<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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 333-43335
AIRXCEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1071795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 North Saint Francis, Wichita, Kansas 67219
(Address of principal executive offices)
(Zip Code)
(316) 832-3400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
None
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 [XX] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of
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Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
State the aggregate market value: The Company does not have any publicly
traded equity securities.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
1,000 shares of Common Stock as of December 31, 1999
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART 1
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Airxcel, Inc. (the "Company") is a wholly-owned subsidiary of Airxcel
Holdings Corporation ("Holdings"); formerly known as RV Holdings Corporation.
Airxcel, Inc. was formed in May, 1991 as Recreation Vehicle Products, Inc.
("RVP"). In November, 1995, the Company acquired Carter Shades, Inc., which was
merged with Faulkner Manufacturing. In October, 1997, the company changed its
name to Airxcel, Inc. and the company's board of directors adopted a formal plan
to dispose of the Faulkner Manufacturing division.
On November 10, 1997, the Company completed the acquisition of Crispaire
Corporation ("Crispaire"), a designer, manufacturer and marketer of air
conditioning units and heat pump water heaters. The acquisition was accounted
for as a purchase. Accordingly, the purchase price was allocated to the
underlying assets and liabilities based on their respective fair values. The
financial statements include the accounts and results of operations since that
date.
On March 17, 1998, the Company completed the acquisition of 100% of the
outstanding common stock of Suburban Manufacturing Company, formerly SUBURBAN
Enterprises Group, Inc., ("Suburban"), a designer and manufacturer of heating,
water heating and cooking appliances for the recreation vehicle ("RV") industry
and other specialty products for the heating, ventilating and air conditioning
industry. The acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the underlying assets and liabilities based on
their respective fair values. The consolidated financial statements include the
accounts and results of operations since that date.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in the heating, ventilation, and air conditioning
equipment industry. Due to the similarities of the economic characteristics,
production processes, customers, distribution methods and regulatory environment
of the company's products, the Company is managed, operated and reported as one
segment. Financial information about the Company's products and customers is
presented in the consolidated financial statements.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company is a designer, manufacturer and marketer of air conditioners,
furnaces, water heaters, and cooking appliances for the recreation vehicle
industry, and wall mount air conditioners, environmental control units ("ECUs")
and heat pumps for the heating, ventilating and air conditioning industry.
The Company supplies a variety of air conditioners to several of the
world's largest RV original equipment manufacturers ("OEMs"), marketing these
products under the popular and well-established "Coleman" brand name. The
Company believes that its air conditioners are superior to those of its
competitors due to greater air flow capacity, cooling efficiency and more
aerodynamic design. Its reputation as a dependable source of high-quality,
durable products have resulted in its long term relationships with leading RV
manufacturers such as Fleetwood,
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Winnebago, Gulf Stream and Jayco, who have relied on the Company for
substantially all of their RV air conditioner needs for each of the past seven
years. In addition, the Company supplies furnaces, water heaters and cooking
appliances to a large number of OEM's under the "Suburban" brand name. Suburban
entered the RV heating market over 30 years ago and has a well recognized
reputation for innovation, quality and service. Suburban acquired an established
water heater line in 1988 and only recently entered the cooking appliance field.
The Suburban product line has many attractive advantages including quieter
operation and longer life. Combining these advantages with outstanding customer
service, Suburban has longstanding relationships with a number of major OEM
customers such as Winnebago, Starcraft, Fleetwood, and Forest River. Sales to
such OEMs provide the Company with a large installed base of products which
generates a significant recurring stream of revenue through sales of parts and
replacement units in the aftermarket. Aftermarket air conditioner sales to
customers such as RV dealers, supply and service centers are achieved primarily
through an agreement with The Coast Distribution System, Inc. ("Coast"), the
largest wholesale distributor of aftermarket products in the RV industry. The
Company believes that Coast's extensive market penetration and large sales force
provide broad aftermarket coverage and distribution capabilities which enhance
its substantial aftermarket business. The Company also supplies Suburban brand
LP gas fired appliances to Coast and a number of other aftermarket distributors.
