<PAGE> 1
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): June 27, 1997
WATERLINK, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-13041 34-1788678
(State or Other (Commission File Number) (IRS Employer Identification
Jurisdiction of No.)
Incorporation)
4100 Holiday Street, N.W., Suite 201, Canton, Ohio 44718
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (330) 649-4000.
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
(a) On June 27, 1997 (the "Closing Date"), Waterlink, Inc. (the
"Company") acquired all of the outstanding shares of capital stock of
Bioclear Technology Inc. ("Bioclear") from its four shareholders (David
Romanow, Joe Romanow, Brian Topnik and Robert Jenkyns) for an aggregate
consideration consisting of (i) $20,000,000 (Canadian) in cash paid at the
closing, (ii) $5,000,000 (Canadian) in shares of Common Stock of the
Company, valued at its initial public offering price of $11.00 per share,
paid at the closing, (iii) up to an additional $5,000,000 (Canadian) in
cash payable with respect to periods ending in 1998, 1999 and 2000 pursuant
to an earn-out provision and (iv) additional cash payable with respect to
periods ending in 1999 and 2000 pursuant to certain additional purchase
consideration provisions, all as set forth in the purchase agreement. Of
the $20,000,000 (Canadian) in cash paid at the closing, $2,000,000 was paid
into escrow to secure the sellers' indemnification obligations under the
purchase agreement. The earn-out and additional purchase consideration
provisions of the purchase agreement are based on Bioclear's earnings
before interest and taxes, as adjusted in accordance with the purchase
agreement, for the applicable periods. Under the earn out provision, the
sellers would be entitled to a fixed percentage of such adjusted earnings
in excess of an earnings target, with an aggregate maximum earn out payment
of $5,000,000 (Canadian). Under the additional purchase consideration
provisions, the sellers would be entitled to a smaller fixed percentage of
such adjusted earnings in excess of a higher earnings target. Since such
additional purchase consideration payments, if any, are based on a fixed
percentage of such excess amount, there is no maximum amount for such
payments.
Also on the Closing Date, the Company, through one of its
subsidiaries, purchased all of the outstanding shares of capital stock of
Lanco Environmental Products, Inc ("Lanco") from its one shareholder (David
M. Rice) for an aggregate purchase price of $2,200,000, paid in cash at the
closing. Of this amount, $100,000 was paid into escrow to secure the
seller's indemnification obligations under the purchase agreement.
The purchase price for each of the acquisitions was established by the
parties based on arms'-length negotiations. The Company used a portion of
the proceeds from its initial public offering of its common stock, which
also closed on the Closing Date, to finance the acquisitions.
(b) The Company is an international provider of integrated water
purification and wastewater treatment solutions, principally to industrial
and municipal customers. Bioclear specializes in sequential batch reactor
technology for the biological treatment of municipal and industrial
wastewater. It also designs and builds wastewater treatment plants. Lanco
fabricates a variety of plate and frame filter presses for dewatering
wastewater sludge, inclined plate clarifiers for heavy metal removal, and
dryers for metal finishing wastes. The Company intends to devote the assets
of Bioclear and Lanco to these same purposes.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) and (b) The financial statements required by this Item appear in
the Company's Amendment No. 1 to Registration Statement on Form S-1
(Registration No. 333-25249), as filed on May 23, 1997, on pages F-3
through F-10 (unaudited pro forma consolidated financial data of the
Company and Subsidiaries) and pages F-80 through F-97 (financial statements
of Lanco and of Bioclear), which statements are incorporated herein by
reference.
Item 7(c). Exhibits.
2.01 - Stock Purchase Agreement between Waterlink, Inc., and David
Romanow, Joe Romanow, Brian Topnik and Robert Jenkyns dated as of
April 15, 1997.
2.02 - Stock Purchase Agreement between Great Lakes Environmental, Inc.
and David M. Rice dated as of April 14, 1997 (filed as Exhibit
10.23 to the Company's Amendment No. 1 to Registration Statement
on Form S-1, filed May 23, 1997, Registration No. 333-25249, (the
"Registration Statement") and incorporated herein by reference).
23.01 -Consent of Plante & Moran, LLP.
23.02 -Consent of Ernst & Young.
99.01 -Unaudited Pro Forma Consolidated Financial Data of Waterlink,
Inc. and Subsidiaries (which appeared in the Registration
Statement, to the extent incorporated herein by reference).
99.02 -Financial Statements of Lanco Environmental Products, Inc. (which
appeared in the Registration Statement, to the extent incorporated
herein by reference).
99.03 -Financial Statements of Bioclear Technology Inc. (which appeared
in the Registration Statement, to the extent incorporated herein
by reference).
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.
WATERLINK, INC.
Dated: July 9, 1997 By: /s/ Michael J. Vantusko
--------------------------------------------
Michael J. Vantusko, Chief Financial Officer
<PAGE> 4
INDEX TO EXHIBITS
-----------------
FORM 8-K
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
2.01 Stock Purchase Agreement between Waterlink, Inc., and David
Romanow, Joe Romanow, Brian Topnik and Robert Jenkyns dated as of
April 15, 1997.
2.02 Stock Purchase Agreement between Great Lakes Environmental, Inc.
and David M. Rice dated as of April 14, 1997 (filed as Exhibit
10.23 to the Company's Amendment No. 1 to Registration Statement
on Form S-1, filed May 23, 1997, Registration No. 333-25249,
(the "Registration Statement") and incorporated herein by
reference).
23.01 Consent of Plante & Moran, LLP.
23.02 Consent of Ernst & Young.
99.01 Unaudited Pro Forma Consolidated Financial Data of Waterlink,
Inc. and Subsidiaries (which appeared in the Registration
Statement, to the extent incorporated herein by reference).
99.02 Financial Statements of Lanco Environmental Products, Inc.
(which appeared in the Registration Statement, to the extent
incorporated herein by reference).
99.03 Financial Statements of Bioclear Technology Inc. (which appeared
in the Registration Statement, to the extent incorporated
herein by reference).
<PAGE> 1
Exhibit 2.01
STOCK PURCHASE AGREEMENT
BETWEEN
WATERLINK, INC.
"PURCHASER"
AND
DAVID ROMANOW,
JOE ROMANOW
BRIAN TOPNIK, AND
ROBERT JENKYNS
"SELLERS"
CONCERNING THE ACQUISITION OF
ALL THE OUTSTANDING SHARES OF
BIOCLEAR TECHNOLOGY, INC.
APRIL 15, 1997
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I PURCHASE PRICE OF SHARES: MANNER OF PAYMENT.....................................................1
1.1 Purchase Price - Alternatives...................................................................1
1.2 Purchase of Shares; Purchase Price Alternative - 1..............................................1
1.3 Manner of Payment...............................................................................2
1.4 Earn-out Payments; Performance Incentives Payments..............................................3
ARTICLE II REPRESENTATIONS, WARRANTIES
AND AGREEMENTS OF SELLERS.....................................................................6
2.1 Organization and Standing.......................................................................6
2.2 Authority; Conflicts; Consents..................................................................6
2.3 Capital Stock...................................................................................7
2.4 Title to Shares; Investments of the Corporation.................................................7
2.5 Outstanding Options and Warrants................................................................7
2.6 Business Relations..............................................................................8
2.7 Real Property...................................................................................8
2.8 Title to and Condition of Assets...............................................................10
2.9 Financial Statements...........................................................................10
2.10 Absence of Certain Changes.....................................................................11
2.11 Absence of Undisclosed Liabilities.............................................................12
2.12 Taxes..........................................................................................13
2.13 Indebtedness to Officers, Directors and Shareholders...........................................14
2.14 Articles of Amalgamation and Incorporation and By-laws or Regulation...........................14
2.15 Corporate Minutes..............................................................................14
2.16 Brokerage and Finder's Fees....................................................................14
2.17 Accounts Receivable............................................................................14
2.18 Employment Matters.............................................................................15
2.19 No Defaults....................................................................................16
2.20 Material Contracts.............................................................................16
2.21 Purchase Orders................................................................................17
2.22 Indebtedness...................................................................................17
2.23 Litigation.....................................................................................17
2.24 Insurance......................................................................................17
2.25 Transactions with Officers, Etc................................................................18
2.26 Employees......................................................................................18
2.27 Trademarks, Copyrights and Similar Matters.....................................................18
2.28 Employee Benefit Plans and Other Plans.........................................................19
2.29 Bank Accounts..................................................................................22
2.30 Compliance with Laws...........................................................................23
2.31 Power of Attorney..............................................................................23
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.32 Licenses and Rights............................................................................23
2.33 Products.......................................................................................23
2.34 Casualty Occurrences...........................................................................23
2.35 Inventory......................................................................................23
2.36 Capital Expenditure Plans......................................................................24
2.37 Material Misstatements or Omissions............................................................24
2.38 Stock Dividends................................................................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER....................................................25
3.1 Organization and Good Standing of Purchaser....................................................25
3.2 Authority of Purchaser.........................................................................25
3.3 Investment Purpose.............................................................................25
ARTICLE IV CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER...............................................25
4.1 Representations True...........................................................................25
4.2 All Consents Obtained..........................................................................25
4.3 Performance and Obligations....................................................................25
4.4 Receipt of Documents by Purchaser..............................................................26
4.5 No Litigation..................................................................................28
4.6 Employment Agreements..........................................................................28
4.7 Delivery of Books and Records..................................................................28
4.8 Absence of Changes.............................................................................28
4.9 Escrow Agreement...............................................................................28
4.11 Purchaser's Review.............................................................................28
4.12 Non-Competition Agreement......................................................................28
4.13 Shareholder's Agreement........................................................................28
ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS.................................................29
5.1 Representations True...........................................................................29
5.2 Receipt of Documents by Sellers................................................................29
5.3 No Litigation..................................................................................30
5.4 Employment Agreements..........................................................................30
5.5 Escrow Agreement...............................................................................30
ARTICLE VI CLOSING........................................................................................30
ARTICLE VII TERMINATION OF AGREEMENT.......................................................................30
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
INDEMNIFICATION: DISPUTES....................................................................32
8.1 Survival of Representations and Warranties.....................................................32
8.2 Sellers' Indemnification.......................................................................32
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.3 Defense of Claim...............................................................................32
8.4 Purchaser's Indemnification....................................................................33
8.5 Indemnification Basket.........................................................................33
ARTICLE IX CONDUCT PRIOR TO CLOSING DATE..................................................................33
9.1 Continuation of Business.......................................................................33
9.2 Preservation of Business.......................................................................35
9.3 Consents and Approvals.........................................................................35
ARTICLE X ASSIGNMENT, THIRD PARTIES, BINDING EFFECT......................................................35
ARTICLE XI EXPENSES.......................................................................................36
ARTICLE XII NOTICES........................................................................................36
ARTICLE XIII REMEDIES NOT EXCLUSIVE.........................................................................37
ARTICLE XIV RESERVED.......................................................................................37
ARTICLE XV MISCELLANEOUS..................................................................................37
15.1 Counterparts...................................................................................37
15.2 Captions and Section Headings..................................................................37
15.3 Waivers........................................................................................37
15.4 Right of Inspection............................................................................37
15.5 Amendments, Supplements or Modifications.......................................................38
15.6 Entire Agreement...............................................................................38
15.7 Governing Laws.................................................................................38
15.8 Knowledge......................................................................................38
15.9 Press Releases.................................................................................38
15.10 Currency.......................................................................................38
15.11 Schedules......................................................................................38
15.12 Consent........................................................................................39
15.13 Investment Canada Filing.......................................................................39
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made this 15th day of
April, 1997, between Waterlink, Inc., a Delaware U.S.A. corporation ("Waterlink"
or "Purchaser") and David Romanow, Joe Romanow, Brian Topnik, and Robert Jenkyns
(each a "Seller" and collectively, "Sellers") being all the shareholders of
Bioclear Technology, Inc., a corporation organized under the laws of Canada (the
"Corporation").
R E C I T A L S:
----------------
A. Sellers own all the issued and outstanding shares of capital stock
of the Corporation.
B. On the terms and subject to the conditions of this Agreement, and
subject to the performance by the parties of their respective obligations under
this Agreement, Sellers desire to sell, and Purchaser desires to purchase, all
the issued and outstanding shares of capital stock of the Corporation at the
"Closing" (as hereinafter defined) for the purchase price described in Article I
of this Agreement.
NOW, THEREFORE, Purchaser and Sellers, intending to be legally bound,
agree as follows:
ARTICLE I
---------
PURCHASE PRICE OF SHARES: MANNER OF PAYMENT
-------------------------------------------
1.1 PURCHASE PRICE - ALTERNATIVES. If at the time of the Closing,
Waterlink is subject to the reporting requirements of the United States
Securities Exchange Act of 1934 (the "Exchange Act") and the common stock, par
value US $.001 per share (the "Waterlink Common Stock") is subject to an
effective registration statement under the Exchange Act and is listed on a
national securities exchange or is quoted on an automated quotation system such
as the National Association of Securities Dealers Automated Quotation System
"NASDAQ", then Purchaser shall purchase all the Shares for the Purchase Price in
the amount (subject to adjustment) and manner as set forth in Sections 1.2, 1.3
and 1.4 below (the "Purchase Price - Alternative 1"). If, at the time of the
Closing, the conditions contained in the preceding sentence are not met, then
Purchaser shall purchase all the Shares for the Purchase Price in the amount
(subject to adjustment) and manner as set forth in alternative Sections 1.2, 1.3
and 1.4 on EXHIBIT "A" attached hereto ("Purchase Price - Alternative 2"). In no
event shall Purchaser be obligated to pay BOTH the Purchase Price - Alternative
1 and the Purchase Price - Alternative 2. As used throughout this Agreement,
"Purchase Price" shall mean the Purchase Price - Alternative 1 or the Purchase
Price - Alternative 2, whichever is applicable.
1.2 PURCHASE OF SHARES; PURCHASE PRICE - ALTERNATIVE 1. On the terms
and subject to the conditions of this Agreement, Sellers shall, with all
transfer taxes of any kind prepaid, convey, assign and transfer to Purchaser at
the Closing all the Shares (as defined in Section 2.3), free and clear of all
liens, charges, security interests, adverse claims, pledges, encumbrances and
demands
1
<PAGE> 6
whatsoever. Purchaser shall purchase all the Shares for an aggregate purchase
price of Thirty Million Dollars ($30,000,000), subject to adjustment as set
forth below, PLUS the additional consideration, if any, set forth below. Of the
total Purchase Price, Four Million Eight Hundred Ninety Six Thousand Dollars
($4,896,000.00) shall be applied to the purchase of all the Preferred Shares (as
defined below) and the remainder of the Purchase Price shall be applied to the
purchase of all the Common Shares (as defined below).
1.3 MANNER OF PAYMENT. The Purchase Price - Alternative 1, will be paid
by Purchaser for all the Shares as follows:
(a) Five Hundred Thousand Dollars ($500,000.00) deposit
payable to Sellers in the aggregate upon the execution of this
Agreement. The Deposit shall be returned to Purchaser or forfeited to
Sellers in accordance with the terms of Article VII below.
(b) Seventeen Million Five Hundred Thousand Dollars
($17,500,000.00) payable to Sellers in the aggregate at the Closing by
certified or official bank checks in immediately available funds or by
wire transfer to accounts designated by Sellers.
(c) Two Million Dollars ($2,000,000.00) by certified or bank
check in immediately available funds or by wire transfer to a bank
chosen by Sellers that is reasonably satisfactory to Purchaser, as
escrow agent in connection with an interest-bearing escrow fund
established pursuant to an Escrow Agreement in substantially the form
attached to this Agreement as EXHIBIT "B" for the purpose of securing
Sellers' indemnification obligations hereunder (the "Escrow
Agreement").
(d) The Earn-out Payments, if any, in the maximum aggregate
amount of Five Million Dollars ($5,000,000.00), payable to Sellers, in
the aggregate, in accordance with the provisions of Section 1.4(c)
below.
(e) The Performance Incentives, if any, payable to Sellers, in
the aggregate, in accordance with the provisions of Section 1.4(d)
below.
(f) The maximum number of shares of Waterlink Common Stock
having an aggregate value of not more than Five Million Dollars
($5,000,000.00), determined by the initial public offering price to the
public of the Waterlink Common Stock, to be issued by Waterlink to
Sellers (on a pro rata basis determined for each Seller in accordance
with the percentage that such Seller's Shares bears to the total number
of Shares owned by all Sellers) in the aggregate. For purposes of this
Section 1.3(f), the initial public offering price of the Waterlink
Common Stock shall be converted into Canadian Dollars based on the
exchange rate published in the WALL STREET JOURNAL on the date of the
closing of Waterlink's initial public offering.
2
<PAGE> 7
1.4 EARN-OUT PAYMENTS; PERFORMANCE INCENTIVES PAYMENTS.
(a) If the Purchase Price - Alternative 1 is applicable, then
as a portion of the Purchase Price, Purchaser shall pay to Sellers (on
a pro rata basis determined for each Seller in accordance with the
percentage that such Seller's Shares bears to the total number of
Shares owned by all Sellers), in the aggregate, the Earn-out Payments,
if any, set forth in Section 1.4(c) below and the Performance Incentive
Payments, if any, set forth in Section 1.4(d) below, each based on the
earnings before income and taxes ("EBIT") (as more fully defined below)
of the Corporation for the periods specified therein.
(b) "EBIT" for any period of determination shall mean the
earnings before interest and taxes, determined in accordance with
generally accepted accounting principals as determined by the Canadian
Institute of Chartered Accountants ("Canadian GAAP") applied in a
manner consistent with the Corporation's past practices. In determining
EBIT for purposes of this Section 1.4, no effect shall be given to (i)
any extraordinary expenses incurred without the consent of Sellers by
the Corporation outside the normal course of business as operated prior
to the Closing including (A) expenses allocated by Waterlink or any
other direct or indirect parent corporation of the Corporation unless
such expenses (x) are comparable to and replace expenses incurred by
the Corporation prior to the Closing or (y) are incurred for sales,
marketing, product development or similar purposes which provide
commensurate benefits to the Corporation's operations, and (B) expenses
incurred in connection with new projects or ventures outside the normal
course of business, and (ii) any increased or decreased expenses
resulting from purchase accounting adjustments required, or permitted,
by Canadian GAAP or generally accepted accounting principals in the
United States solely as a result of the transactions contemplated by
this Agreement. It is the intent of the parties that EBIT, determined
for purposes of computing the Earn-out Payments and Performance
Incentive Payments described below, be an equitable measurement of the
performance of the business of the Corporation being acquired hereby
without giving effect to extraordinary revenues and expenses associated
with the operation of such business by the Purchaser and Waterlink
after the Closing and each party agrees to cooperate in good faith
toward the determination of EBIT in a manner consistent with such
intent.
(c) In accordance with the following table, Earn-out Payments
shall be payable by Purchaser to Sellers (on a pro rata basis) in the
aggregate, by certified or official bank checks or wire transfers to
accounts designated by Sellers in immediately available funds if the
EBIT of the Corporation exceeds the thresholds set forth below for the
period beginning immediately after the Closing Date and ending
September 30, 1998 (the "First Earn-out Period") and each of the
twelve-month periods ending September 30, 1999 and 2000. In no event
shall the aggregate Earn-out Payments paid or payable to Sellers, in
the aggregate, exceed $5,000,000.00.
