<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM_________ TO ___________
Commission file number 000-29358
DENISON INTERNATIONAL PLC
(Exact name of registrant as specified in its charter)
England and Wales Not Applicable
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14249 Industrial Parkway
Marysville, Ohio 43040
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(937) 644-4437
--------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Ordinary Shares, $0.01 par value, 11,113,950 shares as of May 12, 2000
"A" Ordinary Shares, (pound)8.00 par value, 7,015 shares as of May 12, 2000
<PAGE>
TABLE OF CONTENTS
FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1 Financial Statements 1
Condensed Consolidated Balance Sheets (Unaudited) 1
Condensed Consolidated Statements of Operations (Unaudited) 2
Condensed Consolidated Statements of Cash Flows (Unaudited) 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Results of Operations 10
Liquidity and Capital Resources 12
Market Risk 13
Business Outlook 14
Forward-looking Statements 14
Item 3 Quantitative and Qualitative Disclosures About Market Risk 14
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities and Use of Proceeds 15
Item 3 Defaults upon Senior Securities 15
Item 4 Submission of Matters to a Vote of Securities Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 15
Exhibit Index 17
Signatures 18
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DENISON INTERNATIONAL PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
2000 1999
---- ----
Current assets:
(Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents $31,709 $31,174
Accounts receivable, less allowances of $1,647 and $2,175 at
March 31, 2000 and December 31, 1999, respectively 31,463 28,267
Inventories 30,037 31,453
Other current assets 3,885 3,566
--------- ------------
Total current assets 97,094 94,460
Property, plant and equipment, net 23,171 24,519
Other assets 2,623 2,727
Goodwill, net of accumulated amortization of $412 and $345 at
March 31, 2000 and December 31, 1999, respectively 7,422 7,114
----- -----
Total assets $130,310 $128,820
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 5,506 $ 5,586
Accounts payable 8,185 9,027
Other accrued liabilities 15,026 13,203
Current portion of capital lease obligations 98 111
--- -----
Total current liabilities 28,815 27,927
Noncurrent liabilities:
Capital lease obligations, less current portion - -
Pension accrual 10,246 10,506
Other noncurrent liabilities 4,332 4,516
Negative goodwill, net of accumulated amortization of $5,305 and
$4,966 at March 31, 2000 and December 31, 1999, respectively 4,406 4,811
----- -----
18,984 19,833
Shareholders' equity:
`A' ordinary shares (pound)8.00 par value; 7,125 shares authorized, and
7,015 issued and outstanding at March 31, 2000 and December 31,
1999 86 86
Ordinary shares $0.01 par value; 15,000,000 shares authorized,
and 11,113,950 issued and outstanding at March 31, 2000 and
December 31, 1999 111 111
Additional paid-in capital 5,479 5,479
Capital redemption reserve 1,090 1,090
Retained earnings 85,853 82,691
Accumulated other comprehensive income (loss) (10,108) (8,397)
--------- ---------
Total shareholders' equity 82,511 81,060
------ ------
Total liabilities and shareholders' equity $130,310 $128,820
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DENISON INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------- --------
<S> <C> <C>
Net sales................................................... $37,033 $36,469
Cost of sales............................................... 23,689 23,908
------ ------
Gross profit................................................ 13,344 12,561
Selling, general and
administrative expenses................................... 8,874 8,625
----- ------
Operating income............................................ 4,470 3,936
Other income................................................ 102 --
Interest
income, net............................................... 98 71
------ -------
Income before taxes......................................... 4,670 4,007
Provision for income taxes.................................. 1,508 1,121
------ -------
Net income.................................................. $3,162 $ 2,886
====== =======
Basic earnings per share.................................... $ .28 $ .26
====== =======
Diluted earnings per share $ .28 $ .26
====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
4
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DENISON INTERNATIONAL PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Net cash provided by operating activities..................... $1,853 $2,933
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment..................... (624) (2,982)
Proceeds from disposal of
property, plant and
equipment................................................... 41 5
Net cash used in investing activities......................... (583) (2,977)
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment on lines of credit.............................. (59) (8,020)
Repayment of capital lease
obligations................................................. (13) (161)
Proceeds from exercise of
Net cash used in financing
Activities.................................................. (72) (8,181)
---- ------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH............................................. (663) (1,875)
----- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS................................... 535 (10,100)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD...................................... 31,174 35,799
------ ------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD............................................ $31,709 $25,699
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
DENISON INTERNATIONAL PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENTS
Interim Financial Information
The financial information at March 31, 2000 and for the three months ended
March 31, 2000 and March 31, 1999 is unaudited but includes all adjustments
which Denison International plc (the "Company") considers necessary for a fair
presentation of financial position at such date and the operating results and
cash flows for those periods. All adjustments made were of a normal, recurring
nature. Results for the interim period are not necessarily indicative of results
that may be expected for the entire year. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with United States generally accepted accounting principles ("GAAP") have been
condensed or omitted pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated hereunder. These condensed
consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1999
included in the Company's Annual Report on Form 10-K.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from these estimates.
2. RECENT DEVELOPMENTS
On February 16, 2000 the Company entered into an agreement to acquire 100%
of the outstanding shares of Valmet Hydraulics Oy ("Valmet"), a corporation
incorporated and located in Finland and a wholly owned subsidiary of Metso
Corporation. Valmet designs, manufacturers and distributes hydraulic rotating
house LSHT motors for wheel and roll drives and hydraulic radial piston rotors
for harvesting machines. In 1999 Valmet had net sales of approximately USD $16.5
million. The agreement contained several conditions precedent to closing, and
the parties failed to reach agreement on all closing conditions in the agreed
period of time. Therefore, the agreement terminated as of May 1, 2000. The
Company expended approximately USD $100,000 in legal and accounting costs
related to the acquisition, which were accrued and expensed in the quarter ended
March 31, 2000.
6
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On March 14, 2000 the Company entered into an agreement to acquire 100% of
the outstanding shares of Riva Calzoni Oleodinamica S.p.A. ("Calzoni"), a
corporation incorporated and located in Italy and a wholly subsidiary of Intek
S.p.A. Calzoni designs, manufacturers and distributes radial piston oil-pressure
motors for industrial hydraulics applications. In 1999 Calzoni had net sales of
approximately USD $11.0 million. The acquisition closed on April 12, 2000.
3. INVENTORY
Inventories consisted of the following:
<TABLE>
<CAPTION>
(U.S. DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Finished goods....................................................... $17,284 $18,482
Work-in-progress..................................................... 3,261 2,565
Raw materials and supplies........................................... 9,492 10,406
----- --------
$30,037 $31,453
======= =======
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net, consisted of the following:
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---- ----
Cost:
Land and buildings................................................ $ 3,977 $ 3,952
Machinery and equipment........................................... 33,146 33,859
Motor vehicles.................................................... 937 911
--- ---
38,060 38,722
Less accumulated depreciation.................................. (14,889) (14,203)
------- -------
Property, plant and equipment, net................................ $23,171 $24,519
======= =======
</TABLE>
7
<PAGE>
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(U.S. DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE DATA) THREE MONTHS ENDED
MARCH 31, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net income........................................................ $3,162 $2,886
====== ======
Denominator:
Denominator for basic
earnings per share
weighted-average shares........................................... 11,129 11,104
Effect of dilutive stock options....................................... 0 15
-- --
Denominator for diluted
earnings per share -
adjusted weighted-average shares.................................. 11,129 11,119
====== ======
Basic earnings per share............................................... $ .28 $ .26
====== ======
Diluted earnings per share............................................. $ .28 $ .26
====== ======
</TABLE>
6. COMPREHENSIVE INCOME
The Company's total comprehensive income was as follows (US dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Net income............................................................. $3,162 $2,886
Foreign currency translation
adjustment, net of tax
benefit........................................................... (1,711) (4,247)
------ ------
Comprehensive net income (loss)........................................ $1,451 ($1,361)
====== ======
</TABLE>
The components of accumulated other comprehensive income (loss), net of related
tax, at December 31, 1999 and March 31, 2000 are as follows:
<TABLE>
<CAPTION>
ACCUMULATED
PENSION FOREIGN OTHER
LIABILITY CURRENCY COMPREHENSIVE
ADJUSTMENT TRANSLATION INCOME (LOSS)
---------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1999.................. $ (43) $ (8,354) $ (8,397)
Current period other
comprehensive income (loss).............. - (1,711) (1,711)
-------------- ------- -------
Balance at March 31, 2000..................... $ (43) $ (10,065) $ (10,108)
=============== =============== ===============
</TABLE>
7. SEGMENT INFORMATION
8
<PAGE>
A summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
SALES TO UNAFFILIATED COMPANIES:
United Kingdom.................................................... $ 2,578 $ 2,482
France............................................................ 4,164 4,475
Germany........................................................... 2,885 3,114
Rest of Europe.................................................... 9,984 10,644
-------- --------
Total Europe...................................................... 19,611 20,715
United States..................................................... 10,887 9,708
Canada............................................................ 2,222 2,076
-------- --------
Total N. America.................................................. 13,109 11,784
Asia-Pacific...................................................... 4,313 3,970
-------- --------
Total consolidated................................................ $ 37,033 $ 36,469
======== ========
TRANSFERS BETWEEN GEOGRAPHIC AREAS:
United Kingdom.................................................... $ 109 $ 13
France............................................................ 6,171 6,354
Germany........................................................... 4,004 4,303
Rest of Europe.................................................... 34 44
-------- --------
Total Europe...................................................... 10,318 10,714
United States..................................................... 3,471 2,757
Canada............................................................ -- --
-------- --------
Total N. America.................................................. 3,471 2,757
Asia-Pacific...................................................... 8 18
-------- --------
Total transfers................................................... 13,797 13,489
Eliminations...................................................... (13,797) (13,489)
-------- --------
Total consolidated................................................ $ 0 $ 0
======== ========
OPERATING INCOME (LOSS):
United Kingdom.................................................... 113 $ 402
France............................................................ 1,452 1,881
Germany........................................................... 349 186
Rest of Europe.................................................... 1,082 1,441
-------- --------
Total Europe...................................................... 2,996 $ 3,910
United States..................................................... 1,172 (42)
Canada............................................................ 331 212
-------- --------
Total N. America.................................................. 1,503 170
Asia-Pacific...................................................... (29) (144)
-------- --------
Total consolidated................................................ $ 4,470 $ 3,936
======== ========
IDENTIFIABLE ASSETS: MARCH 31, 2000
--------------
United Kingdom............................................... $ 15,975
France....................................................... 20,838
Germany...................................................... 12,794
Rest of Europe............................................... 34,557
--------
9
<PAGE>
Total Europe............................................. 84,164
United States................................................ 25,842
Canada....................................................... 4,581
Total N. America......................................... 30,423
Asia-Pacific................................................. 15,723
--------
Total consolidated ...................................... $130,310
========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and the Notes related thereto
appearing in Item 1 of this Part I.
Although the Company reports its financial results in U.S. dollars,
approximately 70% of the Company's revenues and expenses are incurred in foreign
currencies. The fluctuation of the functional currencies earned by the Company
against the U.S. dollar has had the effect of increasing or decreasing (as
applicable) U.S. dollar reported net sales, as well as the cost of goods sold,
gross profit, selling, general and administrative expenses denominated in such
foreign currencies when translated into U.S. dollars as compared to prior
periods.
RESULTS OF OPERATIONS
First Quarter ended March 31, 2000 compared with First Quarter ended March 31,
1999
The Company's net sales increased 1.5% to $37.0 million in the three
months ended March 31, 2000 from $36.4 million for the same period in 1999.
During the same period, net sales in North America increased 11.2% to $13.1
million from $11.8 million; net sales in Europe decreased 5.3% to $19.6 million
from $20.7 million; and net sales in Asia-Pacific region increased 8.6% to $4.3
million from $4.0 million. The primary reason for the increased volume in the
first quarter of 2000 compared with the first quarter of 1999 is the increased
product demand for all of the Company's products, particularly in the Company's
North American markets, due to a recovery from the 1999 slowdown in the mining
and gas and oil exploration markets. Also impacting revenues was the continuing
recovery of the economies in the Asia-Pacific region. Partially offsetting the
increase in demand was the continuing strengthening US dollar against most of
the functional currencies utilized in the Company's European operations.
Restated (at average exchange rates for the first quarter of 1999), net
sales for the quarter ended March 31, 2000 were $39.0 million, a 7.0% increase
from the quarter ended March 31, 1999. The increased sales revenue for the
period attributable to the changes in exchange rate was $2.0 million. Restated
(at average exchange rates for the first quarter of 1999), net sales for the
Company's European operations increased 5.7% to $21.9 million in the quarter
ended March 31, 2000 from $20.7 million in the quarter ended March 31, 1999,
while net sales for the Asia-Pacific region increased 3.3% to $4.1 million from
$4.0 million.
The Company's gross profit increased to $13.3 million for the quarter
ended March 31, 2000 from $12.6 million in the same period of 1999. Gross profit
as a percentage of net sales increased to 36.0% in the quarter ended March 31,
2000 from 34.4% in the comparable period of
10
<PAGE>
1999. The increased gross profit was primarily attributable to the increased
volume demand realized, combined with the impacts of cost reductions made
throughout 1999 and prior fiscal years.
Gross profit in North America increased 65.5% to $3.9 million for the
three months ended March 31, 2000 from $2.4 million in the same period of 1999.
Gross profit in Europe decreased 11.1% to $8.0 million in the quarter ended
March 31, 2000 from $8.9 million in the quarter ended March 31, 1999, while
Asia-Pacific gross profit increased 19.0% to $1.4 million from $1.2 million.
Restated (at average exchange rates for the first quarter of 1999), gross profit
in Europe was $8.9 million, or a 0.5% decrease over the comparable period in
1999, and gross profit in the Asia-Pacific region was $1.4 million, or a 13.7%
increase over the comparable period in 1999. The total gross profit decrease for
the period attributable to the exchange rate differences was $0.9 million.