As in its air conditioning products, the Company believes its LP gas appliances
offer a greater value and superior performance than those products produced by
its competition. In fiscal 1999, as a percentage of Airxcel's net sales, OEM
sales represented 51%, and aftermarket sales represented 18%.
In addition to serving the RV industry, the Company designs, manufactures
and markets specialty wall mount air conditioners, ECUs and heat pumps for
various applications. Customers are principally manufacturers of
telecommunication shelters and cabinets for the cellular, cable, wireless,
satellite and PCS markets and wholesale distributors for foreign and domestic
telecommunications sales, school districts and modular construction companies.
The Company believes that it is the largest provider of environmental control
equipment for the U.S. telecommunication shelter market. The Company also
believes that it is well-positioned to benefit from growth in cellular, wireless
and PCS telecommunications markets and the resulting demand for
telecommunication shelters. Its focus on customer service and quality control
and its strong reputation for its ability to offer a broad and innovative line
of products in a timely manner has attracted significant telecommunication
providers such as AT & T and MCI/Worldcom to specify its products for new
construction. The Company also believes that it will benefit from an increased
need for cooling units in the nation's schools due to new state regulations and
certain building codes that mandate fresh air requirements in classrooms, the
rebuilding of school system infrastructures and the steadily growing student
population. The Company supplies wall mount air conditioners to multiple school
districts throughout the country, including the Los Angeles Unified School
District, Orange County Florida and Atlanta Public Schools. The Company has a
leading position in each of its principal specialty markets, through solid
relationships with its customers who generally require tailored products and a
high level of customer service. The ability to customize products without
interruption of its larger production lines allows the Company to work closely
with customers to develop and produce equipment that meets their specific needs
quickly and efficiently. In fiscal 1999, sales to the telecommunication shelter
industry and school industry represented 15% and 10%, of Airxcel's total net
sales, respectively.
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AVAILABILITY OF RAW MATERIALS
Most of the major component parts for the products such as compressors,
coils, electrical parts, and motors are purchased preassembled from suppliers.
Significant amounts of steel, copper, and plastic are also purchased. The
Company has strong relationships with its suppliers and has alternate suppliers
for all of its major components.
LIMITED USE OF COLEMAN BRAND NAME
The Company has an exclusive, royalty-free license to use the name
"Coleman" on certain products for a period of 50 years ending in 2041. Such
license automatically renews for another 50 years provided the Company is in
compliance with all material terms of the trademark license agreement. The
company's license to use the "Coleman" brand name on a standalone basis expired
on April 30, 1997. As a result, the Company must use an additional name or
product name in conjunction with the "Coleman" brand name.
SEASONALITY
A significant part of the Company's operations are directly dependent upon
the conditions in the highly cyclical RV industry, highly competitive
telecommunications industry and the commercial and public construction
industry. Companies within these industries, including the Company's largest
customers, are subject to volatility in operating results due to external
factors such as economic, demographic and political changes. These factors
include seasonal factors, fuel availability and fuel prices, overall consumer
confidence and general economic conditions, the level of discretionary consumer
spending, government regulation, interest rates and unemployment.
DEPENDENCE UPON SIGNIFICANT CUSTOMERS
Airxcel's net sales to Fleetwood, Coast, Winnebago, Jayco, Forrest River,
Andrew Corporation and Wesco, its largest customers, accounted for
approximately 43% of the Company's net sales for 1999. There can be no
assurance that the company will maintain or improve these relationships or that
the Company will continue to supply these customers at current levels. The loss
of a significant portion of sales to any of these customers could have a
material adverse effect on the financial position, results of operations or
liquidity of the Company. In addition, many of the arrangements that the
company has with such customers are by purchase order and terminable at will at
the option of either party. A significant decrease or interruption in
businesses of any of the Company's significant customers could have a material
adverse effect on the financial position, results of operations or liquidity of
the Company.
COMPETITIVE CONDITIONS
The recreation vehicle industry is highly competitive, both as to price
and quality of the product. As of December 31, 1999 there were five primary
competitors within the industry. The school and telecommunications air
conditioning industry is also highly competitive with five major competitors.