3
<PAGE> 8
<TABLE>
<CAPTION>
MAXIMUM EARN-OUT
----------------
PAYMENT PER EARN-OUT
--------------------
EARN-OUT PERIOD EARN-OUT PAYMENT PERIOD
- --------------- ---------------- ------
<S> <C> <C>
First Earn-out Period 50% of the Corporation's EBIT $3,000,000.00
during the First Earn-out Period
in excess of the product of $4,000,000.00
multiplied by the fraction x/12, where
x=the number of full calendar months in
the First Earn-out Period. Such product
is referred to as the "First EBIT Target."
Twelve-month period 50% of the Corporation's EBIT $1,000,000.00 plus the
ending September 30, during the Second Earn-out Period amount by which the Earn-
1999 ("Second Earn- in excess of the greater of (a) out Payment earned for the
out Period"). $4,000,000.00 and (b) First Earn-out Period was less
$4,000,000.00 plus the amount by than $3,000,000.00.
which EBIT for the First Earn-out
Period was less than the First EBIT Target.
Twelve-month period 50% of the Corporation's EBIT $1,000,000.00 plus the
ending September 30, during the Third Earn-out Period in amount by which the
2000 ("Third Earn-out excess of the greater of (a) aggregate Earn-out Payments
Period"). $4,000,000.00 and (b) earned for the First and
$4,000,000.00 plus (i) the amount Second Earn-out Periods
by which the aggregate EBIT for were less than $4,000,000.00.
the First and Second Earn-out Periods was less
than the sum of $4,000,000.00 plus the First
EBIT Target.
</TABLE>
(d) In accordance with the following table, Performance
Incentive Payments shall be payable by Purchaser to Sellers (on a pro
rata basis), in the aggregate, by certified or official bank checks or
wire transfers to accounts designated by Sellers in immediately
available funds if the EBIT of the Corporation exceeds the thresholds
set forth below for each of the twelve-month periods ending September
30, 1999 and 2000.
4
<PAGE> 9
<TABLE>
<CAPTION>
MAXIMUM PERFORMANCE
-------------------
PERFORMANCE INCENTIVE INCENTIVE PAYMENT PER
- --------------------- ---------------------
PERIOD PERFORMANCE INCENTIVE PAYMENT PERFORMANCE INCENTIVE PERIOD
- ------ ----------------------------- ----------------------------
<S> <C> <C>
Twelve-month period 20% of the Corporation's EBIT during None.
ending September 30, the First Performance Incentive Period
1999 ("First Performance in excess of the greater of (a)
Incentive Period"). $10,000,000.00 and (b) $10,000,000.00
plus the amount by which EBIT for the
twelve-month period ending September 30, 1998
was less than $10,000,000.00.
Twelve-month period 20% of the Corporation's EBIT during None.
ending September 30, the Second Performance Incentive
2000 ("Second Period in excess of the greater of (a)
Performance Incentive $10,000,000.00 and (b) $10,000,000.00
Period"). plus the amount by which the total
EBIT for the twelve-month period ending
September 30, 1998 and the First Performance
Incentive Period was less than $20,000,000.00.
</TABLE>
(e) Purchaser shall deliver to Sellers within ninety (90) days
of September 30, 1998, 1999 and 2000, (i) the Corporation's financial
statements covering the applicable Earn-out Period and Performance
Incentive Period, and (ii) statements setting forth the computation and
amount of EBIT for such Earn-out Period and such Performance Incentive
Period (the "EBIT Statement") (as reviewed and concurred to by the
Waterlink's independent public accountants) and shall pay the Earn-out
Payment, if any, and the Performance Incentive Payment, if any, to
Sellers (on a pro rata basis) within thirty (30) days of the delivery
of the EBIT Statement.
(f) Sellers shall have thirty (30) days from the date the EBIT
Statements are delivered to it to furnish Purchaser with a letter
requesting access to the books and records of the Corporation necessary
to compute the EBIT amount and upon receipt of such request, Purchaser
shall promptly make available such books and records to David Romanow,
as agent for the Sellers ("Sellers' Representative"). Sellers shall
have sixty (60) days after such access is granted to cause Sellers'
Representative to furnish Purchaser with a letter setting forth those
items with which the Sellers disagree and the reasons for each such
disagreement. The parties shall promptly seek to reconcile any such
disagreement; if they fail to reach an agreement within thirty (30)
days of receipt by Purchaser of such letter, then an independent public
accounting firm shall be retained by the parties to settle any
remaining disagreement, and the decision of said firm shall be final
and binding on all parties to this Agreement. If Sellers'
Representative and Purchaser cannot agree on an accounting firm to
settle any
5
<PAGE> 10
remaining disagreement within such thirty (30) day period, then
Sellers' Representative and Purchaser shall each designate an
independent public accounting firm and the two (2) firms so designated
shall select a third independent public accounting firm and the
decision of said firm shall be final and binding on all parties to this
Agreement. The fees of all accounting firms involved shall be borne
equally between Purchaser on the one hand and Sellers on the other
hand. The payment of the portion of the Earn-out Payment or Performance
Incentive Payment in dispute, if any, ultimately determined (pursuant
to the procedures set forth in this paragraph) to be due the Sellers
shall be made within fifteen (15) days of such determination.
ARTICLE II
----------
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLERS
-----------------------------------------------------
Sellers, jointly and severally, represent and warrant to, and agree
with, Purchaser as follows:
2.1 ORGANIZATION AND STANDING.
(a) The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of Canada. Each of the
Subsidiaries (as defined in Section 2.4(b)) is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation. Each of the Corporation and
each Subsidiary has full power and authority to carry on its business
as and where now conducted and to own or lease and operate its
properties at and where now owned or leased and operated by it, and is
duly qualified to do business and is in good standing in every
jurisdiction in which the property owned, leased or operated by it, or
the nature of the business conducted by it, makes such qualification
necessary.
(b) Set forth on Schedule 2.1 is a true and correct list of
all jurisdictions in which the Corporation and each Subsidiary is
qualified to do business as a foreign corporation and each jurisdiction
where the Corporation and each Subsidiary does business or owns or
leases property.
2.2 AUTHORITY; CONFLICTS; CONSENTS.
(a) Sellers are duly authorized to execute, deliver and
consummate the transactions contemplated by this Agreement and at the
Closing Date (as defined below), no action will be necessary on the
part of Sellers to make this Agreement valid and binding on Sellers and
enforceable against Sellers in accordance with its terms.
(b) Except as set forth on Schedule 2.2(b), the execution,
delivery and consummation of this Agreement by Sellers (i) does not now
and will not, with the passage of time, the giving of notice or
otherwise, result in a violation or breach of, or constitute a default
under, any term or provision of any indenture, mortgage, deed of trust,
lease, instrument, order, judgment, decree, rule, regulation, law,
contract, agreement or any other
6
<PAGE> 11
restriction to which Sellers, the Corporation or any Subsidiary are a
party or to which Sellers or any of Sellers' assets are subject or
bound or to which the Corporation or any of its assets is subject or
bound, or to which any Subsidiary or any of its assets is subject or
bound, (ii) will not result in the creation of any lien or other charge
upon any assets of the Corporation or any Subsidiary, and (iii) will
not result in any acceleration or termination of any loan or security
interest agreement to which the Corporation or any Subsidiary is a
party or to which the Corporation, any Subsidiary or any of their
assets is subject or bound.
(c) Except as may be listed on Schedule 2.2(c), no approval or
consent of any person, firm or other entity or governmental body is or
was required to be obtained by Sellers for the authorization of this
Agreement or the consummation by Sellers of the transactions
contemplated by this Agreement.
2.3 CAPITAL STOCK. The Corporation is authorized to issue an unlimited
number of Class A Common Shares, without par value, of which 944,486 shares are
issued and outstanding (the "Common Shares"), an unlimited number of Class B
Common Shares, none of which are issued and outstanding, and an unlimited number
of Preferred Shares, without par value, of which 4,896,000 shares are issued and
outstanding (the "Preferred Shares" and together with the Common Shares, the
"Shares"). All the Shares are duly authorized, validly issued, fully paid and
nonassessable and were not issued in violation of preemptive or any other
rights, including any rights under any federal, state or provincial securities
laws, of any shareholder. The Corporation owns all the outstanding capital stock
of the Subsidiaries.
2.4 TITLE TO SHARES; INVESTMENTS OF THE CORPORATION.
(a) All the Shares are owned by Sellers of record and
beneficially with good and marketable title thereto, free and clear of
all liens, charges, security interests, adverse claims, pledges,
encumbrances and demands whatsoever. Each Seller owns the number of
Common Shares and Preferred Shares set forth on Schedule 2.4.
(b) Other than Bioclear Tech Sales, Inc., a corporation
organized under the laws of Canada ("BTS") and Bioclear Technology
U.S.A., Inc., a corporation organized under the laws of California,
U.S.A. ("Bioclear USA" and together with BTS, the "Subsidiaries"), the
Corporation has no direct or indirect equity, debt or other interest in
any entity, corporate or otherwise, or any right, warrant or option to
acquire any such interest.
2.5 OUTSTANDING OPTIONS AND WARRANTS. There are no subscriptions,
options, warrants, rights, puts, calls, commitments or agreements (respecting
issuance, redemption, repurchase, voting or otherwise) relating to, nor any
outstanding securities convertible into, any shares of capital stock or other
equity interest of the Corporation or any Subsidiary, or into any such
convertible securities, and neither Sellers, the Corporation nor any Subsidiary
has agreed to issue, purchase, sell or transfer any of same, except as provided
in this Agreement.
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2.6 BUSINESS RELATIONS. Other than as set forth on Schedule 2.6(a),
neither the Corporation nor any Subsidiary is required, in the ordinary course
of business, to provide any bonding or any other financial security arrangements
in connection with any transactions with any customers or suppliers. Neither
Sellers nor the Corporation has received any notice of any disruption
(including, without limitation, delayed deliveries or allocations by suppliers)
in the availability of any materials or products used in the Corporation's
business and has no reason to believe that any such disruption will occur. There
are no sole source suppliers of goods, equipment or services used by the
Corporation (other than public utilities) with respect to which practical
alternative sources of supply are unavailable.
2.7 REAL PROPERTY.
(a) Schedule 2.7 is a true and complete list of (i) all real
property owned by the Corporation or any Subsidiary, including, without
limitation, all buildings, structures and improvements thereon and all
appurtenances thereto and the rights and privileges of the Corporation
in all rights of way, licenses or easements, (ii) all real property
leases to which the Corporation or any Subsidiary is a party, and (iii)
all options, deeds of trust, deeds of declaration, mortgages and land
contracts pursuant to or in which the Corporation or any Subsidiary has
any interest (collectively, the "Real Property"). Sellers have
furnished to Purchaser or its counsel true and complete copies of each
written contract and a written description of each oral contract
relating to the list set forth on Schedule 2.7.
(b) Except as set forth on Schedule 2.7, with respect to the
Real Property:
(i) The Real Property is occupied under valid and
current certificates of occupancy or the like, and the
transactions contemplated by this Agreement will not require
the issuance of any new or amended certificates of occupancy
or the like; there are no facts known to Sellers which would
prevent each location from being occupied after the "Closing
Date" (as hereinafter defined) in substantially the same
manner as before;
(ii) The Real Property does not violate, and all
improvements are constructed in compliance with, any
applicable federal, state or local statutes, laws, ordinances,
regulations, rules, codes, orders or requirements, including,
without limitation, any building, zoning, fire or
environmental laws or codes (the "Laws and Ordinances");
(iii) The Corporation has obtained all appropriate
licenses, permits, building permits and occupancy permits that
are required with respect to the Real Property by the Laws and
Ordinances;
(iv) There are no outstanding variances or special
use permits affecting the Real Property or its uses;
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(v) No notice of a violation of any Laws and
Ordinances, or of any covenant, condition, easement or
restriction affecting the Real Property or relating to its use
or occupancy has been given, nor are Sellers aware of any such
violation;
(vi) The Real Property has and will have as of the
Closing Date adequate water supply, storm and sanitary sewage
facilities, telephone, gas, electricity, fire protection,
means of ingress and egress to and from public highways and,
without limitation, other required public utilities. All
utility lines and facilities presently serving the Real
Property are serviced and maintained by the appropriate public
or quasi-public entity. All utilities enter the Real Property
through adjoining public streets or, if they pass through
adjoining private land, they do so in accordance with valid
public easements. Sellers have no knowledge of any increase in
the applicable rate for any utility service being furnished to
the Real Property from the rate in effect with respect to the
most recent bill that the Corporation has received for such
service;
(vii) Sellers have no knowledge of improvements made
or contemplated to be made by any public or private authority,
the costs of which are to be assessed as special taxes or
charges against the Real Property, and there are no present
assessments;
(viii) All improvements constituting the Real
Property are without structural defects, were constructed in
conformity with all plans and specifications;
(ix) The Real Property either (a) is freely
accessible directly from all public streets on which it abuts,
or (b) uses adjoining private land to access the same in
accordance with valid public easements. Sellers have no
knowledge of any condition which would result in the
termination of such access;
(x) The Corporation does not have a boundary or water
drainage dispute with the owners of any premises adjacent to
the Real Property and has no knowledge of any such dispute
involving former owners of the Real Property;
(xi) None of Sellers or the Corporation has notice of
outstanding requirements or recommendations by the insurance
companies who issued the insurance policies insuring the Real
Property, or by any board of fire underwriters or other body
exercising similar functions requiring or recommending any
repairs or work to be done on the Real Property;
(xii) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to
any person the right of use or occupancy of any portion of the
Real Property;
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(xiii) there are no encroachments upon such property
by buildings or other structures or improvements belonging to
owners of adjacent or adjoining properties and the Real
Property is not subject to claims by adjoining owners;
(xiv) all improvements on the Real Property are
wholly situated within boundaries of the Real Property and do
not encroach onto any adjacent or adjoining lands;
(xv) the Real Property has not been condemned,
expropriated, dedicated or otherwise taken by public authority
and, to Sellers' knowledge, no such condemnation,
expropriation, dedication or taking is threatened; and
(xvi) the current and intended use of the Real
Property does not violate in any material respect any law or
any instrument of record or agreement affecting such Real
Property. There is no violation of any covenant, condition,
restriction, easement, license, or agreement affecting the
Real Property or order of any governmental authority having
jurisdiction over the Real Property that materially affects
the Real Property or the use or occupancy thereof.
2.8 TITLE TO AND CONDITION OF ASSETS. Except as set forth on Schedule
2.8, each of the Corporation and each Subsidiary owns and possesses all right,
title and interest in and to its assets, including, without limitation (i) good
and marketable title in fee simple to all its Real Property, and (ii) good and
merchantable title to all properties and assets other than the Real Property, in
each case free and clear of all conveyances, conditions, easements, liens,
charges, security interests, adverse claims, encumbrances, encroachments,
reservations, easements, limitations, servitudes, other title defects or
restrictions of any nature. All tangible assets of the Corporation and the
Subsidiaries are in the Corporation's or such Subsidiary's possession or under
its respective control, and all equipment used by the Corporation or any
Subsidiary is in good operating condition and repair, subject only to routine
maintenance, and is fit and adequate for the purposes intended. The Corporation
enjoys peaceful and quiet possession of its assets pursuant to or by all of the
deeds, bills of sale, leases, licenses and other agreements under which it is
operating its business.
2.9 FINANCIAL STATEMENTS. Prior to the date of this Agreement, Sellers
have provided Purchaser with the financial statements of the Corporation listed
below (the "Financial Statements") and will provide to Purchaser monthly
financial statements for the months after December 31, 1996 (the "New Monthly
Financial Statements") as soon as practicable after the end of each month:
(a) Audited Consolidated Balance Sheets at August 31, 1994,
1995 and 1996;
(b) Audited Consolidated Statement of Operations for the years
ended August 31, 1994, 1995 and 1996.
(c) Unaudited Consolidated Balance Sheet at December 31, 1996;
and
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(d) Unaudited Consolidated Statement of Operations for the
four-month period ended December, 1996.
The Financial Statements, other than the unaudited Financial Statements
for the reasons specified on Schedule 2.9, have been prepared in accordance with
Canadian GAAP applied on a consistent basis during the periods. The Financial
Statements (and, with respect to the New Monthly Financial Statements, when
delivered, will or will be as the content may require) (i) present fairly in all
material respects, the Corporation's and the Subsidiaries' consolidated
financial position, results of its operations and cash flows at and for the
periods therein specified, (ii) are true and complete, and (iii) are consistent
with the books and records of the Corporation and the Subsidiaries.
2.10 ABSENCE OF CERTAIN CHANGES. Since August 31, 1996, the Corporation
and the Subsidiaries have actively conducted its business in the ordinary and
regular course consistent with past practice. Since such date, there has not
been any material adverse change in the business, condition (financial or
otherwise), assets, liabilities, results of operations or prospects of the
Corporation and the Subsidiaries, taken as a whole. To Sellers' knowledge, there
has not occurred any event or governmental regulation or order which could cause
such a change, nor, to Sellers' knowledge, is the occurrence of any such event,
regulation or order threatened. Except as set forth on Schedule 2.10, without
limiting the generality of the foregoing, since August 31, 1996, there has not
been:
(a) Any increase made or promised in the compensation or other
remuneration payable or to become payable by the Corporation or any
Subsidiary to any of its employees, agents or partners other than
annual increases made in the ordinary course of business consistent
with the Corporation's past practices;
(b) Any mortgage or pledge of, or any other lien, charge or
encumbrance of any kind, on any of the assets, tangible or intangible,
of the Corporation or any Subsidiary;
(c) Any sale or transfer of any assets, except for sales of
inventory in the ordinary course of business, or settlement,
cancellation or release of any indebtedness owing to the Corporation or
any Subsidiary or of any other claims of the Corporation or any
Subsidiary;
(d) Any sale, license, assignment or transfer by the
Corporation or any Subsidiary of any patents, trademarks, trade names
or other similar intangible assets;
(e) Any amendments or termination of any material contract,
agreement or license to which the Corporation or any Subsidiary is a
party or to which the Corporation or any Subsidiary or any of their
respective assets are subject or bound;
(f) Any commitment made (through negotiations or otherwise) or
any liability incurred to any labor organization by the Corporation or
any Subsidiary;
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(g) Other than those permitted by this Agreement, if any, any
payment, declaration or setting aside by the Corporation of dividends
or a return of capital or any distribution by the Corporation of any
cash or other assets to any shareholder in redemption of or as the
purchase price for any of the Corporation's capital stock or equity or
in discharge or cancellation in whole or in part of any indebtedness
owing (whether in payment of principal, interest or otherwise) to any
shareholder;
(h) Any discharge or satisfaction by the Corporation or any
Subsidiary of any lien, encumbrance, obligation or liability (accrued,
absolute, fixed or contingent), other than those shown on the December
31, 1996 balance sheet of the New Monthly Financial Statements that
have been discharged or satisfied in the ordinary course without
acceleration and other than those incurred and discharged in the
ordinary course of business consistent with past practice;
(i) Any material transaction entered into by the Corporation
or any Subsidiary other than in the ordinary course of business
consistent with past practice;
(j) Any institution by the Corporation or any Subsidiary of a
bonus, stock option, profit-sharing, pension plan or similar
arrangement or any changes in any such existing plans;
(k) Any incurrence by the Corporation or any Subsidiary
(whether discharged or not) of any obligation or liability (whether
accrued, absolute, fixed or contingent) other than current liabilities
incurred, and obligations entered into, in the ordinary course of
business consistent with past practice;
(l) Any adverse change in collection loss experience;
(m) Any material loss, damage or destruction to any of the
Corporation's or any Subsidiary's properties (whether or not covered by
insurance) or any labor trouble;
(n) Any payments in cash or otherwise by the Corporation or
any Subsidiary to Sellers or any affiliate pursuant to a tax sharing
arrangement or any other type of intercompany agreement; or
(o) Any change in accounting principles or practices from
those utilized in the preparation of the audited Financial Statements.