Restated (at average exchange rates for the first quarter of 1999), consolidated
gross profit as a percentage of net sales increased to 36.4% for 2000 compared
to 34.4% for the comparable period in 1999.
Selling, general and administrative ("SG&A") expenses increased 2.9% to
$8.9 million for the quarter ended March 31, 2000 from $8.6 million for the
quarter ended March 31, 1999. These expenses as a percentage of net sales were
24.0% for the quarter ended March 31, 2000 as compared to 23.7% for the quarter
ended March 31, 1999. Restated (at average exchange rates for the first quarter
of 1999), SG&A increased 8.5% to $9.4 million (24.0% of net sales) in the first
quarter of 2000 from $8.6 million (23.7% of net sales) in the first quarter of
1999. The increase in these expenses for the quarter ended March 31, 2000 as
compared to the quarter ended March 31, 1999 is due primarily to the impact of a
full quarter of amortization of expenses relating to the Company's Y2K
remediation projects completed in 1999 for its operations in France and Germany.
Operating income increased 13.6% to $4.5 million in the three month
period ended March 31, 2000 from $3.9 million in the comparable period in 1999.
Operating income as a percentage of net sales increased to 12.1% in the quarter
ended March 31, 2000 from 10.8% in the quarter ended March 31, 1999. Restated
(at average exchange rates for the first quarter of 1999), operating income
increased 23% to $4.8 million (12.4% of net sales) in the quarter ended March
31, 2000 from $3.9 million (10.8% of net sales) in the comparable period of
1999. The changes in exchange rates had the effect of increasing operating
income for the period by $0.3 million.
Other income of $.1 million (0.3% of net sales) was recorded in the
quarter ended March 31, 2000, as compared with no other income for the quarter
ended March 31, 1999. The increase in other income was the result of recognition
of non-cash currency gains on inter-company loans for the quarter ended March
31, 2000, with no such transactions completed in the comparable period in 1999.
Net interest income was $0.1 million for the quarter ended March 31,
2000, equal to net interest income for the comparable period in 1999.
The effective tax rate for the three months ended March 31, 2000 was
32.3% compared with 28.0% for the three months ended March 31, 1999. The change
resulted from variations in the mix of profits generated in the Company's
overseas operations, with varying effective tax rates. The provision for taxes
increased 34.5% to $1.5 million in the first quarter of 2000
11
<PAGE>
compared to $1.1 million in the comparable period in 1999. This provision as a
percentage of net sales increased to 4.1% in the quarter ended March 31, 2000
from 3.1% in the quarter ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AND AT MARCH 31,
------------------------
2000 1999
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash & cash equivalents............................................... 31,709 25,699
Net cash provided by operating activities............................. 1,853 2,933
Net cash used in investing activities................................. (583) (2,977)
Net cash used in financing activities................................. (72) (8,181)
Effect of exchange rate changes on cash............................... (663) (1,875)
</TABLE>
Historically, the Company has funded its cash requirements through cash
flow from operations, although short-term fluctuations in working capital
requirements for some of the Company's subsidiaries have been met through
borrowings under revolving lines of credit obtained locally. The Company's
primary uses of cash have been to fund capital expenditures, acquisitions and to
service and repay debt.
Net cash provided by operating activities for the quarter ended March
31, 2000 decreased to $1.9 million from $2.9 million for the same period in
1999. The $1.0 million decrease in net cash provided by operating activities for
the quarter ended March 31, 2000 compared with the quarter ended March 31, 1999
was attributable to a $1.6 million increase in accounts receivables, a $0.9
million decrease in accounts payable and a $0.4 million increase in other
current assets, partially offset by a $0.3 million increase in net income and a
$1.5 million increase in other accrued liabilities. The Company anticipates that
operating cash and capital expenditure requirements will continue to be funded
by cash flow from operations, cash on hand and bank borrowings.
Net cash used in investing activities was $0.6 million for the quarter
ended March 31, 2000, compared to $3.0 million for the same period in 1999.
Investing activities in the quarter ended March 31, 2000 consisted largely of
investment in manufacturing equipment for the Company's four production
facilities.
Net cash used by financing activities was $0.1 million for the quarter
ended March 31, 2000 compared to $8.2 million for the same period in 1999. The
decrease of $8.1 million in net cash used by financing activities for 2000
compared to 1999 was primarily attributable to the partial repayment during the
quarter ended March 31, 1999 of short term bank borrowings of $12.0 million
borrowed in 1998 to facilitate the Lokomec acquisition.
The effect of exchange rate changes on cash and cash equivalents was $
0.7 million and $1.9 million for the quarters ended March 31, 2000 and 1999,
respectively. As approximately two thirds of the Company's business is
transacted in currencies other than the U.S. dollar, foreign currency
fluctuations had a significant impact on dollar reported balances for the first
quarter of 2000 compared to the same period of 1999. The $1.2 million decrease
in the exchange rate impact on cash and cash equivalents was attributable to a
rapid strengthening, in the first
12
<PAGE>
quarter of 1999, of the U.S. dollar against most of the functional currencies
earned by the Company in its European operations, as compared to the first
quarter of 2000.
IMPACT OF INFLATION
The impact of inflation on the operating results of the Company has
been moderate in recent years reflecting generally lower rates of inflation in
the economy and relative stability in the Company's cost structure. Although
inflation has not had, and the Company does not expect that it will have, a
material impact on operating results, there is no assurance that the Company's
business will not be affected by inflation in the future.
EXPOSURE TO CURRENCY FLUCTUATIONS
A significant portion of the Company's business is conducted in
currencies other than the dollar, including pounds sterling, equivalent European
euro currencies and Japanese yen. The Company's financial statements are
prepared in dollars, and therefore fluctuations in exchange rates in the pound
sterling and other currencies in which the Company does business relative to the
dollar may cause fluctuations in reported financial information, which are not
necessarily related to the Company's operations. In 1999, for example, the
Company experienced a 1.7% increase in net sales in the European region
(denominated in local currencies); however, the dollar-translated net sales
figures showed a net increase due to the fluctuation of the dollar against the
local currencies of 6.1%. Due to the volatility of currency exchange rates, the
Company cannot predict the effect of exchange rate fluctuations upon future
operating results. Although the Company currently engages in transactions to
hedge a portion of the risks associated with fluctuations in currency exchange
rates, it may not do so in the future. There can be no assurance that the
Company's business, financial condition and results of operations will not be
materially adversely affected by exchange rate fluctuations or that any hedging
techniques implemented by the Company will be effective.
MARKET RISK
Information regarding market risk of the Company as of December 31,
1999 is presented under the caption "Quantitative and Qualitative Disclosures
About Market Risk " which is included in Item 7A of the Company's annual report
on Form 10-K for the year ended December 31, 1999. There have been no material
changes in the Company's exposure to market risk during the three months ended
March 31, 2000.
ORDER RECEIPTS AND BACKLOG
Worldwide customer order receipts were $41.2 million in the quarter
ended March 31, 2000, a 5.6% increase in the rate of order receipts versus the
quarter ended March 31, 1999. On a volume basis, utilizing constant currency
exchange rates, order receipts for the quarter ended March 31, 2000 were $43.5
million and represent an 11.6% increase versus the same period in 1999.
The worldwide backlog of unshipped orders at March 31, 2000 totaled
$29.7 million, a $3.0 million or 11.2% increase over the order backlog at March
31, 1999, and a $6.0 million or 25.3% increase versus the order backlog at
December 31, 1999.
13
<PAGE>
FORWARD-LOOKING INFORMATION
This Form 10-Q includes and incorporates forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included or incorporated in this Form 10-Q regarding the
Company's strategy, future operations, financial position, future revenues,
projected costs, prospects, plans and objectives of management are
forward-looking statements. The words "anticipates," "believes," "estimates,"
"expects," "intends," "may," "suggests," "plans," "projects," "will," "would,"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these words. The Company
cannot guarantee that it will actually achieve the plans, intentions or
expectations disclosed in its forward-looking statements and undue reliance
should not be placed on the Company's forward-looking statements. Actual results
or events could differ materially from the plans, intentions or expectations
disclosed in the forward-looking statements. The Company has included important
factors in the cautionary statements included or incorporated in this Form 10-Q
that the Company believes could cause actual results or events to differ
materially from the forward-looking statements made. The Company cautions that a
number of important factors could cause the Company's actual results for 2000
and beyond to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company. These important factors include,
but are not limited to, demand for the Company's products, competition by rival
developers of hydraulic components and systems, changes in technology, customer
preferences, growth in the hydraulics industries, fluctuations in the functional
currencies of the Company and general economic and business conditions. In
addition the Company's forward-looking statements do not reflect the potential
impact of any future acquisitions, mergers, dispositions, joint ventures or
investments the Company may make. Certain of these important factors and other
factors, which could affect the Company's results, are detailed in the Company's
filings with the Securities and Exchange Commission and are included herein by
reference. The Company assumes no obligation to update the information in this
filing.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding market risk of the registrant is presented under
the caption "Market Risk" which is included in Item 2 of this report and is
incorporated herein by reference.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings incidental to the
normal conduct of its business. The company does not believe that any
liabilities relating to any of the legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
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None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
At the Company's Annual General Meeting held on May 8, 2000, the
shareholders approved an agreement between the Company and ING Barings LLP
whereby ING Barings would act as an agent to purchase, on the Company's behalf,
up to 1,113,950 of the Company's outstanding shares, subject to certain
conditions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 2.1 - Share Purchase Agreement, dated February 16,
2000, by and between Denison International plc
and Santasalo Gears Oy, for the acquisition of
100% of the outstanding shares of Valmet
Hydraulics Oy.
Exhibit 2.2 - Stock Purchase Agreement, dated as of March
14, 2000, by and between Denison Hydraulics
Italy s.r.l. and Intex S.p.A for the
acquisition of 100% of the outstanding shares
of Riva Calzoni Oleodinamica S.p.A.
Exhibit 10.1 - Stock Purchase Agreement dated May 8, 2000 by
and between Denison International plc and ING
Barings LLP, for the purchase of up to
1,113,950 of the outstanding shares of the
Company.
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None
15
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Share Purchase Agreement, dated February 16, 2000, by and between
Denison International plc and Santasalo Gears Oy, for the
acquisition of 100% of the outstanding shares of Valmet Hydraulics
Oy.
2.2 Stock Purchase Agreement, dated as of March 14, 2000, by and
between Denison Hydraulics Italy s.r.l. and Intek S.p.A, for the
acquisition of 100% of the outstanding shares of Riva Calzoni
Oleodinamica S.p.A.
10.1 Stock Purchase Agreement dated May 8, 2000 by and between Denison
International plc and ING Barings LLP, for the purchase of up to
1,113,950 of the outstanding shares of the Company.
27.1 Financial Data Schedule
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SIGNATURE
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 thereunto duly authorized.
DENISON INTERNATIONAL plc
Date May 15, 2000 By /s/ Bruce A. Smith
------------ ------------------------------------
Bruce A. Smith
Director and Chief Financial Officer
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SHARE PURCHASE AGREEMENT
This Share Purchase Agreement made and entered into on this
16th day of February 2000 in Helsinki, Finland by and between
SANTASALO GEARS OY, a company organized and existing under the
laws of Finland having its registered domicile in the City of Jyvaskyla and its
registered address at Martinkatu, 40100 Jyvaskyla, Finland
on the first part, hereinafter referred to as the Seller,
and
DENISON INTERNATIONAL, PLC, a company organized and existing
under the laws of England, UK having its registered domicile in London, UK and
its registered address at 107 Hammersmith Road, London W1H 0QH.
on the second part, hereinafter referred to as the Buyer.
W I T N E S S E T H
WHEREAS, the Seller owns all of the Shares of Valmet
Hydraulics Oy (hereinafter referred to as the Company), a company organized and
existing under the laws of Finland (RN:o 683.900) with its registered domicile
in the Municipality of Jyvaskylan maalaiskunta and its registered address at
Valmetintie 9, 40420 Jyska, Finland.
WHEREAS, the Buyer desires to purchase and the Seller desires
to sell all of the Shares of the Company to the Buyer on the terms and subject
to the conditions set forth in this Agreement hereof.
NOW, THEREFORE, in consideration of the mutually good and
valuable premises and conditions set forth herein the Seller and the Buyer this
day have agreed as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, unless expressly otherwise stated
or evident in the context, the following terms shall have the following
meanings:
Section 1.1. "Agreement" shall mean this Share Purchase
Agreement and the appendices thereto.
Section 1.2. "Closing" shall mean the event of the
simultaneous transactions specified in Article 7 of this Agreement.
<PAGE>
Section 1.3. "Closing Date" shall mean February 29th 2000 or
such later date as specified in Article 7.2 of this Agreement.
Section 1.4. "Closing Date Accounts" shall mean the profit and
loss statement and balance sheet of the Company to be prepared by the Company as
at the Closing Date in conformity with the generally accepted accounting
principles in Finland as applied by the Company in preparation of the Financial
Statements (as defined below) and be reviewed by the auditors of the Company as
provided for in Article 7.3 hereof.
Section 1.5. "Company" shall mean Valmet Hydraulics Oy, a
Finnish joint stock company entered into the Trade Register under No. 683.900.
Section 1.6. "Disclosure Letter" shall mean the letter dated
the same date as this Agreement (together with the documents annexed thereto)
written by the Seller and the Company setting out the disclosures which the
warranties and representations in Article 8 are subject to, attached as Appendix
1 hereto.
Section 1.7. "Financial Statements" shall mean the audited
profit and loss statement and balance sheet of the Company as at December 31,
1999, attached hereto as Appendix 3.
Section 1.8. "Loan" shall mean the loan granted to the Company
by Metso Corporation in the capital amount of Euro 3.363.758,53 as of December
31, 1999 and on such other terms as specified in the deed of loan dated May 1st,
1999.
Section 1.9. "Material Adverse Effect" shall mean material
adverse change in or material adverse effect on the financial condition,
business or operations of the Company, in excess of the amount equal to 15% of
the Purchase Price ie FIM 15.045.000.