Although the Company competes with a number of established companies that have
greater financial, technological and marketing resources, Airxcel believes it
has a competitive advantage due to the following:
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Strong Market Position in Principal Niche Markets. The Company has a large
share of the total North American RV air conditioning, heating, and water
heating market and believes it is the largest provider of environmental control
equipment of the U.S. telecommunications market, through sales to manufacturers
of telecommunication shelters. The Company believes that its strong market
shares enable it to maintain significant competitive advantages in serving its
customers, including manufacturing efficiencies and greater product development
and marketing resources. Success in such markets has historically been driven
by areas in which the Company believes it compares favorably with its
competitors such as strong customer relationships, industry expertise, product
quality and speed and reliability of service.
Existing Long-Term Customer Relationships. The Company has long-term
relationships with most of its customers, including several of the largest
OEMs, major telecommunications companies and equipment manufacturers and school
districts. Airxcel has supplied leading OEMs such as Fleetwood, Winnebago, Gulf
Stream and Jayco substantially all of their air conditioner needs for each of
the past seven years. The Company believes that such customer loyalty coupled
with a focused product line and reputation for meeting high volume production
demands have led to its success in the seasonal RV air conditioning industry
and provide a significant advantage over competitors. Airxcel has worked
closely with its telecommunications customers, in some cases for as long as 16
years, to develop equipment to meet such customers' specialized requirements.
To support such equipment, the Company has an extensive network of service
dealers across the U.S. The recent proliferation of shelters for
telecommunications equipment and the importance of protecting such equipment
through the use of cooling units and ECUs has generated an increasing demand
for customized products and has strengthened such relationships. In addition,
the Company has worked with multiple school districts throughout the country,
such as the Los Angeles Unified School District, for as long as eight years, to
develop products which are designed to meet the unique heating and cooling
needs of the classroom such as achieving certain industry ventilation standards
and addressing other concerns such as architectural design and ease of
servicing considerations. The Company believes that customization provides a
high level of customer satisfaction and will foster the continued development
of significant customer relationships.
Strong Brand Name Recognition. The Company markets its RV air conditioners
using the well established and recognized "Coleman" brand name. The "Coleman"
brand name, established in the early part of the twentieth century, is well
recognized as a leading brand name for a variety of products related to the
outdoor recreation industry. Coleman brand air conditioners have been the
leading RV air conditioners since they were introduced into the market and are
recognized by customers to represent high quality and reliability. The
"Suburban" brand name was established in the late 1940's and is synonymous with
providing quality LP gas fired appliances to the RV industry including
furnaces, water heaters and cooking appliances. The Company also benefits from
the strong brand name recognition of its "Marvair" name in the
telecommunication shelter market and its "Scholar" name in the school market.
High Quality Products, Customer Service and Product Design Capabilities. The
Company believes it is recognized as a leader in the RV industry due to its
high product quality and customer service. The Company believes that its
efficient manufacturing and assembly processes enable it to offer competitively
priced products while maintaining high product quality. Because of the seasonal
nature of the RV industry, timely delivery of products to OEMs and aftermarket
customers has played a critical role in the Company's long-standing success.
Similarly, Crispaire has developed a strong reputation with its customers for
its ability to develop unique solutions to customers' environmental control
needs, respond to short lead times
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and to deliver its products in a timely manner. In addition, Crispaire attained
its ISO-9001 certification during 1998 and strives to establish quality
procedures at each of its facilities in order to manufacture the highest
quality products possible.
Extensive Distribution Network and Experienced Sales Force. The Company
believes its sales force includes some of the most experienced sales people in
the RV industry who are located in close proximity to and actively work with
many of the largest OEMs regarding product design issues and estimated future
orders. In addition, the Company provides Coast, the largest wholesale
distributor of replacement parts, supplies, and RV accessories, serving more
than 15,000 customers throughout the U.S. and Canada, with 100% of its RV air
conditioning products. Airxcel believes that Coast provides broad aftermarket
coverage and distribution capabilities. Sales efforts outside the recreation
vehicle industry are organized by industry segments with sales representatives
covering the U.S. telecommunications, school, and construction industries as
well as international sales. In addition, independent sales representatives
actively market products, particularly to school districts, in which sales
agents have developed relationships covering a variety of channels, including
wholesale distributors, factory direct sales, architectural and engineering
firms, original equipment manufacturers, end users and the international market
through distributors.
