Company prior to the Closing Date or in
the finished goods inventory of the Company as of the Closing Date. If a
customer makes a claim or seeks a return and, in the judgment of the then
management of the Company the claim or return is proper, the Company shall
replace or repair, as the case may be, the services rendered or product
purchased at the Company's then generally prevailing prices and labor
rates. Such repairs or returns shall be for the account of Sellers who
shall promptly reimburse Holdings for the amounts thereof in excess of
reserves for such items included in the Balance Sheet.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
The Sellers and Belinda Monson, spouse of Eric Monson ("Warrantor"),
hereby jointly and severally represent and warrant to Holdings, as follows:
<PAGE>
2.1. Corporate Organization, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
state of Michigan with all requisite corporate power and authority to carry
on its business as it is now being conducted and to own, operate and lease
its properties and assets. Exhibit 2.1.1 lists each of the states where the
Company is qualified as a foreign corporation. The conduct of its business
and its ownership or use of property do not require the Company to be
qualified or licensed to do business as a foreign corporation in any state
except those listed in Exhibit 2.1.1. Exhibit 2.1.2 contains complete and
correct copies of the Company's (i) articles or certificate of
incorporation; (ii) bylaws; (iii) good standing certificates from the
secretary of state of (A) the state of Michigan and (B) each of the states
listed on Exhibit 2.1.1; and (iv) certificates of authority for the states
listed in Exhibit 2.1.1, each as amended to date. The Company has all
federal, state, local and foreign licenses, permits or other approvals
required for the operation of its business as now being conducted.
2.2. Capital Stock; Options. The authorized capital stock of the
Company and the shares of capital stock of the Company issued and
outstanding, of all classes, and the respective holdings of each of
Sellers, are as set forth in Exhibit 2.2. The Shares represent all of the
issued and outstanding capital stock of the Company, the Shares are all
listed on Exhibit 2.2, and the Company has no treasury stock. All of the
Shares are validly issued, fully paid and nonassessable and are owned by
Sellers, free and clear of all encumbrances or claims. There are no issued
and outstanding options, warrants, rights, securities, contracts,
commitments, understandings or arrangements by which the Company is bound
to issue any additional shares of its capital stock or options to purchase
shares of its capital stock.
2.3. Subsidiaries and Affiliates. Except as set forth in Exhibit 2.3,
the Company has no subsidiaries, Affiliates or investments in any other
entity or business operation. The term "Affiliates" includes each
shareholder, director, officer and employee of the Company, the family
members of each Seller, and any director, officer or employee of the
Company, and any corporation, partnership or other entity in which the
Company, any Seller, any family member of a Seller or director or officer
of the Company has any financial interest or is a controlling person, as
that term is used in connection with the federal securities laws, if such
person or entity has, or in the past had, a contractual relationship with
or is transacting, or has in the past transacted, business with the
Company. All of the outstanding shares of all classes of capital stock of
each subsidiary of the Company are owned by the Company free of any liens,
security interests, claims or encumbrances. The Company has no Affiliate
whose liabilities or obligations will be assumed by Holdings.
2.4. Authorization, etc. The Sellers have full power and authority to
enter into this Agreement and to carry out the transactions contemplated
hereby. Except as set forth in Exhibit 2.4, none of the Sellers are
residents of any state that has enacted community property statutes nor are
any of the Sellers subject to any community property statutes. At the
Closing, Warrantor agrees to enter into a Spousal Consent in the form set
forth in Exhibit 2.4.
2.5. No Violation. Except as set forth in Exhibit 2.5, the Company is
not subject to or obligated under any article or certificate of
incorporation, bylaw, Law (as defined in Section 12.6), or any agreement or
instrument, or any license, franchise or permit, which would be breached or
violated by Sellers' execution, delivery and performance of this Agreement.
Sellers will comply with all applicable Laws in connection with their
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby.
<PAGE>
2.6. Governmental Authorities. Neither the Sellers nor the Company are
required to submit any notice, report or other filing with, and no consent,
approval or authorization is required, by any governmental or regulatory
authority in connection with their execution, delivery, consummation or
performance of this Agreement or the transactions contemplated hereby.
Neither the Company or any "Ultimate Parent Entity" (as defined in 16
C.F.R. ' 801.1(a) (1988)) of the Company immediately prior to the
transactions contemplated hereunder is a person that has total assets or
annual net sales of $100,000,000 or more within the meaning of 15 U.S.C.
Section 18a.
2.7. Financial Statements. Exhibit 2.7 contains the Company's audited
statement of financial position as of December 31, 1996 and audited
statement of income and retained earnings for the fiscal year then ended.
Exhibit 2.7 also contains the Company's compiled statements of financial
position as of December 31 for each of the years 1994 and 1995 and compiled
statements of income and retained earnings for the fiscal years then ended.
Each of the statements set forth in Exhibit 2.7 were prepared by Janz &
Knight, PLC. All such statements of financial position and the notes
thereto are complete and accurate and fairly present the financial position
of the Company as of the respective dates thereof, and such statements of
income and retained earnings and the notes thereto fairly present the
results of operations for the periods therein referred to, all in
accordance with generally accepted accounting principles consistently
applied throughout the periods indicated (except as stated therein or in
the notes thereto). The statement of financial position as of December 31,
1996 and the notes thereto are referred to as the "Balance Sheet". December
31, 1996 is referred to as the "Financial Statement Date."
2.8. No Undisclosed Liabilities, Claims, etc. Except for (a)
liabilities fully reflected or reserved against in the Balance Sheet; and
(b) regular and usual liabilities and obligations incurred in the ordinary
course of business consistent with past practices after the Financial
Statement Date, the Company has no liabilities, obligations or claims
(absolute, accrued, fixed or contingent, matured or unmatured, or
otherwise), including liabilities, obligations or claims which may become
known or which arise only after the Closing and which result from actions,
omissions or occurrences of the Company prior to the Closing.
2.9. Absence of Certain Changes. Since the Financial Statement Date,
there has not been (a) any adverse change in the business, prospects,
financial condition, earnings or operations of the Company's business; (b)
any damage, destruction or loss, whether covered by insurance or not,
adversely affecting the Company's properties and business; (c) except for
distributions described in Exhibit 2.9, any declaration, setting aside or
payment of any dividend whether in cash, stock or property with respect to
the Company's capital stock, or any redemption or other acquisition of such
stock by the Company; (d) except as disclosed in Exhibit 2.21 any increase
in the compensation payable or to become payable by the Company to its
directors, officers, key employees, Affiliates or any of the Sellers or any
adoption of or increase in any bonus, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with any such party;
(e) any entry by the Company into any commitment or transaction, including,
without limitation, any borrowing or capital expenditure other than in
accordance with the schedule of capital expenditures (Exhibit 2.25); (f)
any change by the Company in accounting methods, practices or principles;
(g) any adoption of any statute, rule, regulation or order which adversely
affects the Company; (h) any termination or waiver of any rights of value
to the business of the Company; (i) any other transaction or event other
than in the ordinary course of the Company's business; (j) any transaction
or conduct inconsistent with the Company's past business practices; (k) any
adoption or amendment of any collective bargaining, bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, or
other plan, agreement, trust, fund or arrangement for the benefit of
employees; or (l) any agreement or understanding made or entered into to do
any of the foregoing.
<PAGE>
2.10. Contracts. Exhibit 2.10 contains a schedule of, and copies of,
all Contracts to which the Company is a party. The term "Contracts" shall
include, but shall not be limited to, all oral (which shall be summarized
in Exhibit 2.10) and written contracts, agreements, agency agreements, loan
agreements, mortgages, indentures, deeds of trust, guarantees, commitments,
joint venture agreements, purchase and/or sale agreements, collective
bargaining, union, consulting and/or employment contracts, leases of real
or personal property, easements, distribution or dealer agreements, service
agreements, license agreements and advertising agreements (except there
shall not be included agreements which do not exceed, in the case of any
one agreement, an obligation of $10,000, and in the case of all agreements,
an aggregate obligation of $20,000). The Company is not in default or
alleged to be in default under any Contract nor are Sellers aware of any
default by any other party to any Contract, and there exists no event,
condition or occurrence which, after notice or lapse of time, or both,
would constitute a default under any Contract. All of the Contracts are in
full force and effect and constitute legal, valid and binding obligations
of the parties thereto in accordance with their terms, and will remain in
full force and effect after the Closing without any notice to or consent by
any other party.
2.11. True and Complete Copies. Copies of all agreements, contracts
and documents delivered and to be delivered hereunder by Sellers or the
Company are and will be true and complete copies of such agreements,
contracts and documents. All written summaries of oral agreements will be
true and complete.
2.12. Title and Related Matters. Except as set forth in Exhibit 2.12,
the Company has good and marketable title to all of the properties and
assets reflected in the Balance Sheet or acquired after the date thereof
(except properties sold or otherwise disposed of since the date thereof in
the ordinary course of business and consistent with past practices),
including, without limitation, the specific assets referred to in
paragraphs (a), (b) and (c) below, free and clear of all mortgages,
security interests, liens, pledges, claims, escrows, options, rights of
first refusal, indentures, easements, licenses, security agreements or
other agreements, arrangements, contracts, commitments, understandings,
obligations, charges or encumbrances of any kind or character, except as
reflected on the Balance Sheet. The Company owns or leases, directly or
indirectly, all of the assets and properties, and is a party to all
licenses and other agreements, presently used or necessary to carry on the
business or operations of the Company as presently conducted.
(a) Real Property.
(i) The Company has good and marketable title in fee simple to the
land, including buildings and improvements thereon, shown on the Balance
Sheet. All such land, buildings and improvements of the Company are owned
free and clear of all encumbrances, restrictions and charges of every kind
and character including, without limitation, any of the various types
listed above, except as set forth on Exhibit 2.12.