2.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
December 31, 1996 balance sheet of the New Monthly Financial Statements, or on
Schedule 2.11, neither the Corporation nor any Subsidiary is obligated for, nor
are any of their respective assets or properties subject to, any liabilities or
adverse claims or obligations, absolute or contingent, except those incurred in
the ordinary course of business since December 31, 1996, and neither the
Corporation nor any Subsidiary is in default with respect to any terms or
conditions of any liability or obligation.
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There are no facts known to Sellers that might reasonably serve as a basis, in
whole or in part, for any material liabilities or obligations not disclosed in
this Agreement, in the Financial Statements, in the New Monthly Financial
Statements or in the Schedules attached hereto.
2.12 TAXES.
(a) Each of the Corporation and each Subsidiary, has filed,
and will file, on a timely basis, all returns and reports of every
nature required to be filed by it in respect of all taxes or
withholdings of any nature whatsoever due to taxing authorities in all
jurisdictions applicable to the Corporation and each Subsidiary ("Tax
Returns"), and has paid in full or made adequate provision in the
Financial Statements and the New Monthly Financial Statements for the
payment of all taxes (including penalties, additions to tax and
interest) for which it has or may have liability. All such Tax Returns
are true, correct and complete in all material respects. Sellers have
no knowledge of any unassessed tax deficiency proposed or threatened
against the Corporation or any Subsidiary as a result of the operation
of its business. There are no liens on the Corporation's or any
Subsidiary's assets as a result of any tax liabilities except for taxes
not yet due and payable. There are, and after the date of this
Agreement will be, no tax deficiencies (including penalties, additions
to tax and interest) of any kind assessed against or relating to the
Corporation or any Subsidiary with respect to any taxable period ending
on or before the Closing Date. There are, and after the date of this
Agreement, will be no other tax deficiencies relating to Tax Returns
which include the Corporation or any Subsidiary for periods ending on
or before the Closing Date. As to all tax periods, or portions thereof,
which end prior to, or include, the Closing Date for which no Tax
Returns are yet due, the liability of the Corporation and each
Subsidiary for taxes allocable to periods (or portions thereof) ending
on or before the Closing Date does not exceed the amount accrued on the
Financial Statements for such taxes. The liability of the Corporation
and each Subsidiary for taxes has not increased since August 31, 1996,
except in the ordinary course of business.
(b) The Corporation is not a party to any action or proceeding
by any governmental authority for the assessment or collection of
taxes, nor has any such event been asserted or threatened. There are no
outstanding assessments or reassessments or written enquiries that have
been issued or raised by any governmental authority relating to any
taxes.
(c) Except as set forth on Schedule 2.12, there are no
outstanding agreements or waivers extending the statutory period of
limitations or providing for an extension of time with respect to the
assessment, reassessment or levying of any taxes against the
Corporation or any Subsidiary or the filing of any tax return or
payment of any taxes by the Corporation or any Subsidiary. Neither the
Corporation nor any Subsidiary has ever been audited by the Revenue
Canada, the Internal Revenue Service of the United States or any
provincial, state, local or foreign taxing authority.
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(d) Each of the Corporation and each Subsidiary is in
compliance with all registration, timely reporting and remittance
obligations in respect of all provincial and federal sales and excise
tax legislation and the federal goods and services tax.
(e) Schedule 2.12 sets forth all tax elections made by the
Corporation and each Subsidiary, all adjustments which will affect the
taxes of Purchaser for all taxable years which end on or after the
Closing Date and all tax rulings to which the Corporation or any
Subsidiary is a party. Schedule 2.12 sets forth all jurisdictions in
which the Corporation and each Subsidiary has filed or will file income
or sales tax returns for each taxable period, or portion thereof,
ending on or before the Closing Date.
(f) There are no tax liens currently in existence with respect
to the Corporation. or any Subsidiary. There are no tax sharing
agreements or similar arrangements in effect that include the
Corporation or any Subsidiary.
2.13 INDEBTEDNESS TO OFFICERS, DIRECTORS AND SHAREHOLDERS. Except as
set forth on Schedule 2.13, neither the Corporation nor any Subsidiary is
indebted to any of its shareholders, officers or directors (or to members of
their immediate families) in any amount whatever other than for salaries payable
or for expenses incurred on behalf of the Corporation in the ordinary course of
business.
2.14 ARTICLES OF AMALGAMATION AND INCORPORATION AND BY-LAWS OR
REGULATIONS. True, accurate and complete copies of the Articles of Amalgamation
or Incorporation, as the case may be, and By-laws or Regulations, as the case
may be, of the Corporation and each Subsidiary, together with all amendments
thereto, have been delivered to Purchaser or its counsel.
2.15 CORPORATE MINUTES. Sellers have furnished or made available to
Purchaser and its counsel the corporate record books of the Corporation and each
Subsidiary and the same are accurate and complete and reflect all resolutions
adopted and all actions taken, authorized or ratified by the shareholders and
directors of the Corporation and each Subsidiary. Copies of all corporate
minutes of meetings held and of all written actions taken after the date of this
Agreement will be furnished to Purchaser promptly, and in all events, prior to
the Closing Date.
2.16 BROKERAGE AND FINDER'S FEES. Neither Sellers nor any officer,
director or agent of the Corporation or any Subsidiary has incurred any
liability to any broker, finder or agent for any brokerage fees, finder's fees,
or commissions with respect to the transactions contemplated by this Agreement.
2.17 ACCOUNTS RECEIVABLE. Sellers have previously delivered to
Purchaser an aging schedule as of a date not more than thirty (30) days prior
to the date of this Agreement, which is true, correct and complete, of the
accounts receivables, both trade and non-trade, of the Corporation as of that
date. Sellers will update the list as of a date not more than five (5) days
prior to the Closing Date. There will be no reserves for doubtful receivables
and uncollectible accounts reflected on the books of the Corporation as of the
Closing Date. The accounts receivable as reflected on the books of the
Corporation as of the Closing Date will be fully collectible in the
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ordinary course of business within ninety (90) days after the Closing Date,
without resort to legal proceedings. All of such accounts receivable will
represent valid claims that have arisen in the ordinary course of business. In
the event that Sellers indemnify Purchaser pursuant to Section 8.2 of this
Agreement by reason of Sellers' breach of the representations and warranties
contained in this Section 2.17, Purchaser will cause the Corporation to assign
to Seller all the Corporation's rights, title and interest in and to the
uncollected accounts receivable giving rise to the breach and any other
documentation related thereto and necessary for Sellers' collection of same.
2.18 EMPLOYMENT MATTERS.
(a) Except as set forth in Schedule 2.18, neither the
Corporation nor any Subsidiary is a party to any collective bargaining
agreement, and no employees have formed any employee association, union
or collective bargaining unit and, to the best of Sellers' knowledge,
there are no current union organizing activities among the
non-unionized employees.
(b) Except as set forth in Schedule 2.18, there is no unfair
labor practice, charge or complaint pending or, to the best of Sellers'
knowledge, threatened against the Corporation or any Subsidiary arising
out of its activities, nor is there any labor strike, work stoppage,
grievance or other labor dispute pending or, to the best of the
Sellers' knowledge, threatened against the Corporation or any
Subsidiary, nor has any such labor strike, work stoppage, grievance or
other labor dispute occurred in the past. The Corporation and each
Subsidiary has complied with all laws in respect of employment matters.
(c) Except as set forth in Schedule 2.18, neither the
Corporation nor any Subsidiary is a party to any employment or
consulting agreement or party to any agreement, plan or arrangement
providing for severance payments to any current or former employee upon
termination of employment or which provide benefits (including
accelerated vesting, forgiveness of indebtedness, payments or the
inability to amend or terminate any Benefit Arrangement) upon a change
in ownership or control or a sale of assets of the Corporation.
Schedule 2.18 sets forth a list of all current employees as of the
dates set forth therein and the current rate of annual cash
compensation of each such current or former employee.
(d) Schedule 2.18 lists all Benefit Arrangements, and true and
complete copies thereof, where in writing, have previously been made
available to Purchaser. None of the employees, officers or directors of
the Corporation or any Subsidiary is or has ever been subject to or
covered under any retirement or pension plan of the Corporation or any
Subsidiary. Each Benefit Arrangement has been established and
maintained in accordance with all applicable Laws.
(e) Except as set forth in Schedule 2.18, neither the
Corporation nor any Subsidiary is in default in the payment of any
amounts required to be paid pursuant to any Benefit Arrangement, or any
wages, overtime wages, holiday pay, severance or termination payments
or source deductions required by law, and all such payments have been
made.
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(f) "BENEFIT ARRANGEMENT" means each and all pension,
supplemental pension, accidental death and dismemberment, life or
health insurance and benefits (including medical, dental and
hospitalization), savings, bonus, deferred compensation, incentive
compensation, holiday, vacation, severance pay, salary continuation,
sick pay, sick leave, short and long term disability, tuition refund,
service award, company car, scholarship, relocation, fringe benefit and
other employee benefit arrangements, plans, contracts (other than
individual employment, consulting or severance contracts), policies or
practices of the Corporation providing employee or executive
compensation or benefits to current or former employees or directors of
the Corporation.
2.19 NO DEFAULTS. Neither the Corporation nor any Subsidiary is in
default (nor is any such default alleged to exist) under the terms of any
written or oral contract, agreement, lease, license, mortgage, deed of trust,
note, guaranty, instrument or understanding (collectively, "Contracts") to which
it is a party or to which any of its assets, business or operations is subject,
nor, to the best of Sellers' knowledge, is any condition or event threatened,
which, after notice or the passage of time, or both, would constitute a default
under any Contract. To Sellers' knowledge, no such default, condition or event
exists or is alleged to exist with respect to the performance of any obligation
of any other party to any of such Contracts.
2.20 MATERIAL CONTRACTS.
(a) Schedule 2.20(a) is a true and correct list of each
Contract to which the Corporation or any Subsidiary is a party or by
which any of their respective assets, businesses or operations is bound
or affected. Schedule 2.20(a) includes a description of any consents or
approvals required of third parties under the terms of such Contracts
for the consummation of the transactions contemplated by this
Agreement. Schedule 2.20(a) excludes any Contract that (i) may be
cancelled by the Corporation or such Subsidiary on thirty (30) days'
notice or less without incurring a liability or obligation on the part
of the Corporation or such Subsidiary for such cancellation, or (ii)
involves or is reasonably expected to involve the payment of
consideration having an aggregate value of less than Fifteen Thousand
Dollars ($15,000), unless such contract is otherwise material to the
business or financial condition of the Corporation and the
Subsidiaries, taken as a whole. A true, correct and complete copy of
each written, and a description of each oral, Contract, so listed has
been delivered to Purchaser or its counsel.
(b) Schedule 2.20(b) is a true and correct list of each
Contract with a customer of the Corporation or any Subsidiary that
contains provisions (i) providing for payment terms to the Corporation
or such Subsidiary of forty-five (45) days or greater, (ii) permitting
the customer to retain any portion of the purchase price for the
products or services to be provided thereby as security for warranty
claims or for any other purpose, or (iii) providing for liquidated or
stipulated damages.
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2.21 PURCHASE ORDERS. Schedule 2.21 is a true and complete list of all
purchase orders under which the Corporation or any Subsidiary is or will become
obligated to pay any particular vendor an aggregate sum in excess of Ten
Thousand Dollars ($10,000).
2.22 INDEBTEDNESS. Schedule 2.22 is a true and complete list of all
indebtedness, including, without limitation, trade accounts payable owed or to
be owed by the Corporation or any Subsidiary, including a description of the
terms of payment, and, if such indebtedness is secured, a description of all
properties or other assets pledged, mortgaged or otherwise hypothecated
(voluntarily or involuntarily) as security.
2.23 LITIGATION. Schedule 2.23 is a true and complete list of all
administrative or judicial proceedings to which the Corporation or any
Subsidiary is a party or, to the knowledge of Sellers, to which it is threatened
to be made a party which relate, directly or indirectly, to any of the
Corporation's or the Subsidiaries' assets, including, without limitation,
proceedings that could affect title to or interests in the assets. There is no
action, suit, claim, demand, arbitration or other proceeding or investigation,
administrative or judicial, pending or threatened against or affecting the
Corporation or any Subsidiary or any of their respective assets, including,
without limitation, any relating to so-called product liability, which, if
adversely determined or resolved, would have an adverse effect on the business,
assets, condition (financial or otherwise), results of operations or prospects
of the Corporation and the Subsidiaries, taken as a whole, or any provisions of,
or the validity of, or rights under, any leases or other operating agreements,
licenses, permits or grants of authority of the Corporation or any Subsidiary.
Neither Sellers nor the Corporation has received notice that the Corporation or
any Subsidiary is the subject of any governmental investigation and neither the
Corporation nor any Subsidiary is subject to, nor are they or have they been in
default with respect to, any order, writ, injunction or decree of any court, or
of any federal, state, local or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. Schedule 2.23
indicates which of the matters listed are covered by valid insurance and the
extent of such coverage.
2.24 INSURANCE. Schedule 2.24 is a true and correct list of all the
policies of insurance covering the business, properties and assets of the
Corporation and the Subsidiaries presently in force (including as to each (i)
risk insured against, (ii) name of carrier, (iii) policy number, (iv) amount of
coverage, (v) amount of premium, (vi) expiration date and (vii) the property, if
any, insured), indicating as to each whether it insures on an "occurrence" or a
"claims made" basis. The insurance described on Schedule 2.24 insures the
Corporation and the Subsidiaries in the amounts and against such perils as are
generally maintained for comparable businesses. All of the insurance policies
set forth on Schedule 2.24 are in full force and effect and all premiums,
retention amounts and other related expenses due have been paid, and neither the
Corporation nor any Subsidiary has received any notice of cancellations with
respect to any of the policies. Neither the Corporation nor any Subsidiary has
been refused any insurance by any insurance carrier to which it has applied for
insurance during the last five (5) years. There are no circumstances existing
which would enable any insurer to avoid liability under any of the Corporation's
or Subsidiaries' policies.
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2.25 TRANSACTIONS WITH OFFICERS, ETC.
(a) Schedule 2.25(a) is a true and correct list of the
ownership of the Corporation in any entity that has any existing
contractual relationship, oral or written, or other business
relationship with Sellers.
(b) Schedule 2.25(b) is a true and correct list of all
Contracts (oral or written), including, but not limited to, any loans
(other than those set forth on Schedule 2.13 of this Agreement or not
required to be set forth thereon) or leases, to which the Corporation
or any Subsidiary is a party and to which any of the officers,
directors or other employees or shareholders of the Corporation or any
Subsidiary, or members of their immediate families or other
corporations, partnerships or other entities in which any of them has a
material interest, is also a party. Schedule 2.25(b) includes a list of
indebtedness of any such person or entity to the Corporation or any
Subsidiary.
(c) Except as set forth on Schedule 2.25(c) none of the
Corporation, any Subsidiary or any officer, director, employee or
shareholder of the Corporation or any Subsidiary, or members of their
immediate families or other corporations, partnerships or other
entities in which any of them has a material interest, has any direct
or indirect interest in any competitor, supplier or customer of the
Corporation or any Subsidiary or in any person, firm or entity from
whom or to whom the Corporation or any Subsidiary leases any
property, or in any other person, firm or entity with whom the
Corporation or any Subsidiary transacts business of any nature.
2.26 EMPLOYEES. Schedule 2.26 is a true and correct list of all
employees of the Corporation and the Subsidiaries (as used in this Agreement,
the term "employees" includes employees, salesmen, agents, sales representatives
and all other persons associated with the Corporation (whose current annual rate
of fixed compensation exceeds Fifty Thousand Dollars ($50,000) their accrued
vacation and sick pay, the nature of their duties and the date and amount of
their last increase in compensation. A true, correct and complete copy of each
written employment contract and a description of each oral employment agreement
with any employee has been delivered to Purchaser or its counsel.
2.27 TRADEMARKS, COPYRIGHTS AND SIMILAR MATTERS.
(a) Schedule 2.27(a) sets forth all details of all registered
Canadian and foreign patents, trademarks, trade names, copyrights and
applications therefor which are owned, licensed or used by the
Corporation or any Subsidiary (the "Patents, Copyrights and
Trademarks"). Except as set forth on Schedule 2.27(a), (a) the
Corporation or the Subsidiary, as the case may be, is the sole owner or
exclusive licensee of the Patents, Copyrights, and Trademarks and has
good title to and full rights to use, free and clear of any
encumbrances, the Patents, Copyrights, and Trademarks, including each
of the following: (i) shop rights, patent disclosures, inventions,
discoveries, improvements, compositions, drawings, designs, patterns,
processes, formulae, trade secrets, proprietary rights, ideas and
18
<PAGE> 23
know how, whether or not patentable, (ii) confidential business
information and computer software data and documentation (including
electronic media), and (iii) copies and tangible embodiments thereof,
in each case, owned, licensed or used by the Corporation or a
Subsidiary, whether or not registrable (together with the Patents,
Copyrights and Trademarks, the "Intellectual Property Rights"); (b) to
the knowledge of Sellers, none of the Intellectual Property Rights is
being infringed upon or appropriated by others; (c) all Patents,
Copyrights and Trademarks have been duly registered or filed for, and
such registrations have been properly maintained and renewed in
accordance with all applicable laws, and all fees associated therewith
have been paid; (d) the Corporation has not, nor has any Subsidiary,
received notice of any claim or demand and the Sellers have no
knowledge of any possible claim or demand of any person relating to any
litigation, pending or threatened, that challenges the exclusive right
of the Corporation, or a Subsidiary, to use any of the Intellectual
Property Rights; (e) no aspect of the Intellectual Property Rights is
subject to any outstanding order of any tribunal of with appropriate
jurisdiction; (f) the Corporation is not, nor is any Subsidiary,
engaged in any litigation and, to the knowledge of Sellers, no
litigation is threatened, with respect to any of the Intellectual
Property Rights; (g) the Corporation has not, nor has any Subsidiary,
registered or filed for any customer's intellectual property used or
held for use in the conduct of the business of the Corporation or any
Subsidiary; and (h) to the knowledge of Sellers, the conduct of the
business of the Corporation and each Subsidiary as now being conducted
has not, does not, and as currently proposed to be conducted will not,
infringe or otherwise conflict with any patents, trademarks, service
marks, trade names, copyrights or other intellectual property or
proprietary rights of others.