Section 1.10. "Material Agreements" shall mean the agreements
of the Company as listed or enclosed as copies in Appendix 9.
Section 1.11. "Net Debt" shall mean the difference between the
Loan and the cash (or its equivalent) of the Company calculated as specified in
Appendix 11.
Section 1.12. "Party" shall mean the Seller or the Buyer, as
required by the context, and "Parties" shall mean the Seller and the Buyer.
Section 1.13. "Purchase Price" shall mean the aggregate
purchase price of the Shares in accordance with Article 3.1 of this Agreement.
Section 1.14. "Shares" shall mean all of the shares of the
capital stock of the Company to be transferred to the Buyer as provided
hereunder, representing one hundred percent (100%) of all shares of the Company.
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Section 1.15. "To the knowledge of the Seller" shall mean the
actual knowledge of management of the Seller or Mr. Juhani Ovaska, Managing
Director of the Company or Messrs Tapani Vainio-Mattila, Erkki Pylvanainen,
Matti Kaarnametsa or Kauko Hanninen.
ARTICLE II.
OBJECT OF THE TRANSACTION
The Seller hereby agrees to sell and the Buyer hereby agrees
to buy the Shares, consisting of 15,000 ordinary shares of capital stock of the
Company, currently held by the Seller, on the terms and conditions herein set
forth.
ARTICLE III.
PURCHASE PRICE
Section 3.1. Purchase Price
The Purchase Price of the Shares shall be the fixed amount of
Finnish Markka One Hundred Million Three Hundred Thousand (FIM 100.300.000).
The Purchase Price is based on the estimated Net Debt position
MFIM 7,698 of the Company as of February 29th 2000 calculated as specified in
Appendix II. Thus, the Purchase Price shall be adjusted as per Article 3.2 below
by the amount equal to any increase or decrease of the Net Debt of the Company
as recorded in the Closing Date Accounts relative to the Net Debt position MFIM
7,698 of the Company as of February 29th 2000.
Section 3.2. Payment of the Purchase Price
Purchase Price shall be paid by the Buyer at the Closing by
bank transfer in immediately available funds into such account or accounts as
designated by the Seller.
Purchase Price adjustment due to the change of the Company's
Net Debt position referred to in Article 3.1 above shall become due and be paid
by the respective party (ie by the Seller should the Net Debt be increased - by
the Buyer should the Net Debt be decreased) to the other within seven (7) days
from the date of submittal of the opinion by PriceWaterhouseCoopers Oy as to the
contents of the Closing Date Accounts.
The Purchase Price adjustment shall be paid in such amount as
stated by PriceWaterhouseCoopers Oy (irrespective of any objections thereto
possibly taken by either Party in accordance with the proceedings described in
Article 7.3).
ARTICLE IV.
TRANSFER OF TITLE
The full ownership of and title to the Shares shall pass to
the Buyer on the Closing Date at the Closing simultaneously with the fulfillment
and completion of the Closing procedures set forth in Article 7 hereunder.
3
<PAGE>
ARTICLE V.
DUE DILIGENCE
During the period starting on the date of signing of this
Agreement up to the Closing Date, the Seller shall permit the Buyer and its
representatives to conduct during normal business hours an investigation and
inspection of the Company, and the Seller shall in connection therewith provide
the Buyer full access to the books, records, property and personnel of the
Company.
The Buyer shall, on a continuous basis openly communicate with
the Seller with respect to the results of the inspection and investigations of
the Company, and shall prior to Closing disclose to the Seller any findings or
information obtained therein which in its reasonable judgement could affect the
Purchase Price, or lead to or form a basis for a breach of the warranties and
representations given in this Agreement.
ARTICLE VI.
CONDITIONS PRECEDENT FOR CLOSING
Section 6.1. Conditions precedent to the Buyer
The obligation of the Buyer to close hereunder shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions (which conditions may be waived in whole or in part by the Buyer at
its sole discretion):
(i) All statutory requirements and authorizations as specified
in Appendix 10 shall have been obtained;
(ii) The representations and warranties of the Seller herein
contained shall be true and correct at the Closing so as to
have no Material Adverse Effect;
(iii) From and after the date of this Agreement and through
the Closing no Material Adverse Effect has occurred;
(iv) the Seller has given to the Buyer an access to the
Company as provided for in Article 5 above;
(v) the Seller shall have performed all material obligations
to be performed or complied with by the Seller at or prior to
the Closing.
(vi) All corporate actions necessary for the lawful and valid
consummation of the transaction shall have been duly taken by
the Seller.
(vii) the Seller shall cause the Company to send a notice to
North American Hydraulics Inc. ("NAHI") stating that in the
opinion of the Company the proposed transaction as to
Regulations of Valudraulics, LLC as signed by the Company has
lapsed due to the inactivity by NAHI and its response of
December 12th 1999.
4
<PAGE>
(viii) no new material adverse findings as to the technical
quality of the Company's products.
(ix) the Parties shall jointly meet with the representatives
of AG-Chem and Denharco prior to the Closing and such
customers indicate they do not intend to discontinue or
substantially decrease the volume of purchases from the
Company within the pending financial year compared to the
budgeted sales of the Company relative to such customers.
Section 6.2. Conditions precedent to the Seller
The obligation of the Seller to close hereunder shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions (which conditions may be waived in whole or in part by the Seller, at
their sole discretion):
(i) All statutory requirements and authorizations as specified
in Appendix 10 shall have been obtained;
(ii) the Buyer shall cause the Company to repay to Metso
Corporation the full capital amount of the Loan plus the
accrued interest up to the Closing Date thereon;
(iii) the Buyer shall have performed all material obligations
to be performed or complied with by the Buyer at or prior to
the Closing.
Section 6.3. Best Efforts
Each Party undertakes to use its best efforts to cause the
conditions precedent to its own obligations to be fulfilled as soon as possible.
Unless Closing has taken place by May 1st 2000 either party may cancel the
Agreement without prejudice to any remedies available under law.
ARTICLE VII.
CLOSING
Section 7.1. Closing
The Closing shall take place on the Closing Date starting at
9.00 am at the office of Metso Corporation. At the Closing
(i) the Seller shall release and deliver to the Buyer duly
endorsed share certificates corresponding to the Shares;
(ii) the Buyer shall pay the Purchase Price;
5
<PAGE>
(iii) the Buyer shall provide the Company with adequate
immediately available funds to repay to Metso Corporation the
full capital amount of the Loan plus the accrued interest up
to the Closing Date thereon;
(iv) the Company shall repay to Metso Corporation the full
capital amount of the Loan plus the accrued interest up to the
Closing Date thereon with immediately available funds into
such account(s) as designated by Metso Corporation;
(v) the Buyer shall present a schedule of the breaches in
Seller's representations and warranties under this Agreement
which the Buyer has become aware of in course of the due
diligence inspection and investigation of the Company, or
otherwise prior to the Closing Date;
(vi) each party shall deliver to the other all certificates
and other documents required to be delivered by such party
under this Agreement;
(vii) the Seller shall deliver letters of resignation from the
Board of Directors of the Company effective on the Closing
Date signed by each member of said Board;
(viii) the Buyer shall cause an Extraordinary General Meeting
of Shareholders of the Company be held in order to elect a new
board of Directors chosen by Buyer.
(ix) All steps taken in connection with the Closing will be
considered to have occurred simultaneously as a part of a
single transaction and in the proper sequence and no delivery
will be considered to have been made until each such step has
been completed, and thus Closing will be completed only after
all the steps mentioned above have been taken.
Section 7.2. Closing Date
The Closing Date shall be February 29th, 2000 or a later date
specified by the parties hereto when all conditions precedent for the Closing as
set forth in Article 6 of this Agreement have been fulfilled.
Section 7.3. Closing Date Accounts
The Company shall within thirty (30) days from the Closing
Date draw up Closing Date Accounts in conformity with the generally accepted
accounting principles in Finland as applied by the Company in preparation of the
Financial Statements. The Closing Date Accounts shall be submitted to the audit
of PriceWaterhouseCoopers Oy in order to certify
(i) that the Closing Date Accounts have been drawn up in
accordance with laws and generally accepted accounting principles in Finland
("hyva kirjanpitotapa") consistently applied according to Company's past
practice.
6
<PAGE>
(ii) the Net Debt of the Company as of the Closing Date and
any decrease or increase thereof relative to Net Debt of the Company as of
February 29th 2000.
All the costs of the aforesaid audit shall be borne by the
Company.
The Closing Date Accounts so certified by
PriceWaterhouseCoopers Oy shall be submitted for the review of the Parties. The
Closing Date Accounts shall be deemed accepted and shall be conclusive for the
purpose of defining the Purchase Price, unless within thirty (30) days after
delivery of the Closing Date Accounts to the Parties, either of the Parties
shall give a written notice to the other Party objecting the certification of
the Closing Date Accounts and submits an adjusted Closing Date Accounts to such
other Party.
The adjusted Closing Date Accounts determined on the basis
thereof shall be deemed to be accepted and shall be conclusive for the purposes
of defining the Purchase Price unless such other Party shall, within thirty (30)
days after the date on which the adjusted Closing Date Accounts were delivered,
deliver a written notice to the disputing Party objecting to the adjusted
Closing Date Accounts.
If the Parties are unable to resolve the dispute as to the
treatment of any item(s) relating to the adjusted Closing Date Accounts within
thirty (30) days after receipt of the notice referred to in above, the dispute
shall be referred for decision to an independent accounting firm ie KPMG Wideri
Oy.
The independent accounting firm shall, within thirty (30) days
of such submission, determine and report to the Parties its resolution on such
remaining disputed items and certify the Net Debt of the Company as at the
Closing Date, accordingly. The resolution and certification shall be final,
binding and indisputable for both the Parties and the payment of Purchase Price
shall be adjusted accordingly.
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller acknowledges that Buyer is entering into this
agreement in reliance on the representations and warranties given herein by the
Seller to Buyer being true and correct as of the date of this Agreement and on
the Closing Date and consequently the Seller hereby represents and warrants to
and agrees with the Buyer as specified below, however, which warranties and
representations are subject to qualifications given in Article 8.25 below.
Section 8.1. Power
The Seller has full power and authority to own, hold and sell
the Shares and to execute and deliver the Agreement and consummate the
transactions contemplated thereby. The Agreement constitutes the valid and
binding obligation of the Seller.
7
<PAGE>
Section 8.2. Organization
The Company is duly organized and validly existing under the
laws of Finland, and has the legal capacity and corporate authority to own its
property and carry on its business as now conducted and is not in breach of its
Articles of Association.
Section 8.3. Shareholding and Share Capital
The authorized, issued and outstanding share capital of the
Company is Euro 2.522.818,90 divided into 15.000 ordinary shares with ownership
as stated in Article 2 of the Share Purchase Agreement and there exists no
option, right of conversion or other issue of shares or securities which could
increase or reduce the number of the shares.
The issued and outstanding shares of the Company are fully
paid-up and all the shares of the Company are free and clear of all claims,
liens, encumbrances and security interests whatsoever.
Section 8.4. Books and Records
The Articles of Association and Trade Register information of
the Company attached hereto as Appendix 2 are currently in force and will not be
amended. All necessary meetings and other corporate actions of or by the
Company, its shareholders and directors have been legally and properly held or
taken, and all resolutions passed by the meetings of shareholders and directors
have been duly recorded in the Company's minutes.
The share and shareholder registers of the Company are
accurate, up-to-date, true and complete and all transfer and other taxes levied
on or in relation to transfers of shares of the Company have been duly paid.
Section 8.5. Shareholder Contributions
The Company has no debt or obligation to make payments of any
kind to Seller except such as described in the Disclosure Letter.
Section 8.6. Financial Statements
The Financial Statements of the Company, attached as Appendix
3 hereto, fairly reflect the result of operation, the financial condition, the
assets and liabilities of the Company as at the relevant date and have been
prepared in accordance with laws and generally accepted accounting principles in
Finland ("hyva kirjanpitotapa") consistently applied.
Section 8.7. Absence of certain changes
Since January 1st 2000 until the Closing Date,
a) there has been no change in the share capital of the
Company;
8
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b) there has been no declaration or payment of dividend,
group contribution (other than in the amount of MFIM 10)
or any other distribution by the Company as of January
1st" 2000;
c) the business and affairs of the Company have been
conducted in accordance with good and sound business
practice and there is no material adverse deviation by
the Company from its ordinary course of business;
d) the Company has not made any change in any method of
accounting practice or policy;
e) the Company has not incurred any additional long-term
debt, except in the ordinary course of business;
f) the Company has not made any major investments or
dispositions of any significant assets other than in the
ordinary course of business or as provided for in the
budget for the year 2000;
g) there has been no destruction or loss of or damage to
any property of the Company, which would result in a
Material Adverse Effect.
h) there has been no action, contract or transactions by
the Company that have had a Material Adverse Effect.
i) there has been no increase in the capital amount of the
Loan.
From and after the date of execution of this Agreement and
through the Closing the Seller will cause the Company to conduct and operate its
business diligently and in the ordinary course of business.
Section 8.8. Indebtedness
True copies of, or an accurate description of material loan,
credit and overdraft facility agreements are attached as Appendix 4.
Section 8.9. Accounts Receivable
All accounts receivable shown in the Financial Statements are
good and collectible in the ordinary course within one hundred twenty (120) days
from the date when they fall due at the recorded amounts. The Buyer shall make
all reasonable efforts to collect the accounts receivable, however, in the event
that any such receivables remain outstanding for more than one hundred (120)
days from its due date, the Seller shall at the Buyer's request pay to the Buyer
such receivable, upon which the Buyer shall assign the receivable(s) concerned
to the Seller.
9
<PAGE>
Section 8.10. Title to Properties
The Company has good and marketable title to its properties
and assets reflected as being owned by it in the Financial Statements plus any
assets acquired since December 31st 1999.