<PAGE>
(ii) The Company is not a tenant under any lease(s) of real property
used by the Company except as described on Exhibit 2.10. With respect to
the leased real property described on Exhibit 2.10 and except as set forth
on Exhibit 2.12: (A) all such leases are in full force and effect and
constitute valid and binding obligations of the respective parties thereto;
(B) there have not been and there currently are not any defaults thereunder
by any party thereto; (C) no event has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder entitling the lessor to
terminate the lease; and (D) the continuation, validity and effectiveness
of all such leases under the current rentals and other current terms
thereof will in no way be affected by the transactions contemplated by this
Agreement or, if any would be affected, Sellers shall use all necessary
means at their disposal to cause an appropriate consent to such
transactions to be delivered to Holdings prior to the Closing Date at no
cost or other adverse consequences to the Company ((A) through (D) are
hereinafter collectively referred to as "Lease Restrictions").
(iii) Except as shown on Exhibit 2.12, each parcel of real property,
building, structure and improvement owned, leased or otherwise utilized by
the Company (collectively the "Premises") conforms to all applicable Laws,
including zoning regulations, none of which will, upon the sale of the
Shares to Holdings, prohibit the use of such properties, buildings,
structures or improvements, for the purposes for which they are now
utilized. The Premises are of good quality construction throughout, are in
good condition and working order, are adequate for their intended purposes,
have no structural or other substantial deficiencies, and are free from
deferred maintenance.
(iv) The Company does not currently have, and in the past has not had,
any interest (as owner, tenant or otherwise) in any real property except as
disclosed on Exhibit 2.12.
(b) Personal Property. The Company has good and marketable title to
all the personal property and assets, tangible or intangible, shown on the
Balance Sheet, except to the extent sold or disposed of in transactions
entered into in the ordinary course of business consistent with past
practices since the Financial Statement Date. The personal property in the
aggregate is in good condition and working order, and each individual item
of personal property which would cost in excess of $10,000 to replace is in
good condition and working order. None of such assets are subject to any
(i) contracts of sale or lease, except contracts for the sale of inventory
in the ordinary and regular course of business; or (ii) security interests,
encumbrances, liens or charges of any kind or character, except as set
forth in Exhibit 2.12. Except as set forth in Exhibit 2.12, there are no
Lease Restrictions with respect to the personal property leased by the
Company.
<PAGE>
(c) Inventories. In addition to subsection (b) of this Section, the
inventories of the Company included on the Balance Sheet, to be included on
interim balance sheets provided pursuant to Section 4.8 and owned by the
Company on the Closing Date: (i) are valued with respect to each category
of inventory at the lower of cost (on a FIFO basis) or market; and (ii) do
not include any items which are below standard quality, damaged or spoiled,
obsolete or of a quality or quantity not usable or salable in the normal
course of the business of the Company as currently conducted within normal
inventory "turn" experience, the value of which has not been fully written
down, or with respect to which adequate reserves have not been provided.
The Company has the proper amount of inventories to conduct its business
consistent with past practices. There has not been since the Financial
Statement Date any provision for markdowns or shrinkage with respect to
inventories other than in the ordinary and regular course of business
consistent with past practices or as otherwise consented to by Holdings.
(d) No Disposition of Assets. There has not been since the Financial
Statement Date any sale, lease or any other disposition or distribution by
the Company of any of its assets or properties and any other assets now or
hereafter owned by it, except transactions in the ordinary and regular
course of business consistent with past practices or as otherwise consented
to by Holdings.
2.13. Litigation. Except as set forth in Exhibit 2.13, there is no
suit, action, investigation or proceeding pending or, to the knowledge of
the Sellers, threatened against the Company or any of Sellers which, if
adversely determined, would adversely affect the business, prospects,
operations, earnings, properties or the condition, financial or otherwise,
of the Company, nor is there any judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against the Company having, or
which, insofar as can be reasonably foreseen, in the future may have, any
such effect.
2.14. Tax Matters. The term "Taxes" means all net income, capital
gains, gross income, gross receipts, sales, use, transfer, ad valorem,
franchise, profits, license, capital, withholding, payroll, employment,
excise, goods and services, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees or
assessments, or other governmental charges of any kind whatsoever, together
with any interest, fines and any penalties, additions to tax or additional
amounts incurred or accrued under applicable Law or assessed, charged or
imposed by any governmental authority, domestic or foreign, provided that
any interest, penalties, additions to tax or additional amounts that relate
to Taxes for any taxable period (including any portion of any taxable
period ending on or before the Closing Date) shall be deemed to be Taxes
for such period, regardless of when such items are incurred, accrued,
assessed or imposed. For the purposes of this Section 2.14 and Section 6.4,
the Company shall be deemed to include any predecessor of the Company or
any person or entity from which the Company incurs a liability for Taxes as
a result of any transferee liability.
Except as stated in Exhibit 2.14.1:
(a) The Company has duly and timely filed (and prior to the Closing
Date will duly and timely file) true, correct and complete tax returns,
reports or estimates, all prepared in accordance with applicable Laws, for
all years and periods (and portions thereof) and for all applicable
jurisdictions (whether federal, state, local or foreign) in which any such
returns, reports or estimates were due. All Taxes shown as due and payable
on such returns, reports and estimates have been paid, and there is no
current liability for any Taxes due and payable in connection with any such
returns. All Taxes which have accrued but are not yet due and payable have
been fully accrued on the books of the Company and adequate reserves have
been established therefor; the charges, accruals and reserves for Taxes
provided for on the financial statements delivered or to be delivered
pursuant to Section 2.7 and Section 4.8 are adequate; and there are no
unpaid assessments for additional Taxes for any period nor is there any
basis therefor. Attached hereto as Exhibit 2.14.2 are copies of all
federal, state and foreign tax returns filed by the Company for the past
five (5) years.
<PAGE>
(b) The Company is not, and never has been, a member of any
consolidated, combined or unitary group for federal, state, local or
foreign tax purposes. The Company is not a party to any joint venture,
partnership or other arrangement that could be treated as a partnership for
federal income tax purposes.
(c) The Company has (i) withheld all required amounts from its
employees, agents, contractors and nonresidents and remitted such amounts
to the proper agencies; (ii) paid all employer contributions and premiums
and (iii) filed all applicable federal, state, local and foreign returns
and reports with respect to employee income tax withholding, and social
security and unemployment taxes and premiums, all in compliance with the
withholding tax provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), as in effect for the applicable year or any prior provision
thereof and other applicable Laws.
(d) The federal income tax returns of the Company have been examined
by the Internal Revenue Service (the "IRS"), or have been closed by the
applicable statute of limitations, for all periods through December 31,
1996; the applicable state tax returns of the Company have been examined by
the relevant state agencies or such returns have been closed by the
applicable statute of limitations for all periods through December 31,
1996; no deficiencies or reassessments for any Taxes have been proposed,
asserted or assessed in writing against the Company by any federal, state,
local or foreign taxing authority. Exhibit 2.14.1 describes the status of
any federal, state, local or foreign tax audits or other administrative
proceedings, or court proceedings that are presently pending with regard to
any Taxes or tax returns of the Company (including a description of all
issues raised by the taxing authorities in connection with any such audits
or proceedings), and no additional issues are being asserted against the
Company in connection with any existing audits or proceedings.
(e) The Company has not executed or filed any agreement or other
document extending the period for assessment, reassessment or collection of
any Taxes, and no power of attorney granted by the Company with respect to
any Taxes is currently in force.
(f) The Company has not entered into any closing or other agreement
with any taxing authority which affects any taxable year of the Company
ending after the Closing Date. The Company is not a party to any tax
sharing agreement or similar arrangement for the sharing of tax liabilities
or benefits.
(g) The Company has not agreed to and is not required to make any
adjustment by reason of a change in accounting methods that affects any
taxable year ending after the Closing Date. The IRS has not proposed to the
Company in writing any such adjustment or change in accounting methods that
affects any taxable year ending after the Closing Date. The Company has no
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to its business or operations and
that affects any taxable year ending after the Closing Date.
(h) The Company has not consented to the application of
Code Section 341(f).
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company that, individually or
collectively, would give rise to the payment by the Company of any amount
that would not be deductible by reason of Code Section 280G.
<PAGE>
(j) No asset of the Company is tax exempt use property under Code
Section 168(h). No portion of the cost of any asset of the Company has been
financed directly or indirectly from the proceeds of any tax exempt state
or local government obligation described in Code Section 103(a).
(k) None of the assets of the Company is property that the Company is
required to treat as being owned by any other person pursuant to the safe
harbor lease provision of former Code Section 168(f)(8).
(l) The Company does not have and has not had a permanent
establishment in any foreign country and does not and has not engaged in a
trade or business in any foreign country. Neither the Sellers nor the
Company is a foreign person within the meaning of Code Section 1445.
(m) Neither Holdings nor the Company will be liable for any applicable
federal, state, local, foreign and other sales, use, documentary,
recording, stamp, transfer or similar Taxes applicable to, imposed upon or
arising out of the transfer of the Shares to Holdings and the transactions
contemplated by this Agreement.
2.15. Government Contracts. No Contract or other aspect of the
business of the Company is subject to the Armed Services Procurement
Regulations or other regulations of any governmental agency. The Company
has not bid on or been awarded any "small business set aside contract", any
other "set aside contract" or other order or contract requiring small
business or other special status at any time during the last three years.
None of the Company's expected sales or orders will be lost, and the
Company's customer relations will not be damaged, as a result of the
Company's continuing the operations of an entity that does not qualify as a
small business.
2.16. Compliance with Law.
(a) The Company has not previously failed and is not currently failing
to comply with any applicable Laws relating to the business of the Company
or the operation of its assets where such failure or failures would
individually or in the aggregate have an adverse effect on the financial
condition, business, operations or prospects of the Company. In particular,
but without limiting the generality of the foregoing, the Company is in
compliance with all applicable Laws relating to anti-competitive practices,
price fixing, health and safety, environmental, employment and
discrimination matters. There are no proceedings of record and no
proceedings are pending or threatened, nor has the Company or any of the
Sellers received any written notice regarding any violation of any Law,
including, without limitation, any requirement of OSHA or any pollution or
environmental control agency (including air and water).
<PAGE>
(b) Exhibit 2.16 contains copies of all reports of inspections by
representatives of any federal, state or local governmental entity or
agency of the business and properties of the Company from January 1, 1994
through the date hereof under OSHA and under all other applicable health
and safety Laws. The deficiencies, if any, noted on such reports or any
deficiencies noted by such inspections through the Closing Date shall be
corrected by the Closing Date. Neither the Company or any of the Sellers
know or have reason to know of any other safety, health, environmental,
anti-competitive or discrimination problems relating to the financial
condition, business, assets, operations, prospects, earnings or employment
practices of the Company.