(b) The Corporation and each Subsidiary is the sole and
exclusive owner of its respective corporate name. Except as set forth
on Schedule 2.27(b), the Corporation does not, nor does any Subsidiary,
use such name by consent of any other person or entity, and owns such
name free and clear of any attachments, liens, claims, encumbrances or
agreements. There are no claims or demands of any other person or
entity pertaining to the use of the name and no proceedings have been
instituted or, to the knowledge of Sellers, are threatened, which
challenge the right of the Corporation or any Subsidiary in respect of
its respective names and the use of such name by the Corporation and
the Subsidiary does not infringe on or, to the knowledge of Sellers, is
not being infringed on by others, and is not subject to any outstanding
order, decree, judgment, stipulation or agreement restricting the scope
of its use.
(c) True, correct and complete copies of all patents,
trademarks, service marks, trade names and copyrights, and of all
related applications or registrations, that are listed on Schedule
2.27(a) have been delivered to Purchaser or its counsel.
2.28 ENVIRONMENTAL MATTERS.
(a) Except as set forth in Schedule 2.28, the Corporation and
each Subsidiary at all times have been operated, and are, in compliance
with all Environmental Laws.
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<PAGE> 24
(b) Except as set forth in Schedule 2.28, the Corporation and
each Subsidiary have obtained, and are in compliance with, all Permits
and other governmental consents required by applicable Environmental
Laws ("Environmental Permits"), including those regulating emissions,
discharges, or releases of Hazardous Substances, or the use, storage,
treatment, transportation, release, emission and disposal of raw
materials, by-products, wastes and other substances used or produced by
or otherwise relating to the Corporation's business but not relating to
the activities of its or their customers.
(c) Except as set forth in Schedule 2.28, all Environmental
Permits are in full force and effect, and the Corporation and each
Subsidiary have made all appropriate filings for issuance or renewal of
such Environmental Permits.
(d) Except as set forth an Schedule 2.28, the Real Property
and, to the best of Sellers' knowledge, any real property formerly
owned, occupied, operated, used or controlled or leased by the
Corporation or any Subsidiary or any of their predecessors, are free of
any Hazardous Substance (except those authorized pursuant to and in
accordance with Environmental Permits) and free of all contamination
arising from, relating to, or resulting from any such Hazardous
Substances.
(e) Except as set forth in Schedule 2.28, there are no orders
or litigation or other notices or claims pending or, to the best of
Sellers' knowledge, threatened, that are based on or related to any
Environmental Matters or the failure to have any required Environmental
Permits.
(f) Except as set forth in Schedule 2.28, there are no past or
present conditions, events, circumstances, facts, activities,
practices, incidents, actions, omissions or plans: (i) that may
interfere with or prevent continued compliance by the Corporation or
any Subsidiary with Environmental Laws and the requirements of
Environmental Permits, (ii) that may give rise to any liability or
other obligation under any Environmental Laws or that may require the
Corporation or any Subsidiary to incur any actual or potential
Environmental Costs, or (iii) that may form the basis of Litigation
against or involving the Corporation or any Subsidiary based on or
related to any Environmental Matter.
(g) Except as set forth in Schedule 2.28, there are no
underground or aboveground storage tanks, incinerators or surface
impoundments at, on, or about, under or within the Real Property.
Schedule 2.28 also lists all underground or aboveground storage tanks,
incinerators or surface impoundments that were removed from any such
properties. Any removal of underground or aboveground storage tanks,
incinerators or surface impoundments has been conducted in accordance
with all applicable Environmental Laws.
(h) Except as set forth in Schedule 2.28, neither the
Corporation nor any Subsidiary (i) has been requested or required by
any Governmental Authority to perform any investigatory or remedial
activity or other action in connection with any Environmental Matter,
or (ii) has received any notice or other communication that any of them
is or may be
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<PAGE> 25
a potentially responsible person or otherwise liable in connection with
any waste disposal site or Real Property allegedly containing any
Hazardous Substances, or other location used for the disposal of any
Hazardous Substances, or notice of any failure of the Corporation to
comply in any material respect with any Environmental Law or the
requirements of any Environmental Permit.
(i) Except as set forth on Schedule 2.28, neither the
Corporation nor any Subsidiary has used any waste disposal site, or
otherwise disposed of, transported, or arranged for the transportation
of, any Hazardous Substances to any place or location, in violation of
any Environmental Laws.
(j) Except as set forth in Schedule 2.28, no encumbrance
exists, and no condition exists which could result in the filing of an
Encumbrance, against the Real Property or any other property of the
Corporation or any Subsidiary under any Environmental Law or relating
to any Environmental Matter.
(k) Except as set forth in Schedule 2.28, there has been no
release, migration onto or other dissemination at any time of any
Hazardous Substances at, on, or about, under or within the Real
Property or any real property formerly owned, occupied, leased,
operated, used or controlled by the Corporation or any Subsidiary or
any predecessor of the Corporation or any Subsidiary (other than
pursuant to and in accordance with permits held by the Corporation, any
Subsidiary or any such predecessor and other than such release or other
dissemination which occurred after the Corporation, such Subsidiary or
any such predecessor ceased to own, occupy, lease, operate, use or
control such real property), or migration, release or other
dissemination from the Real Property onto any other real property.
For the purposes of this Section 2.28, the following terms shall have the
meanings indicated:
"ENVIRONMENTAL COSTS" means any actual or potential investigation, cleanup,
remediation, removal, or other response costs (which shall include costs to
cause the Corporation or any Subsidiary to come into compliance with
Environmental Laws), expenses (including fees and disbursements of consultants,
counsel, and other experts in connection with any environmental investigation,
testing, audits or studies, response actions, or litigation), losses,
liabilities or obligations (including liabilities or obligations under any lease
or other contract), payments, damages (including any actual, punitive or
consequential damages under any law, common law cause of action or contractual
obligations or otherwise, including damages (a) of third parties for personal
injury or property damage, or (b) to natural resources), civil or criminal fines
or penalties, judgments, and amounts paid in settlement arising out of or
relating to or resulting from any Environmental Matter.
"ENVIRONMENTAL MATTER" means any matter arising out of, relating to, or
resulting from pollution, contamination, protection of the environment
(including the health of plants and animals), human health or safety, health or
safety of employees, sanitation, and any matters relating to emissions,
discharges, disseminations, migrations, releases or threatened releases, of
Hazardous Substances into
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<PAGE> 26
the air (indoor and outdoor), surface water, groundwater, soil, land surface or
subsurface, buildings, facilities, real or personal property or fixtures or
otherwise arising out of, relating to, or resulting from the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
handling, release or threatened release of Hazardous Substances.
"HAZARDOUS SUBSTANCES" means any pollutants, contaminants, toxic or hazardous or
extremely hazardous substances, materials, wastes, constituents, compounds,
chemicals, natural or man-made elements or forces (including petroleum or any
by-products or fractions thereof, any form of natural gas, Bevill Amendment
materials, lead, asbestos and asbestos-containing materials ("ACM"), building
construction materials and debris, polychlorinated biphenyls (PCBs) and
PCB-containing equipment, radon and other radioactive elements, ionizing
radiation, electromagnetic field radiation and other non-ionizing radiation,
sonic forces and other natural forces, infectious, carcinogenic, mutagenic, or
etiologic agents, pesticides, defoliants, explosives, flammables, corrosives and
urea formaldehyde foam insulation) that are regulated by, or may now or in the
future form a basis of liability under, any Environmental Laws.
"ENVIRONMENTAL LAWS" means Environmental Act (Manitoba), Dangerous Good Handling
and Transportation Act (Manitoba), Public Health Act (Manitoba), Ozone Depleting
Substances Act (Manitoba), the Contaminated Sites Remediation and Consequential
Amendments Act (Manitoba) before or after proclamation, the City of Winnipeg
Sewer By-Law, as well as publicly disclosed guidelines issued by Manitoba
Environment, including "A Guideline for the Environmental Investigation and
Remediation of Petroleum Storage Suites in Manitoba" and "Treatment and Disposal
of Petroleum Contaminated Soil", Transportation of Dangerous Goods Act (Canada),
Canadian Environmental Protection Act (Canada), and all environmental laws of
the United States and any state therein, as the same may be applicable to the
Corporation or any past or present operations of the Corporation, as any of the
above Laws or guidelines have been or may be amended from time to time, all
rules and regulations promulgated pursuant to any of the above statutes, and any
other law governing Environmental Matters, as the same have been or may be
amended from time to time, including any common law cause of action providing
any right or remedy relating to Environmental Matters, all indemnity agreements
and other contractual obligations (including leases, asset purchase and merger
agreements) relating to environmental matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to Environmental Matters.
For the purposes of this Section 2.28, "REAL PROPERTY" means all real property
currently owned, occupied, operated, controlled, used or leased by the
Corporation and any buildings, facilities, machinery, equipment, furniture,
leasehold and other improvements, fixtures, vehicles, structures, any related
capital items and other tangible property located on, in, under, or above such
real property.
2.29 BANK ACCOUNTS. Schedule 2.29 is a true and correct list of the
name of each bank, savings and loan, or other financial institution in which the
Corporation or any Subsidiary has an account or safe deposit box, the names of
all persons authorized to draw on each account or to have access to each box,
the number of signatures required to be given for a withdrawal and a description
of the type of account.
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<PAGE> 27
2.30 COMPLIANCE WITH LAWS. Each of the Corporation and each Subsidiary
has complied with all laws, regulations, rules and orders of any governmental
department or agency or any other commission, board, agency or instrumentality,
federal, state or local, or other requirements of law affecting its business and
operations and is not in default under or in violation of any provision of any
federal, state or local law, regulation, rule or order.
2.31 POWERS OF ATTORNEY. Neither the Corporation nor any Subsidiary has
given any power of attorney (irrevocable or otherwise) that is presently in
effect to any person or entity for any purpose.
2.32 LICENSES AND RIGHTS. Each of the Corporation and each Subsidiary
possesses all franchises, licenses, easements, permits and other authorizations
from governmental or regulatory authorities and from all other persons or
entities that are necessary to permit it to engage in its business as presently
conducted in and at all locations and places where it is presently operating.
Such franchises, licenses, permits and other authorizations are listed on
Schedule 2.32.
2.33 PRODUCTS.
(a) The products sold by the Corporation and each Subsidiary
conform to and meet or exceed the standards required by all applicable
laws, ordinances and regulations now in effect and, to Sellers'
knowledge, there is no pending legislation, ordinance or regulation
which if adopted or enacted would have a material adverse effect on
such products or the Corporation's business.
(b) Schedule 2.33 contains a written statement accurately
describing the Corporation's and each Subsidiary's warranties and
customer service policies and any recurring warranty problems. Neither
the Corporation nor any Subsidiary has outstanding contracts or
proposals that depart from the warranty and customer service policy and
practice described in such Schedule. Except as may be listed on
Schedule 2.33, no claims of customers or others based on an alleged or
admitted defect of material, workmanship or design or otherwise in or
in respect of any of the Corporation's or any Subsidiary's products are
presently pending or, to the knowledge of Sellers, threatened.
2.34 CASUALTY OCCURRENCES. Schedule 2.34 is a true and correct list of
occurrences during the last five (5) years of damages to persons or property
involving any defects or alleged defects in any of the Corporation's or any
Subsidiary's products or their respective designs. All such occurrences are
fully and adequately covered by paid-for insurance.
2.35 INVENTORY. Except as set forth on Schedule 2.35, the inventories
of the Corporation and each Subsidiary consist only of items of a quality and
quantity usable and saleable in the ordinary course of business, consistent with
past practice, within the Corporation's and the Subsidiaries' normal inventory
"turn" experience and do not include any item of inventory which has previously
been written off by the Corporation or any Subsidiary. Items of below-standard
quality
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<PAGE> 28
and items not previously readily saleable in the ordinary course of business
have been written down in value in accordance with generally accepted accounting
principles to estimated net realizable market values. The value at which the
inventories are carried on the Corporation's books reflects the lower of
specific cost or estimated net realizable market value, and is based on
quantities determined by physical count.
2.36 CAPITAL EXPENDITURE PLANS. Schedule 2.37 sets forth a description
of each capital expenditure program of the Corporation and each Subsidiary
involving the expenditure of at least Fifty Thousand Dollars ($50,000) as to
which the expenditure of funds is incomplete, setting forth (i) the budgeted
expenditures and (ii) the actual amounts expended, if any.
2.37 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties made by Sellers in this Agreement or in any document, statement,
certificate, Schedule, chart, list, letter, compilation or other document
furnished or to be furnished to Purchaser or its counsel pursuant to this
Agreement, or in connection with the transactions contemplated under this
Agreement (collectively, the "Documents"), contain or will contain any untrue
statement of a material fact, or omit or will omit to state a material fact
necessary to make the statements of fact contained therein not misleading. All
statements of fact made and data presented by Sellers in any Document are deemed
to be representations and warranties made under this Agreement by Sellers.
References in any Document, or in any Contract, a copy of which has been
provided to Purchasers or its counsel, to any other Document or Contract as to
which Sellers prior to the date of this Agreement have not provided to Purchaser
or its counsel a true copy or, if oral, a written summary, will not be deemed
for any purposes of this Agreement to be a disclosure of any term, provision or
statement of fact of, or relating to, such other Document or Contract.
2.38 STOCK DIVIDENDS. In the event that the Corporation declares and
pays a dividend on the any of its outstanding shares payable in any of its
shares, then (a) the dividend will be duly authorized by the Corporation and
will not contravene any of the articles or by-laws of the Corporation, or any
applicable laws including, without limitation, the Canada Business Corporations
Act, (b) Sellers will attach hereto as Schedule 2.38 the number of shares issued
in connection with such dividend and a description of the rights attaching to
the shares issued in such dividend, (c) and the shares upon which the dividend
was paid are not and will not be as a result of the entering into of this
Agreement, "short-term preferred shares" or "taxable preferred shares" (as
defined in the INCOME TAX ACT (CANADA)).
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ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser warrants and represents to, and agrees with, Sellers as
follows:
3.1 ORGANIZATION AND GOOD STANDING OF PURCHASER. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, U.S.A. Purchaser has full power and authority to carry on its
business as and where now conducted and to own or lease and operate its
properties at and where now owned or leased and operated by it, and is duly
qualified to do business and is in good standing in every jurisdiction in which
the property owned, leased or operated by it, or the nature of the business
conducted by it, makes such qualification necessary.
3.2 AUTHORITY OF PURCHASER. The execution, delivery and consummation of
this Agreement by Purchaser has been duly authorized by the board of directors
of Purchaser in accordance with all applicable laws, the Certificate of
Incorporation and By-Laws of Purchaser, and at the Closing Date no further
corporate action will be necessary on the part of Purchaser to make this
Agreement valid and binding on Purchaser and enforceable against Purchaser in
accordance with its terms.
3.3 INVESTMENT PURPOSE. The shares of capital stock of the Corporation
purchased pursuant to this Agreement will be acquired for investment and not
with a view toward the resale or distribution thereof.
ARTICLE IV
----------
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
------------------------------------------------
The obligations of Purchaser under this Agreement are, at its option,
subject to satisfaction of the following conditions at or prior to the Closing
Date:
4.1 REPRESENTATIONS TRUE. The representations and warranties of Sellers
contained in this Agreement are true, complete and accurate in all material
respects on and as of the Closing Date to the same extent and with the same
force and effect as if made on such date, except as affected by the transactions
contemplated under this Agreement.
4.2 ALL CONSENTS OBTAINED. All necessary approvals or consents required
to be obtained by Sellers or Purchaser have been obtained from all local, state
and federal departments and agencies, from all other commissions, boards,
agencies and from any other person or entity whose approval or consent is
necessary to consummate the transactions contemplated under this Agreement
including, without limitation, such consents as may be listed or required to be
listed on Schedule 2.2.
4.3 PERFORMANCE AND OBLIGATIONS. Sellers have duly performed all
obligations, covenants and agreements undertaken by Sellers in this Agreement
and have complied with all terms and
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conditions applicable to Sellers under this Agreement to be performed and
complied with on or before the Closing Date.
4.4 RECEIPT OF DOCUMENTS BY PURCHASER. Purchaser has received:
(a) a certificate executed by Sellers certifying as to the
fulfillment of the matters contained in Sections 4.1, 4.2, 4.3 and 4.5.
(b) a true and correct copy of the Corporation's Articles of
Amalgamation, certified by the appropriate governmental authority of
Canada as of a date not more than fourteen (14) days prior to the
Closing Date, and a true and correct copy of the Corporation's By-Laws
certified by the Secretary of the Corporation as of the Closing
Date.
(c) a written opinion from counsel for Sellers (who must be
satisfactory to Purchaser and its counsel), containing such
assumptions, qualifications and exceptions as are customary and
appropriate in transactions of this type, dated as of the Closing Date,
addressed to Purchaser, satisfactory to Purchaser and its counsel in
form and substance, to the effect that:
(i) The Corporation and each Subsidiary is duly
incorporated, validly existing and is in good standing under
the laws of its respective jurisdiction of incorporation, has
full corporate power and authority to carry on its business as
and where now conducted, and to own or lease and operate its
properties at and where now owned or leased and operated by
it, and is qualified to do business as a foreign corporation
and is in good standing in every jurisdiction in which the
property owned, leased or operated by it, or the nature of the
business conducted by it, makes such qualification necessary;
(ii) The Corporation is authorized to issue
_________________ shares of _____________ shares, without par
value, of which _________________________ shares are duly and
validly issued and outstanding, fully paid and nonassessable
and were not issued in violation of any pre-emotive or any
other rights, including any rights under any federal or state
securities laws. There are no other shares of stock,
convertible or other securities or rights, warrants or options
with respect to any shares of stock or securities of the
Corporation authorized, issued or outstanding;
(iii) Sellers are the record and beneficial owners of all
the Shares and have full right and lawful authority to convey,
transfer and assign the Shares to Purchaser as provided in
this agreement. Sellers have good and marketable title to the
Shares free and clear of any lien, claim, charge, option,
security interest, restriction on transfer, encumbrances or
other defect in title. On the consummation of the
transactions contemplated by the Agreement, Purchaser will
acquire good and
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<PAGE> 31
marketable title to the Shares free and clear of any lien,
claim, charge, option, security interest, restriction on
transfer, encumbrance or other defect in title;
(iv) This Agreement constitutes the legal, valid and
binding obligation of Sellers, and is enforceable against
Sellers in accordance with its terms;
(v) Except as set forth in this Agreement or in any
Schedule, the execution and delivery of this Agreement and the
consummation of the transactions contemplated under this
Agreement by Sellers (a) are not in conflict with the
[Articles] [Certificate] of Incorporation or [By-Laws]
[Regulations] of the Corporation, (b) do not (with or without
notice or the passage of time or both) constitute a default
under, and are not in conflict with, any Contract known to
such counsel to which the Corporation is a party or to which
any of its assets are subject, (c) do not violate any order,
judgment or decree or any rule, regulation or law, or any
other restriction known to such counsel to which the
Corporation is a party or to which any of their respective
assets are subject and (d) will not (with or without notice or
the passage of time or both) result in the creation of any
lien or any charge on or any loss of any assets of the
Corporation or in the acceleration or termination of any loan,
security interest or other agreement known to such counsel to
which the Corporation is a party or to which any of its assets
are subject;
(vi) Except with respect to those matters as may be
disclosed in any Schedule, such counsel has no knowledge of
any action, suit, claim, demand, arbitration or other
proceeding or investigation, administrative or judicial,
pending or threatened against or affecting the Corporation or
any of its assets at law or in equity, or before or by any
federal, state, municipal or other governmental department or
by any other commission, board, agency or instrumentality,
domestic or foreign, that can reasonably be expected to have
any adverse effect on the business, assets, condition
(financial or otherwise), results of operations or prospects
of the Corporation;
(vii) Such other material matters which Purchaser or its
counsel reasonably requests;
(d) the resignations of such officers and directors of the
Corporation as may be requested by Purchaser;
(e) certificates representing all of the Shares, with stock
powers covering such shares duly endorsed in blank; and
(f) a general release of all claims of Sellers against the
Corporation, in the form of EXHIBIT "C" to this Agreement.