NUMBER OF PERSONS EMPLOYED
As of December 31, 1999, the Company had approximately 1070 employees of
which approximately 408 were represented by a union.
ITEM 2. PROPERTIES
The following table describes the principal facilities utilized by the
Company for manufacturing, warehousing, and administrative purposes.
<TABLE>
<CAPTION>
Approximate
Location Square Feet Owned/Leased
-------- ----------- ------------
<S> <C> <C>
Cordele, Georgia 30,000 Leased
Cordele, Georgia 44,000 Leased
Cordele, Georgia 113,000 Owned
Dayton, Tennessee 285,000 Owned
Elkhart, Indiana 27,000 Owned
Norcross, Georgia 10,080 Leased
Norcross, Georgia 37,000 Leased
Wichita, Kansas 50,000 Leased
Wichita, Kansas 153,000 Owned
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On April 15, 1999, the jury in a case involving patent, trademark and trade
dress infringement, Bard Manufacturing Company et al. v. Crispaire Corporation,
No. 3:95-CV-7103 (N.D. Ohio 1998) awarded damages against Crispaire for patent
infringement in an amount of $9,000,000. Crispaire provided a bank letter of
credit to secure a stay of execution of the judgment and has filed an appeal. A
decision by the appellate court on the appeal is expected within nine to
twenty-four months from November 1999. Management of the Company believes that
the current damages award was the result of legal and factual errors both by the
judge and
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jury and that the ultimate result of its appeals process will be either a
reversal or a significant reduction in its liability. The Company does not
believe that the eventual resolution of the Bard Manufacturing litigation will
have a material adverse effect on the Company's financial position, results of
operations or liquidity although, given the inherent risks of litigation, there
can be no assurances in that regard.
In addition to the claim previously described, the Company is a party to
various litigation matters incidental to the conduct of its business.
Management does not believe that the outcome of any of the matters in which it
is currently involved will have a material adverse effect on the financial
position, results of operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There has been no submission of matters to a vote of security holders
during the fourth quarter of fiscal year 1999.
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PART 2
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company does not have any publicly traded equity securities.
ITEM 6. SELECTED FINANCIAL DATA
Five Year Summary of Selected Financial Data
Years Ended December 31
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $178,946 $ 153,396 $ 58,323 $ 58,169 $ 55,788
Cost of sales 140,771 119,552 44,732 43,803 42,257
-------- --------- -------- ------- --------
Gross profit 38,175 33,844 13,591 14,366 13,531
Selling, general and
administrative expenses (1) 17,146 15,297 4,223 4,558 8,627
Operating income 10,733 16,077 8,729 8,386 2,572
Income (loss) from continuing
operations before income
taxes (1,685) 3,801 4,087 5,968 1,383
Net income (loss) (1,042) 2,251 (4,548) 1,074 (453)
OTHER DATA:
Gross margin percentage 21.4% 22.1% 23.3% 24.7% 24.3%
EBITDA (2) 16,297 20,671 9,850 10,369 5,554
EBITDA margin percentage 9.1% 13.5% 16.9% 17.8% 10.0%
Cash provided by operating
activities 12,812 2,047 7,229 4,249 857
Cash used in investing activities (3,133) (30,346) (44,083) (435) (1,183)
Cash provided by (used in)
financing activities (9,731) 18,785 46,319 (4,209) 553
Depreciation and amortization (3) 5,564 4,594 1,144 1,983 2,982
Capital Expenditures 2,638 1,852 716 459 356
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (4) $ 15,781 $ 28,368 $ 23,186 $ 5,632 $ 8,819
Total assets (5) 118,212 126,590 76,933 24,748 26,561
Total debt 106,910 119,506 90,355 48,280 24,824
Total stockholders' equity
(deficiency) (18,940) (17,898) (25,009) (28,701) (4,255)
</TABLE>
- ----------
(1) Selling, general and administrative expense (excluding amortization of
intangible assets and computer software) for 1995 includes $4,279 of
nonrecurring expenses related to costs incurred to compensate certain
option holders for their personal tax liabilities incurred when such
options were exercised.