2.17. Absence of Certain Business Practices. None of the Sellers, any
person or entity related to or affiliated with any of the Sellers, any
officer, employee or agent of the Company or any of the Sellers, any other
person or entity acting on behalf of or associated with the Company or any
of the Sellers, nor any other entity directly or indirectly owned or
controlled by any of the Sellers or the Company, acting alone or together,
has (a) received, directly or indirectly, any rebates, payments,
commissions, promotional allowances or any other economic benefit,
regardless of its nature or type, from any customer, supplier, trading
company, shipping company, governmental employee or other entity or
individual with whom the Company has done business directly or indirectly;
or (b) directly or indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, trading company, shipping company,
governmental employee or other person or entity who is or may be in a
position to help or hinder the business of the Company (or assist the
Company in connection with any actual or proposed transaction) which (i)
might subject the Company to any damage or penalty in any civil, criminal
or governmental litigation or proceeding, (ii) if not given in the past,
might have had an adverse effect on the assets, business or operations of
the Company as reflected in the financial statements set forth as Exhibit
2.7 or (iii), if not continued in the future, might adversely affect the
assets, business, operations or prospects of the Company or which might
subject the Company to suit or penalty in any private or governmental
litigation or proceeding.
2.18. ERISA and Related Employee Benefit Matters.
(a) Welfare Benefit Plans. Exhibit 2.18.1 lists each "employee welfare
benefit plan" (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974 ("ERISA")) maintained by the Company
or to which the Company contributes or is required to contribute, including
any multiemployer plan ("Welfare Benefit Plan") and sets forth as of the
most recent valuation date (i) the amount of any liability of the Company
for payments due with respect to any Welfare Benefit Plan, (ii) the amount
of any payment made and to be made, stated separately, by the Company with
respect to any Welfare Benefit Plan for the plan year during which the
Closing is to occur, and (iii) with respect to any Welfare Benefit Plan to
which Section 505 of the Code applies, a statement of assets and
liabilities for such Welfare Benefit Plan as of the most recent valuation
date. Without limiting the foregoing, Exhibit 2.18.1 discloses any
obligations of the Company to provide retiree health benefits to current or
former employees of the Company.
<PAGE>
(b) Pension Benefit Plans. Exhibit 2.18.2 lists each "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) maintained by
the Company or to which the Company contributes or is required to
contribute, including any multiemployer plan ("Pension Benefit Plan"). All
costs of the Pension Benefit Plans have been provided for on the basis of
consistent methods and, if applicable, in accordance with sound actuarial
assumptions and practices that are acceptable under ERISA. With respect to
each Pension Benefit Plan that is subject to Title I, Part 3 of ERISA
(concerning "funding"), Exhibit 2.18.2 sets forth as of the valuation date
(i) the unfunded liability for all accrued benefits, (ii) the funding
method, (iii) the actuarially computed value of vested benefits, (iv) the
fair market value of the assets held for funding purposes, (v) the amount
and plan year of any "accumulated funding deficiency," as defined in
Section 302(a)(2) of ERISA (arising for any reason whatever) that exists
with respect to any plan year, and (vi) the amount of any contribution by
the Company paid and to be paid, stated separately, for the plan year
during which the Closing is to occur. With respect to each Pension Benefit
Plan that is not subject to Title I, Part 3 of ERISA, Exhibit 2.18.2 sets
forth as of the valuation date (i) the amount of any liability of the
Company for any contributions due with respect to such Pension Benefit Plan
and (ii) the amount of any contribution paid and to be paid, stated
separately, by the Company with respect to such Pension Benefit Plan for
the plan year during which the Closing is to occur.
(c) Compliance with Applicable Law. Each of the Pension Benefit Plans,
Welfare Benefit Plans, any related trust agreements, annuity contracts, and
other funding instruments, comply with the provisions of ERISA and the Code
and all other statutes, orders, governmental rules and regulations
applicable to such Welfare Benefit Plans and Pension Benefit Plans. The
Company has performed all of its obligations currently required to have
been performed under all Welfare Benefit Plans and Pension Benefit Plans.
There are no actions, suits or claims (other than routine claims for
benefits) pending or threatened against or with respect to any Welfare
Benefit Plans, Pension Benefit Plans or the assets of such plans, and no
facts exist that could give rise to any actions, suits or claims (other
than routine claims for benefits) against such plans or the assets of such
plans. Each Pension Benefit Plan is qualified in form and operation under
Section 401(a) of the Code, the Internal Revenue Service has issued a
favorable determination letter with respect to each Pension Benefit Plan,
and no event has occurred that will or could give rise to a
disqualification of any Pension Benefit Plan under Code section 401(a). No
event has occurred that will or could subject any Welfare Benefit Plan or
Pension Benefit Plan to tax under Section 511 of the Code.
(d) Administration of Plans. Each Welfare Benefit Plan and each
Pension Benefit Plan has been administered to date in compliance with the
requirements of ERISA and the Code. No plan fiduciary of any Welfare
Benefit Plan or Pension Benefit Plan has engaged in (i) any transaction in
violation of Section 406(a) or (b) of ERISA, or (ii) any "prohibited
transaction" (within the meaning of Section 4975(c)(1) of the Code) for
which no exemption exists under Section 408 of ERISA or Section 4975(d) of
the Code.
<PAGE>
(e) Title IV Plans. With respect to each Pension Benefit Plan which is
subject to the provisions of Title IV of ERISA in which the Company (for
purposes of this subsection the Company shall include each trade or
business, whether or not incorporated, which is a member of a group of
which the Company is a member and which is under common control within the
meaning of Section 414 of the Code and the regulations thereunder)
participates or has participated, (i) the Company has not withdrawn from
such Pension Benefit Plan during a plan year in which it was a "substantial
employer" (as defined in Section 4001(a) (2) of ERISA), (ii) the Company
has not completely or partially withdrawn from a Pension Benefit Plan that
is a multiemployer plan, and the liability to which the Company would
become subject under ERISA if the Company were to withdraw completely from
all multiemployer plans in which it currently participates is not in excess
of $5,000 as of the most recent valuation date applicable thereto, (iii)
the Company has not filed a notice of intent to terminate any such Pension
Benefit Plan or adopted any amendment to treat such Pension Benefit Plan as
terminated, (iv) the Pension Benefit Guaranty Corporation has not
instituted proceedings to terminate any such Pension Benefit Plan, (v) no
other event or condition has occurred that might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
Trustee to administer, any such Pension Benefit Plan, (vi) all required
premium payments to the Pension Benefit Guaranty Corporation have been paid
when due, and (vii) no "reportable event" (as described in Section 4043 of
ERISA and the regulations thereunder) has occurred with respect to said
Pension Benefit Plan.
(f) Other Employee Benefit Plans and Agreements. Exhibit 2.18.3 lists
each fringe benefit, profit sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement, welfare,
or other incentive plan or agreement, employment agreement not terminable
on 30 days or less written notice, and any other employee benefit plan,
agreement, arrangement, or commitment not previously listed on the Exhibits
to this Section that is maintained by the Company or to which the Company
contributes or is required to contribute. Exhibit 2.18.3 also contains a
complete list of all employees of the Company and the amount of vacation
pay currently accrued to each such employee.
(g) Copies of Plans. Exhibit 2.18.4 includes true and complete copies
of: each Welfare Benefit Plan; each Pension Benefit Plan; related trust
agreements, annuity contracts and other funding instruments; each plan,
agreement, arrangement, and commitment referred to in subsection (f) of
this Section; favorable determination letters; annual reports (Form 5500
series) required to be filed with any governmental agency for each Welfare
Benefit Plan, Pension Benefit Plan, and fringe benefit plan for the three
most recent plan years, including, without limitation, all schedules
thereto and all financial statements with attached opinions of independent
accountants; current summary plan descriptions; and actuarial reports as of
the last valuation date for each Pension Benefit Plan that is subject to
Title IV of ERISA.
(h) Continuation Coverage Requirements for Health Plans. All group
health plans of the Company (including any plans of affiliates of the
Company that must be taken into account under Section 4980B of the Code)
have been operated in compliance with the group health plan continuation
coverage requirements of Section 4980B of the Code and Title I, Part 6 of
ERISA.
(i) Valid Obligations. All Welfare Benefit Plans, Pension Benefit
Plans, related trust agreements, annuity contracts or other funding
instruments, and all plans, agreements, arrangements and commitments
referred to in subsection (f) of this Section are legal, valid and binding
and in full force and effect, and there are no defaults thereunder. Except
as specified in Exhibit 2.18.5, none of the rights of the Company
thereunder will be impaired by the consummation of the transactions
contemplated by this Agreement, and all of the rights of the Company
thereunder will be enforceable by Holdings at and after the Closing without
the consent or agreement of any other party other than consents and
agreements specifically listed in Exhibit 2.18.5.
<PAGE>
2.19. Intellectual Property. The Company has good and marketable title
to, and Exhibit 2.19 contains a detailed listing of, each copyright,
trademark, trade name, service mark, trade dress, patent, franchise, trade
secret, product designation, formula, process, know-how, right of
publicity, design and other similar rights (collectively "Intellectual
Property Rights") used in, or necessary for, the operation of its business
as currently conducted. Except as otherwise set forth on Exhibit 2.19, all
of said Intellectual Property Rights are free and clear of all royalty
obligations, security interests, liens and encumbrances. The Company has
the exclusive right to use all Intellectual Property Rights used in, or
necessary for, the operation of its business as currently conducted. The
Sellers have taken all action necessary to protect against and defend
against, and have no knowledge of, any conflicting use of any such
Intellectual Property Rights. The Company does not have nor does the
Company utilize any Intellectual Property Rights except those which are set
forth in Exhibit 2.19. Except as set forth in Exhibit 2.19, the Company is
not a party in any capacity to any franchise, license, royalty or other
agreement respecting or restricting any Intellectual Property Rights, and
the Intellectual Property Rights used by the Company in the conduct of its
business do not conflict with the Intellectual Property Rights of any third
party. No product made, sold or distributed by the Company, or service
provided by the Company, violates any license or infringes any Intellectual
Property Rights of any third party, and there are no pending claims or
demands by any third party to the contrary.