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<PAGE> 32
4.5 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency (a) in which it will be or it
is sought to restrain or prohibit or to obtain material damages or relief in
connection with this Agreement or the consummation of this Agreement, or (b)
which is likely to materially and adversely affect the value of the business or
assets of the Corporation.
4.6 EMPLOYMENT AGREEMENTS. Each of David Romanow, Brian Topnik and
Robert Jenkyns has entered into an Employment Agreement substantially in the
forms of EXHIBITS "D", "E" AND "F", respectively, to this Agreement
(collectively, the "Employment Agreements").
4.7 DELIVERY OF BOOKS AND RECORDS. Sellers have delivered or made
available to Purchaser all books and records of the Corporation and each
Subsidiary relating to or reasonably required for the operation of the business
of the Corporation and each Subsidiary, including, without limitation, copies of
all Contracts, financial and accounting records, files and records relating to
employees, and all related correspondence.
4.8 ABSENCE OF CHANGES. There has been no material adverse change in
the business (financial or otherwise), assets, liabilities, results of
operations or prospects of the Corporation and each Subsidiary, taken as a
whole, since the date of this Agreement.
4.9 ESCROW AGREEMENT. Sellers have entered into the Escrow Agreement.
4.10 INVESTMENT, LOCK-UP AND REGULATION S LETTER. If the Purchase Price
- - Alternative 1 is applicable, Purchaser shall have received from each Seller an
agreement and acknowledgment substantially in the form of EXHIBIT "G" attached
hereto.
4.11 PURCHASER'S REVIEW. Purchaser has conducted a review of the
business, assets, books and records of the Corporation and each Subsidiary and
has found the results of such review to be satisfactory to Purchaser, in its
sole discretion.
4.12 NON-COMPETITION AGREEMENT. Joe Romanow has entered into a non-
competition agreement substantially in the form attached hereto as EXHIBIT "H".
4.13 SHAREHOLDER'S AGREEMENT. The unanimous Shareholder's Agreement
relating to the Shares between Sellers and the Corporation has been terminated
on terms satisfactory to Purchaser.
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ARTICLE V
---------
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS
----------------------------------------------
The obligations of Sellers under this Agreement are, at the option of
Sellers, subject to satisfaction of the following conditions at or prior to the
Closing Date:
5.1 REPRESENTATIONS TRUE. The representations and warranties of
Purchaser contained in this Agreement are true, complete and accurate in all
material respects on and as of the Closing Date to the same extent and with the
same force and effect as if made on such date, except as affected by the
transactions contemplated under this Agreement.
5.2 RECEIPT OF DOCUMENTS BY SELLERS. Sellers have received:
(a) the Purchase Price as provided in Sections 1.2 and;
(b) a certificate executed by the President and Secretary or
Treasurer of Purchaser certifying as to the fulfillment of the matters
contained in Section 5.1 of this Article;
(c) a written opinion from counsel for Purchaser, dated as of
the Closing Date, addressed to Sellers, satisfactory to Sellers and its
counsel in form and substance, to the effect that:
(i) Purchaser is duly incorporated, validly existing
and is in good standing under the laws of Canada, has full
corporate power and authority to carry on its business as and
where now conducted, and to own or lease and operate its
properties at and where now owned or leased and operated by
it;
(ii) Purchaser has all requisite corporate power to
execute, deliver and carry out its obligations under this
Agreement and the execution, delivery and performance of this
Agreement by Purchaser have been duly authorized by all
requisite corporate action;
(iii) The execution and delivery of this Agreement and
the consummation of the transactions contemplated under this
Agreement by Purchaser are not in conflict with the
[Certificate of Incorporation] or [By-Laws] of Purchaser; and
(iv) This Agreement constitutes the legal, valid, and
binding obligation of Purchaser, and is enforceable against
Purchaser in accordance with its terms;
(d) certified copies of resolutions duly adopted by the Board
of Directors of Purchaser approving this Agreement and the transactions
contemplated under it.
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<PAGE> 34
5.3 NO LITIGATION. No suit, action, or other proceeding is threatened
or pending before any court or governmental agency in which it will be or it is
sought to obtain material damages from Sellers in connection with this Agreement
or the consummation of this Agreement.
5.4 EMPLOYMENT AGREEMENTS. Purchaser has caused the Corporation to
enter into the Employment Agreements.
5.5 ESCROW AGREEMENT. Purchaser has entered into the Escrow Agreement.
ARTICLE VI
----------
CLOSING
-------
The closing of the transactions contemplated by this Agreement (the
"Closing") will take place at the offices of Benesch, Friedlander, Coplan &
Aronoff LLP, 2300 B.P. America Bldg., 200 Public Square, Cleveland, Ohio 44114,
on the date specified in a notice provided by Waterlink to Sellers, such date to
be not less than five (5) business days after the date such notice is duly given
in accordance with Article XII hereof or on such other date mutually agreeable
to the parties (the "Closing Date"). If the Closing has not taken place by such
date by reason of failure of fulfillment of any condition or conditions
contained in this Agreement, then the non-fulfilling party may, by written
notice to the other party, extend the Closing Date for a period of fourteen (14)
days to permit fulfillment of such condition or conditions. If the Closing has
not occurred by June 30, 1997, (unless the Closing did not occur by reason of
Sellers not fulfilling any of their conditions contained in this Agreement
notwithstanding the fact that Waterlink delivered a notice to Sellers in
accordance with this Article VI specifying a Closing Date before June 30, 1997)
notwithstanding the provisions of Section 9.1(f) to the contrary, Sellers may
cause the Corporation to declare and pay a cash dividend on the outstanding
Common Shares in an aggregate amount not to exceed the lesser of (i) the maximum
amount permitted by law and (ii) the amount which, after giving effect to the
payment of such dividend, would result in the stockholders' equity of the
Corporation, as determined by Canadian GAAP, to be less than $910,620.00 on the
Closing Date (any adjustment, if necessary, to be made on the Closing Date to
ensure compliance with this clause (ii)). Unless the parties otherwise agree in
writing, if the Closing has not occurred prior to September 30, 1997, then this
Agreement will be deemed to have been terminated and abandoned, subject to the
legal rights and remedies of either party arising out of the other party's
breach of any of the provisions of this Agreement. The parties will in good
faith use all reasonable efforts to achieve the Closing except that the parties
acknowledge that Purchaser has no obligation whatsoever to close the
transactions contemplated herein.
30
<PAGE> 35
ARTICLE VII
-----------
TERMINATION OF AGREEMENT
------------------------
This Agreement and the transactions contemplated under it may be
terminated and abandoned at any time prior to the Closing Date (unless otherwise
specified below):
(a) by mutual consent in writing of Purchaser and Sellers;
(b) by Purchaser if there has been a material
misrepresentation or breach of warranty in the representation and
warranties of Sellers made under this Agreement;
(c) by Purchaser if all or a material portion of the
Corporation's assets have been materially damaged or destroyed before
the Closing;
(d) by Purchaser if any of the Real Property has been taken,
in whole or in part, by eminent domain or by conveyance in lieu of
eminent domain;
(e) by Purchaser, if any of the conditions contained in
Article IV, or by Sellers, if any of the conditions contained in
Article V, respectively, have not been fulfilled in all respects in
each case at or prior to the Closing Date.
Any termination pursuant to this Article VII will not affect the obligations of
the parties under Article XI or Section 15.4, and will be without prejudice to
the terminating party's legal rights and remedies by reason of any breach of
this Agreement occurring prior to such termination. In the event this Agreement
is terminated by Purchaser pursuant to Sections (b), (c), (d) or (e) of this
Article VII (other than a termination pursuant to Section (e) above solely as a
result of any of the conditions contained in Sections 4.5(b), 4.8 or 4.11 of
Article IV not being fulfilled, in which case Purchaser shall forfeit and
Sellers shall retain the Deposit), Sellers will return to Purchaser the Deposit
within three (3) days of such termination. In the event of any other termination
of this Agreement by Purchaser, Purchaser shall forfeit and Sellers shall retain
the Deposit, it being the agreement of the parties that forfeiture of the
Deposit shall constitute the sole and exclusive remedy against the Purchaser for
failing to consummate the transactions contemplated hereby, and for any other
breach of this Agreement by Purchaser that prevents the Closing from occurring,
all other remedies being hereby expressly waived by each of the Sellers.
Notwithstanding anything in this Agreement to the contrary, if, on the Closing
Date, Purchaser (i) has complied with all of the conditions to Closing contained
in Article V, (ii) has notified Sellers of its intention to consummate the
transactions contemplated under this Agreement, and (iii) is ready and able to
pay Sellers the Purchase Price and furnishes evidence to that effect to Sellers,
and if the Closing does not then occur due to the refusal of Sellers to so
consummate the transactions contemplated under this Agreement, Purchaser will be
entitled to specifically enforce the terms of this Agreement in a court of
competent jurisdiction, it being acknowledged that monetary damages due
Purchaser in such case cannot be adequately determined at law.
31
<PAGE> 36
ARTICLE VIII
------------
SURVIVAL OF REPRESENTATIONS
---------------------------
AND WARRANTIES: INDEMNIFICATION: DISPUTES
-----------------------------------------
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding the
Closing of the transactions contemplated under this Agreement, or any
investigation made by or on behalf of Sellers or Purchaser, the representations
and warranties of Sellers and Purchaser contained in this Agreement or in any
certificate, Schedule, chart, list, letter, compilation or other document
furnished or to be furnished pursuant to this Agreement, will survive the
Closing for a period of two (2) years, except that the representations and
warranties of Sellers contained in Sections 2.4 and 2.12 with respect to title
and tax matters will survive for so long as any applicable statute of
limitations has not expired, been suspended or been waived or extended, and for
thirty (30) days after and the representations and warranties of Sellers
contained in Sections 2.18 and 2.28 relating to employee benefit matters and
environmental matters will survive the Closing for a period of five (5) years.
However, as to any breach of, or misstatement in, any such representation or
warranty as to which Purchaser has given notice to Sellers on or prior to the
expiration of the applicable period, as above set forth, the same will continue
to survive beyond said period, but only as to the matters contained in such
notice.
8.2 SELLERS' INDEMNIFICATION. Sellers, jointly and severally, will
indemnify and save harmless Purchaser and its subsidiaries, shareholders,
directors, officers, employees and agents from any and all costs, expenses,
losses, damages and liabilities incurred or suffered, directly or indirectly, by
any of them (including, without limitation, reasonable legal fees and expenses)
resulting from or attributable to the breach of, or misstatement in, any one or
more of the representations, warranties and covenants of Sellers made in or
pursuant to this Agreement. Purchaser shall have the right to set-off any
amounts owed by Sellers to Purchaser for indemnification pursuant to this
Section 8.2 against any Earn-out Payments or Performance Incentive Payments
earned by Sellers pursuant to Section 1.4 of this Agreement. Sellers'
indemnification obligations under this Agreement shall be secured by the funds
held in escrow pursuant to the Escrow Agreement.
8.3 DEFENSE OF CLAIM. If Purchaser has received actual notice of any
claim asserted or any action or administrative or other proceeding commenced in
respect of which claim, action or proceeding indemnity properly may be sought
against Sellers pursuant to this Agreement, Purchaser will give notice in
writing to Sellers. Within fifteen (15) days after the earlier of (i) receipt of
such notice or (ii) receipt of actual notice by Sellers from sources other than
Purchaser, Sellers, acting through the Sellers' representative, may give
Purchaser written notice of their election to conduct the defense of such claim,
action or proceeding at its own expense. If Sellers have given Purchaser such
notice of election to conduct the defense, Sellers may conduct the defense at
its expense, but Purchaser will nevertheless have the right to participate in
the defense, but such participation will be solely at the expense of Purchaser,
without a right of further reimbursement. If Sellers have not so notified
Purchaser in writing (within the time above provided) of its election to conduct
the defense of such claim, action or proceeding, Purchaser may (but need not)
conduct (at Sellers'
32
<PAGE> 37
expense) the defense of such claim, action or proceeding. Purchaser may at any
time notify Sellers of Purchaser's intention to settle, compromise or satisfy
any such claim, action or proceeding (the defense of which Sellers have not
previously elected to conduct) and may make such settlement, compromise or
satisfaction (at Sellers' expense) unless Sellers notify Purchaser in writing
(within seven (7) days after receipt of such notice of intention to settle,
compromise or satisfy) of its election to assume (at its sole expense) the
defense of any such claim, action or proceeding and promptly take appropriate
action to implement such defense. Any settlement, compromise or satisfaction
made by Purchaser, or any such final judgment or decree entered in, any claim,
action or proceeding defended only by Purchaser, regardless of the amount or
terms, will be deemed to have been consented to by, and will be binding on,
Sellers as fully as though they alone had assumed the defense and a final
judgment or decree had been entered in such proceeding or action by a court of
competent jurisdiction in the amount of such settlement, compromise,
satisfaction, judgment or decree. If Sellers have elected under this Section 8.3
to conduct the defense of any claim, action or proceeding, then Sellers will be
obligated to pay the amount of any adverse final judgment or decree rendered
with respect to such claim, action or proceeding. If Sellers elect to settle,
compromise or satisfy any claim, action or proceeding defended by them, the cost
of any such settlement, compromise or satisfaction will be borne entirely by
Sellers and may be made only with the consent of Purchaser. Purchaser and
Sellers will use all reasonable efforts to cooperate fully with respect to the
defense of any claim, action or proceeding covered by this Section 8.3.
8.4 PURCHASER'S INDEMNIFICATION. Purchaser covenants and agrees to
indemnify and save harmless Sellers from any and all costs, expenses, losses,
damages and liabilities incurred or suffered by Sellers (including reasonable
legal fees and costs) resulting from or attributable to the breach of, or
misstatement in, any one or more of the representations, warranties or covenants
of Purchaser made in or pursuant to this Agreement to the same extent as
provided in Clauses (a) and (b) of Section 8.2, and in the same manner as
provided in Section 8.3, of this Article VIII.
8.5 INDEMNIFICATION BASKET. Any of the foregoing notwithstanding, no
party will have any right to indemnification unless and until the aggregate
damages indemnifiable by the indemnifying party exceed One Hundred Fifty
Thousand Dollars ($150,000.00) and thereafter will be entitled to the full
extent of the damages including the first One Hundred Fifty Thousand Dollars
($150,000.00).
ARTICLE IX
----------
CONDUCT PRIOR TO CLOSING DATE
-----------------------------
9.1 CONTINUATION OF BUSINESS. Until the Closing Date, Sellers will
cause the Corporation and each Subsidiary to continue to conduct its business in
the ordinary and usual course consistent with past practice, and, without
limiting the generality of this undertaking, Sellers will not, and will
33
<PAGE> 38
cause the Corporation and each Subsidiary not to, do or suffer to be done any of
the following, whether or not in the ordinary and usual course, without the
prior written consent of Purchaser, such consent not to be unreasonably
withheld:
(a) Dispose or contract to dispose of, or acquire or contract
to acquire, any Real Property or other assets (except for inventory
disposed of or acquired in the ordinary course of business), or any
interest in any Real Property or other capital assets;
(b) Borrow any money;
(c) Enter into any lease;
(d) Encumber any assets;
(e) Enter into any contract, commitment or arrangement of the
type required by Section 2.20 above to be listed on Schedule 2.20;
(f) Subject to the provisions of Article VI, declare or pay
any dividend (other than a stock dividend payable on Common Shares not
to exceed Twenty Million Dollars ($20,000,000)) or declare or make
any other distribution to shareholders;
(g) Purchase or redeem any shares, notes or other securities;
(h) Increase the rate or amount of compensation or the amount
or type of other remuneration to any of its directors, officers,
employees, agents or other representatives, or agree to do so;
(i) Form or cause to be formed, or dispose or contract to
dispose of, any Subsidiary, or any interest in any Subsidiary or
acquire any stock or equity interest in any corporation or other
entity;
(j) Reclassify, split or combine its shares, or issue, sell,
distribute or dispose of any shares, notes or other securities, or
issue or make any changes to any options, warrants or rights with
respect to its shares, or commit itself to do so;
(k) Make any new commitments or agree to make commitments for
capital improvements or significantly alter standing commitments for
capital improvements;
(l) Make any single expenditure or agree to make any single
expenditure, or series of expenditures in excess of Twenty Thousand
Dollars ($20,000) in the aggregate;
(m) Negotiate with anyone other than Purchaser for, or
participate with anyone other than Purchaser in, the acquisition of
the Shares;
34
<PAGE> 39
(n) Amend, or permit to be amended, in any way, its Articles
of Amalgamation or By-Laws or merge or consolidate with any other
corporation or other entity or change the character of its business; or
(o) Make any material change in accounting methods.
9.2 PRESERVATION OF BUSINESS. Sellers will cause the Corporation and
each Subsidiary to (i) preserve intact its present business organization and
personnel, (ii) preserve its business, actual and potential, and its
advantageous relationships with all persons having business dealings with it,
and (iii) preserve and maintain in force all its licenses, certificates, leases,
contracts, permits, registrations, franchises, confidential information,
patents, trademarks, trade names, service marks and copyrights, and applications
for any of the same, and other similar rights. Sellers will cause the
Corporation to maintain in force all property, casualty, crime, life, directors,
officers and other forms of insurance and bonds which it presently carries.
9.3 CONSENTS AND APPROVALS. Sellers will use all reasonable efforts to
obtain all necessary consents and approvals of all persons, firms, entities and
governmental authorities to the consummation of the transactions contemplated by
this Agreement.