(2) EBITDA represents earnings before interest expense, net, other
nonoperating expense, net, income tax expense, depreciation and
amortization. Other nonoperating (income) expenses were $2, ($92), $23,
$145 and $92 for the years ended December 31, 1999, 1998, 1997, 1996, and
1995, respectively. EBITDA, as calculated by the Company, may not be
similar to the method used by other companies. Airxcel has included
information concerning EBITDA because it is relevant for covenant analysis
under the Indenture, which defines EBITDA as set forth above for the
periods shown, and is presented because it is used by certain investors as
a measure of a company's ability to service debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(3) Excludes depreciation and amortization related to the discontinued
Faulkner manufacturing division.
(4) Working capital represents current assets less current liabilities,
including net assets (liabilities) held for sale of the discontinued
Faulkner manufacturing division of $(662), $(1,290), $(466), $6,421 and
$5,634 as of December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
(5) Total assets include net assets held for sale of $6,421 and $5,634 as of
December 31, 1996 and 1995 respectively, and exclude net liabilities of
the discontinued Faulkner manufacturing division of $662, $1,290 and $466
as of December 31, 1999, 1998 and 1997, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. Net sales increased 16.6% from $153.4 million in 1998 to $178.9
million in 1999. Net sales increased primarily due to growth in the RV industry
as well as the school and telecommunications markets. In addition, sales
related to the acquisition of Suburban on March 17, 1998, generated $12.0
million of additional sales.
Gross Profit. Gross profit increased 13.0% from $33.8 million in 1998 to
$38.2 million in 1999. The increase was principally due to the increased sales
volume and Suburban which generated incremental gross margins of $2.5 million.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses increased 11.2% from $17.8 million in 1998 to $19.8 million in 1999
primarily due to increased sales commissions as a result of increased sales,
increased advertising expenses due to increased marketing efforts and $1.6
million of incremental expenses due to Suburban. Selling, general and
administrative expense as a percentage of net sales decreased from 11.6% in
1998 to 11.1% in 1999.
Accrued litigation expense. Accrued litigation expense increased $7.6 million
in 1999 due to the litigation discussed in Note 15 of the notes to the
consolidated financial statements.
EBITDA. EBITDA was $20.7 million in 1998 and $16.3 million in 1999. The
decrease is primarily due to the accrued litigation expense and increased
selling, general and administrative expense as described above offset by
increased gross profit generated from the increased sales volume.
Income from continuing operations before income tax expense and extraordinary
item. Income from continuing operations before income tax expense and
extraordinary item decreased 147.4% from income of $3.8 million in 1998 to a
loss of $1.7 million in 1999 primarily due to increased accrued litigation
expense and selling, general and administrative expense as described above
offset by increased gross profit generated from the increased sales volume.
Net income (loss). Net income decreased from net income of $2.3 million in
1998 to a net loss of $1.0 million in 1999 primarily as a result of the
decreased income from continuing operations as described above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales increased 163.1% from $58.3 million in 1997 to $153.4
million is 1998. Net sales increased primarily due to the $43.1 million and
$42.7 million of additional sales related to the acquisition of the Crispaire
on November 10, 1997 and Suburban on March 17, 1998, respectively. In addition,
the volume of OEM and aftermarket sales of air conditioners increased in
comparison to the year ended December 31, 1997, which the company believes was
the result of dealer inventory adjustments in 1997, growth in the RV industry
and sustained hot weather beginning early in the second quarter of 1998.
Gross Profit. Gross profit increased 148.5% from $13.6 million in 1997 to
$33.8 million in
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1998. The increase was principally due to the respective acquisitions of
Crispaire and Suburban which contributed $8.2 and $10.0, respectively. The
remainder is attributable to the increased volume of OEM and aftermarket sales.