2.20. Warranties. Except as set forth in Exhibit 2.20, there are no
claims existing or threatened under or pursuant to any warranty, whether
expressed or implied, on products or services sold by the Company and the
Balance Sheet reserves, if any, for anticipated claims are adequate to
cover any such claims. Exhibit 2.20 includes a copy of the form of all
written warranties furnished by the Company to purchasers of any product
since January 1, 1994.
2.21. Labor Relations. Except as set forth in Exhibit 2.21, there have
been no strikes, work stoppages or any demands for collective bargaining by
any union or labor organization since January 1, 1994; there is no
collective bargaining relationship between the Company and any union; there
is no dispute or controversy with any union or other organization of the
Company's employees and there are no arbitration proceedings pending or
threatened involving a dispute or controversy. The Company is in full
compliance with all Laws respecting employment and employment practices,
terms and conditions of employment and wages and hours including, without
limitation, the Fair Labor Standards Act, the Family and Medical Leave Act
of 1993, the Americans with Disabilities Act of 1990, the Veterans
Reemployment Rights Act, the Equal Employment Opportunities Act, as amended
by the Civil Rights Act of 1991, the Occupational Safety and Health Act,
the Employee Retirement Income Security Act of 1974, the Immigration Reform
and Control Act of 1986, the Age Discrimination in Employment Act, Title
VII of the Civil Rights Act of 1964, the Older Workers Benefit Protection
Act, and all other Laws, each as amended to date, relating to
employer/employee rights and obligations. The Company currently has
satisfactory relationships with its employees. Except as disclosed in
Exhibit 2.21 and since January 1, 1994, no non-officer employees of the
Company and no officers of Seller have resigned, advised the Company of an
intention to resign from such employment or refused to continue employment
with the Company. Exhibit 2.21 lists each former employee and/or officer of
the Company whose aggregate annualized compensation exceeded $50,000 and
whose employment by the Company has ceased for any reasons since January 1,
1994. Set forth opposite the name of each such employee and/or officer are:
the positions held; the beginning and ending employment dates; and the
reason for the cessation of employment.
<PAGE>
2.22. Insurance. Exhibit 2.22 lists and includes copies of all
certificates of coverage regarding all of the Company's existing insurance
policies, the premiums therefor and the coverage of each policy. Such
policies and the amount of coverage and the risks insured are, in the
aggregate, sufficient to protect and insure the Company against perils
which good business practice demands be insured against or which are
normally insured against by other industry members similarly situated, and
will remain in full force and effect after the Closing.
2.23. Products Liability. Except as described in Exhibit 2.13, there
exist no claims, whether known or unknown, against the Company for injury
to person or property of its employees or any third parties suffered as a
result of the sale of any product or performance of any service by the
Company, including, but not limited to, claims arising out of the defective
or unsafe nature of its products or services. The Company has full and
adequate insurance coverage for potential products liability claims against
it. The products liability and personal injury insurance maintained by the
Company has been on an "occurrence" basis during the six (6) year period
prior to the Closing Date.
2.24. Environmental.
(a) For purposes of this Section:
(1) "Hazardous Materials" means any hazardous, infectious or toxic
substance, chemical, pollutant, contaminant, emission or waste which is or
becomes regulated by any local, state, federal or foreign authority.
Hazardous Materials include, without limitation, anything which is: (i)
defined as a "pollutant" pursuant to 33 U.S.C. Section 1362(6); (ii)
defined as a "hazardous waste" pursuant to 42 U.S.C. Section 6921; (iii)
defined as a "regulated substance" pursuant to 42 U.S.C. Section 6991; (iv)
defined as a "hazardous substance" pursuant to 42 U.S.C. Section 9601(14);
(v) defined as a "pollutant or contaminant" pursuant to 42 U.S.C. Section
9601(33); (vi) petroleum; (vii) asbestos; and (viii) polychlorinated
biphenyl.
(2) "Environmental Laws and Regulations" means all limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any Laws relating to
pollution, nuisance, or the environment including, without limitation, (i)
the Federal Clean Air Act, 42 U.S.C. Sections 7401 et seq.; (ii) the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Sections 9601 et seq.; (iii) the Federal Emergency Planning and
Community Right-to- Know Act, 42 U.S.C. Sections 1101 et seq.; (iv) the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136
et seq.; (v) the Federal Water Pollution Control Act, 33 U.S.C. Sections
1251 et seq.; (vi) the Solid Waste Disposal Act, 42 U.S.C. Sections 6901 et
seq.; (vii) the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et
seq.; (viii) Laws relating in whole or part to emissions, discharges,
releases, or threatened releases of any Hazardous Material; and (ix) Laws
relating in whole or part to the manufacture, processing, distribution,
use, coverage, disposal, transportation, storage or handling of any
Hazardous Material.
(b) The operations and activities of the Company comply, and have in
the past complied, in all respects, with all Environmental Laws and
Regulations. There are no pending or currently proposed changes to any
Environmental Laws and Regulations which, when implemented or effective,
may affect the operations of the Company.
<PAGE>
(c) The Company has obtained and is and has been in full compliance
with all requirements, permits, licenses and other authorizations which are
required with respect to the Company's operations, as well as the
transactions contemplated hereby under all Environmental Laws and
Regulations. Exhibit 2.24 lists each such permit, license or other
authorization. There are no other such permits, licenses or other
authorizations which are required by any Environmental Laws and Regulations
to be obtained after the Closing.
(d) There is no civil, criminal, administrative or other action, suit,
demand, claim, hearing, notice of violation, proceeding, investigation,
notice or demand pending, received, or, to the best knowledge of the
Company, threatened against the Company relating in any way to any
Environmental Laws and Regulations.
(e) The Company has not caused or experienced any past or present
events, conditions, circumstances, plans or other matters which: (i) are
not in compliance with all Environmental Laws and Regulations; (ii) may
give rise to any statutory, common law, or other legal liability, or
otherwise form the basis of any claim, action, demand, suit, proceeding,
hearing, notice of violation or investigation based on or relating to
Hazardous Materials including, without limitation, such matters relating to
any property owned, leased or utilized by the Company at any time; (iii)
arise from inventory of or waste from Hazardous Materials; or (iv) arise
from any off-site or on-site disposal, release or threatened release of
Hazardous Materials.
(f) No asbestos, polychlorinated biphenyls, lead-based paints, or
radon are on any real property or in any building now or previously owned,
operated, leased or utilized by the Company.
(g)No employee or former employee of the Company has been exposed to
any Hazardous Material owned, produced or utilized by the Company or any
former subsidiary.
(h) The Company has not received any notice or indication from any
governmental agency or private or public entity advising it that it is or
may be responsible for any investigation or response costs with respect to
a release, threatened release or cleanup of chemicals or materials produced
by or resulting from any business, commercial or industrial activities,
operations or processes, including, without limitation, any Hazardous
Materials. The Company is not aware of any facts which might give rise to
such notices.
(i) No underground tanks, piping or subsurface structures of any type
exist or have existed on any real property now or previously owned,
operated, leased or utilized by the Company.
(j) Exhibit 2.24 contains complete copies of all environmental
investigations, assessments, audits, studies, tests and related materials
in possession of the Company, or known to the Company to exist, which
relate to the current or prior operations of the Company or any real
property now or previously owned, operated, leased or utilized by the
Company.
<PAGE>
2.25. Capital Expenditures. The Company has outstanding commitments
for capital expenditures as set forth in Exhibit 2.25, which includes a
schedule of substantially all monies disbursed on account of capital
expenditures made by the Company between the Financial Statement Date and
the date hereof. After the date hereof, no capital expenditures or
commitments in excess of [$10,000] in the aggregate will be made by the
Company, except as set forth in Exhibit 2.25 or with Holdings' prior
written consent.
2.26. Suppliers. No suppliers of goods or services to the Company that
has made sales or provided services representing, individually or in the
aggregate, more than [$10,000] in payments or commitments by the Company
within the last 12 months has (i) ceased, or indicated any intention to
cease, doing business with the Company, or (ii) changed or indicated any
intention to change any terms or conditions for future supply or sale of
products or services from the terms or conditions that existed with respect
to the supply or sale of such products or services during the 12 month
period ending on the date hereof.
2.27. Dealings with Affiliates. Exhibit 2.27 sets forth a complete
list (including the parties) and copies (or a detailed summary in the case
of an oral agreement) of all oral or written contracts, arrangements or
other agreements to which the Company or any Affiliate is, will be or has
been a party at any time from January 1, 1994, to the Closing Date, and to
which any other Affiliate or the Company was or is also a party.
2.28. Business Generally. Since January 1, 1994, there have been no
events, transactions or information which have come to the attention of
Sellers (other than matters in the public domain) which could be expected
to have an adverse effect on the business and operations of the Company,
and the Company is not a party to any agreement, contract or covenant
limiting the Company from competing in any line of business or with any
person or other entity in any geographic area.
2.29. Bank Accounts. Exhibit 2.29 is a list of all bank accounts, lock
boxes, post office boxes and safe deposit boxes maintained in the name of
or controlled by the Company and the names of the persons having access
thereto.
2.30. Compensation. Exhibit 2.30 lists the current job title and total
remuneration (including, without limitation, salary, commissions and
bonuses) for each of Sellers and for each officer, director, employee or
consultant of the Company who received total remuneration in excess of
[$50,000] from the Company during any of the past three fiscal years or who
is expected to receive total remuneration in excess of such amount during
the current fiscal year. Except as disclosed on Exhibit 2.30, the Company
has not since the Financial Statement Date and will not prior to the
Closing Date increase or commit to increase the base compensation,
commission, bonus or the rate (or any other component) of total
compensation payable or to become payable by the Company to any employee
(including any director or officer), whether such person is listed on
Exhibit 2.30 or not, and no extraordinary compensation or bonus will be
paid by the Company.