ARTICLE X
---------
ASSIGNMENT, THIRD PARTIES, BINDING EFFECT
-----------------------------------------
Subject to the following sentence, the rights under this Agreement are
not assignable nor are the duties delegable by a party without the written
consent of the other party first having been obtained, and any attempted
assignment or delegation without such consent will be null and void. Waterlink
may assign any or all of its rights hereunder or delegate any or all of its
duties hereunder to one or more wholly-owned subsidiaries whether now existing
or formed in the future. Upon any such assignment or delegation, the assignee
shall execute and deliver to Sellers a writing agreeing to be bound by the terms
of this Agreement. Nothing contained in this Agreement is intended to convey
upon any person or entity, other than the parties hereto and their successors in
interest and permitted assigns, any rights or remedies under or by reason of
this Agreement unless expressly stated. All covenants, agreements,
representations and warranties of the parties contained in this Agreement are
binding on and will inure to the benefit of Purchaser, on the one hand and
Sellers, on the other, and their respective successors and permitted assigns.
35
<PAGE> 40
ARTICLE XI
----------
EXPENSES
--------
Purchaser, on the one hand, and Sellers, on the other, will bear their
own respective expenses, including, without limitation, counsel and accountants'
fees, in connection with the preparation and negotiation of, and transactions
contemplated under, this Agreement.
ARTICLE XII
-----------
NOTICES
-------
All notices, requests, demands and other communications under this
Agreement must be in writing and will be deemed duly given, unless otherwise
expressly indicated to the contrary in this Agreement, (i) when personally
delivered, (ii) upon receipt of a telephonic facsimile transmission with a
confirmed telephonic transmission answer back, (iii) three (3) days after having
been deposited in the United States or Canadian mail, certified or registered,
return receipt requested, postage prepaid, or (iv) one (1) business day after
having been dispatched by a nationally recognized overnight courier service,
addressed to the parties or their permitted assigns at the following addresses
(or at such other address or number as is given in writing by either party to
the other) as follows:
To Purchaser: c/o Waterlink, Inc.
------------ 4100 Holiday Street, N.W.
Canton, Ohio, USA 44702
Facsimile No.: (330) 455-8134
Attention: Theodore F. Savastano, Chairman
With a copy to: Benesch, Friedlander,
Coplan & Aronoff LLP
2300 BP America Building
200 Public Square
Cleveland, Ohio, USA 44114
Facsimile No.: (216) 363-4588
Attention: Ira C. Kaplan
To Sellers: c/o Bioclear Technology, Inc.
----------- 1218 Redonda Street
Winnipeg, Manitoba, Canada R3C 2Z2
Facsimile No.:(204) 222-6563
Attention: David Romanow
36
<PAGE> 41
With a copy to: Fillmore & Riley
1700 - 360 Main Street
Winnipeg, Manitoba, Canada R3C 3Z3
Facsimile No.:(204) 957-0516
Attention: W. G. Ryall
ARTICLE XIII
------------
REMEDIES NOT EXCLUSIVE
----------------------
No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy, and each and every remedy will
be cumulative and will be in addition to every remedy given under this Agreement
or now or subsequently existing, at law or in equity, by statute or otherwise.
The election of any one or more remedies by Purchaser or Sellers will not
constitute a waiver of the right to pursue other available remedies.
ARTICLE XIV
-----------
[RESERVED]
ARTICLE XV
----------
MISCELLANEOUS
-------------
15.1 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same document.
15.2 CAPTIONS AND SECTION HEADINGS. Captions and section headings are
for convenience only, are not a part of this Agreement and may not be used in
construing it.
15.3 WAIVERS. Any failure by any of the parties to comply with any of
the obligations, agreements or conditions set forth in this Agreement may be
waived by the other party or parties, but any such waiver will not be deemed a
waiver of any other obligation, agreement or condition contained herein.
15.4 RIGHT OF INSPECTION. From and after the date of this Agreement to
the Closing Date, Sellers will give to Purchaser and its counsel, accountants
and other representatives, full access during normal business hours to the
offices, properties, agreements, records and affairs of the Corporation, and
will furnish copies of all Contracts and other instruments as Purchaser or its
counsel may reasonably request. Such investigation will not affect the
warranties and representations of Sellers under this Agreement. All such
information will be treated confidentially
37
<PAGE> 42
and will be used only for the purposes intended. If the transactions
contemplated under this Agreement do not take place, all documents and other
property of the Corporation or Sellers will be returned and all disclosures and
information given to Purchaser as contemplated under this Agreement will be
treated as confidential and not disclosed to others unless disclosed publicly by
Sellers or other third parties without fault on the part of Purchaser, or unless
otherwise required by law.
15.5 AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS. Each of the parties
agrees to cooperate in the effectuation of the transactions contemplated under
this Agreement and to execute any and all additional documents to take such
additional action as is reasonably necessary or appropriate for such purposes.
15.6 ENTIRE AGREEMENT. This Agreement, including any certificate,
schedule, exhibit or other document delivered pursuant to its terms, constitutes
the entire agreement between the parties. There are no verbal agreements,
representations, warranties, undertakings or agreements between the parties, and
this Agreement may not be amended or modified in any respect, except by a
written instrument signed by the parties to this Agreement.
15.7 GOVERNING LAWS. This Agreement is to governed by and construed in
accordance with the internal laws of Manitoba, Canada.
15.8 KNOWLEDGE. All references to "knowledge" or "best knowledge", of a
party or "known to" a party means the actual knowledge of a party, or the
knowledge which a party would have if performing such party's duties in a
reasonable and prudent manner. Actual knowledge of any officer, director or
supervisory employee of a party will be imputed to, and deemed to be actual
knowledge of, that party.
15.9 PRESS RELEASES. Prior to the Closing, neither party will issue or
cause the publication of any press release or other public announcement with
respect to this Agreement or the transactions contemplated under this Agreement
without the prior consent of the other party first obtained; provided, however,
that nothing in this Agreement will prohibit either party from issuing or
causing publication of any press release or public announcement to the extent
that such party determines, on advice on counsel, that such action is required
by law, in which case the party making such determination will, if practicable
under the circumstances, use reasonable efforts to allow the other party
reasonable time to comment on such release or announcement in advance of its
issuance.
15.10 CURRENCY. Unless indicated to the contrary, all references in
this Agreement to Dollars and $ shall mean Canadian Dollars.
15.11 SCHEDULES. Any particular matter disclosed on a Schedule to this
Agreement shall be deemed to be disclosed on every other Schedule to this
Agreement, provided such other Schedule or Schedules relate to similar subject
matters.
38
<PAGE> 43
15.12 CONSENT. By their execution hereof, each of the Corporation and
each Seller consent to Waterlink's inclusion of the information concerning the
Corporation and the transactions contemplated by this Agreement in Waterlink's
registration statement to be filed with the United States Securities and
Exchange Commission in connection with Waterlink's initial public offering.
15.13 INVESTMENT CANADA FILING. Purchaser shall file with Investment
Canada within the prescribed time a notice of the transactions contemplated by
this Agreement.
39
<PAGE> 44
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
WATERLINK, INC.
By: /S/ MICHAEL J. VANTUSKO
------------------------------
Its: /S/ CFO
------------------------------
"PURCHASER"
/s/ David Romanow
------------------------------------
David Romanow
/s/ Joe Romanow
------------------------------------
Joe Romanow
/s/ Brian Topnik
------------------------------------
Brian Topnik
/s/ Robert Jenkyns
------------------------------------
Robert Jenkyns
"SELLERS"
BIOCLEAR TECHNOLOGY, INC.
By: /s/ David Romanow
------------------------------
Its: /s/ Chairman, Sec./treas.
------------------------------
"CORPORATION"
40
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 18, 1997 with respect to the financial statements
of Lanco Environmental Products, Inc. (a) included in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-25249) and related Prospectus of
Waterlink, Inc. dated May 23, 1997 and (b) incorporated by reference in its
Current Report on Form 8-K dated June 27, 1997, both filed with the Securities
and Exchange Commission.
Plante & Moran LLP
Grand Rapids, Michigan
July 7, 1997
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 25, 1996 (except Note 9(b), which is as of
April 15, 1997), with respect to the consolidated financial statements of
Bioclear Technology, Inc. (a) included in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-25249) and related Prospectus of Waterlink, Inc.
dated May 23, 1997 and (b) incorprated by reference in its Current Report on
Form 8-K dated June 27, 1997, both filed with the Securities and Exchange
Commission.
ERNST & YOUNG
Chartered Accountants
Winnipeg, Canada
July 7, 1997
<PAGE> 1
Exhibit 99.01
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
BASIS OF PRESENTATION
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1997 adjusts the Company's historical balance sheet to give effect
to the following as if they occurred as of March 31, 1997 (i) the completion of
the Pending Acquisitions, (ii) the conversion of all outstanding preferred
stock, and (iii) the sale of the 4,500,000 shares of Common Stock by the Company
in the Offering and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds." The following Unaudited Pro Forma
Consolidated Statements of Operations for fiscal 1996 and the six months ended
March 31, 1996 and 1997 adjust the Company's historical statements of operations
to give effect to the events discussed in (i), (ii), and (iii) above and the
acquisitions completed during fiscal 1996 and fiscal 1997 as if they had
occurred as of October 1, 1995.
The pro forma financial statements have been derived in part from the
historical financial statements included elsewhere in this Prospectus. In
preparing the pro forma financial statements, the historical financial
statements of the completed acquisitions and Pending Acquisitions were converted
to a September 30 fiscal year end, except for Bioclear Technologies, Inc. which
has an August 31 fiscal year end.
The pro forma financial statements have been prepared by the Company based
in part on historical financial information provided by the management of the
Pending Acquisitions for periods prior to the consummation of these acquisitions
with respect to the historical results of operations and financial position of
Bioclear and Lanco. The related pro forma adjustments have been prepared by the
Company's management based on its assumptions and using the best available
information provided by the management of the Pending Acquisitions.
The financial information for companies located outside the United States
(Nordic Group and Bioclear) have been presented in accordance with United States
generally accepted accounting principles. The exchange rates used to present
such financial information is located on page F-79 for the Nordic Group and
pages F-96 and F-97 for Bioclear.
The Unaudited Pro Forma Condensed Consolidated Financial Data has been
prepared by the Company's management. This pro forma data does not purport to
represent the Company's financial position or results of operations had the
aforementioned transactions been completed as of the beginning of the periods
indicated, or to project the Company's results of operations at any future date
or for any future period. The Unaudited Pro Forma Condensed Consolidated
Financial Data should be read in conjunction with the Consolidated Financial
Statements and the notes thereto of the Company, the completed acquisitions and
the Pending Acquisitions, contained elsewhere in this Prospectus.
F-3
<PAGE> 2
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------- ADJUSTMENTS
PENDING(1) PRO FORMA FROM PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS PRO FORMA OFFERING AS ADJUSTED
------- ------------ ----------- --------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.... $4,298 $ 81 $ (130) (2) $ 4,249 $ 293 (3) $ 4,542
Accounts receivable.......... 18,570 1,558 -- 20,128 -- 20,128
Inventories.................. 8,818 447 -- 9,265 -- 9,265
Other current assets......... 5,507 234 -- 5,741 -- 5,741
------- ------- ------- ------- --------- -------
Total current assets........... 37,193 2,320 (130) 39,383 293 39,676
Property, plant and equipment,
net.......................... 3,111 2,311 -- 5,422 -- 5,422
Other assets:
Goodwill and other
intangibles, net........... 20,567 -- 19,346 (2) 39,913 -- 39,913
Other assets................. 1,816 -- -- 1,816 (622) (4) 1,194
------- ------- ------- ------- --------- -------
22,383 -- 19,346 41,729 (622) 41,107
------- ------- ------- ------- --------- -------
Total assets................... $62,687 $ 4,631 $19,216 $86,534 $ (329) $86,205
======= ======= ======= ======= ========= =======
Liabilities and shareholders'
equity
Current liabilities:
Accounts payable............. $12,053 $ 779 $ -- $12,832 $ -- $12,832
Accrued expenses............. 5,286 34 -- 5,320 -- 5,320
Other current liabilities.... 1,872 366 -- 2,238 (267) (4) 1,971
Current portion of long-term
debt....................... 2,019 2,413 -- 4,432 (2,019) (3) 2,413
------- ------- ------- ------- --------- -------
Total current liabilities...... 21,230 3,592 -- 24,822 (2,286) 22,536
Long-term obligations:
Long-term debt............... 21,729 -- -- 21,729 (21,729) (3) --
Notes payable-related
parties.................... 3,100 -- -- 3,100 (3,100) (3) --
Pro forma cash consideration
due to former owners of
Pending Acquisitions....... -- -- 16,644 (2) 16,644 (16,644) (3) --
Other long-term
liabilities................ 1,181 -- -- 1,181 -- 1,181
------- ------- ------- ------- --------- -------
26,010 -- 16,644 42,654 (41,473) 1,181
Redeemable preferred stock..... 8,500 -- -- 8,500 (8,500) (5) --
Shareholders' equity........... 6,947 1,039 2,572 (2) 10,558 51,930 (3)(4)(5) 62,488
------- ------- ------- ------- --------- -------
Total liabilities and
shareholders' equity......... $62,687 $ 4,631 $19,216 $86,534 $ (329) $86,205
======= ======= ======= ======= ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 3
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO
--------------------------------------------- ADJUSTMENTS FORMA
FISCAL 1996 NORDIC PENDING PRO FORMA PRO FROM AS
COMPANY ACQUISITIONS GROUP ACQUISITIONS ADJUSTMENTS FORMA OFFERING ADJUSTED
-------- ------------ ------- ------------ ----------- -------- ----------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 19,801 $ 13,264 $32,098 $ 10,239 $(2,715) (6) $72,687 $72,687
Cost of sales......... 11,233 8,226 22,465 4,936 (2,175) (6)(9) 44,685 44,685
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 8,568 5,038 9,633 5,303 (540) 28,002 28,002
Selling, general and
administrative
expenses(15)........ 7,029 4,498 7,665 4,872 (2,847) (7)(8)(9) 21,217 21,217
Amortization.......... 307 13 54 -- 686 (10) 1,060 1,060
------- ------- ------- ------- ------- ------- ------- -------
Operating income...... 1,232 527 1,914 431 1,621 5,725 5,725
Other income
(expense):
Interest expense.... (877) (86) (77) -- (2,746) (9)(11) (3,786) $ 3,686 (13) (100)
Other -- net........ (44) (28) 14 41 -- (17) (17)
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes............... 311 413 1,851 472 (1,125) 1,922 3,686 5,608
Income taxes.......... 5 11 -- 226 585 (12) 827 1,585 (12) 2,412
------- ------- ------- ------- ------- ------- ------- -------
Net income............ $ 306 $ 402 $ 1,851 $ 246 $(1,710) $ 1,095 $ 2,101 $ 3,196
======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
per share(14)....... $ 0.05 $ 0.16 $ 0.28
======= ======= =======
Number of shares used
to compute pro forma
per share
data(14)............ 6,428 6,756 11,256
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 4
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO
--------------------------------------------- ADJUSTMENTS FORMA
FISCAL 1996 NORDIC PENDING PRO FORMA PRO FROM AS
COMPANY ACQUISITIONS GROUP ACQUISITIONS ADJUSTMENTS FORMA OFFERING ADJUSTED
-------- ------------ ------- ------------ ----------- -------- ----------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $ 8,243 $ 8,459 $20,599 $ 3,179 $(4,653) (6) $35,827 $35,827
Cost of sales......... 4,821 5,115 14,099 1,644 (3,662) (6)(9) 22,017 22,017
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 3,422 3,344 6,500 1,535 (991) 13,810 13,810
Selling, general and
administrative
expenses(15)........ 2,897 2,926 3,779 1,147 313 (7)(8)(9) 11,062 11,062
Amortization.......... 117 13 27 -- 374 (10) 531 531
------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss).............. 408 405 2,694 388 (1,678) 2,217 2,217
Other income
(expense):
Interest expense.... (354) (66) (53) -- (1,490) (9)(11) (1,963) $ 1,913 (13) (50)
Other -- net........ (33) (32) -- 7 -- (58) (58)
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes............... 21 307 2,641 395 (3,168) 196 1,913 2,109
Income taxes.......... 2 145 -- 189 (251) (12) 85 822 (12) 907
------- ------- ------- ------- ------- ------- ------- -------
Net income............ $ 19 $ 162 $ 2,641 $ 206 $(2,917) $ 111 $ 1,091 $ 1,202
======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
per share(14)....... $ -- $ 0.02 $ 0.11
======= ======= =======
Number of shares used
to compute pro forma
per share
data(14)............ 6,424 6,752 11,252
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 5
WATERLINK, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO
------------------------------------------- ADJUSTMENTS FORMA
NORDIC PENDING PRO FORMA PRO FROM AS
COMPANY GROUP ACQUISITIONS ADJUSTMENTS FORMA OFFERING ADJUSTED
------- ------- ------------ ----------- -------- ----------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $24,727 $11,697 $ 2,670 $ 2,462 (6) $41,556 $41,556
Cost of sales........................... 14,800 7,752 1,450 1,926 (6) 25,928 25,928
------- ------- ------- ------- ------- ------- -------
Gross profit............................ 9,927 3,945 1,220 536 15,628 15,628
Selling, general and administrative
expenses(15).......................... 7,478 3,368 1,041 (48) (7) 11,839 11,839
Amortization............................ 280 23 -- 262 (10) 565 565
------- ------- ------- ------- ------- ------- -------
Operating income........................ 2,169 554 179 322 3,224 3,224
Other income (expense):
Interest expense...................... (612) (93) -- (1,061) (9)(11) (1,766) $ 1,716 (13) (50)
Other -- net.......................... 75 15 99 -- 189 -- 189
------- ------- ------- ------- ------- ------- -------
Income before income taxes.............. 1,632 476 278 (739) 1,647 1,716 3,363
Income taxes............................ 647 28 94 (61) (12) 708 738 (12) 1,446
------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 985 $ 448 $ 184 $ (678) $ 939 $ 978 $ 1,917
======= ======= ======= ======= ======= ======= =======
Pro forma net income per common
share(14)............................. $ 0.15 $ 0.13 $ 0.17
======= ======= =======
Number of shares used to compute pro
forma per share data(14).............. 6,665 6,993 11,493
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 6
WATERLINK, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The Unaudited Pro Forma Condensed Consolidated Balance Sheet has been adjusted
to reflect the above as follows:
(1) To record the historical assets acquired and liabilities assumed in
connection with the acquisitions of Bioclear and Lanco.