Selling, general and administrative expenses (including amortization of
intangible assets and computer software). Selling, general and administrative
expenses increased 263.3% from $4.9 million in 1997 to $17.8 million in 1998
primarily due to the acquisition of Crispaire and Suburban which attributed $7.0
million and $6.3 million, respectively. Selling, general and administrative
expenses as a percentage of net sales increased from 8.4% in 1997 to 11.6% in
1998, primarily due to amortization of intangibles related to the acquisitions
and higher selling, general and administrative expenses as a percentage of sales
of the newly acquired businesses.
EBITDA. EBITDA was $9.9 million in 1997 and $20.7 million in 1998, primarily
due to the contribution from Crispaire and Suburban of $3.3 and $5.9,
respectively. The remainder is attributable to the increased volume of OEM and
aftermarket air conditioner sales offset by increased selling, general and
administrative expenses as noted above.
Income from continuing operations before income tax expense and extraordinary
item. Income from continuing operations before income tax expense and
extraordinary item decreased 7.3% from $4.1 million in 1997 to $3.8 million in
1998 primarily due to increased gross profit offset by higher interest expense
as a result of the issuance of $90.0 million of senior subordinated debt in
November, 1997, borrowings under the amended credit agreement with the bank of
$28.0 million in March 1998 and increased selling, general and administrative
expense as described above.
Net income (loss). Net income increased from a net loss of $4.5 million in
1997 to net income of $2.3 million in 1998 primarily as a result of the
extraordinary loss of $1.6 million for early extinguishment of debt and losses
from operations of the discontinued Faulkner manufacturing division of $5.5 in
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $12.8 million in net cash flow from operating activities
for the year ended December 31, 1999 compared to $2.0 million for 1998,
primarily as a result of increased revenues and reductions in accounts
receivable and inventories, offset by accrued litigation expense.
Cash used in investing activities includes the March 1998, acquisition of
Suburban for approximately $28.4 million. The excess of the purchase price over
the estimated fair value of assets acquired of $17.0 million was accounted for
as goodwill and is being amortized over the straight line method for 40 years.
Capital expenditures were $2.6 million, $1.9 million, and $.7 million for the
years ended December 31, 1999, 1998, and 1997, respectively. The increase in
1999 is primarily due to the expansion of the Company's production facility of
$1.2 million.
Capital expenditures for 2000 are expected to be slightly above the 1999 level
which includes the normal replacement of machinery and equipment. It addition,
the Company intends to purchase a new press for one of its production
facilities.
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On November 5, 1997 the Company issued $90 million of 11% senior subordinated
debt (matures November 5, 2007). Substantially all of the proceeds were used by
the Company to finance its acquisition of substantially all of the net assets of
Crispaire, to repay certain indebtedness and to pay financing costs associated
with the offering. On March 17, 1998, the Company amended it's credit agreement
with a bank to include a $10 million term loan and a $28 million revolving
credit facility (matures March 31, 2005 and March 31, 2003, respectively). The
proceeds of the credit agreement were used by the Company to finance its
acquisition of the outstanding stock of Suburban. The Company's term loan and
revolving credit facility with the bank permits borrowings at interest rates
based on either the bank's base rate or Libor rate plus a factor (8.46% combined
rate at December 31, 1999) based on certain financial covenants. The available
line on the revolving credit facility is limited to the lessor of $28 million or
85% of net accounts receivable, 60% of net inventories, and cash and cash
equivalents. On April 7, 1998 the Company entered into a three year interest
rate cap agreement (notional principal amount of $10 million) to reduce the
impact of increases in interest rates.
Covenants under the Company's credit facility with the bank restrict the
ability, subject to certain exceptions, to dispose of assets, incur additional
indebtedness, guarantee obligations, prepay other indebtedness or amend other
debt instruments, make distributions or pay dividends, redeem or repurchase
capital stock, create liens on assets, make acquisitions, engage in mergers or
consolidations, and change the business conducted by the Company. In addition,
the Company is required to maintain compliance with various financial ratios
including interest coverage ratio, leverage ratio, minimum EBITDA, and debt
service coverage ratio.