2.31. Disclosure. No representation or warranty made by Sellers in
this Agreement or in any agreement, instrument, document, certificate,
statement or letter furnished to Holdings, by or on behalf of Sellers in
connection with any of the transactions contemplated by this Agreement
contains any untrue statement of fact or omits to state a fact necessary in
order to make the statements herein or therein not misleading in light of
the circumstances in which they are made.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOLDINGS
Holdings hereby represents and warrants to the Sellers, as follows:
3.1. Corporate Organization, etc. Holdings is a corporation duly
organized, validly existing and in good standing under the laws of the
state of Delaware and will be qualified to do business in Michigan on the
Closing Date.
3.2. Capitalization. As of the date of this Agreement, Holdings has
authorized capital stock consisting of 10,000 shares of Common Stock, par
value $1.00 per share.
3.3. Authorization, etc. Holdings has full corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of Holdings has duly authorized
the execution and delivery of this Agreement and the transactions
contemplated hereby, and no other corporate proceedings on its part are
necessary to authorize this Agreement and the transactions contemplated
hereby.
3.4. No Violation. Holdings is not subject to or obligated under any
certificate of incorporation, bylaw, Law, or any agreement or instrument,
or any license, franchise or permit, which would be breached or violated by
its execution, delivery or performance of this Agreement. Holdings will
comply with all Laws in connection with its execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
3.5. Governmental Authorities. Holdings is not required to submit any
notice, report or other filing with and no consent, approval or
authorization is required by any governmental or regulatory authority in
connection with Holdings' execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE IV
COVENANTS OF THE SELLERS
Except as otherwise consented to or approved by Holdings in writing,
until the Closing, the Sellers jointly and severally covenant and agree
(and will cause the Company to act or refrain from acting where required
hereinafter) as follows:
<PAGE>
4.1. Regular Course of Business. The Company will operate its business
in the ordinary course, diligently and in good faith, consistent with past
management practices; will maintain all of its properties in customary
repair, order and condition, reasonable wear and tear excepted; will
maintain (except for expiration due to lapse of time) all leases and
contracts described herein in effect without change except as expressly
provided herein; will comply with the provisions of all Laws applicable to
the conduct of its business; will not engage in any significant or unusual
transaction; will not cancel, release, waive or compromise any debt, claim
or right in its favor having a value in excess of $5,000 other than in
connection with returns for credit or replacement in the ordinary course of
business; will maintain insurance coverage up to the Closing Date in
amounts adequate to protect and insure the Company against perils which
good business practice demands be insured against or which are normally
insured against by other industry members similarly situated.
4.2. Amendments. Except as required for the transactions contemplated
in this Agreement, no change or amendment shall be made in the Company's
articles or certificate of incorporation or bylaws. The Company will not
merge into or consolidate with any other corporation or person, or change
the character of its business.
4.3. Capital Changes. The Company will not (i) issue or sell any
shares of its capital stock of any class or issue or sell any securities
convertible into, or options, warrants to purchase or rights to subscribe
to, any shares of its capital stock of any class or (ii) directly or
indirectly, redeem, purchase or otherwise acquire any shares of its capital
stock.
4.4. Dividends; Bonuses. Except as described in Exhibit 2.9, the
Company will not declare, pay or set aside for payment any dividend or
other distribution in respect of its capital stock. The Company will not
pay, set aside, accrue, agree to or become liable in any manner for any
bonus, of any nature or type, to Sellers or to any employee or officer of
the Company.
4.5. Capital and Other Expenditures. The Company will not make any
capital expenditures, or commitments with respect thereto, except as set
forth in Exhibit 2.25. The Company will not prepay any debt or obligation
(except for prepaying trade accounts payable in the normal course of
business to take advantage of cash discounts).
4.6. Borrowing. The Company will not incur, assume or guarantee any
indebtedness or capital leases. The Company will not create or permit to
become effective any mortgage, pledge, lien, encumbrance or charge of any
kind upon its assets other than in the ordinary course of business.
4.7. Other Commitments. Except in the ordinary course of business
consistent with past practices, the Company will not enter into any
transaction, make any commitment or incur any obligation.
<PAGE>
4.8. Interim Financial Information. The Company will supply Holdings
with unaudited monthly financial statements within 20 business days of the
end of each month ending between the Financial Statement Date and the
Closing Date certified by its President and chief financial officer as
having been prepared in accordance with procedures employed by the Company
in preparing prior monthly financial statements. All such financial
statements shall be accompanied by a certificate of the Company's President
and chief financial officer certifying that such financial statements were
prepared on a basis consistent with the unaudited financial statements for
the preceding months and such unaudited statements include all adjustments
(all of which were normal recurring adjustments) necessary to fairly
present the financial position, results of operations and changes in
financial position at and for such period.
4.9. Full Access and Disclosure.
(a) The Company shall afford to Holdings and its counsel, accountants
and other authorized representatives reasonable access during business
hours to the Company's plants, properties, books and records in order that
Holdings may have full opportunity to make such reasonable investigations
as it shall desire to make of the affairs of the Company and the Company
will cause its officers and employees to furnish such additional financial
and operating data and other information as Holdings shall from time to
time reasonably request.
(b) From time to time prior to the Closing Date, the Company will
promptly supplement or amend in writing information previously delivered to
Holdings with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or disclosed.
4.10. Consents. The Company will use all reasonable means at its
disposal to obtain on or prior to the Closing Date all consents necessary
to the consummation of the transactions contemplated hereby.
4.11. Breach of Agreement. Neither Sellers nor the Company will take
any action which, if taken prior to the Closing Date, would constitute a
breach of this Agreement.
4.12. Further Assurances. The Company, Sellers and the Company's
counsel will furnish Holdings with such other and further documents,
certificates, opinions, consents and information as Holdings shall
reasonably request to enable Holdings to borrow funds from a bank or other
lending entity or individual(s) for the purchase of the Shares and to
evidence compliance with the terms and conditions of any credit agreement
to be entered into between Holdings or and a bank and/or other lending
entities or individuals.
4.13. Fulfillment of Conditions. Sellers and the Company will take all
commercially reasonable steps necessary or desirable, and proceed
diligently and in good faith, to satisfy each condition to the obligations
of Holdings contained in this Agreement and will not take or fail to take
any action that could reasonably be expected to result in the
nonfulfillment of any such condition.
<PAGE>
4.14. HSR Filing. Sellers and the Company will (a) take promptly all
actions necessary to make the filings required of Seller or its affiliates
under Section 7A of the Clayton Act (Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended), and the rules and
regulations promulgated thereunder (the "HSR Act"), (b) comply at the
earliest practicable date with any request for additional information
received by the Company, Sellers or its affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant
to the HSR Act and (c) cooperate with Holdings in connection with Holdings'
filing under the HSR Act and in connection with resolving any investigation
or other inquiry concerning the transactions contemplated by this Agreement
commenced by the Federal Trade Commission, the Antitrust Division of the
Department of Justice or any state attorney general.
ARTICLE V
COVENANTS OF HOLDINGS
Holdings hereby covenants and agrees with the Sellers that:
5.1. Confidentiality. Holdings will hold in strict confidence and not
disclose to any other party (other than its counsel and other advisors),
without all of the Sellers' prior consents, all information received by
Holdings from any of Sellers or the Company, any of the Company's officers,
directors, employees, agents, counsel or auditors in connection with the
transactions contemplated hereby, except as may be required by applicable
law or as otherwise contemplated herein.
5.2. Books and Records. Holdings shall preserve and keep the Company's
books and records delivered hereunder for a period of three years from the
date hereof and shall, during such period, make such books and records
available to former officers and directors of the Company and its
authorized agents for any reasonable purpose.
5.3. HSR Filing.Holdings will (a) take promptly all actions necessary
to make the filings required of Holdings under Section 7A of the HSR Act,
(b) comply at the earliest practicable date with any request for additional
information received by Holdings or its affiliates from the Federal Trade
Commission or the Antitrust Division of the Department of Justice pursuant
to the HSR Act and (c) cooperate with Sellers in connection with Sellers'
filing under the HSR Act and in connection with resolving any investigation
or other inquiry concerning the transactions contemplated by this Agreement
commenced by the Federal Trade Commission, the Antitrust Division of the
Department of Justice or any state attorney general.
5.4. Section 338 Election. Holdings and the Company shall not (i) make
any election under Code section 338, the Treasury Regulations promulgated
thereunder or any successor provision thereto, with respect to or otherwise
in connection with its purchase of Shares or (ii) take any position on any
tax return that is inconsistent with treating the purchase of Shares as a
stock acquisition for tax purposes.
<PAGE>
ARTICLE VI
OTHER AGREEMENTS
Holdings and the Sellers covenant and agree that:
6.1. Agreement to Defend. In the event any action, suit, proceeding or
investigation of the nature specified in Section 7.5 or Section 8.2 hereof
is commenced, whether before or after the Closing Date, all the parties
hereto agree to cooperate and use their best efforts to defend against and
respond thereto.
6.2. Consultants, Brokers and Finders. The Sellers and Holdings each
represent and warrant to the other that they have retained the following
consultants, brokers or finders in connection with the transactions
contemplated by this Agreement: Mesirow Financial retained by Sellers and
The Curtis Company retained by Holdings. The Sellers and Holdings each
hereby agree to indemnify, defend and hold the other party and its
officers, directors, employees and affiliates, harmless from and against
any and all claims, liabilities or expenses for any brokerage fees,
commissions or finders fees due to any consultant, broker or finder
retained by the indemnifying party.
6.3. Noncompetition Agreement. At the Closing, Holdings and Sellers
will enter into a Noncompetition Agreement in the form set forth in Exhibit
6.3 (collectively, the "Noncompetition Agreements").
6.4. Taxes.
(a) The Sellers shall be liable and indemnify Holdings and the Company
for all Taxes of the Company to the extent such Taxes are not adequately
provided for as current Taxes on the Company's Closing Balance Sheet (i)
for taxable periods ending on or before the Closing Date and (ii) for any
period not ending on or before the Closing Date, for the portion of any
Taxes attributable to the period ending on the Closing Date as set forth in
Section 6.4(b).