Section 8.11. Intangible Rights
Trademarks, trade names, patents and registered copyrights,
patent applications and licenses owned or used by the Company are specified in
Appendix 5 ("Intangible Rights"). Except as disclosed in Appendix 5, each
Intangible Right is owned free and clear of all pledges, encumbrances or rights
of third parties. To the knowledge of the Seller, none of the Intangible Rights
infringe any intellectual property rights of any third party and no claim has
been made against the Company of any such infringement.
The Company is entitled to have benefit Metso Corporation's
licenses to use all IT systems being used by it until the Closing. The Parties
shall separately agree whether and how to transfer the said licenses into the
name of the Company. The Seller shall in any event carry out such licenses for
the Company for the period not more than three (3) months after the Closing, if
necessary.
Section 8.12. Fixed Movable Assets
To the knowledge of the Seller, all plant, machinery, vehicles
and equipment owned or used by the Company are in adequate repair, condition and
working order, taking into account their age and wear and tear have been
regularly and properly maintained.
Section 8.13. Premises, Land and Building
All premises, land and building owned, leased, used or
occupied by the Company are specified in Appendix 6 attached hereto and includes
all lease, rent, service and other agreements related to such premises, land and
building.
To the knowledge of the Seller, there is no material physical
defect in any part of the properties or any structure thereon and all structures
thereon are in good and substantial repair and condition and fit for the purpose
for which they are currently used having regard to their age and normal wear and
tear.
Section 8.14. Tax Obligations
The Financial Statements contain adequate reserves for all
unpaid income property and value-added taxes, social security contributions and
governmental charges (collectively the "Taxes") for the Company for the
financial year ended December 31, 1999.
The Company has timely and accurately filed all required
returns and reports covering the Taxes and paid all Taxes fallen due.
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There is no dispute with any tax authority in relation to the
affairs of the Company and to the knowledge of the Seller there are no facts
that may give rise to any dispute.
Section 8.15. Litigation and Claims
There are no civil, criminal or administrative actions,
litigation, arbitration or alternative dispute resolution proceedings or
governmental investigations pending, or to the knowledge of the Seller,
threatened against the Company, nor are there any outstanding or to the
knowledge of the Seller, threatened orders, judgements, awards or decrees of any
governmental body, court or arbitration tribunal.
Section 8.16. No Violation of Material Agreements
This Agreement, nor the transactions contemplated herein, (i)
are not in violation of any Material Agreement, (ii) do not constitute a breach
of or an event of default under such Material Agreement, or (iii) will not
modify in any way the rights and obligations of any of the parties to such
Material Agreements, in each case where the above would result in a Material
Adverse Effect.
Section 8.17. Environmental Matters
The Company has not received notice of any outstanding
prosecution, investigation, inquiry, action or proceeding against it for breach
of any applicable environmental laws, statutes, directives, regulations
("Environmental Laws"), which notice is still outstanding, and the Company has
not at any time in the last five years been party to any such prosecution,
investigation, inquiry, action or proceeding.
The Company has filed all reports, returns and filings
required to be filed under any Environmental Law and has obtained all necessary
permits and licenses under Environmental Laws.
The Company has not been notified of any liability with
respect to, or obligation to clean up or remove, previously released substances,
which may cause a harmful effect on the environment.
Section 8.18. Compliance with Law
The Seller has conducted and conducts its business in all
respects in accordance with the laws of Finland.
The Company has all permits, governmental licenses,
authorizations, registrations and approvals (collectively "the Permits")
necessary for the conduct of its business as are required by the laws of any
Government having jurisdiction over the Company and the Company has not received
notice of any violation of any of the Permits and there are to the knowledge of
the Seller no circumstances that would jeopardize the renewal of any such
Permits.
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Section 8.19. Dividends
No dividend has been declared or paid by the Company as of
January 1st 2000.
Section 8.20. Employment Matters
The employees, their salaries, wages and fringe benefits paid
or granted to the employees of the Company at the date hereof are set forth in
Appendix 7 and there will be no increase, other than provided for in pertinent
collective bargaining agreements, in such salaries, wages or fringe benefits
from the date hereof until the Closing Date.
The Company has not signed, nor is it liable under any policy
of, any life or alike personal insurance in excess of compulsory insurances, nor
do any of the employees enjoy any other material benefits other than those as
stated in Appendix 7.
Section 8.21. Inter-Company Arrangements
Except as set forth in Appendix 8, there are no agreements,
guarantees, indemnity arrangements or other rights or obligations between the
Company on the one hand and the Seller, Metso Corporation or any of subsidiaries
on the other hand. As of Closing, all amounts owed by Seller, Metso Corporation
or any of its subsidiaries to the Company shall have been paid.
Section 8.22. True and Correct Information
Neither the Share Purchase Agreement nor Appendices thereto
contain any untrue statement of a material fact or omits to state any fact
material to an intending buyer.
Section 8.23. Survival of Representations and Warranties
The representations and warranties made by the Seller herein
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
Section 8.24. No implied representations or warranties
The Seller makes no representation of warranty whatsoever,
express or implied, beyond those expressly given in this Agreement including but
not limited to any implied warranty or representation as to the fitness for
purpose or merchantability with respect to the Company or its assets.
The representations and warranties of the Seller shall be true
and correct on the Closing Date.
Section 8.25. Qualifications of the Warranties and
Representations
The Parties expressly agree and understand that all the
warranties and representations are qualified to the extent that Seller will not
be considered to be in breach of any such representation or warranty
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(a) if disclosed in the Disclosure Letter; or
(b) if the fact or circumstance amounting to a
misrepresentation or breach of warranty has become known
to the Buyer in course of the due diligence inspection
and investigation of the Company; or
(c) unless the liability due to the misrepresentation or
breach of warranty has not been taken into account and
adequately covered by a provision or reservation made in
the Financial Statements specific to the type of
liability in question, it being agreed and understood by
the Parties that any liability of the Seller shall not
materialize until the aggregate value of the specific
provisions or reservations made in the Financial
Statements be exceeded and exhausted.
ARTICLE IX.
INDEMNITY
Section 9.1. Should the Seller be in breach of any of the
warranties or representations given in Article 8 hereof or other obligations of
this Agreement, the Seller undertakes to indemnify, hold harmless and defend the
Buyer from and against the cost, expense, loss or damage including reasonable
attorneys fees (except for any indirect, incidental or consequential damage or
loss) caused to the Buyer directly out of such breach ("Loss") provided that
(i) in any instance in which a third party makes a claim with
respect to which the Buyer desires to make and to preserve the
right to make any claim hereunder, the Buyer shall notify the
Seller in writing within a reasonable period of time of having
become aware of the claim and allow the Seller to participate
in defending such claim. The Buyer shall keep the Seller
informed as to any development of any such claim or related
litigation.
(ii) the amount for which the Buyer is entitled to be
indemnified hereunder shall be the full amount of the Loss
suffered by the Buyer, as a result of the breach of Seller's
representations and warranties under this Agreement.
Should such Loss be (a) deductible in taxation, the amount of
indemnification shall be the net amount after the deduction at
the applicable tax rate, irrespectively of whether the tax
deduction was actually used or (b) recoverable from a thirty
party under indemnity, insurance policy or otherwise such
recovery shall be first deducted from the Loss. The Seller and
the Buyer undertake to collaborate and cooperate in all
respects in an attempt to first recover claim from a third
party under indemnity, insurance policy or otherwise. Upon
failure to initiate recovery of claim from third party, the
Buyer shall be responsible for payment of claim. Upon failure
to recover claim from third party, the Seller shall be
responsible for payment of claim.
13
<PAGE>
(iii) the Seller shall compensate any Loss for which the Buyer
is entitled to be indemnified hereunder in cash to the Buyer
and the Buyer shall not have the right to rescind this
Agreement.
(iv) in the event of a claim by the Buyer for indemnification
by the Seller hereunder, in respect of a matter which in
Sellers' reasonable opinion is capable of cure, the Seller
shall have the right, exercisable upon thirty (30) days
written notice to Buyer, to attempt to cure the breach of the
representation or warranty in question for a period of 120
days following the date of notice by Buyer to the Seller
claiming indemnification with respect thereto.
(v) notwithstanding any of the foregoing, the Buyer shall not
be entitled to indemnity unless an individual Loss exceeds FIM
200.000 and the aggregate total amount of the Loss amounts to
at least FIM 1.000.000. In case the latter amount is exceeded,
the Buyer shall be indemnified for the total amount of the
Loss exceeding FIM 1.000.000. The aggregate liability of the
Seller under this Agreement shall under no circumstances
exceed 50% of the Purchase Price.
(vi) upon any payment by the Seller pursuant to the provisions
of this Article, it shall be subrogated to all rights to
reimbursement or indemnification against third parties
relating to the amount so paid. The Parties agree that they
will take all such steps as may be necessary or appropriate to
effect such subrogation.
(vii) any claims under this Agreement shall be filed by the
Buyer against the Seller within two (2) years from Closing
Date in order to be valid and enforceable, save for claims
with respect to Taxes which need to be filed on December 31st
2006.
ARTICLE X.
COMPETITION AND SECRECY AGREEMENT
Section 10.1. Non-Competition Commitment
The Seller hereby undertakes for a period of five (5) years
from the Closing Date, without the written consent of the Buyer, not to engage
in the production or sale of any products manufactured and/or sold by the
Company on the Closing Date.
Seller undertakes to cause other companies from time to time
belonging to the Metso Group to abide by the terms of this non-competition
commitment.
Section 10.2. Secrecy Commitment
The Seller hereby undertakes for a period of five (5) years
from the Closing Date, without written consent of the Buyer, to divulge or use,
whether directly or indirectly, for its own benefit or for the benefit of any
person, corporation or business entity other than the Buyer or the Company, any
information or knowledge concerning the operations of the Company, not in the
public domain or generally known.
14
<PAGE>
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Release from Liability by the Buyer
The Buyer shall, as soon as possible but, however, within
ninety (90) days from the Closing, cause the Seller to be released from
guarantees and liabilities the Seller is subject to or undertaken on behalf of
the Company towards banks, finance institutions and pension institutions.
Section 11.2. Release from Liability of the Director of the
Company
The Buyer undertakes in the Annual General Meeting of
Shareholders of the Company dealing with i.a the adoption of the Company's
accounts for the financial year 2000 to grant discharge to and release of
liability to the members of the Board of Directors for the period of operation
of the Company up to the Closing Date provided that the auditors of the Company
do not object to granting such discharge and release.
Section 11.3. Dividends
Any right of dividend pertaining to any of the Shares shall
belong to the Party owner thereof at the point of time of declaration of any
dividend by the Company. No dividend has been declared in the Annual General
Meeting of Shareholders' Meeting for the financial year 1999 held on February
15, 2000.
Section 11.4. Change of Corporate Name
The Buyer undertakes to change the corporate name of the
Company within a period of twelve (12) months from the Closing Date at the
latest so as to abolish the word "Valmet" thereof.
The Seller grants the Buyer the right to use phrase "Valmet
Hydraulics" in the marketing of the products of the Company within such twelve
(12) month period from the Closing Date whereafter such right shall cease
without further notice. For the sake of clarity, there is no right granted to
use word "Valmet" other than together with the word "Hydraulics".
Section 11.5. Amendments
This Agreement may only be amended by an instrument in writing
signed by both of the parties hereto.
Section 11.6. Appendices
Each appendix attached to this Agreement constitutes an
integral part of this Agreement with the same force and effect as if the content
thereof appeared in the body of this Agreement.
15
<PAGE>
Section 11.7. Transfer Tax
The transfer tax levied on the purchase of the Shares in
Finland shall be borne by the Buyer.
Section 11.8. Notices
All notices, requests, demands or other communication to or
upon the respective parties hereto shall be deemed to have been duly given or
made when delivered personally, by mail, telefax, telegram or cable to the party
in question as follows:
a) If to the Seller: Metso Corporation
Fabianinkatu 9 A
FIN-00130 Finland Helsinki
telefax: 358-20-484 3125
attention: Hannu Korpisaari
b) If to the Buyer: Dennison International, Plc
14249 Industrial Parkway,
Marysville, OH 43040
USA
telefax: (937) 644-0827
attention: Bruce A. Smith
Chief Financial Officer
or at such other address as the respective party hereto may hereafter specify in
writing to the other party.
Section 11.9. Non-disclosure
The parties shall maintain confidentiality and shall not
publicly disclose the subject matter, terms and contents of this Agreement
except pursuant to mutually agreeable press releases or to the extent required
by law or applicable regulations.
Section 11.10. Governing Law; Jurisdiction
This Agreement shall be governed by and construed in
accordance with the laws of Finland.
Section 11.11. Settlement in Good Faith
Any claim, dispute or controversy arising out of or in
connection with or relating to the interpretation or enforcement of this
Agreement shall be settled, insofar as possible, by mutual consultation and
consent of the parties, but should this not be found possible, then such
disputes shall be referred to arbitration in accordance with Article 11.10 of
this Agreement.
16
<PAGE>
Section 11.12. Arbitration of this Agreement
Section 11.13. All disputes arising out of or in connection
with the present Agreement or agreements, contracts or understandings relating
to it shall be finally settled under the Rules of Arbitration of the Central
Chamber of Commerce, Helsinki by one or more arbitrators appointed in accordance
with the said Rules. The place of the arbitration shall be Helsinki, Finland and
the proceedings shall be conducted in the English language.
Section 11.14. No Assignment
Any purported assignment of this Agreement or assignment or
delegation of all or any of the rights or obligations hereunder by either party
without the written consent of the other party shall be void. However, the Buyer
shall be entitled to assign this Agreement to any company belonging to the
Denison International, Plc group of companies. Such assignment shall not release
the Buyer of its obligations under this Agreement but the Buyer shall remain
liable to the Seller as if such assignment had not taken place.
Section 11.15. Binding Effect
This Agreement and all of the provisions thereof shall be
binding upon and inure to the benefit of the parties thereto and their
respective executors, administrators, successors and permitted assigns.
Section 11.16. Headings
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement. This Agreement
shall become effective when signed by both of the parties hereto.