(2) To reflect adjustments to assets acquired and liabilities assumed in
connection with the Pending Acquisitions based on their estimated fair
values under the purchase method of accounting. The estimated combined
purchase price relating to these acquisitions is $20,385,000,
including acquisition related expenses of approximately $130,000. The
allocation of the purchase price is preliminary and assumes the
historical book value of tangible assets approximates fair value. The
actual allocation will be based on management's final evaluation of
such assets and liabilities. Some portion of the excess of the
purchase price over the historical cost of net assets acquired may
ultimately be allocated to specific tangible and intangible assets and
liabilities. The final allocation of the purchase price and the
resulting effect on net income may differ significantly from the pro
forma amounts included herein. These pro forma adjustments are
reflected as follows (in thousands of dollars):
<TABLE>
<S> <C>
Decrease cash for payment of acquisition related expenses....... $ (130)
Increase goodwill for the excess of the purchase price over the
net assets acquired........................................... 19,346
Reflect pro forma cash consideration due to former owners of
Pending Acquisitions.......................................... 16,644
Increase shareholders' equity for 328,270 shares of common stock
to be issued in connection with the Pending Acquisitions...... 3,611
Decrease shareholders' equity to eliminate historical equity of
the Pending Acquisitions...................................... (1,039)
</TABLE>
(3) To record the issuance of 4,500,000 shares of Common Stock in
connection with the Offering and application of estimated proceeds
therefrom of $43,785,000 as described under "Use of Proceeds."
(4) To reflect the write-off of unamortized debt issuance costs and
discounts associated with the Company's Credit Agreement and
Subordinated Notes agreement to be repaid with net proceeds from the
Offering (in thousands of dollars):
<TABLE>
<S> <C>
Decrease other assets for write-off of deferred financing
costs......................................................... $ (622)
Decrease other current liabilities for tax effect of the
write-off..................................................... (267)
Decrease shareholders' equity for extraordinary, non-cash charge
for the write-off of deferred financing costs to be recorded
in the quarter in which the Offering becomes effective........ (355)
</TABLE>
(5) To record the conversion of all outstanding shares of Preferred Stock
into 3,250,000 shares of Common Stock concurrently with the closing of
this Offering.
F-8
<PAGE> 7
Waterlink, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Financial Data (continued)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
The historical results for the Company include the operations of the Completed
Acquisitions for the periods subsequent to the respective dates of acquisition
in accordance with the purchase method of accounting. The dates of acquisition
of the Completed Acquisitions are as follows:
<TABLE>
<CAPTION>
<S> <C>
Sanborn Technologies March 31, 1995
Great Lakes August 31, 1995
Mass Transfer January 31, 1996
Aero-Mod April 26, 1996
Waterlink Technologies September 30, 1996
Nordic Group March 5, 1997
</TABLE>
The historical operating results of the fiscal 1996 acquisitions and the Nordic
Group acquisition as presented reflect the operations of the acquired companies
prior to the respective dates of acquisition. Historical operating results for
the Pending Acquisitions reflect their operations for the periods presented.
The Unaudited Pro Forma Consolidated Statements of Operations give effect to the
following adjustments:
(6) To recognize revenue on the percentage of completion method of
accounting at the Nordic Group which was previously recognized on the
completed contract method as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL MARCH 31,
1996 1996 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Increase (decrease) net sales............. $(2,715) $(4,653) $ 2,462
Increase (decrease) cost of sales......... (2,069) (3,556) 1,926
------- ------- -------
Increase (decrease) gross profit.......... $ (646) $(1,097) $ 536
======= ======= =======
</TABLE>
(7) To adjust selling, general and administrative expenses for certain
adjustments in salaries and benefits to the former owners of the
acquisitions completed in fiscal 1996 and the Pending Acquisitions to
levels specified in the employment agreements entered into as part of
the business combinations as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL MARCH 31,
1996 1996 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
(Decrease) selling, general and
administrative expenses................. $(3,518) $ (112) $ (25)
</TABLE>
(8) To adjust corporate offices expenses to current levels as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL MARCH 31,
1996 1996 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Increase selling, general and
administrative expenses................. $ 605 $ 349 $ --
</TABLE>
F-9
<PAGE> 8
Waterlink, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Consolidated Financial Data (continued)
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
(CONTINUED)
(9) To reclassify amounts for certain acquired companies to conform to the
classifications of the registrant:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL MARCH 31,
1996 1996 1997
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Decrease cost of sales.................... $ (106) $ (106) $ --
Increase selling, general and
administrative expenses................. 66 76 --
Increase interest expense................. 40 30 23
</TABLE>
(10) To record incremental amortization of the goodwill to be recorded as a
result of the acquisitions completed in fiscal 1996, the acquisition of
the Nordic Group and the Pending Acquisitions over a 40 year period.
(11) To record interest expense of $2,706,000 in fiscal 1996, and $1,460,000
and $1,038,000 for the six months ended March 31, 1996 and 1997,
respectively, relating to debt assumed to be issued in connection with
the Completed Acquisitions and Pending Acquisitions.
(12) To adjust income taxes to an effective rate of 43%.
(13) To reduce interest expense resulting from the application of the
estimated net proceeds of the Offering, as described under "Use of
Proceeds."
(14) Pro forma net income per share is computed by dividing net income by the
number of shares used to compute pro forma per share data. For
historical purposes, share data for the Company includes shares of
Common Stock outstanding, shares of Common Stock to be issued upon the
conversion of all outstanding Preferred Stock and the assumed exercise
of outstanding stock options and warrants using the treasury stock
method. For pro forma purposes, share data also includes shares of
Common Stock to be issued in connection with the Pending Acquisitions.
For pro forma as adjusted purposes, share data also includes shares of
Common Stock to be issued in connection with the Offering.
(15) The pro forma Statements of Operations exclude a special charge to
operations of approximately $2.6 million ($0.13 per share, after tax),
which will be incurred in the quarter in which the Offering is
completed. Such charge results primarily from the issuance by the
Company of certain compensatory stock options to an officer of the
Company pursuant to the terms of an employment agreement. Of this
amount, approximately $1.1 million is non-cash, and approximately $1.5
million represents cash payments relating principally to the
reimbursement of income taxes resulting from this stock option issuance.
F-10
<PAGE> 1
Exhibit 99.02
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Lanco Environmental Products, Inc.
We have audited the accompanying balance sheet of Lanco Environmental
Products, Inc., as of December 31, 1995 and 1996, and the related statements of
income, changes in stockholder's equity and cash flows for the six-month periods
ended June 30, 1995 and December 31, 1995, and the year ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lanco Environmental
Products, Inc., as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for the six-month periods ended June 30, 1995 and
December 31, 1995, and the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
Plante & Moran, LLP
March 18, 1997
Grand Rapids, Michigan
F-80
<PAGE> 2
LANCO ENVIRONMENTAL PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------ ---------
1995 1996 1997
---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................... $ 367,166 $ 25,948 $ 38,440
Trade accounts receivable -- Net of allowance for
doubtful accounts of $10,000, $25,000, and
$25,000, respectively........................... 426,084 512,440 326,598
Inventories (Note 2)............................... 252,591 477,959 412,700
Other.............................................. -- 6,335 39,529
---------- ---------- ---------
Total current assets............................ 1,045,841 1,022,682 817,267
LEASEHOLD IMPROVEMENTS AND EQUIPMENT (Note 3)........ 126,863 145,720 151,709
---------- ---------- ---------
Total assets.................................... $1,172,704 $1,168,402 $ 968,976
========== ========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable............................. $ 214,527 $ 301,068 $ 327,478
Accounts payable -- Related parties (Note 6)....... 606,820 222,009 81,009
Customer deposits.................................. 4,556 41,323 12,321
Federal income taxes payable (Note 5).............. 9,900 -- --
Deferred taxes (Note 5)............................ 88,000 159,200 151,800
Accrued expenses................................... 15,703 29,377 34,121
---------- ---------- ---------
Total current liabilities....................... 939,506 752,977 606,729
STOCKHOLDER'S EQUITY
Common stock -- $1 par value:
Authorized -- 60,000 shares
Issued and outstanding -- 1,000 shares.......... 1,000 1,000 1,000
Additional paid-in capital......................... 166,838 166,838 166,838
Retained earnings.................................. 65,360 247,587 194,409
---------- ---------- ---------
Total stockholder's equity...................... 233,198 415,425 362,247
---------- ---------- ---------
Total liabilities and stockholder's equity...... $1,172,704 $1,168,402 $ 968,976
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-81
<PAGE> 3
LANCO ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996 1996 1997
---------- ------------ ------------ ------------ ------------
(NOTE 1) (NOTE 1)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES.......................... $800,070 $1,402,401 $2,673,486 $401,839 $648,041
COST OF SALES...................... 574,899 1,007,733 1,763,231 280,281 549,740
-------- ---------- ---------- -------- --------
GROSS PROFIT....................... 225,171 394,668 910,255 121,558 98,301
SELLING, ADMINISTRATIVE AND GENERAL
EXPENSES......................... 215,735 314,498 710,412 140,532 177,979
-------- ---------- ---------- -------- --------
OPERATING INCOME (LOSS)............ 9,436 80,170 199,843 (18,974) (79,678)
OTHER INCOME -- Net................ -- 11,790 75,484 -- 6,500
-------- ---------- ---------- -------- --------
INCOME (LOSS) -- Before taxes on
income........................... 9,436 91,960 275,327 (18,974) (73,178)
FEDERAL INCOME TAXES (BENEFIT)
(Note 5)......................... 1,300 26,600 93,100 (4,400) (20,000)
-------- ---------- ---------- -------- --------
NET INCOME (LOSS).................. $ 8,136 $ 65,360 $ 182,227 (14,574) (53,178)
======== ========== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-82
<PAGE> 4
LANCO ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NUMBER ADDITIONAL
OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE -- July 1, 1995 (Inception)........ 1,000 $1,000 $ 166,838 $ -- $167,838
Net income for the six months
ended December 31, 1995.................. -- -- -- 65,360 65,360
----- ------ --------- --------- --------
BALANCE -- December 31, 1995............... 1,000 1,000 166,838 65,360 233,198
Net Income................................. -- -- -- 182,227 182,227
----- ------ --------- --------- --------
BALANCE -- December 31, 1996............... 1,000 $1,000 166,838 247,587 415,425
Net income (loss) for the three months
ended March 31, 1997..................... -- -- -- (53,178) (53,178)
----- ------ --------- --------- --------
BALANCE -- March 31, 1997.................. 1,000 $1,000 $ 166,838 $ 194,409 $362,247
===== ====== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-83
<PAGE> 5
LANCO ENVIRONMENTAL PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996 1996 1997
---------- ------------ ------------ ------------ ------------
(NOTE 1) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss).................. $ 8,136 $ 65,360 $ 182,227 $ (14,574) (53,178)
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:
Provision for bad debts.......... -- 10,000 16,282 -- --
Depreciation and amortization.... 8,747 10,011 22,603 4,014 5,979
Deferred taxes................... 28,000 (10,000) 71,200 69,700 (7,400)
(Increase) decrease in assets:
Accounts receivable........... 159,088 (285,142) (102,638) 123,991 185,842
Inventories................... (90,067) 20,346 (225,368) (153,266) 65,259
Other current assets.......... -- -- (6,335) -- (20,594)
Increase (decrease) in
liabilities:
Trade accounts payable and
accrued expenses............ (35,293) 65,406 100,215 7,911 31,154
Federal income taxes
payable..................... (29,287) 30,900 (9,900) (87,060) (12,600)
Customer deposits............. -- 4,556 36,767 12,336 (29,002)
---------- ------------ ------------ ------------ ------------
Net cash provided by (used
in) operating
activities............... 49,324 (88,563) 85,053 (36,948) 165,460
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of equipment............ (2,000) (16,345) (41,460) (7,414) (11,968)
CASH FLOWS FROM FINANCING
ACTIVITIES
Advances from related company.... 187,695 62,900 110,365 31,000 31,750
Payments on advances from related
company....................... (91,218) (265,664) (495,176) (330,778) (172,750)
---------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities........ 96,477 (202,764) (384,811) (299,778) (141,000)
---------- ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................. 143,801 (307,672) (341,218) (344,140) 12,492
CASH AND CASH EQUIVALENTS --
Beginning of period.............. 531,037 674,838 367,166 367,166 25,948
---------- ------------ ------------ ------------ ------------
CASH AND CASH
EQUIVALENTS -- End of period..... $ 674,838 $ 367,166 $ 25,948 $ 23,026 38,440
========= ========== ========== ========== ==========
CASH PAID FOR INTEREST AND
INCOME TAXES
Interest......................... $ -- $ -- $ -- $ -- $ --
========= ========== ========== ========== ==========
Income taxes..................... $ 8,287 $ -- $ 37,160 $ 12,960 $ --
========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-84
<PAGE> 6
LANCO ENVIRONMENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Lanco Environmental Products, Inc., is engaged in manufacturing wastewater
treatment equipment and components. The Company grants credit to customers, the
majority of whom are United States manufacturers.
Basis of Presentation -- Lanco Environmental Products, Inc., was formed July 1,
1995, when the sole stockholder of Lanco Corporation transferred the assets and
liabilities of Lanco Corporation's Environmental Products Division into a
separate corporation owned by the stockholder. All assets and liabilities were
transferred at their historical carrying amount. These financial statements
present the operations of Lanco Environmental Products, Inc., for the six-month
period from July 1, 1995 to December 31, 1995, and the year ended December 31,
1996. Also presented, for comparative purposes, are statements of income and
cash flows for the Environmental Products Division of Lanco Corporation for the
six-month period January 1, 1995, to June 30, 1995.
The balance sheet as of March 31, 1997, the statement of operations and retained
earnings for the nine months ended March 31, 1996 and 1997 and the statements of
cash flows for the periods then ended are unaudited and reflect all adjustments,
which include, in the opinion of management, adjustments consisting only of
normal recurring adjustments necessary to present fairly the results of
operations for such periods. Results of interim periods are not necessarily
indicative of results to be expected for any other interim period or for the
year taken as a whole.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Revenue and Cost Recognition -- Revenue from the sale of wastewater treatment
equipment contracts is generally recognized upon shipment. Contract costs
include all direct material and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, repairs and depreciation
costs. Selling and administrative costs are charged to expense as incurred.
Financial Instruments -- The carrying values of cash, cash equivalents, accounts
receivable and accounts payable are reasonable estimates of their fair market
values due to the short-term nature of these instruments.
Inventories -- Inventories of component parts and finished goods are stated at
the lower of cost, determined by the first-in, first-out method, or market.
Leasehold Improvements and Equipment -- Leasehold improvements and equipment are
recorded at cost. Depreciation is computed principally on the straight-line
method over the estimated useful lives of the assets. Costs of maintenance and
repairs are charged to expense when incurred.
Income Taxes -- The Company accounts for income taxes following the liability
method. A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the year. Deferred tax liabilities or
assets are recognized for the estimated future tax effects of temporary
differences between book and tax accounting.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-85
<PAGE> 7
LANCO ENVIRONMENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- --------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Component parts.......................................... $ 80,517 $191,087 $271,200
Finished goods........................................... 172,074 286,872 141,500
-------- -------- --------
Total inventories........................................ $252,591 $477,959 $412,700
======== ======== ========
</TABLE>
NOTE 3 -- PROPERTY, PLANT EQUIPMENT
Cost of property, plant and equipment and depreciable lives are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31, DEPRECIABLE
1995 1996 1997 LIFE-YEARS
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
Leasehold improvements............................ $105,863 $105,863 $ 105,863 25
Automotive equipment.............................. 30,500 65,651 65,651 5
Shop equipment.................................... 67,040 68,737 72,099 10
Furniture and fixtures............................ 12,382 16,994 25,600 5-10
-------- -------- --------
Total cost........................................ 215,785 257,245 269,213
Accumulated depreciation.......................... 88,922 111,525 117,504
-------- -------- --------
Net carrying amount............................... $126,863 $145,720 $ 151,709
======== ======== ========
</TABLE>
NOTE 4 -- LINE OF CREDIT
The Company has a $100,000 line of credit with a bank. It is collateralized by
the personal guarantee of the sole stockholder and is due on demand. Interest on
borrowings is at bank's prime rate, an effective rate of 8.50 percent at March
31, 1997. There were no amounts outstanding under this arrangement during 1996
or 1997.
NOTE 5 -- FEDERAL INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED, YEAR ENDED THREE MONTHS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996 1996 1997
-------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Current tax expense (benefit)........ $(26,700) $ 36,600 $ 21,900 $ (74,100) $ (12,600)
Deferred tax expense (benefit)....... 28,000 (10,000) 71,200 69,700 (7,400)
-------- -------- -------- -------- --------
Total tax expense.................... $ 1,300 $ 26,600 $ 93,100 $ (4,400) $ (20,000)
======== ======== ======== ======== ========
</TABLE>
A reconciliation of the provision for income taxes from continuing operations to
income taxes computed by applying the statutory federal tax rate to income
before taxes is as follows:
F-86
<PAGE> 8
LANCO ENVIRONMENTAL PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995 AND 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED)
NOTE 5 -- FEDERAL INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996 1996 1997
-------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Tax computed at 34% of pretax
income............................. $ 3,200 $ 31,300 $ 93,600 $ (6,400) $ (24,900)
Effect of nondeductible expenses..... 400 3,800 5,700 4,500 5,900
Effect of graduated rates and
other.............................. (2,300) (8,500) (6,200) (2,500) (1,000)
-------- -------- -------- --------- ---------
Total tax provision.................. $ 1,300 $ 26,600 $ 93,100 $ (4,400) $ (20,000)
======== ======== ======== ========= =========
</TABLE>
The details of the net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED THREE MONTHS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1995 1995 1996 1996 1997
-------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ -- $ (3,400) $ (8,500) $ (3,400) $ (8,500)
Inventory costs capitalized............. 92,900 85,400 161,700 155,100 140,300
Depreciation............................ 5,100 6,000 6,000 6,000 20,000
-------- -------- -------- --------- ---------
Net deferred tax liabilities............ $ 98,000 $ 88,000 $159,200 $ 157,700 $ 151,800
======== ======== ======== ========= =========
</TABLE>
NOTE 6 -- LEASES AND RELATED-PARTY TRANSACTIONS
The accounts payable to related party represent unsecured noninterest-bearing
advances from companies related by common ownership.
The Company pays an annual management fee to a related company of $100,000 for
administrative services. The two companies have the same stockholder.
The Company leases its operating facilities from the sole stockholder under an
operating lease arrangement that requires monthly rents of $5,000. The lease,
which terminates May 31, 1997, contains annual automatic renewal options. The
Company is required to pay all insurance, taxes and maintenance costs associated
with the property.
The Company also entered into noncancellable operating leases for vehicles and
machinery with a company that is wholly owned by the sole stockholder that
require monthly payments of $2,250. The leases terminate May 31, 1997.
Total rent expense was $27,057 and $22,400 for the six months ended June 30,
1995 and December 31, 1995, respectively, and $87,055 in 1996. Rent expense was
$21,000 and $21,750 for the three months ended March 31, 1996 and 1997,
respectively. All rent payments were made to related parties.
NOTE 7 -- SUBSEQUENT EVENT
The sole stockholder signed a letter of intent on February 17, 1997, to sell the
Company. The closing of the transaction is subject to satisfactory completion of
due diligence performed by the acquiring company.
F-87
<PAGE> 1
Exhibit 99.03
AUDITORS' REPORT
To the Directors of
Bioclear Technology Inc.