(b) All Taxes attributable to the operations of the Company for all
periods (or portions thereof) after the Closing Date shall be borne by the
Company. For any period that includes but does not end on the Closing Date,
(i) liability for any Taxes determined by reference to income, capital
gains, gross income, gross receipts, sales, net profits, windfall profits
or similar items or resulting from a transfer of assets shall be allocated
between the Sellers and the Company based on the date on which such items
accrued; and (ii) liability for all other Taxes shall be allocated between
the Sellers and the Company, pro rata based on the number of days in the
taxable period for which each party is liable for Taxes hereunder. With
respect to the Subchapter S Corporation tax year of the Company that ends
on the Closing Date, the tax liability of the Sellers for items described
in Code Section 1366(a) shall be determined as provided in Code Section
1362(e)(3) and an appropriate election shall be made thereunder. The
Sellers agree that the Sellers will not permit the Subchapter S Corporation
status of the Company to terminate prior to the Closing Date.
<PAGE>
(c) The Sellers shall cause the Company to prepare and file all tax
returns and reports of the Company due on or prior to the Closing Date,
which returns and reports shall be prepared and filed timely and on a basis
consistent with existing procedures for preparing such returns and reports
and in a manner consistent with prior practice with respect to the
treatment of specific items on the returns or reports; provided, however,
that if the treatment of any item on any such return or report has not been
provided by prior practice, the Sellers shall cause the Company to report
such items in a manner that would result in the least amount of aggregate
tax liability to the Company for all taxable periods ending before, on, or
after the Closing Date. Holdings shall cause the Company to prepare and
file all tax returns and reports of the Company due after the Closing Date,
which returns and reports, to the extent they relate to taxable periods
beginning prior to, but including the Closing Date, and for the purpose of
determining the Sellers' liability for taxes, shall be prepared and filed
timely and on a basis consistent with existing procedures for preparing
such returns and in a manner consistent with prior practice with respect to
the treatment of specific items on the returns and reports, unless such
treatment does not have sufficient legal support to avoid the imposition of
penalties. Holdings shall, or shall cause the Company to, submit such
returns to the Sellers for their review and comment no later than thirty
(30) business days prior to the due date for filing such returns. Upon
completion of its review of the returns, Sellers shall remit to the Company
the amounts payable under Section 6.4(a)(ii) hereof no later than three (3)
business days prior to the due date for filing such returns.
(d) Holdings, the Company and the Sellers shall provide each other
with such assistance as may reasonably be requested by the others in
connection with the preparation of any return or report of Taxes, any audit
or other examination by any taxing authority, or any judicial or
administrative proceedings relating to liabilities for Taxes. Holdings, the
Company and the Sellers will retain for the full period of any statute of
limitations and provide the others with any records or information which
may be relevant to such preparation, audit, examination, proceeding or
determination.
(e) If in connection with any examination, investigation, audit or
other proceeding in respect of any tax return covering the operations of
the Company on or before the Closing Date, any governmental body or
authority issues to the Company a written notice of deficiency, a notice of
reassessment, a proposed adjustment, an assertion of claim or demand
concerning the taxable period covered by such return, Holdings or the
Company shall notify the Sellers of its receipt of such communication from
the governmental body or authority within thirty (30) business days after
receiving such notice of deficiency, reassessment, adjustment or assertion
of claim or demand. No failure or delay of Holdings or the Company in the
performance of the foregoing shall reduce or otherwise affect the
obligations or liabilities of the Sellers pursuant to this Agreement,
except to the extent that such failure or delay shall have adversely
affected the Sellers' ability to defend against any liability or claim for
Taxes that the Sellers are obligated to pay hereunder. With respect to
returns for taxable periods ending after the Closing Date, but which
include the Closing Date, Sellers shall have the nonexclusive right to
participate in the contest of such assessment, proposal, claim,
reassessment, demand or other proceedings an the resolutions of any such
controversy shall be jointly agreed to between Sellers and the Company. The
Sellers shall, at his, her or its expense, have the sole and exclusive
right to control the contest of any such assessment, proposal, claim,
reassessment, demand or other proceedings in connection with any tax return
covering taxable periods of the Company ending on or before the Closing
Date. Holdings and the Company will not be obligated to settle or resolve
any issue related to Taxes for such a period, which, if so settled or
resolved, could have an effect on the Company or Holdings for periods after
the Closing Date, unless the Sellers agree in writing with Holdings and the
Company, in terms reasonably satisfactory to Holdings and the Company, to
indemnify Holdings and the Company from any cost, damage, loss or expense
relating to such settlement or resolution.
<PAGE>
(f) If there is an adjustment to any return or report of Taxes for the
Company which creates a deficiency in any Taxes for which the Sellers are
liable under the provisions of Section 6.4(b) hereof, the Sellers shall pay
to Holdings the amount of such deficiency in Taxes. No liability of the
Sellers under this Section 6.4(f) shall be payable until there is a
decision, judgment, decree, or other order issued by a court of competent
jurisdiction or government agency, which is final, the IRS or equivalent
administrative agency has entered into a binding agreement or rendered a
determination that is final or is otherwise acquiesced in by the Sellers
during the course of any audit or any proceeding relating to Taxes. All
payments required to be made by the Sellers pursuant to this Section 6.4(f)
shall be made within ten (10) business days of the occurrence of the event
described in the immediately preceding sentence.
(g) All federal, state, local, foreign and other transfer, sales, use
or similar Taxes applicable to, imposed upon or arising out of the transfer
of the Shares shall be paid by the Sellers.
(h) (i) If any Tax Adjustment is made to any tax return and if such
Tax Adjustment results in an increase in any liability for Taxes borne by
Sellers ("Sellers' Tax Detriment") and results in a Tax Benefit, as defined
below, to the Company or any Affiliate of the Company with respect to a
period or portion thereof ending after the Closing Date, such benefited
party shall remit to Sellers the amount of such Tax Benefit within three
(3) business days after the filing of the applicable tax return for the
period in which such Tax Benefit is realized. Any deduction, credit,
decrease in income or decrease in recapture of credit not resulting in an
actual Tax Benefit for the period to which it relates shall be carried
forward to succeeding taxable years until used
(ii) If any Tax Adjustment is made to any tax return and if such Tax
Adjustment results in an increase in any liability for Taxes borne by
the Company or any Affiliate of the Company ("Company Tax Detriment")
and results in a Tax Benefit to Sellers with respect to a period or
portion thereof ending on or prior to the closing Date, Sellers shall
remit to the Company the amount of such Tax Benefit within three (3)
business days after the filing of the applicable tax return for the
period in which such tax savings is realized. Any deduction, credit,
decrease in income or decrease in recapture of credit not resulting in
an actual Tax Benefit for the period to which it relates shall be
carried forward to succeeding taxable years until used.
(iii) For purposes of this Section 6.4(h), "Tax Adjustment" shall mean
any decision, judgment, decree or other order issued by a court of
competent jurisdiction or government agency, which is final, or the
IRS or equivalent administrative agency has entered into a binding
agreement or rendered a determination that is final or is otherwise
acquiesced in by the Sellers and the Company and Holdings.
<PAGE>
(iv) For purposes of this Section 6.4(h), "Tax Benefit" means the
decrease in any liability for Taxes resulting from (x) a decrease in
income or in recapture of credits or (y) an increase in deductions on
credits. The Tax Benefit shall be equal to the actual tax savings
produced by such deduction, credit, decrease in income or decrease in
recapture of credit and shall be deemed to be realized in the taxable
period for which such deduction, credit, decrease in income or
decrease in recapture of credit results in a reduction (and shall
equal the amount of such reduction) in the Taxes paid or results in an
increase in any refund of Taxes received including interest thereon)
(and shall equal the amount of such increase), for such period as
compared to the Taxes that would have been paid or the refund of Taxes
that would have been received for such period in the absence of such
deduction, credit, decrease in income or recapture of credit.
(i) The provisions of this Section 6.4 shall not be governed by the
limitations contained in Section 11.1 and to the extent of any
inconsistency between this Section 6.4 and Article XI, the provisions of
this Section 6.4 shall control.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF HOLDINGS
Each and every obligation of Holdings under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by Holdings:
7.1. Representations and Warranties; Performance. The representations
and warranties made by the Sellers herein shall be true and correct on the
date of this Agreement and on the Closing Date with the same effect as
though made on such date; the Sellers shall have performed and complied
with all agreements, covenants and conditions required by this Agreement to
be performed and complied with by them prior to the Closing Date; Sellers
shall have, and shall have caused the President and chief financial officer
of the Company to have delivered to Holdings a certificate, dated the
Closing Date, in the form designated Exhibit 7.1 hereto, certifying to such
matters and the other conditions contained in this Article VII.
7.2. Consents and Approvals. All consents from and filings with third
parties, regulators and governmental agencies required to consummate the
transactions contemplated hereby, or which, either individually or in the
aggregate, if not obtained, would cause an adverse effect on the Company's
financial condition or business shall have been obtained and delivered to
Holdings. Without limiting the above, the applicable waiting period under
the HSR Act shall have terminated or expired.
7.3. Opinion of Sellers' Counsel. Holdings shall have received an
opinion of Sellers' counsel, dated the Closing Date, substantially in the
form attached hereto as Exhibit 7.3.
<PAGE>
7.4. No Adverse Change. There shall have been no material adverse
change since the Financial Statement Date in the business, prospects,
financial condition, earnings or operations of the Company's business.
7.5. No Proceeding or Litigation. No action, suit or proceeding before
any court or any governmental or regulatory authority shall have been
commenced or threatened, and no investigation by any governmental or
regulatory authority shall have been commenced or threatened against any of
the Sellers, the Company, Holdings or any of their respective principals,
officers or directors seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the validity or legality of
any of such transactions or seeking damages in connection with any of such
transactions.
7.6. Comfort Letter and Solvency Certificate. Holdings shall have
received (a) a "comfort" letter from the Company's independent certified
public accountants, dated the Closing Date, based upon a limited review
(but not an audit) conducted no earlier than five (5) business days
preceding the Closing Date and (b) a "solvency" certificate from Sellers
and the Company's President and chief financial officer substantially in
the forms of Exhibits 7.6.1 and 7.6.2 hereto, respectively, which documents
shall relate to the operations and financial conditions of the Company and
the interim financial statements delivered pursuant to Section 4.8 hereof.
7.7. Financial Condition at Closing.
(a) Except for liabilities set forth in the Balance Sheet and accounts
payable incurred in the ordinary course of business of the Company
consistent with past practices, the Company shall not owe any debt at the
Closing Date other than Permitted Liabilities. The term "debt" includes
notes payable and the short-term and long-term portions of any and all debt
or obligations, including capitalized lease obligations.