Section 11.17. Entire Agreement
This Agreement, the Appendices thereto and the documents to be
delivered thereunder and/or executed and delivered contemporaneously therewith
and/or at the Closing constitute the entire understanding and agreement between
the parties thereto concerning the subject matter thereof.
Section 11.18. Cost and Fees
The Seller and the Buyer shall each bear its own fees and
expenses incurred in connection with the negotiations, preparations and
execution of this Agreement and the transactions contemplated hereby.
This Agreement has been executed in two (2) identical
counterparts, one for the Seller and one for the Buyer.
17
<PAGE>
IN WITNESS WHEREOF, both of the parties hereto have executed
this Agreement or caused this Agreement to be executed on its behalf by its duly
authorized officers or representatives, all as of the day and year first above
written.
SELLER: BUYER:
/s/ Tapani Vainio-Mattlia /s/ Bruce A. Smith
- ----------------------------- ---------------------------
SANTASALO GEARS OY DENISON INTERNATIONAL, PLC
18
<PAGE>
List of Appendices:
Appendix 1 - Disclosure Letter
Appendix 2 - Articles of Association and Trade Register Extract
Appendix 3 - Financial Statements
Appendix 4 - Indebtedness
Appendix 5 - Intangible Rights
Appendix 6 - Premises, Land and Buildings
Appendix 7 - Employees and their Salaries, Wages and Fringe Benefits
Appendix 8 - Inter-Company Arrangements
Appendix 9 - Material Agreements
Appendix 10 - Statutory Approvals
Appendix 11 - Net Debt - definition and the estimated amount as of February 29th
2000
19
<PAGE>
PRELIMINARY
STOCK PURCHASE
AGREEMENT
by and between
INTEK S.P.A. (EX RIVA FINANZIARIA S.P.A)
("SELLER"),
of the first part
and
DENISON HYDRAULICS ITALY S.R.L.
("BUYER")
of the second part
for the transfer of the entire share capital of
RIVA CALZONI OLEODINAMICA S.P.A.
("COMPANY")
<PAGE>
PRELIMINARY STOCK PURCHASE AGREEMENT
------------------------------------
THIS AGREEMENT is made as of this 14th day of March, 2000 by and
between:
INTEK S.p.A., a company duly organized and validly existing under the laws of
Italy, with registered office at Via Camillo Olivetti no. 8, Ivrea (TO),
represented by Ms Diva Moriani, duly empowered by virtue of power of attorney
released by Mr. Vincenzo Manes, Vice President, hereinafter referred to as the
"Seller",
AND
DENISON HYDRAULICS ITALY S.R.L., a company duly organized and validly existing
under the laws of Italy, with registered office at Viale Europa no. 68, Cusago
(MI), represented by Mr. Enrico Ottolini, in his capacity as Managing Director,
hereinafter referred to as the "Buyer"
WITNESSETH:
WHEREAS, Seller is the valid and full owner of number 774,000 shares
having a par value of ITL 10,000 each representing the entire share capital of
RIVA CALZONI OLEODINAMICA S.p.A, a joint stock company with registered office at
15/17, Via Caduti di Sabbiuno, Anzola dell'Emilia (BO), and a share capital of
ITL 7,740,000,000, registered at Registro delle Imprese of Bologna n.
43692/1998, R.E.A. of Bologna n. 395959, fiscal code 01891031203 (hereinafter
referred as the "Company")
WHEREAS, the Seller wishes to sell and transfer to Buyer, and Buyer,
after an exclusive due diligence of the Company, desires to acquire from Seller,
all the Shares in representing the entire share capital of the Company upon the
terms and conditions set out this agreement (hereinafter, the "Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, and subject to and on the terms and
conditions herein set forth, the parties hereto agree as follows:
1. DEFINITIONS, INTERPRETATIONS AND OBJECT OF THE AGREEMENT
1.1 DEFINITIONS
-----------
In addition to the other definitions given herein, in this
Agreement the following terms shall have the following meanings:
"ACCOUNTING PRINCIPLES" shall mean the generally accepted
accounting principles and policies applied in the preparation of the Financial
Statements as specified in the notes to the same.
"SHARES" shall mean all of the 774,000 shares having a par
value of ITL 10,000 each representing the entire stock capital of the Company;
Page 2 of 21
<PAGE>
"BUSINESS DAY" shall mean a day in which banks are open for
business in Italy.
"CLOSING" shall mean the sale and purchase of the Shares, and,
in general, the execution and exchange of all documents and the performance and
completion of all the obligations and undertakings required to be executed,
exchanged, performed, and completed on the Closing Date in compliance with the
provisions of Article 2.3 hereof.
"CLOSING DATE" shall mean APRIL 10, 2000 or such other date as
the parties may hereafter agree to in writing.
"SUBSIDIARY" shall mean Quota s.r.l., a limited liability
company with registered office at 11, via Oradour, San Giorgio di Piano,
Bologna, having a corporate capital of ITL 20,000,000, in which the Company owns
an interests equal to 90% of the corporate capital.
"USA SUBSIDIARY" shall mean RCO North America Ltd., an
American corporation having its registered office at 930, 33rd Street,
Allentown, Pennsylvania, USA, fully owned by the Company.
"AFFILIATE" shall mean Intra-Italy Hydraulics (Shunde) Co.
Ltd., a Joint-Venture corporation having its registered in Shunde, Popular
Republic of China, and corporate capital of US$ 3,000,000, in which the Company
owns an interest of 30%.
"INTERIM FINANCIAL STATEMENT" means the financial statements
of the Company as of June 30, 1999, attached hereto as Exhibit A, prepared in
accordance with the Accounting Principles.
"1999 INTERIM FINANCIAL STATEMENT" shall mean the unofficial
and pre-tax balance sheet and the profit and loss account of the Company for the
period starting on January 1, 1999 and ending on the December 31, 1999, attached
hereto under Exhibit B.
1.2 INTERPRETATION
--------------
Whenever a representation or warranty hereunder is made to the
"Seller's knowledge" or "Company's knowledge" or by using equivalent language,
this shall mean the actual or legally presumable knowledge both of the Seller
and/or of the Company.
1.3 OBJECT OF THE AGREEMENT
-----------------------
Without prejudice to the Buyer's rights and remedies under any
applicable law, unless specifically waived herein, the Seller shall sell and
transfer to the Buyer the Shares and the Buyer shall purchase them from the
Seller at the Purchase Price as hereinafter defined, subject to the terms and
conditions of this Agreement, including the full, exact and timely fulfillment
on or prior to the Closing Date by the Seller of all the terms, conditions,
covenants and undertakings provided for herein.
Page 3 of 20
<PAGE>
1.4 PURCHASE PRICE AND PAYMENT
--------------------------
1.4.1 The parties hereby agree that the total consideration
for the Shares shall be ITL 8,000,000,000= (eight billion lira) (hereinafter,
the "Purchase Price");
1.4.2 On the Closing Date Buyer shall pay to Seller the
Purchase Price equal to ITL 8,000,000,000= (eight billion lira) by means of
cashier's check endorsed to Seller (hereinafter, the " Payment").
2. CLOSING
2.1 PLACE OF THE CLOSING
--------------------
The Closing shall take place at 4 p.m. at the offices of Baker
& McKenzie, 3 Piazza Meda, Milan, on the Closing Date or any other place, date
and/or time as the parties may determine by mutual written agreement but, in any
event, not later than ten (10) business days following the fulfillment of all of
the Conditions Precedent to the Closing set forth in article 2.3 of this
Agreement.
2.2 CONDITIONS PRECEDENT TO CLOSING
-------------------------------
2.2.1 As soon as practically feasible after the execution of
this Agreement, but in any event prior to the Closing:
(a) Seller, with the cooperation of Buyer, shall enter into
with the Chinese partner (Pointeam Development Limited -- Chen Song Group) an
agreement whereby it agrees not to vote any resolution concerning the indebtness
of the Affiliate to a level in excess of 11 million RMB without the consent of
the Company.
(b) Seller shall cause Mr. Zoffoli to renounce to any right
around the extraordinary salary due arising from the March, 18th 1999 letter.
(c) Seller shall have purchased from Mr. Vittorio Paolinelli
his participation in the Subsidiary, equal to 10% of the corporate capital of
the Subsidiary.
(d) Seller shall cause the appropriate body of the Company and
of the Subsidiary to call a Shareholders' meeting of Company and of the
Subsidiary for the Closing Date, having as agenda the appointing of a new
management body of the Company and the Subsidiary, respectively.
(e) Seller and Buyer shall have completed the consultation
procedure provided for under art. 47 Law n. 428/1990.
2.2.2 The representations and warranties of Seller contained
in this Agreement shall be true and correct in all material respects at the date
hereof and as of the Closing Date, except for any representation and warranty
made or given as of a specified date, which shall have been true and correct in
all material respects as of such date, and the Seller shall have performed
Page 4 of 20
<PAGE>
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by same on or prior to the
Closing Date.
2.2.3 If the conditions precedent provided for in this Article
2.2 not have been fulfilled (unless waived by the Buyer) on or before March 31,
2000, the Buyer shall have the night to terminate this Agreement by notice to
the Seller by registered letter. Such termination shall not give the right to
the Parties to claim damages.
2.3 ACTIONS AT CLOSING
------------------
At the Closing the following actions shall take places
simultaneously:
(a) Seller shall deliver to Buyer copy of the written
resignations of the Directors of the Company and of the Subsidiary, with an
acknowledgement that they have no claim against the Company for whatsoever
compensation for loss of their office or otherwise howsoever in the form
consistent with that attached herewith under Exhibit 2.3(a);
(b) Seller shall cause the Statutory Auditors of the Company
to deliver their resignations to the Buyer;
(c) Seller shall hold an ordinary shareholders' meeting of the
Company to resolve upon the appointment of the new directors and statutory
auditors designated by the Buyer by notice in writing to be given to the Seller
at least five (5) Business Days prior to the Closing, such appointment, however,
to be conditional upon, and only to take effect after, successful completion of
the Closing;
(d) Seller shall hold a quotaholders' meeting of the
Subsidiary to resolve upon appointment of the new management body designated by
the Buyer by notice in writing to be given to Seller five (5) Business Days
prior to the Closing.
(e) Seller shall cause Riva Calzoni S.p.A. and the Company to
execute the agreement for the assignment of the trademark Calzoni as per the
draft attached under Exhibit 2.3 (e).
(f) Seller shall endorse to Buyer the share certificate no. 1,
embodying the Shares, by entry note on such share certificate, drafted according
to the wording indicated in Exhibit 2.3(f) hereto, signed by a duly empowered
representative of the Seller before a Notary Public.
(g) Buyer (directly or through any of its Controlled entities)
shall make the Payment of the Purchase Price to Seller pursuant to article 1.4.2
above;
(h) Seller shall enter into a Non-Competition and
Confidentiality Agreement in the form set forth in Exhibit 2.3(h);
(i) Seller shall deliver to Buyer all the Company's corporate
books.
Page 5 of 20
<PAGE>
(j) Seller and Buyer shall execute and deliver to each other,
as the case may be, such other instruments or documents as may be necessary to
vest in the Buyer full ownership of the Shares and to otherwise properly effect
the purposes of this Agreement.
3. ACTIONS AFTER CLOSING
No particular actions after closing are provided for.
4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller represents and warrants to the Buyer the following:
(A) Incorporation and Standing. The Company and the Subsidiary
are duly incorporated, validly existing and in good standing under the laws of
Italy, with full power and authority (corporate and otherwise) to own, lease and
operate its properties and assets and to carry on its business as currently
conducted. The USA Subsidiary is duly incorporated, validly existing and in good
standing under the laws of the State of Pennsylvania.
(B) Company's Capital. The authorized and outstanding capital
is ITL 7,740,000,000, represented by the Shares. None of the Company's shares
have any preferences whatsoever, nor any shares have been granted to a director
of the Company, there are no existing options, warrants, calls, agreements or
commitments of any character to purchase or otherwise receive from the Company
any of the outstanding or authorized capital of the Company. There are no
capital increases, or other operations relating to the capital of the Company,
pending or authorised. There are no claims made by any prior shareholder of the
Company with respect to any rights relating or attached to the capital of the
Company. The Seller shall hold harmless and indemnify the Buyer and the Company
in respect of any such claims.
(C) Capital of the Subsidiaries.
The corporate capital of the Subsidiary, the USA Subsidiary
and the Affiliate is described in Exhibit 4.1(C), is duly issued, fully paid
(with the exception of the USA Subsidiary, for which it has not been paid yet,
according to the laws of the State of Pennsylvania), non-assessable, and held as
indicated in the same Exhibit. There are no capital increases, issuance of
shares or other operations relating to the share capital of the Subsidiaries and
Affiliate pending or authorised. The shares of the Subsidiaries and Affiliate
are free from any and all pledges, restrictions, obligations, sequestration,
privileges, claims, options, usufruct, burdens or prejudicial encumbrances,
rights or claims of third parties. The Company will not be required to increase
the corporate capital of the Affiliate above the present level of 30% or to
Guarantee more than 33% of present loans.
(D) Full ownership. The Seller has good, beneficial and valid
title to all of the Shares, free and clear of all liens, encumbrances, claims
and restrictions of every kind, and valid title to such Shares, free and clear
of all liens, encumbrances, claims and restrictions of every kind, will pass to
the Buyer on the Closing Date.
Page 6 of 20
<PAGE>
(E) Spin-off. The de-merger of Riva Calzoni S.p.A., the
relevant deed executed on May 28, 1998 and the following incorporation of the
Company, and any action carried out in connection thereto were fully compliant
with applicable provisions of law. Except for the joint liability of the Company
in respect of the debts of the de-merged company existing at the time of the
de-merger, as provided for by art. 2504 decies c.c., there are no liabilities,
of any nature whatsoever, of the Company in respect to the de-merger. In any
event, Seller shall (i) reimburse to the Buyer and/or the Company any amount the
Company may be requested to pay in connection with any debt of the de-merged
company pursuant to art. 2504 decies c.c.; and (ii) hold harmless and indemnify
the Buyer and/or the Company from any tax liability of the Company deriving
directly or indirectly from the spin-off.