The Company meets its working capital, capital equipment requirements and cash
requirements with funds generated internally and funds from agreements with a
bank. Management currently expects its cash on hand, funds from operations and
borrowings available under existing credit facilities to be sufficient to cover
both short-term and long-term operating requirements.
YEAR 2000 UPDATE
During 1999 the Company completed the process of preparing for the Year 2000
date change. This process involved identifying and remediating date recognition
issues in the Company's computer systems, products and services, working with
third parties to address their Year 2000 issues, and developing contingency
plans to address potential risks in the event of Year 2000 failures. To date,
the company has successfully managed the transition.
Although considered unlikely, unanticipated issues in the Company's products,
services and systems, including problems associated with its major vendors and
suppliers and disruptions to the economy in general, could still occur despite
efforts to date to achieve Year 2000 readiness. The Company will continue to
monitor its computer systems, products and services, including interaction with
clients, major vendors and suppliers throughout 2000 to address Year 2000
issues.
The costs to address the Year 2000 related issues to date were $684,000 and were
funded through current operations. The Company does not anticipate such costs to
become material in the future. Although the company is not aware of any material
operational or financial Year 2000 related issues not being addressed, the
company cannot assure that its computer systems, products or services or the
computers and other systems of others upon which the company depends will not
incur Year 2000 issues, that the costs of its Year 2000 program will not become
Page 12 of 41
<PAGE> 13
material or that the Company's alternative plans will be adequate. If any such
risks (either with respect to the Company or its customers or suppliers)
materialize, the company could experience material adverse consequences to its
business.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999 the Company adopted, as required, Statement of
Position ("SOP 98-1"), Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. SOP 98-1 required that certain costs for the
development of internal use software be capitalized, including the costs of
coding, software configuration, upgrades and enhancements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities ("SFAS 133"). SFAS 133 requires that a Company recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Pursuant to an amendment
by the FASB, SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and should not be retroactively applied to
financial statements of periods prior to adoption. The adoption of SFAS 133 will
not impact the Company's consolidated financial position, results of operations
or cash flows.
INFLATION
Results of operations have not been significantly affected by inflation since
inception. The Company, in the normal course of business, has been able to
offset the impact of increased costs through operating efficiencies and selected
price increases.
FORWARD-LOOKING INFORMATION
Except for the historical financial information contained herein, this Form
10-K contains certain forward-looking statements. For this purpose, any
statements contained in this Form 10-K that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", or "continue", the negative or other variations thereof, or
comparable terminology, are intended forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors,
including possible changes in economic conditions, demographic and political
changes, prevailing interest rates or fuel prices, or the occurrence of
unusually severe weather conditions, overall consumer confidence and general
economic conditions, the level of discretionary consumer spending, government
regulation, and unemployment that can affect both the purchase and usage of
recreational vehicles, which, in turn, affects purchases by consumers of the
products that the Company sells.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk on variable rate financial instruments: The Company maintains a
$36 million credit facility which permits borrowings at interest rates based on
either the bank's base rate or LIBOR. Increases in market interest rates would
cause interest expense to increase and earnings before income taxes to decrease.
The change in interest expense and earnings before income taxes would be
dependent upon the weighted average outstanding borrowings during the reporting
period following an increase in market interest rates. Based on the Company's
current
Page 13 of 41
<PAGE> 14
outstanding borrowings under the credit facility at an average interest rate of
8.0% per annum, a 1% increase in market interest rates would increase interest
expense and decrease earnings before income taxes by approximately $163,000.
Market risk on fixed-rate financial instruments: Included in long-term debt
are $90 million of 11% Senior Subordinated Notes due 2007. Increases in market
interest rates would generally cause a decrease in the fair market value of the
Notes and a decrease in market interest rates would generally cause an increase
in fair value of the Notes.