(b) The Company's net sales for the fiscal year ending December 31,
1997 to be on schedule (run rate) to equal at least $15,000,000. The
Company's net sales for the fiscal year ended December 31, 1996, calculated
in accordance with GAAP, shall equal or exceed $14,624,000. The Company's
net sales for the fiscal year ended December 31, 1995, calculated in
accordance with GAAP, shall equal or exceed $13,196,000. The Company's net
sales for the fiscal year ended December 31, 1994, calculated in accordance
with GAAP, shall equal or exceed $11,318,000.
(c) The Company's net income before provision for interest, income
taxes, owners' bonuses and non-continuing expenses ("Adjusted EBIT") for
the fiscal year ending December 31, 1997 to be on schedule to equal at
least $3,801,000. The Company's Adjusted EBIT for the fiscal year ended
December 31, 1996 shall equal or exceed $3,683,000. The Company's Adjusted
EBIT for the fiscal year ended December 31, 1995 shall equal or exceed
$2,674,000. The Company's Adjusted EBIT for the fiscal year ended December
31, 1994 shall equal or exceed $3,223,000.
<PAGE>
(d) The mix and composition of the assets and liabilities of the
Company on the Closing Date will not be materially different than those
indicated on the Balance Sheet.
(e) At the Closing Date, the DFCE of the Company shall be no less than
$4,000,000 plus all earnings and profits of the Company for the period from
July 31, 1997, to the day preceding the Closing Date less $600,000.
(f) Except as set forth in Exhibit 2.9, since July 31, 1997, the
Company shall not have (i) paid any shareholder dividends or distributions,
(ii) repaid any debt in excess of the amount required to be repaid pursuant
to written contractual obligations or pursuant to Section 1.3 or (iii) paid
any bonuses or excessive compensation to any of the Sellers.
7.8. Retention of Key Personnel. None of Mike McGuire,
Jim Williams, Larry Brown or Orville Brown shall have terminated
their respective positions with the Company.
7.9. Certified Audit. Ernst & Young LLP shall conduct a
certified audit of the Company as at December 31, 1996 and July 31, 1997,
the results of which shall be satisfactory to Holdings in its sole and
absolute discretion.
7.10. Review. A full due diligence review of the Company's business
shall be completed by Holdings, its legal counsel, its outside consultants,
or others appointed by Holdings. Holdings shall be satisfied in its sole
and absolute discretion with the results of Holdings' due diligence review
of the Company and its business operations, prospects and assets. Holdings
shall bear the costs of this review.
7.11. Other Documents. Sellers will furnish or cause the Company to
furnish Holdings with such other and further documents and certificates of
its officers and others as Holdings shall reasonably request to evidence
compliance with the conditions set forth in this Agreement.
7.12. Other Agreements. The Agreements described in Article VI shall
have been entered into and delivered.
7.13. Estoppel Certificate. The Sellers shall have furnished Holdings
with an estoppel certificate in the form attached hereto as Exhibit 7.13,
which shall have been executed by the lessor under the lease described on
Exhibit 2.12.
7.14. Withholding Certificate. Holdings shall have received from each
of the Sellers an executed withholding certificate in the form attached
hereto as Exhibit 7.14.
<PAGE>
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
Each and every obligation of the Sellers under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by all of the Sellers:
8.1. Representations and Warranties; Performance. The representations
and warranties made by Holdings herein shall be true and correct on the
date of this Agreement and on the Closing Date with the same effect as
though made on such date; Holdings shall have performed and complied with
all agreements, covenants and conditions required by this Agreement to be
performed and complied with by it prior to the Closing Date; Holdings shall
have delivered to the Sellers a certificate of its President, dated the
Closing Date, certifying to the fulfillment of the conditions set forth
herein, in the form designated as Exhibit 8.1 and the other conditions
contained in this Article VIII.
8.2. No Proceeding or Litigation. No action, suit or proceeding before
any court or any governmental or regulatory authority shall have been
commenced, or threatened, and no investigation by any governmental or
regulatory authority shall have been commenced, or threatened, against the
Company, Holdings, any of the Sellers, or any of their respective
principals, officers or directors, seeking to restrain, prevent or change
the transactions contemplated hereby or questioning the validity or
legality of any of such transactions or seeking damages in connection with
any of such transactions.
8.3. Opinion of Counsel. The Sellers shall have received an opinion of
counsel to Holdings dated the Closing Date substantially in the form of
Exhibit 8.3.
8.4. Payment. The payment(s) described in Section 1.2
shall have been made.
8.5. Other Documents. Holdings will furnish the Sellers with such
other documents and certificates to evidence compliance with the conditions
set forth in this Article as may be reasonably requested by the Sellers.
8.6. Other Agreements. The agreements described in Article VI shall
have been entered into and delivered.
ARTICLE IX
CLOSING
9.1. Closing. Unless this Agreement shall have been terminated or
abandoned pursuant to the provisions of Article X hereof, a closing (the
"Closing") shall be held on October 15, 1997, or on such other date (the
"Closing Date") mutually agreed upon at such place or places as Holdings
shall designate. Each party has the right at any time to extend the Closing
Date for a period of up to 30 business days from the date stated above, by
written notice to the other party or parties.
<PAGE>
9.2. Deliveries at Closing.
(a) At the Closing, the Sellers shall transfer and assign to Holdings
all of the Shares by delivering certificates representing each of the
Shares, duly endorsed for transfer to Holdings with signatures guaranteed,
and the cash consideration, the note(s), and the other agreements,
certifications and other documents required to be executed and delivered
hereunder at the Closing shall be duly and validly executed and delivered.
(b) From time to time after the Closing, at Holdings' request and
without further consideration from Holdings, the Sellers shall execute and
deliver such other instruments of conveyance and transfer and take such
other action as Holdings reasonably may require to convey, transfer to and
vest in Holdings and to put Holdings in possession of the Shares to be
sold, conveyed, transferred and delivered hereunder.
9.3. Legal Actions. If, prior to the Closing Date, any action or
proceeding shall have been instituted by any third party before any court
or governmental agency to restrain or prohibit this Agreement or the
consummation of the transactions contemplated herein, the Closing shall be
adjourned at the option of any party hereto for a period of up to one
hundred twenty (120) days. If, at the end of such 120-day period, the
action or proceeding shall not have been favorably resolved, any party
hereto may, by written notice thereof to the other party or parties,
terminate its obligation hereunder.
9.4. Specific Performance. The parties agree that if any party hereto
is obligated to, but nevertheless does not, consummate this transaction,
then any other party, in addition to all other rights or remedies, shall be
entitled to the remedy of specific performance mandating that the other
party or parties consummate this transaction. In an action for specific
performance by any party hereto against any other party, the other party
shall not plead adequacy of damages at law.
<PAGE>
ARTICLE X
TERMINATION AND ABANDONMENT
10.1. Methods of Termination. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time
(notwithstanding approval by the Board of Directors of Holdings):
(a) by mutual consent of Holdings and all of the
Sellers; or
(b) by either Holdings or Sellers, if (i) such party is not in breach
hereunder and the other party is in breach hereunder, and (ii) this
Agreement is not consummated on or before the Closing Date, including
extensions.
10.2. Procedure Upon Termination. In the event of termination and
abandonment pursuant to Section 10.1 hereof, this Agreement shall terminate
and shall be abandoned, without further action by any of the parties
hereto. If this Agreement is terminated as provided herein:
(a) each party will upon request redeliver all documents and other
materials of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same;
(b) no party hereto shall have any liability or further
obligation to any other party to this Agreement; and
(c) each party shall bear its own expenses.
ARTICLE XI
INDEMNIFICATION
11.1. Indemnification of Sellers. The Sellers and Warrantor, jointly
and severally, agree to indemnify Holdings and each of its shareholders,
officers and directors against any loss, damage, or expense, (including but
not limited to reasonable attorneys' fees) ("Damages"), incurred or
sustained by Holdings or any of its shareholders, officers or directors as
a result of (a) any breach of any term, provision, covenant or agreement
contained in this Agreement by the Sellers or Warrantor; (b) any inaccuracy
in any of the representations or warranties made by the Sellers or
Warrantor in Article II of this Agreement; or (c) any inaccuracy or
misrepresentation in any certificate or other document or instrument
delivered by the Sellers or the Company in accordance with any provision of
this Agreement. The obligations of the Sellers and Warrantor as set forth
in Section 11.1(b) shall be subject to and limited by the following:
(i) No claim for Damages shall be made until the cumulative amount of
such Damages shall equal or exceed $175,000; provided, however, that
such limitation shall not apply to any Damages resulting from
violations under Sections 2.2, 2.4, 2.12, 2.14, 2.18, 2.20, 2.23 or
2.24 hereof, or from intentional or fraudulent actions,
misrepresentations or breaches;
<PAGE>
(ii) Holdings shall give written notice to the Sellers stating
specifically the basis for the claim for Damages, the amount thereof
and shall tender defense thereof to the Sellers as provided in Section
11.2;
(iii) In addition to any other remedy, Holdings shall be entitled, but
shall not be obligated, to offset all such claims for Damages against
any obligation of Holdings to Sellers now or hereafter existing
including, without limitation, payments of principal or interest in
the order of installments due on the Subordinated Note delivered
pursuant to Section 1.2(b); and
(iv) Warrantor shall be liable jointly and severally for Damages under
this Section 11.1 only to the extent she has received a portion of the
Purchase Price from any of the Sellers and her liability shall be
limited to the amount of the Purchase Price received. For purposes
hereof, any transfer of property from any Seller to Warrantor after
the Closing Date shall be deemed Purchase Price.