(F) Authority of the Seller. (i) Seller has full legal
capacity, power and authority to enter into this Agreement, to consummate,
execute, deliver, perform the transactions herein contemplated and to otherwise
carry out its obligations hereunder; (ii) this Agreement constitutes the legal,
valid and binding obligation of Seller and is enforceable against Seller in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency and other similar laws
affecting creditors' rights generally. All authorizations which, pursuant to the
By-laws of the Company are required, have been obtained as of the date hereof
and same shall be in force as of the Closing, Date.
(G) Interim Financial Statement. The Interim Financial
Statement of the Company (copy of which is attached as Exhibit A hereto) is
complete and correct and fairly present the financial position of the Company at
the dates of the Interim Financial Statement, and have been prepared in
conformity with the Accounting Principles.
(H) Inventory. The inventory existing at the Closing date
shall be equal to the one shown in the 1999 Interim Financial Statement, except
for the moving occurred in the normal course of the business
(I) Labour Matters.
(i) The Company is in compliance with all applicable laws,
rules and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours, and are not
engaged in any unfair or discriminatory labour practice;
(ii) There is no labour strike, slowdown or stoppage pending
against or affecting the Company;
(iii) All executives and employees are duly recorded in the
appropriate books and records of the Company in accordance with
applicable laws and regulations;
(iv) The employment of the executives and employees of the
Company is governed, in addition to the mandatory provisions of laws, by
the provisions of the respective collective labour agreements and
supplemental agreements ("contratti integrativi") listed in Exhibit
4.1.(I iv);
(v) Except for those listed in Exhibit 4.1(I v). hereof, the
Company has not
Page 7 of 20
<PAGE>
entered into or made any application in respect of any lay-off
procedures such as "cassa integrazione" or "mobilita" or similar
procedures concerning its employees;
(vi) The Company has not experienced any primary work stoppage
involving its employees in the last five years (save for strikes called
by Unions at national level);
(vii) There are no facts based on acts or omissions of the
Company which took place prior to the date of this Agreement or shall
take place prior to the Closing Date from which a claim by any of the
employees or directors of, or consultants to, the Company made after the
date hereof higher than ITL 10,000,000 can be derived;
(viii) The Company has complied with all the material
requirements in matters of health and safety, tax, social security and
other contributions vis-a-vis the employees and the consultants; there
are no pending or threatened proceedings or inspections concerning the
ascertainment of any liability of the Company for payment of social
security contributions;
(ix) The Seller has duly and timely carried out all
consultation procedures with representatives of the workers in respect of
the Company (such as Workers Councils, rappresentanze sindacali
aziendali, etc.) provided for by the law or bargaining collective
agreements;
(x) There are no threatened or pending disputes between the
Seller or the Company and any employee or consultant of the Company, or
any trade union or other representative thereof where the amount being
claim exceeds or may exceed ITL 10,000,000;
(xi) There are no claims made by any employee of the Company
with respect to professional diseases deriving from use of any substance
or material in the activity of the Company. In any event, the Seller
shall hold harmless and indemnify the Buyer and the Company in respect of
any such claims.
(J) Compliance with Regulatory Requirements. The Company has
complied with, and the Company's products and services comply with all
applicable state and local laws and regulations in force in the countries where
the Company operates.
(K) Litigation and Liabilities. (i) Except for those listed
under Exhibit 4.1(K), there are no actions, suits, claims or proceedings by or
against the Company, or pending or threatened governmental investigations
against the Company; (11) the Company is not subject to any judgement,
stipulation, order, decree, or agreement arising from any past or present
action, suit, claim, proceeding or investigation; and (iii) no action, suit,
claim, proceeding or government investigation is pending or, to the knowledge of
the Seller, threatened which seeks to question, delay or prevent the
consummation of the transactions contemplated hereby. The Company or the Seller
have no knowledge of any facts upon which any such action, suit, claim,
proceeding or investigation could be based.
(L) Receivables. The accounts receivable reflected on the
books and records of the Company as of the date hereof have arisen only in the
ordinary course of business of the
Page 8 of 20
<PAGE>
Company in accordance with their normal credit policy, are subject to no claim
or offset except for returns or allowances in the ordinary course of business
(which are adequately accrued for in the 1999 Interim Financial Statements).
(M) Real Property Leases. Exhibit 4.1(M) hereto contains an
accurate and complete list of all locations governed by leases of real property
to which the Company is a party (as lessee or lessor). Each of said lease
agreements is (and on the Closing Date shall be) in full force and effect,
affords them peaceful and undisturbed possession of the subject matter of each
such lease. There exists no material event of default or event, occurrence,
condition or act (including the transactions contemplated in this Agreement)
which, with the giving of notice, the lapse of time or the happening of any
further event or condition, would become a material default under such lease.
(N) Title to Properties. The Company has, and on the Closing
Date will have, good and marketable title to all of the properties and assets
reflected in the books and records of the Company, free and clear of all liens,
encumbrances, claims and restrictions of every kind, except for those listed
under Exhibit 4.1(N)(i) hereto. All machinery and equipment included in such
properties and assets are in good condition and repair, according to the stop
machine statistic times as listed in Exhibit 4.1(N)(ii).
(O) Licenses, Registrations and Compliance with Privacy Laws.
The Company has all permits, governmental licenses, registrations, and other
rights, privileges and approvals (collectively called "Approvals") necessary to
carry on its businesses as presently conducted as required by law or the rules
and regulations of any state, county, local or foreign governmental agency,
body, instrumentality or commission having jurisdiction over it (or has applied
for such Approvals and are operating under a temporary Approval). The Company is
not in violation of any such law, rule or regulation which violation would have
an effect on the business operations or financial condition of the Company.
The Company is fully compliant with any applicable privacy or
data protection laws and regulations, and all due and requisite actions
(including, but not limited to, the mandatory notices to the "Autorita Garante
della Privacy") in respect thereto have been duly and timely taken.
(P) Major Contracts.
(i) Except as set forth on Exhibit 4.1(P)(i) hereto, the
Company is not a party to any contract, agreement or obligation, whether
oral or written, involving an aggregate payment, including all
installments thereunder, by or to the Company of more than ITL 50.000.000
(other than routine purchase orders). With respect to all such contracts
the Company is not in material breach thereof or material default
thereunder and there does not exist under any such contract any event
which, with the giving of notice or the lapse of time, would constitute
such a breach or default, except for such breaches, defaults and events
as to which requisite waivers or consents have been obtained.
(ii) To the Seller's best knowledge, all the contracts between
the Company and any third party containing a change in control provision
are listed in Exhibit 4.1(P)(ii).
Page 9 of 20
<PAGE>
The Seller shall exercise its best efforts to obtain the consent or
waiver by such third parties to the transactions contemplated herein.
(iii) To the Seller's best knowledge, orders received by the
Company are valid and effective, and have been acquired under normal
market conditions, and the Company is in the condition to perform such
orders. Unless differently instructed by Buyer, Seller, to the extent
reasonably possible, shall carry on its best endeavours so that all
material suppliers and customers of the Company shall continue their
business with the same after the date hereof in accordance with past
practice.
(Q) Non-Contravention. The execution and delivery of this
Agreement by the Seller will not (i) violate any provision of the Certificate of
Incorporation or By-Laws of the Company; (ii) violate any law, rule or
regulation applicable to the Company, or violate any court or administrative
order, process, judgement or decree to which the Seller or the Company are a
party or by which any of them (or any of their respective properties or assets)
is bound; or (iii) violate any provision of, or result in the acceleration of,
or entitle any party of accelerate (whether after notice or lapse of time or
both) any obligation under (or result in the creation or imposition of any
mortgage, lien, charge, pledge, security interest or other encumbrance upon the
property or assets of the Company pursuant to any provision of) any mortgage,
lien, charge, pledge, security agreement, other encumbrance, lease, agreement,
license or other instrument to which the Company or the Subsidiary are a party.
The Company is not in violation of any term of its Certificate of Incorporation
or By-Laws, or any agreement, instrument, judgement, decree, order, law or
governmental rule or regulation applicable to the Company, the violation of
which would have an effect on the Company.
(R) Trademarks, Trade Names. Exhibit 4.1(R) hereto lists, as
of the date of this Agreement, (i) all patents, registered trademarks, trade
names and registered copyrights owned by the Company, and all licensed and other
agreements relating thereto, or relating to any technology or know-how licensed
to third parties by the Company or relating to the licensing, distribution,
development, purchase or sale of the Company's products or services. All such
patents, registered trademarks, trade names are valid and enforceable in the
Country where they have been registered. Subject to the restrictions (if any)
listed in Exhibit 4.1(R) hereto, the Company holds free from contractual or
other restriction, except those imposed by law or governmental rule or
regulation, all such patents, registered trademarks, trade names, copyrights,
licenses, leases, other agreements, technology, know-how and processes owned by
the Company. Except as set forth in Exhibit 4.1(R) hereto, no claim has been
asserted by any person in relation to the use by the Company of its trademarks,
trade names, copyrights, technology, know-how, software or processes or for
patent infringement. Except for the trademark "Calzoni", the Company has
exclusive ownership of, or an exclusive license to use, all patents, trademarks,
trade names, copyrights, or other proprietary rights necessary to its respective
businesses as presently conducted or contemplated, and do not knowingly infringe
any patent, copyright, trademark or other proprietary rights of others. The
Company has the right to use, free and clear of claims or rights of others, all
trade secrets, customer lists and manufacturing processes and other information
required for or incidental to their products or services or their businesses as
presently conducted or contemplated.
Page 10 of 20
<PAGE>
(S) Insurance. Exhibit 4.1(S) hereto lists the insurance
policies, the coverage provided and the policy limits that are in force as of
the date of this Agreement and that have been in force during each of the two
years prior to the date of this Agreement. Except as set forth on Exhibit 4.1(S)
hereto, none of the insurance policies have been cancelled and, to the knowledge
of the Seller or of the Company, none of the insurers who have written such
insurance policies intend to cancel any of such policies. The Company has paid,
when due, all premiums payable under such insurance policies.
(T) Taxes. All tax returns, reports and forms required to be
filed by, or with respect to any activities of the Company with any federal,
state, local or foreign taxing authority have been filed in accordance with all
applicable laws and regulations and all taxes, fees, penalties, interest and
other governmental charges which were shown to be due on such returns, reports
and forms have been paid or adequately provided for on the Financial Statements.
There is no action, suit, proceeding, investigation, audit or claims now pending
against, or with respect to, the Company in respect of any tax or assessment,
nor is any claim for additional tax or assessment asserted by any taxing
authority.
(U) Product Liability. To the Seller's best knowledge, the
products sold by the Company meet all of the requirements imposed by Italian
law. Except as disclosed in Exhibit 4.1(U)(i), neither the Seller nor the
Company have received any claims related such liability alleging that the
products sold by the Company were defective, caused or contributed to the
causation of damages or personal injuries, nor to the Seller's best knowledge do
there exist circumstances that would result in any product liability claim.
Details of the all product liability claims pending or settled in the past 12
month period prior to the date hereof are set out in Exhibit 4.1(U).
Except as set forth under Exhibit 4.1(U)(ii), the warranties
granted by the Company on the products are customary for the kind of products
and their duration is 12 months.
(V) Absence of Certain Changes. From July 1st, 1999 up to
December 31, 1999 (as reflected in the 1999 Interim Financial Statement) and up
to and including the Closing Date, the Company has been and shall be conducted
in the ordinary and customary course of business, according to the past
practice, except as reflected in Exhibit 4.1(V):
(a) since July 1st, 1999 there has been (i) no material change
in the financial position or results of operations of the Company, except for
the changes that have resulted from general economic conditions and changes
generally affecting the business, and the books and records of the Company
have been maintained in the ordinary course consistent with prior practices;
(ii) no declaration, setting aside or payment of any dividend or other
distribution with respect to the Shares of the Company; (iii) no waiver of any
valuable right of the Company or the cancellation of any debt or claim held by
the Company; (iv) no loan by the Company to any officer, director, employee or
shareholder of the Company, or any agreement or commitment therefor; (v) no
loss, destruction or damage to any property or asset of the Company, whether
or not insured; and (vi) no acquisition or disposition of any properties or
assets (or any contract or arrangement therefor), nor any other transaction by
the Company or otherwise than for fair value in the ordinary course of
business; (vii) no increase, direct or indirect, in the compensation paid or
payable to any director of the Company or the Subsidiary.
Page 11 of 20
<PAGE>
(b) since June 30, 1999 the Seller has not declared or
received any dividend payment from the Company and has not invoiced or
received any fees or other payments.
(W) Information. This Agreement, each document, certificate or
statements expressly referred to in this Agreement or provided to Buyer for the
purpose of the due diligence review carried out by Buyer, do not contain any
untrue statements of a material fact, and this Agreement, the other documents,
certificates and statements taken as a whole, do not omit to state a material
fact necessary in order to make the statements contained herein and therein not
misleading. To the knowledge of the Seller, there is no material fact relating
to the business, prospects, operations, affairs or conditions of the Company
which affects or in the future may (so far as the Seller may now reasonably
foresee) affect the same which has not been set forth in this Agreement or in
the other documents furnished to the Buyer by and on behalf of the Company prior
to or on the date hereof.
(X) Compliance with laws and environmental liabilities. In
respects of the relevant obligations of the Company:
(i) Seller hereby guarantees that there is not, anything in,
on, over or under any real estate owned, leased or occupied by the
Company, the presence, existence or condition of which constitutes a
breach of any law and any other statute or subordinate legislation
relating to pollution of the environment in force in Italy as at the date
hereof, nor is any manufacturing, storage, generation, servicing
treatment, disposal or other process carried on at the premises of the
Company in such a way as to amount to a breach of the same.
(ii) All necessary licenses, consents, authorizations, and
registrations required under the environmental legislation to operate the
ordinary business of the Company have been obtained.