We have audited the consolidated balance sheet of Bioclear Technology Inc.
as at August 31, 1996 and 1995, and the consolidated statements of income and
retained earnings and cash flows for each of the years in the three-year period
ended August 31, 1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at August 31,
1996 and 1995, and the results of its operations and the changes in its
financial position for each of the years in the three-year period ended August
31, 1996 in accordance with accounting principles generally accepted in Canada.
ERNST & YOUNG
Chartered Accountants
Winnipeg, Canada,
October 25, 1996, except for note 9 [b],
which is as of April 15, 1997.
F-88
<PAGE> 2
BIOCLEAR TECHNOLOGY INC.
Incorporated under the Canada Business Corporations Act
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT AUGUST 31,
----------------------- MARCH 31,
1995 1996 1997
C $ C $ C $
--------- --------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents............................. 1,715,677 2,350,094 58,741
Accounts receivable................................... 126,457 2,415,050 1,704,092
Income taxes recoverable.............................. -- 21,221 48,238
Inventory (at lower of specific cost and net
realizable value).................................. 50,745 -- 47,000
Prepaid expenses...................................... 80,514 69,926 222,702
--------- --------- ---------
Total current assets............................... 1,973,393 4,856,291 2,080,773
Fixed assets (Note 4)................................. 991,107 1,094,320 2,989,894
--------- --------- ---------
2,964,500 5,950,611 5,070,667
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness (Note 3)............................ -- 331,000 2,973,629
Accounts payable and accrued charges (Note 6)......... 2,020,390 4,270,991 511,939
Deferred revenue...................................... -- 156,000 --
Income taxes payable.................................. 80,559 -- --
Due to shareholders................................... -- -- 367,113
Deferred income taxes................................. 108,500 282,000 280,000
--------- --------- ---------
Total current liabilities.......................... 2,209,449 5,039,991 4,132,681
--------- --------- ---------
SHAREHOLDERS' EQUITY
Share capital (Note 5)................................ 90,157 85,151 85,151
Retained earnings..................................... 664,894 825,469 852,835
--------- --------- ---------
Total shareholders' equity......................... 755,051 910,620 937,986
--------- --------- ---------
2,964,500 5,950,611 5,070,667
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-89
<PAGE> 3
BIOCLEAR TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED AUGUST 31, MARCH 31,
---------------------------------- ---------------------
1994 1995 1996 1996 1997
C $ C $ C $ C $ C $
--------- --------- ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
SALES.................................... 2,906,831 7,448,964 10,507,190 3,023,985 1,776,384
COST OF SALES (Note 6)................... 1,762,875 3,332,146 4,368,223 1,328,494 694,904
--------- --------- ---------- --------- ---------
GROSS PROFIT............................. 1,143,956 4,116,818 6,138,967 1,695,491 1,081,480
--------- --------- ---------- --------- ---------
Expenses
Depreciation........................... 67,592 107,544 145,813 67,467 75,463
Interest............................... 40,077 15,240 16,816 2,415 31,535
Administrative......................... 901,038 4,228,081 5,323,641 998,204 954,093
--------- --------- ---------- --------- ---------
1,008,707 4,350,865 5,486,270 1,068,086 1,061,091
--------- --------- ---------- --------- ---------
Income (loss) from operations............ 135,249 (234,047) 652,697 627,405 20,389
--------- --------- ---------- --------- ---------
Other income (loss)
Interest............................... 14,116 111,967 71,953 21,070 24,767
Gain (loss) on foreign exchange........ -- 74,290 (16,029) -- (4,790)
Loss on sale of fixed assets........... (3,361) -- -- -- --
--------- --------- ---------- --------- ---------
10,755 186,257 55,924 21,070 19,977
--------- --------- ---------- --------- ---------
Income (loss) before income taxes........ 146,004 (47,790) 708,621 648,475 40,366
--------- --------- ---------- --------- ---------
Income tax expense (recovery)
Current................................ 45,000 87,000 72,555 31,000 15,000
Deferred............................... (5,000) (131,500) 173,500 187,500 (2,000)
--------- --------- ---------- --------- ---------
40,000 (44,500) 246,055 218,500 13,000
--------- --------- ---------- --------- ---------
NET INCOME (LOSS) FOR THE PERIOD......... 106,004 (3,290) 462,566 429,975 27,366
Retained earnings, beginning of period... 597,180 703,184 664,894 664,894 825,469
Excess of redemption price over stated
capital (Note 5)....................... -- -- (282,991) -- --
Refundable taxes paid (Note 7)........... -- (35,000) (19,000) -- --
--------- --------- ---------- --------- ---------
RETAINED EARNINGS, END OF PERIOD......... 703,184 664,894 825,469 1,094,869 852,835
========= ========= ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-90
<PAGE> 4
BIOCLEAR TECHNOLOGY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED AUGUST 31, MARCH 31,
-------------------------------- -----------------------
1994 1995 1996 1996 1997
C $ C $ C $ C $ C $
-------- --------- --------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the period...... 106,004 (3,290) 462,566 429,975 27,366
Add charges (deduct credits) to
operations not requiring a current
cash payment
Depreciation and amortization.... 67,592 107,544 145,813 67,467 75,463
Deferred income tax (recovery)... (5,000) (131,500) 173,500 187,500 (2,000)
Loss on sale of fixed assets..... 3,361 -- -- -- --
--------- --------- ---------- ---------- ----------
171,957 (27,246) 781,879 684,942 100,829
Net change in non-cash working capital
balances related to operations (Note
8).................................... 250,794 2,319,947 77,561 18,791 (3,430,887)
--------- --------- ---------- ---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES... 422,751 2,292,701 859,440 703,733 (3,330,058)
--------- --------- ---------- ---------- ----------
INVESTING ACTIVITIES
Purchase of fixed assets.............. (103,695) (339,595) (249,023) (69,398) (1,971,037)
Proceeds on sale of fixed assets...... 4,979 -- -- -- --
--------- --------- ---------- ---------- ----------
CASH USED IN INVESTING ACTIVITIES....... (98,716) (339,595) (249,023) (69,398) (1,971,037)
--------- --------- ---------- ---------- ----------
FINANCING ACTIVITIES
Refundable taxes paid (Note 7)........ -- (35,000) (19,000) -- --
Repayment of long-term debt........... (82,422) (477,957) -- -- --
Issuance of shares.................... 15,036 -- -- -- --
Redemption of shares (Note 5)......... -- -- (288,000) -- --
Decrease in due to shareholders....... (3,517) (1,429) -- -- 367,113
--------- --------- ---------- ---------- ----------
CASH USED IN FINANCING ACTIVITIES....... (70,903) (514,386) (307,000) -- 367,113
--------- --------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH DURING
THE PERIOD............................ 253,132 1,438,720 303,417 634,335 (4,933,982)
Cash position, beginning of period...... 23,825 276,957 1,715,677 1,715,677 2,019,094
--------- --------- ---------- ---------- ----------
CASH POSITION, END OF PERIOD............ 276,957 1,715,677 2,019,094 2,350,012 (2,914,888)
========= ========= ========== ========== ==========
</TABLE>
- ---------------
Cash position is comprised of cash and cash equivalents, net of bank
indebtedness.
The accompanying notes are an integral part of these statements.
F-91
<PAGE> 5
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
AUGUST 31, 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SEVEN MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED.)
1. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management on the historical
cost basis in accordance with accounting principles generally accepted in
Canada. These accounting principles are, in all material respects, in accordance
with those generally accepted in the United States except as described in note
11, "Summary of Significant Differences Between Canadian and U.S. Generally
Accepted Accounting Principles."
(a) Principles of consolidation
These consolidated financial statements, expressed in Canadian dollars, include
the accounts of the company and its wholly-owned subsidiaries, Bioclear Tech
Sales Inc. and Bioclear Technology U.S.A., Inc.
(b) Revenue recognition
The company recognizes contract revenue using the "percentage of completion"
method of accounting in the proportion that costs bear to total estimated costs
at completion. Revisions of estimates to complete and losses, if any, are
recognized in the period in which they are determined.
(c) Fixed assets
Fixed assets are stated at historical cost. Normal maintenance and repairs are
expensed as incurred. Investment tax credits received towards the acquisition of
fixed assets are deducted from fixed assets with depreciation calculated on the
net amount.
Depreciation is provided over the estimated life of the asset at the following
annual rates and bases:
<TABLE>
<S> <C> <C>
Building 4% Declining balance
Furniture and fixtures 20% Declining balance
Office equipment 20% Declining balance
Pilot plant 20% Declining balance
Shop equipment 20% Declining balance
Bridge crane 20% Declining balance
Small tools 50% Straight line
Trucks 30% Declining balance
</TABLE>
When fixed assets are sold or scrapped, the cost of the asset and the related
accumulated depreciation are removed from the accounts and the resulting gain or
loss is included in income.
(d) Income taxes
The company follows the tax allocation method of providing for income taxes.
Under this method, the provision for income taxes is based upon the income
reported on the income statement.
(e) Translation of foreign currencies
The financial statements of the U.S. subsidiary, which is considered to be an
integrated foreign operation, and foreign currency denominated balances of the
company have been translated to Canadian dollars using the
F-92
<PAGE> 6
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SEVEN MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
temporal method. Under this method, monetary assets and liabilities, both
current and long-term, are translated at year end rates of exchange. Other
assets and liabilities are translated at historical rates of exchange in effect
at the dates of transactions.
Revenue and costs are translated at the average rates of exchange for the year
except for property, plant and equipment, depreciation and opening inventory
which are translated at historical rates.
Gains and losses on translation are included in income.
2. AMALGAMATION
The company was formed on August 31, 1996, through the amalgamation of 3212904
Canada Ltd. and Bioclear Technology Inc. Also, Bioclear Technology Inc. was
formed on August 31, 1994 through the amalgamation of 3034321 Canada Ltd.,
Bioclear Technology Inc. and Bioclear Holdings Inc. The financial statements of
the company recognize the continuity of interest of the shareholders in the
assets, liabilities, and operations of the amalgamating companies and are
prepared on the following basis:
(a) In the balance sheet, the assets, liabilities, share capital and retained
earnings of the amalgamating companies have been combined at their
respective carrying values.
(b) The statements of income and retained earnings and cash flows represent the
combined results of operations and combined cash flows of the amalgamating
companies during the years.
3. BANK INDEBTEDNESS
As collateral security for the bank indebtedness, the company has provided a
general security agreement providing a charge over all assets owned by the
company registered in Canada.
4. FIXED ASSETS
<TABLE>
<CAPTION>
1995 1996
------------------------------------ -------------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE
C $ C $ C $ C $ C $ C $
--------- ----------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Land........................ 52,066 -- 52,066 52,066 -- 52,066
Building.................... 668,464 156,889 511,575 711,550 178,213 533,337
Furniture and fixtures...... 56,825 23,554 33,271 68,144 31,251 36,893
Office equipment............ 160,690 36,555 124,135 140,620 61,706 78,914
Pilot plant................. 94,394 69,431 24,963 94,394 74,423 19,971
Shop equipment.............. 96,058 15,469 80,589 191,854 41,677 150,177
Bridge crane................ 105,474 38,574 66,900 130,651 54,472 76,179
Small tools................. 7,853 7,814 39 10,864 9,358 1,506
Trucks...................... 114,786 17,217 97,569 205,412 60,135 145,277
--------- ------- ------- --------- ------- ---------
1,356,610 365,503 991,107 1,605,555 511,235 1,094,320
========= ======= ======= ========= ======= =========
</TABLE>
F-93
<PAGE> 7
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SEVEN MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED.)
5. SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995 1996
C $ C $ C $
------ ------ ------
<S> <C> <C> <C>
AUTHORIZED
Unlimited number of Class A voting common shares
Unlimited number of Class B common shares carrying two votes per
share
Unlimited number of preference shares, voting, convertible to
Class B common shares, non-cumulative dividends not to exceed C
$.10 per share redeemable at the option of the company or
shareholder at C $1 per share
ISSUED
944,486 Class A common shares (1995 and 1994 -- 1,000,008)....... 36 36 37
4,896,000 preference shares (1995 and 1994 -- 5,184,000)......... 90,121 90,121 85,114
------ ------ ------
90,157 90,157 85,151
====== ====== ======
</TABLE>
During 1996, 55,556 Class A common shares and 288,000 preference shares were
purchased for cancellation for consideration of C $288,000. Also, 34 Class A
common shares were issued for consideration of C $3.
During 1994, one Class A common share was issued for cash consideration of C
$15,000. On February 18, 1994 all Class A common shares were purchased for
cancellation and 5,184,000 preference shares were issued as consideration for
the purchase. New common shares were issued for C $36. On August 31, 1994, at
the time of the amalgamation described in note 2, the 36 issued Class A common
shares were split 27,778 for each share and resulted in 1,000,008 Class A common
shares being issued.
6. RELATED PARTY TRANSACTIONS
During the year, the company had the following transactions with companies owned
by shareholders of Bioclear Technology Inc.:
<TABLE>
<CAPTION>
1994 1995 1996
C $ C $ C $
------- ------- ---------
<S> <C> <C> <C>
Cost of sales
Roman Equipment Services (1973) Ltd........................ 650,630 557,326 1,018,704
Jenkyns Electric Ltd....................................... -- 120,811 35,592
</TABLE>
Charges for these services were at estimated fair market value.
At year end, C $186,248 [1995 -- C $10,077; 1994 -- C $167,770] remains payable
to Roman Equipment Services (1973) Ltd. and is included in accounts payable.
7. REFUNDABLE INCOME TAXES
The Company is classified as a private corporation under the Income Tax Act and,
therefore, certain taxes paid relative to investment income are potentially
refundable and are not deducted in computing net income for the year. Such taxes
will normally be refunded at the rate of C $1 for each C $3 of taxable dividends
paid.
F-94
<PAGE> 8
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SEVEN MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED.)
7. REFUNDABLE INCOME TAXES (CONTINUED)
When some part of these taxes becomes definitely refundable because of dividend
payments, the appropriate amount is transferred to income taxes recoverable. At
year end, the balance in the Company's refundable tax account was approximately
C $54,000 (1995 -- C $35,000; 1994 -- C $Nil).
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATIONS
<TABLE>
<CAPTION>
SEVEN-MONTH
PERIOD ENDED
YEAR ENDED AUGUST 31, MARCH 31,
------------------------------------ -------------------------
1994 1995 1996 1996 1997
C $ C $ C $ C $ C $
------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net decrease (increase) in
current assets
Accounts receivable.......... 356,686 661,806 (2,288,593) (766,424) 710,958
Income taxes recoverable..... (13,191) 13,191 (21,221) (46,678) (27,017)
Inventory.................... -- (50,745) 50,745 50,745 (47,000)
Prepaid expenses............. (23,956) (38,744) 10,588 (95,898) (152,776)
Net increase (decrease) in
current liabilities:
Accounts payable and accrued
charges................... (60,734) 1,653,880 2,250,601 (2,009,294) (3,759,052)
Deferred revenue............. -- -- 156,000 2,935,899 (156,000)
Income taxes payable......... (8,011) 80,559 (80,559) (49,559) --
------- --------- --------- ---------- ----------
250,794 2,319,947 77,561 18,791 (3,430,887)
======= ========= ========= ========== ==========
</TABLE>
9. SUBSEQUENT EVENTS
(a) Subsequent to year end, the company entered into contracts totaling
approximately C $1,200,000 for the expansion of the company's manufacturing
facility.
(b) On April 15, 1997, the shareholders of the Company signed a purchase and
sale agreement whereby they agreed to sell all the shares of the Company to
Waterlink, Inc.
10. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
presentation of the current year.
11. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which, in the case of Bioclear
Technology Inc., conform in all material respects with those in the United
States except that:
(a) Short-term bank borrowings have been presented in the consolidated statement
of cash flows as a component of cash and cash equivalents rather than as a
financing activity. If U.S. generally accepted
F-95
<PAGE> 9
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SEVEN MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED.)
11. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
accounting principles had been followed, the amounts on the consolidated
statement of cash flows would be adjusted as follows:
<TABLE>
<CAPTION>
SEVEN MONTH
PERIOD ENDED
YEAR ENDED AUGUST 31, MARCH 31,
------------------------------- ---------------------
1994 1995 1996 1996 1997
C $ C $ C $ C $ C $
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Cash provided by financing
activities....................... -- -- 331,000 77,725 2,642,629
Net increase in cash during the
period........................... -- -- 331,000 77,725 2,642,029
Cash position, end of period....... -- -- 331,000 408,725 2,973,629
</TABLE>
(b) The interest expense for each period approximates the interest paid for each
period. The amount of income taxes paid in each period was as follows:
<TABLE>
<CAPTION>
SEVEN MONTH
PERIOD ENDED
YEAR ENDED AUGUST 31, MARCH 31,
------------------------------- -------------------
1994 1995 1996 1996 1997
C $ C $ C $ C $ C $
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income taxes paid................... 17,917 1,397 172,572 127,237 42,017
</TABLE>
(c) Under SEC regulations, the redeemable preferred shares included in share
capital would be presented separately outside shareholders' equity as
follows:
<TABLE>
<CAPTION>
AUGUST 31, MARCH 31,
----------------- ------------
1995 1996 1997
C $ C $ C $
------ ------ ------------
<S> <C> <C> <C>
Redeemable preferred shares............................. 90,121 85,114 85,114
Common share capital.................................... 36 37 37
</TABLE>
(d) The accompanying consolidated balance sheet at March 31, 1997, the related
consolidated statements of income and retained earnings and cash flows for
the seven months ended March 31, 1996 and 1997 ("interim financial
statements") have been prepared by the Company in accordance with Canadian
generally accepted accounting principles for interim financial information
and are unaudited. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The interim financial statements include all
adjustments, consisting of only normal recurring adjustments considered
necessary for a fair presentation of the results of interim periods.
Operating results for the seven months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ended August 31, 1997.
(e) The following table sets forth at the end of and for the periods indicated,
certain information concerning the closing, average, high and low exchange
rates for United States Dollars ("US$") as a ratio of Canadian Dollars
("C$"). The exchange rates used are those quoted by the Federal Reserve Bank
of New York and are the noon buying rates in New York City for cable
transfer in foreign currencies. On April 15, 1997, the closing ratio of
United States Dollar per Canadian Dollar was .716.
F-96
<PAGE> 10
BIOCLEAR TECHNOLOGY INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SEVEN MONTHS
ENDED MARCH 31, 1996 AND 1997 IS UNAUDITED.)
11. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
<TABLE>
<CAPTION>
AT AND FOR THE
SEVEN
AT AND FOR THE YEAR MONTHS ENDED
ENDED AUGUST 31, MARCH 31,
---------------------- ---------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of US$ per C$
Exchange rate at end of period............... .729 .744 .731 .733 .722
Average exchange rate during period.......... .739 .728 .734 .737 .735
Highest exchange rate during period.......... .756 .746 .746 .746 .746
Lowest exchange rate during period........... .722 .710 .727 .728 .723
</TABLE>
F-97