11.2. Tender of Defense for Damages. Promptly upon receipt by Holdings
of a notice of a claim by a third party which may give rise to a claim for
Damages, Holdings shall give written notice thereof to the Sellers. No
failure or delay of Holdings in the performance of the foregoing shall
relieve, reduce or otherwise affect the Sellers' and Warrantor's
obligations and liability to indemnify Holdings pursuant to this Agreement,
except to the extent that such failure or delay shall have adversely
affected the Sellers' ability to defend against such claim for Damages. If
the Sellers give to Holdings an agreement in writing, in a form reasonably
satisfactory to Holdings' counsel, to defend such claim for Damages, the
Sellers may, at their sole expense, undertake the defense against such
claim and may contest or settle such claim on such terms, at such time and
in such manner as the Sellers, in their sole discretion, shall elect and
Holdings shall execute such documents and take such steps as may be
reasonably necessary in the opinion of counsel for the Sellers to enable
the Sellers to conduct the defense of such claim for Damages. If the
Sellers fail or refuse to defend any claim for Damages, the Sellers may
nevertheless, at their own expense, participate in the defense of such
claim by Holdings and in any and all settlement negotiations relating
thereto. In any and all events, the Sellers shall have such access to the
records and files of Holdings relating to any claim for Damages as may be
reasonably necessary to effectively defend or participate in the defense
thereof.
11.3. Litigation Matters. Sellers agree to indemnify and hold harmless
Holdings for any and all claims arising out of the suits or proceedings
listed in Exhibit 2.13 and shall pay all out of pocket costs of Holdings,
including but not limited to attorney's fees, court costs, damage award
amounts and settlement amounts, that may be assessed against Holdings, in
connection with such suits of proceedings.
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by written
agreement of all of the Sellers and Holdings.
12.2. Waiver of Compliance; Consents. Any failure of the Sellers on
the one hand, or Holdings on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived in writing by
Holdings or the Sellers, respectively, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be
given in writing in a manner consistent with the requirements for a waiver
of compliance as set forth in this Section 12.2.
12.3. Expenses. Each party will pay its own legal, accounting and
other expenses incurred by such party or on its behalf in connection with
this Agreement and the transactions contemplated herein. If the Company
shall at any time pay any expenses incurred in connection with this
Agreement or any part thereof or any of the proceedings and transactions
contemplated hereunder including, without limitation, any legal,
accounting, printing, filing or other costs, then the cash portion of the
Purchase Price shall be reduced by an equal amount.
12.4. Investigations; Survival of Warranties. The respective
representations and warranties of the Sellers and Holdings contained herein
or in any certificates or other documents delivered prior to or at the
Closing are true, accurate and correct and shall not be deemed waived or
otherwise affected by any investigation made by any party hereto or by the
occurrence of the Closing. Each and every such representation and warranty
shall survive for a period of three years from the Closing Date; provided,
however, all representations and warranties and other agreements made
pursuant to Sections 2.2, 2.4, 2.12, 2.14, 2.18, 2.20, 2.23, 2.24 and 6.4
shall never expire and the covenant contained in Section 5.4 shall survive
until the expiration of the statute of limitations; and all claims for
Damages based on intentional or fraudulent actions, misrepresentations or
breaches shall never expire.
12.5. Notices. Any notice, request, consent or communication
(collectively, a "Notice") under this Agreement shall be effective only if
it is in writing and (i) personally delivered, (ii) sent by certified or
registered mail, return receipt requested, postage prepaid, (iii) sent by a
nationally recognized overnight delivery service, with delivery confirmed,
or (iv) telecopied, with receipt confirmed, addressed as follows:
<PAGE>
(a) If to the Sellers, to:
Eric Monson
c/o Butzel Long
Suite 200
32270 Telegraph Road
Birmingham, Michigan 48025
Telephone: (248)258-1616
Telecopier: (248) 258-1439
in each case with a copy to:
John J. Raymond, Jr.
Paul L. Triemstra
Butzel Long
32270 Telegraph Road
Birmingham, Michigan 48025
Telephone: (248) 258-1403
Telecopier: (248) 258-1439
and
Frederick W. Heath
219 Elm Street
Birmingham, Michigan 48009
Telephone: (248) 540-4940
Telecopier: (248) 540-4522
or to such other person or address as any Seller shall furnish to Holdings
in writing.
<PAGE>
(b) If to Holdings to:
Thomas H. Quinn, President
Joseph C. Linnen, Manager, Business Development
Jordan Industries, Inc.
ArborLake Centre, Suite 550
Lake Cook Road
Deerfield, Illinois 60015
Telephone: 847-945-5591
Telecopier: 847-945-5698
with a copy to:
G. Robert Fisher, Esq.
Steven L. Rist, Esq.
Bryan Cave LLP
1200 Main, Suite 3500
Kansas City, Missouri 64105
Telephone: 816-374-3200
Telecopier: 816-374-3300
or such other persons or addresses as shall be furnished in writing by any
party to the other party. A Notice shall be deemed to have been given as of
the date when (i) personally delivered, (ii) five (5) days after the date
when deposited with the United States mail properly addressed, (iii) when
receipt of a Notice sent by an overnight delivery service is confirmed by
such overnight delivery service, or (iv) when receipt of the telecopy is
confirmed, as the case may be, unless the sending party has actual
knowledge that a Notice was not received by the intended recipient.
12.6. Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by Sellers without the prior written consent of Holdings.
<PAGE>
12.7. Governing Law; Dispute Resolution.
(a) This Agreement shall be governed by the laws of the State of
Michigan (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law of the state of Michigan) as to
all matters including, but not limited to, matters of validity,
construction, effect, performance and remedies.
(b) Any dispute between any of the parties hereto or any claim by a
party against another party arising out of or relating to this Agreement or
relating to any alleged breach thereof including, without limitation, the
calculation of the Closing Financials and Computations and the payments
pursuant to Section 1.4, shall be determined by arbitration in accordance
with the rules then in force of the American Arbitration Association. The
arbitration proceedings shall take place in Chicago, Illinois or such other
location as the parties in dispute may agree upon. The arbitration
proceedings shall be subject to the substantive laws of the state of
Michigan. There shall be one arbitrator, as shall be agreed upon by the
parties in dispute, who shall be an individual skilled in the legal and
business aspects of the subject matter of this Agreement and of the
dispute. In the absence of such an agreement, each party in dispute shall
select one arbitrator and the arbitrators so selected shall select a third
arbitrator. In the event the arbitrators cannot agree upon the selection of
a third arbitrator such third arbitrator shall be appointed by the American
Arbitration Association at the request of any of the parties in dispute.
The arbitrator shall be an individual skilled in the legal and the business
aspects of the subject matter of this Agreement and of the dispute. The
decision rendered by the arbitrator shall be accompanied by a written
opinion in support thereof. Such decision shall be final and binding upon
the parties in dispute without right of appeal. Judgment upon any such
decision may be entered into in any court having jurisdiction thereof, or
application may be made to such court for a judicial acceptance of the
decision in an order of enforcement. Costs of the arbitration shall be
assessed by the arbitrator against all or any of the parties in dispute and
shall be paid promptly by the party or parties so assessed.
12.8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.9. Neutral Interpretation. This Agreement constitutes the product
of the negotiation of the parties hereto and the enforcement hereof shall
be interpreted in a neutral manner, and not more strongly for or against
any party based upon the source of the draftsmanship hereof.
12.10. Headings. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
12.11. Entire Agreement. This Agreement, which term as used throughout
includes the Exhibits hereto, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, representations,
warranties, covenants or undertakings other than those expressly set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first hereinabove set forth.
ELECTRICAL DESIGN AND CONTROL COMPANY
By_____________________________
Joseph Linnen, Vice President
SELLERS:
-------------------------------
Eric Monson
-------------------------------
Tina LaVire
-------------------------------
Marta Monson (as Beneficiary of the
Marta Monson Voting Trust)
-------------------------------
Frederick W. Heath (as Trustee of the
Marta Monson Voting Trust)
WARRANTOR:
------------------------------
Belinda Monson
<PAGE>
SCHEDULE OF EXHIBITS
TO
AGREEMENT FOR PURCHASE AND SALE OF
STOCK OF E. D. AND C. COMPANY, INC.
Exhibits Title
Exhibit 1.2 Subordinated Note
Exhibit 1.3 DFCE Example
Exhibit 1.4 Additional Purchase Price Amount
Exhibit 1.5 Allocation
Exhibit 1.6 Excluded Assets
Exhibit 2.1.1 Foreign Qualifications
Exhibit 2.1.2 Certificate or Articles of
Incorporation, Bylaws and
Certificates of Authority of the
Company
Exhibit 2.2 Schedule of Authorized, Issued and
Outstanding Capital Stock of the
Company
Exhibit 2.3 Schedule of Subsidiaries and
Affiliates
Exhibit 2.4 Spousal Consent
Exhibit 2.5 Restrictions on Ability to Perform
Exhibit 2.7 Financial Statements
Exhibit 2.9 List of Distributions
Exhibit 2.10 Schedule of Contracts
Exhibit 2.12 Title and Related Matters
Exhibit 2.13 Legal Proceedings and Judgments
Exhibit 2.14.1 Certain Tax Matters
Exhibit 2.14.2 Tax Returns
Exhibit 2.16 Copies of Reports and Inspections
<PAGE>
Exhibit 2.18.1 Welfare Benefit Plans; Retiree
Health Benefits
Exhibit 2.18.2 Employee Pension Benefits Plans
Exhibit 2.18.3 Other Benefit Plans Including
Vacation
Exhibit 2.18.4 Other Plan Deliveries
Exhibit 2.18.5 Consents and Agreements
Exhibit 2.19 Schedule of Intellectual Property
Rights
Exhibit 2.20 Warranties and Claims Under
Warranties
Exhibit 2.21 Labor Relations
Exhibit 2.22 Schedule of Insurance
Exhibit 2.24 Environmental Matters
Exhibit 2.25 Schedule of Capital Expenditures
Exhibit 2.27 Schedule of Contracts with
Affiliates
Exhibit 2.29 Bank Accounts
Exhibit 2.30 Compensation Schedule
Exhibit 6.3 Noncompetition Agreement
Exhibit 7.1 Certificate of Fulfillment of
Conditions by Sellers and the
Company
Exhibit 7.3 Opinion of the Sellers' Counsel
Exhibit 7.6.1 Comfort Letter
Exhibit 7.6.2 Solvency Certificate
Exhibit 7.13 Estoppel Certificate
Exhibit 7.14 Withholding Certificate
Exhibit 8.1 Certificate of Fulfillment of
Conditions of Holdings
Exhibit 8.3 Opinion of Holdings' Counsel