(iii) No writ, summons, orders, enforcement, notice,
prohibition, notice or other notice has been received by Company and the
Subsidiary and so far as the Seller is aware, no direction of any public,
local or other statutory authority has been made with regard to the
properties and/or any activities, processes or substances in, on, over or
under the properties pursuant to the environmental legislation and no
prosecutions have been instituted with respect thereto.
(iv) The premises of the Company and the Subsidiary have not
been affected by any landfill gas nor has there been deposited on or in
the properties any hazardous items, nor any hazardous items have been
spilled, released, discharged or disposed of and no contamination of any
kind has ever occurred in the soil or water in, under or upon the
properties. There are not in use or stored on the properties any
radioactive material or radioactive apparatus, any hazardous substance or
any processes or substances prescribed by regulations under the
environmental legislation for which an authorization is required.
4.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer represents and warrants to, and agrees with, the
Seller as follows:
Page 12 of 20
<PAGE>
(A) Organization and Authority of the Buyer. The Buyer is duly
incorporated, is validly existing and is in good standing under the laws of
Italy, with full legal to capacity, power and authority (corporate and
otherwise) to enter into this Agreement, consummate the transactions herein
contemplated and to otherwise carry out its obligations hereunder. The
execution, delivery and performance of this Agreement by the Buyer has been duly
authorized by all necessary corporate action. This Agreement constitutes the
legal, valid and binding obligation of the Buyer, enforceable against the Buyer
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency and other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
(B) Litigation. Except with respect to any investigation which
may be instituted under the antitrust laws, no action, suit, claim, proceeding
or government investigation is pending or, to the knowledge of the management of
the Buyer, threatened which seeks to question, delay or prevent the consummation
of the transactions contemplated hereby.
(C) Non-Contravention. The execution and delivery of this
Agreement by the Buyer and of all other concurrent and subsequent actions
contemplated hereby will not (i) violate any provision of the Memorandum or
Articles of Association of the Buyer; (ii) violate any law, rule or regulation
applicable to the Buyer or violate any material court or administrative order,
process, judgement or decree to which either the Buyer or its affiliates is a
party or by which any of them (or any of their respective properties or assets)
is bound; or (iii) to the knowledge of the management of the Buyer, violate any
provision of, or result in the acceleration of, or entitle any party to
accelerate (whether after notice or lapse of time or both) any obligation under
(or result in the creation or imposition of any material mortgage, lien, charge,
pledge, security interest or other encumbrance upon the property or assets of
the Buyer or its affiliates pursuant to any provision of) any mortgage, lien,
charge, pledge, security agreement, other encumbrance, lease, agreement, license
or other instrument to which the Buyer is a party.
(D) Labour Agreements. The Buyer shall fulfill the agreements
(dated May 12th 1999, December 18th 1997 and July 29th 1997) attached hereto as
Exhibit 4.2(D) and subsequent actions contemplated hereby.
5. ADDITIONAL AGREEMENTS OF THE PARTIES
5.1 ORDINARY COURSE OF BUSINESS
Prior to the Closing Date, and except as otherwise
contemplated by this Agreement or consented to or approved by the Buyer, the
Seller covenants and agrees that.
(A) The Company shall continue to be operated in the ordinary
and usual course and in a manner consistent with current management practices.
(B) The Company shall not enter into any contract involving
the payment by the Company of an amount in excess of ITL 50,000,000 except (i)
purchases of materials and supplies in the ordinary course of business and (ii)
the start-up of USA Subsidiary.
Page 13 of 20
<PAGE>
(C) The Company shall not incur, assume or guarantee any
indebtedness for money borrowed in excess of the amounts as at December 3 1,
1999, except for those listed in Exhibit 5.1 (C).
(D) Exhibit 5.1. (D) contains the list of all executives and
employees of the Company and their current compensation, salaries and benefits
as of the date hereof, with specific indication of the executives hired by the
Company from 1st January, 1999 until the date hereof. The Company shall not (i)
enter into any employment agreement; or (ii) grant any increase in the rate of
compensation or in the benefits payable or to become payable to any officer or
other employee or to any agent or consultant over the levels in effect on the
date hereof, other than normal salary increases in the ordinary course of
business.
(E) The Company will not make or declare any form of dividend
or distribution, or sell or transfer any property or assets or pay any fees or
make any payments whatsoever to the Seller prior to the Closing Date.
(F) Seller shall use its best efforts, and shall cause the
Company to use its best efforts, to preserve, in all material respects, the
business of the Company and the good will of customers and others having
business relations with the Company.
5.2 ACCESS AND INFORMATION
----------------------
As of the date of this Agreement:
(A) Seller shall grant Buyer and its authorized employees,
representatives, accountants, auditors and lawyers free access during normal
business hours and subject to adequate advance notice to all offices,
properties, books, records, contracts and documents of the Company to permit
them to make such investigation of the Company's properties, business commercial
and financial conditions as they shall deem necessary or desirable;
(B) Seller shall furnish to Buyer and its authorized
representatives, accountants, auditors and lawyers all information with respect
to the affairs of the Company that Buyer may reasonably request.
6. INDEMNIFICATION
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
(A) All representations and warranties contained in Article
4.1 shall survive the Closing and shall remain in full force and effect until
April 30, 2001, except for the representations and warranties relating to tax,
labour, social security, environmental and product liability matters, as well as
those relating to the spin-off transaction, which shall remain in full force and
effect until the expiration of the applicable statutes of limitations.
(B) No indemnification shall be due by the Seller to the Buyer
and/or the Company relating the minus value of the equity and/or any liability,
whatsoever nature or cause, arising from the Affiliate and the Subsidiaries.
Page 14 of 20
<PAGE>
6.2 INDEMNITY
---------
(A) Seller shall indemnify Buyer and hold it harmless, and
Buyer shall indemnify Seller and hold it harmless, to the extent provided in
this Article 6, from and against any and all losses, damages, liabilities,
claims, demands, judgements, settlements, costs and expenses of any nature
whatsoever (including reasonable attorney's fees) resulting from or arising out
of any breach of any representation or warranty of the indemnifying party as
results of any false or incorrect representation and warranty contained in
Article 4.
(B) Anything in this Article 6 to the contrary
notwithstanding, no claim may be asserted nor may any action be commenced
against an indemnifying party for indemnity with respect to the matters referred
to in this Article 6.2, unless written notice of such claim or action is
received by the indemnifying party describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim or action on or
prior to April 30, 2001 or, with respect to the representations and warranties
relating to tax, labour, social security, environmental, product liability
matters and the spin-off, on or prior to the expiration of the applicable
statute of limitations, irrespective of whether the subject matter of such claim
or action shall have occurred before or after such date.
(C) The amount(s) of indemnification in relation to the
liability of the Seller pursuant to this Article 6 shall not become payable by
Seller until an aggregate amount of Lit. 100,000,000 (one hundred million) so
that Buyer shall have no indemnification right until its claims reaches such
amount: in such event the Buyer's indemnification rights shall be limited to the
sum in excess of the 100 million treshhold. Such limitation shall not apply to
the liabilities arising as of Article 4.1 paragraph (E). In no event, however,
shall the liability of the Seller pursuant to this Article 6 exceed an aggregate
amount equal to the Purchase Price.
(D) (a) Upon the assertion by any third party of a claim that
may give rise to a liability of the Seller, the party to be indemnified
hereunder ("Indemnified Party") shall promptly notify the other party
(hereinafter, "Indemnifying Party") in writing of the existence of such claim
specifying in reasonable detail the nature of the claim. However, failure by the
Indemnified Party to give said prompt notice of such claim to the Indemnifying
Party shall not constitute a waiver of the right of indemnification for such
claim by said Indemnified Party, provided that the Indemnified Party shall bear
the consequences, if any, of such delay. Upon written notification to the
Indemnifying Party of the assertion of any such claim, the Indemnifying Party
shall have fifteen (15) days after receipt of such notice from the Indemnified
Party to notify the Indemnified Party of whether the Indemnifying Party will
undertake the defense (without prejudice to its right to object to its
responsibility), on behalf of the Indemnified Party, compromise or settlement of
such claim, provided that:
(i) the Indemnifying Party shall timely provide to the
Indemnified Party all information with respect to such defense,
compromise or settlement as such Indemnified Party may reasonably
request;
(ii) such Indemnifying Party shall not assume any position or
take any action in connection with such defense, compromise or settlement
that would impose an obligation of any kind, restrict the actions of the
Indemnified Party or in any way result in
Page 15 of 20
<PAGE>
a detriment to the Indemnified Party, it being understood that such
Indemnifying Party would in so doing be acting solely on its own behalf,
for its own account and at its own risk; and
(iii) the Indemnified Party will in all instances cooperate
with the Indemnifying Party and will, subject to subparagraph (b) below,
render all reasonable assistance to the Indemnifying Party in preparing
the defense and effecting any compromise or settlement.
(b) In the event that such Indemnifying Party does not
undertake the defense, compromise or settlement of such claim as provided in the
foregoing, the Indemnified Party shall have the right to undertake the defense,
compromise or settlement of such claim at the risk and expense of the
Indemnifying Party. The Indemnified Party shall, however, notify the
Indemnifying Party of any compromise or settlement of any such claim.
(c) In the event that a third party's claim is asserted
against any of the Company at any time between the date hereof and the Closing
Date, Seller shall immediately inform Buyer by means of the notice procedure set
forth under Article 7.5 hereinbelow in order to permit Buyer to exercise its
rights under Article (D) (a) and (b) above.
(E) Any dispute between the Seller and the Buyer relating to a
claim for indemnification shall be resolved as follows:
(a) If the parties agree that the dispute is one involving
accounting matters, such dispute shall be referred to and determined by a
certified public accountant (or a firm of certified accountants) in Milan, Italy
mutually acceptable to the parties. In the event they cannot agree on such
selection, each party shall nominate a certified public accountant (or a firm of
certified public accountants) as its representative and the two certified public
accountants (or firm of certified public accountants) so nominated shall jointly
select a third certified public accountant (or firm of certified public
accountants). In such event, the resolution of the dispute shall be decided by a
majority of the three certified public accountants (or firms of certified public
accountants). The resolution of the dispute by the certified public
accountant(s) (or firms of certified public accountants) shall be final and
binding upon all parties as to accounting matters, but shall not extend to any
non-accounting matters unless Buyer and Seller shall mutually agree in writing
to the contrary.
(b) If the dispute does not involve accounting matters, or if
the Buyer and the Seller are unable to agree whether or not the dispute involves
accounting matters, then the dispute shall be submitted to and settled by
arbitration in accordance with the arbitration clause set forth under Article
7.4 hereof.
(c) Buyer and Seller may each respectively appoint attorneys,
accountants and agents to act for it before the certified public accountant(s)
(or firms of certified public accountants), as the case may be.
Page 16 of 20
<PAGE>
(d) Costs and expenses with respect to the third certified
public accountant (or firm of certified public accountants) chosen by the
parties, or chosen by the certified public accountants for filing of certified
public accountants) representing the parties shall be borne equally by Buyer and
Seller. Costs and expenses of any arbitrators shall be borne as determined in
accordance with the arbitration clause set forth under Article 7.4 hereof.
7. MISCELLANEOUS
7.1 EXPENSES
--------
Unless otherwise provided in this Agreement, each of the
parties to this Agreement shall bear his, her or its own expenses (including,
without limitation, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred in
connection with the preparation and execution of this Agreement and consummation
of the transactions contemplated hereby. The Buyer shall bear the cost of the
notary fees involved in the endorsement of the Shares to the Buyer, as well as
any other tax applicable to the transactions contemplated herein. Seller shall
be liable for any fee due to the broker who promoted the transaction object of
this Agreement.
7.2 PUBLIC DISCLOSURE
-----------------
Each of the parties to this Agreement hereby agrees with the
other parties that, except as may be required to comply with the requirements of
applicable law, no press release or similar public announcement or communication
will be made or caused to be made concerning the execution or performance of
this Agreement unless specifically approved in advance by the Buyer.
7.3 GOVERNING LAW
-------------
This Agreement shall be governed by, and construed in
accordance with the laws of Italy.
7.4 JURISDICTION
------------
All disputes arising in connection with this Agreement or any
modification or extension of this Agreement which is not settled amicably within
45 (forty five) days by the Chief Executives of the Parties, shall be finally
settled by formal arbitration ("arbitrato rituale") in accordance with the Rules
of National Arbitration of the Chamber of Commerce of Milan ("the Chamber") in
effect at that time by a panel of three arbitrators. Each party shall appoint
one arbitrator and the two arbitrators so appointed shall jointly select a third
arbitrator. Failing agreement between the two arbitrators selected by the
parties on the third arbitrator, or failing the appointment of its own
arbitrator by one of the parties within thirty (30) days of receipt by said
party of a notice of arbitration from the other party, the third arbitrator or
the arbitrator not appointed by one party shall be appointed by the Chamber at
the request of the arbitrator appointed by the other party. The arbitration
shall be held in Milan.
Page 17 of 20
<PAGE>
7.5 NOTICES
-------
Any notices or other communications required under this
Agreement shall be in writing (including telecopy communications), and shall be
sent by express mail, telecopier or courier as follows:
(a) If to the Seller::
Attn.: Vincenzo Manes, Esq.
INTEK S.p.A.
Foro Buonaparte, 44
20121 Milano
Telefax: 02- 72021355
with copy to:
Attn.: Giuseppe Schiuma, Esq.
Studio Legale Schiuma
Via Testoni, 2
40123 Bologna
Telefax: 051 - 227-326
(b) If to the Buyer:
Enrico Ottolini
DENISON HYDRAULICS ITALY S.r.L
Viale Europa, 68
20090 Cusago (MI)
Telefax . 02 - 90390253
With copy to:
Gianfranco Di Garbo, Esq.
Baker & McKenzie
Piazza Meda, 3
20121 Milano
Facsimile (02) 76231623
All notices shall be deemed to have been duly given or made
when delivered personally or upon three business days after being deposited in
the mail, provided that there is evidence that the recipient has been informed
by the mail office.
7.6 ARTICLE HEADINGS
----------------
The Article and paragraph headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Page 18 of 20
<PAGE>
7.7 COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
7.8 ASSIGNMENT
----------
Except as provided in the following sentence, this Agreement
may not be assigned, by operation of law or otherwise. The Buyer may assign its
rights under this Agreement (including but not limited to the benefit of the
representations and warranties made to the Buyer herein) in whole or in part to
a wholly-owned subsidiary or to a parent company that will assume all
obligations of the Buyer hereunder.
7.9 AMENDMENTS AND WAIVER
---------------------
This Agreement may not be amended or modified except by a
writing duly executed by the Buyer and the Seller. Waiver of any term or
condition of this Agreement shall only be effective if in writing and shall not
be construed as a waiver of any subsequent breach or waiver of the same term or
condition, or a waiver of any other term or condition of this Agreement.
7.10 ENTIRE AGREEMENT
----------------
This Agreement and the Schedules constitute the entire
Agreement and understanding between the parties with respect to all matters
which are referred to. The Schedules form part of this Agreement. This Agreement
shall be binding upon the inure to the benefit of heirs, successors and
permitted assigns of the parties hereto.
7.11 SEVERABILITY
------------
If any term or provision in this Agreement shall in whole or
in part be held to any extent to be illegal or unenforceable under any enactment
or rule of law, that term or provision or part shall to that extent be deemed
not to form part of this Agreement and the enforceability of the remainder of
this Agreement shall not be affected.
/s/ Diva Moriani /s/ Enrico Ottolini
- ------------------------ ---------------------------------
INTEK S.p.A DENISON HYDRAULICS ITALY S.r.L.
Page 19 of 20
<PAGE>
LIST OF EXHIBITS
----------------
<TABLE>
<CAPTION>
<S> <C>
Exhibit A Interim Financial Statement
- ---------
Exhibit B 1999 Financial Statement
- ---------
Exhibit 2.3(a) Letter of resignation of the Company's Directors
- --------------
Exhibit 2.3(e) Agreement for the Assignment of the Trademark
- --------------
Exhibit 2.3(f) Draft entry note for share certificate endorsement
- --------------
Exhibit 2.3(h) Non-Competition and Confidentiality Agreement
- --------------
Exhibit 4.1 (C) Chart of the corporate capital of the Subsidiary, US Subsidiary and Affiliate
- ---------------
Exhibit 4.1 (I iv) List of the collective labour agreements and supplemental agreements ("contratti
- ------------------ integratiui")
Exhibit 4.1 (K) List of pending litigation
- ---------------
Exhibit 4.1 (M) List of locations and relevant lease agreements
- ---------------
Exhibit 4.1 (N)(i) List of liens, encumbrances, claims or restrictions existing on properties and
- ------------------ assets of the Company
Exhibit 4.1 (N)(ii) List of stop machine statistics times
- -------------------
Exhibit 4.1 (P)(i) List of agreements involving aggregate payment by or to the Company exceeding
- ------------------ ITL 50,000,000.
Exhibit 4.1 (P)(ii) List of agreements providing for change of control provisions
- -------------------
Exhibit 4.1 (R) List of patents, registered trademarks, trade names owned or used by the Company
- --------------- and relevant restrictions, if any
Exhibit 4.1 (S) List of insurance policies
- ---------------
Exhibit 4.1 (U)(i) List of product liability claims
- ------------------
Exhibit 4.1 (U)(ii) List of warranties exceeding standard terms
- -------------------
Exhibit 4.1 (V) List of material changes occurred since July 1st, 1999
- ---------------
Exhibit 4.2 (D) List of Labour Agreements to be fulfilled by the Buyer
- ---------------
Exhibit 5.1 (C) List of loans to the Company until the Closing Date
- ---------------
Exhibit 5.1 (D) List of executives and employees of the Company
- ---------------
</TABLE>
<PAGE>
SHARE PURCHASE AGREEMENT
DATED 8TH MAY, 2000
DENISON INTERNATIONAL PLC
and
ING BARINGS LLC
---------------------------------------
CONTINGENT PURCHASE CONTRACT
FOR THE PURCHASE OF UP TO 1,111,395
SHARES OF US$0.01 EACH IN THE
CAPITAL OF DENISON INTERNATIONAL plc
----------------------------------------
ALLEN & OVERY
LONDON
CO:703948.1
<PAGE>
Page Two
THIS AGREEMENT is made on May 8, 2000
BETWEEN:
(1) DENISON INTERNATIONAL PLC (registered number 2798239) whose registered
office is at Masters House, 107 Hammersmith Road, London W14 OQH (the
"COMPANY"); and
(2) ING BARINGS LLC whose US offices are located at 55 E. 52nd Street, New York,
NY 10055 (the "VENDOR").
WHEREAS:
(A) The Company is a public company limited by shares having an authorized share
capital of (pound)57,000 divided into 7,125 "A" Ordinary Shares of (pound)8
each ("Ordinary Shares") and US$150,000 divided into 15,000,000 Ordinary
Shares of US$0.01 each ("$ Shares") of which 7,015 Ordinary Shares and
11,113,950 $ Shares have been issued fully paid or credited as fully paid.
(B) Pursuant to and in accordance with the terms of the Amended and Restated
Restricted Deposit Agreement dated 4th August 1997 between inter alia the
Company and Bankers Trust Company, a bank organized under the laws of the
State of New York (the "Deposit Agreement" and "Depositary" respectively),
the 11,113,950 issued $ Shares (such shares being referred to in the Deposit
Agreement as "Restricted American Depositary Shares ("ADS's")) are held by
the Depositary in the form of share warrants to bearer, the beneficial
ownership of which being evidenced by the issue by the Depositary of
American Depositary Receipts ("ADR's") on the basis of one ADR for every one
ADS held.
(C) Subject to the conditions in clause 1 below, the Company wishes to purchase,
and the Vendor wishes to sell up to 1,111,395 of such $ Shares on the terms
and conditions set out below.
(D) The Company is authorized to purchase its own shares pursuant to article 11
of the Company's articles of association.
(E) A copy of this agreement has been available for inspection by the members of
the Company at its registered office for not less than 15 days ending with
8th May, 2000 and was similarly available at the annual general meeting of
the Company held on that date at which the terms of this agreement were
authorized by special resolution of the Company in accordance with section
164 of the Companies Act 1985 (the "Act").
(F) The consideration for the purchase of any of the $ Shares is proposed to be
provided out of the distributable profits of the Company.
IT IS AGREED as follows:
1. CONDITIONS PRECEDENT
Each sale and purchase of any of the $ Shares is conditional on:
(a) the Company having notified the Vendor at any time prior to 31st
October, 2001 by one or more notices (in the form set out in Appendix
1) that it wishes to purchase up to a specified number of $ Shares and
the price or the range of prices and a maximum price at or within which
the Vendor shall acquire the ADRs representing such shares; and
<PAGE>
Page Three
(b) following receipt by the Vendor of any notice pursuant to paragraph (a)
above, the Vendor having notified the Company at any time prior to 7th
November, 2001 by one or more notices (in the form set out in Appendix
2) ("Vendor's Notice") that it has acquired a specified number of ADRs
(the "Sale ADRs") in accordance with paragraph (a) above and that
pursuant to and in accordance with the relevant provisions of the
Deposit Agreement, such ADRs have been surrendered to the Depositary
and that the Vendor is the holder of share warrants to bearer in
respect of a specified number of $ Shares (the "Sale Shares").
2. SALE AND PURCHASE
Subject to the satisfaction of the conditions in clause 1, the Vendor shall
acquire as an agent for the Company, and the Company shall be obligated to
purchase, the Sale Shares at an aggregate price, payable in cash in US
dollars, equal to the aggregate of (i) the consideration paid by the Vendor
for the Sale ADRs, (ii) an commission-equivalent markup of US $.03 per share
and (iii) a conversion fee of US $.05 per share (together, the "Purchase
Price").
3. WARRANTIES AND COVENANTS
(1) The Vendor warrants that as at completion of each purchase of Sale Shares
(as referred to in clause 4 below) the Company will be the beneficial owner
of the number of Sale Shares specified in the relevant Vendor's Notice and
that such Sale Shares will be free from any lien, charge or encumbrance.
(2) The Vendor covenants that all purchases of Sale ADRs by it hereunder shall
be made in accordance with all applicable US securities laws, including but
not limited to Regulation M and the safe harbor afforded by Rule 10b-18
under the US Securities Exchange Act of 1934, as amended.
(3) Each party warrants to the other that this Agreement has been duly
authorized, executed and delivered by such Party, and constitutes the legal,
valid and binding obligation of such Party, enforceable against it in
accordance with its terms. The Company warrants that it will notify the
Vendor immediately of any "blackout" periods during which the Company would
be precluded, for any reason, from purchasing shares under this agreement.
Such notice shall be sent as provided for in clause 6 below.
4. COMPLETION
(1) Completion of each sale and purchase of the Sale Shares shall be effected on
the business day next following receipt by the Company of the relevant
Vendor's Notice, by:
(a) the Company paying to the Vendor the Purchase Price.
(2) At a place and time to be agreed between the Company and the Vendor, Vendor
shall deliver to the Company the share warrants to bearer representing the
Sale Shares referred to in the Vendor Notice.
(3) As soon as is reasonably practicable after completion the Company shall (if
applicable) alter its register of members so as to show that the relevant
Sale Shares have been cancelled in accordance with section 160(4) of the
Act.
5. COSTS
Each of the Company and the Vendor shall bear all professional costs and
charges relating to this agreement respectively incurred by them and the
Company shall also pay all stamp duties, custodial charges and delivery
charges falling due in respect of the completion of the purchase of the Sale
Shares in accordance with this agreement.
<PAGE>
Page Four
6. SERVICE OF NOTICES
Any notice to be served under this agreement shall be validly served if
delivered or if sent by first class post, recorded delivery post or
facsimile process if addressed to the Company at its US Executive Offices
located at 14249 Industrial Parkway, Marysville, Ohio 43040, Attention:
Chief Financial Officer (facsimile number 937-644-0827) or, if addressed to
the vendor to ING Barings LLC at 55 E. 52nd Street, New York, NY
10055,Aattention Michael C. Brown, Managing Director (facsimile number
212-409-5059) with a copy to Ralph Martinez, Director (facsimile number
404-364-5255) . Any notice shall be deemed to have been served:
(a) if delivered, at the time of delivery;
(b) if posted, on the third business day after it was put in the post; or
(c) if sent by facsimile process at the expiration of two hours after the
time of dispatch.
7. TERMINATION
This agreement shall terminate on 7th November, 2001 (the "Termination
Date") as from which date neither of the parties will have any rights,
liabilities or obligations under this agreement save in respect of any
Vendor's Notice received or deemed received by the Company prior to the
Termination Date.
8. GENERAL
(1) The headings in this agreement are for convenience only and shall not affect
its construction.
(2) This agreement is governed by and shall be construed in accordance with the
laws of England and Wales.
AS WITNESS the hands of the duly authorized representatives of the parties on
the date, which appears first on page 1.
SIGNED by J. Colin Keith, Chairman /s/ J. Colin Keith
For and on behalf of -------------------------------
DENISON INTERNATIONAL plc
SIGNED by Michael C. Brown, Managing Director /s/ Michael C. Brown
for and on behalf of -------------------------------
ING BARINGS LLC
<PAGE>
APPENDIX 1
To: ING Barings LLC
55 E. 52nd Street
New York, NY 10055
Attn: Michael C. Brown, Managing Director
Pursuant to clause 1(a) of the Contingent Purchase Contract made between us and
dated 8th May, 2000 (the "Contract"), we hereby notify you that:
1. We wish to purchase up to [ ] $ Shares as defined in, and on
the terms and subject to the conditions of, the Contract;
2. All purchases of $ Shares shall be made in accordance with all applicable US
securities laws, including but not limited to Regulation M and the safe
harbor afforded by Rule 10b-18 under the US Securities Exchange Act of 1934,
as amended; and
3. The maximum price which you may purchase ADRs representing $ Shares shall be
US$[ ] per ADR.
Dated:
Signed: .....................................
A duly authorized director
for and on behalf of
Denison International plc
<PAGE>
APPENDIX 2
To: The Directors
Denison International plc
Masters House
107 Hammersmith Road
London W14 0QH
England
Pursuant to clause 1(b) of the Contingent Purchase Contract made between us and
dated 8th May, 2000 (the "Contract"), we hereby notify you as follows:
1. We have acquired [ ] ADRs representing [ ] Sale Shares,
as defined in the Contract at a price or prices and on the dates specified
below.
Date(s) ADR(s) Price paid No. of ADRs Total purchase price
Purchased per ADR $ purchased
[ ] [ ] [ ] [ ]
2. Pursuant to and in accordance with the relevant provisions of the Deposit
Agreement (as so defined) we have surrendered the above-mentioned ADRs to
the Depositary and that we are the holder of a share warrant to bearer in
respect of [ ] $ Shares.
Dated:
Signed: ....................................
A duly authorized signatory
for and on behalf of ING Barings LLC
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 31,709
<SECURITIES> 0
<RECEIVABLES> 33,110
<ALLOWANCES> 1,647
<INVENTORY> 30,037
<CURRENT-ASSETS> 97,094
<PP&E> 38,060
<DEPRECIATION> 14,889
<TOTAL-ASSETS> 130,310
<CURRENT-LIABILITIES> 28,815
<BONDS> 18,894
86
111
<COMMON> 0
<OTHER-SE> 82,314
<TOTAL-LIABILITY-AND-EQUITY> 130,310
<SALES> 37,033
<TOTAL-REVENUES> 37,033
<CGS> 23,689
<TOTAL-COSTS> 32,563
<OTHER-EXPENSES> 102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 4,670
<INCOME-TAX> 1,508
<INCOME-CONTINUING> 3,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,162
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