Page 14 of 41
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Airxcel, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a)(1) on page 39 present fairly, in all material
respects, the financial position of Airxcel, Inc. and its subsidiary at December
31, 1999 and 1998 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. In addition,
in our opinion, the financial statement schedule listed in the index appearing
under Item 14 (a)(2) on page 39 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Kansas City, Missouri
February 11, 2000
Page 15 of 41
<PAGE> 16
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 125 $ 177
Accounts receivable, net of
allowances for doubtful accounts
of $490 and $478, respectively 15,576 19,703
Inventory 25,552 27,434
Prepaid expenses 289 105
Income taxes receivable 732 - -
Deferred income taxes 2,235 2,352
------------- -------------
Total current assets 44,509 49,771
------------- -------------
Property, plant and equipment, net 17,871 18,163
Computer software, net 582 87
Intangible assets, net 51,497 54,151
Loan financing costs, net 3,753 4,418
------------- -------------
Total assets $ 118,212 $ 126,590
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt $ 1,387 $ 1,465
Cash overdraft 2,865 - -
Accounts payable 7,479 10,719
Warranty reserve 1,923 1,856
Accrued vacation expense 814 777
Accrued interest 1,387 1,579
Other accrued expenses 12,211 3,717
Liabilities of discontinued operations 662 1,290
------------- -------------
Total current liabilities 28,728 21,403
Long-term debt, less current portion 105,523 118,041
Deferred income taxes 2,901 5,044
------------- -------------
Total liabilities 137,152 144,488
------------- -------------
Commitments and contingencies (see Notes 1 and 4) - - - -
Stockholder's equity (deficiency):
Common stock, par value $1; authorized
1,000 shares; 1,000 shares issued and
outstanding 1 1
Additional paid-in capital 26,946 26,946
Accumulated deficit (45,887) (44,845)
------------- -------------
Total stockholder's equity (deficiency) (18,940) (17,898)
------------- -------------
Total liabilities and stockholder's equity
(deficiency) $ 118,212 $ 126,590
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 16 of 41
<PAGE> 17
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
-----------------------------------------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $178,946 $153,396 $ 58,323
Cost of goods sold 140,771 119,552 44,732
------------ ------------ ------------
Gross profit 38,175 33,844 13,591
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 17,146 15,297 4,223
Amortization of intangible assets and computer
software 2,696 2,470 639
Accrued litigation 7,600 - - - -
------------ ------------ ------------
Total operating expenses 27,442 17,767 4,862
------------ ------------ ------------
Income from operations 10,733 16,077 8,729
Interest expense 12,416 12,368 4,619
Other (income) expense, net 2 (92) 23
------------ ------------ ------------
Income (loss) from continuing operations before
income tax expense and extraordinary item (1,685) 3,801 4,087
Income tax expense (benefit) (380) 1,550 1,553
------------ ------------ ------------
Income (loss) from continuing operations before
extraordinary item (1,305) 2,251 2,534
Discontinued operations:
Loss from operations of Faulkner Manufacturing,
less applicable income tax benefit of $1,153 - - - - 1,880
Loss (recovery) on disposal of Faulkner
Manufacturing less applicable income tax
benefit (expense) of ($165), $0, and $2,079,
respectively (263) - - 3,571
------------ ------------ ------------
Income (loss) before extraordinary item (1,042) 2,251 (2,917)
Extraordinary losses on early extinguishments of
debt, less applicable income tax benefit of
$641 - - - - 1,631
------------ ------------ ------------
Net income (loss) $(1,042) $ 2,251 $(4,548)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 17 of 41
<PAGE> 18
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S
EQUITY (DEFICIENCY)
(in thousands, except shares)
<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid-in Accumulated
Shares Amount Capital Deficit Total Equity
------ ------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997 1,000 $ 1 $ 13,846 $ (42,548) $ (28,701)
Capital contribution - - - - 8,240 - - 8,240
Net loss - - - - - - (4,548) (4,548)
------ ------ ----------- ----------- ------------
Balances, December 31, 1997 1,000 $ 1 $ 22,086 $ (47,096) $ (25,009)
Capital contribution - - - - 4,860 - - 4,860
Net income - - - - - - 2,251 2,251
------ ------ ----------- ----------- ------------
Balances, December 31, 1998 1,000 $ 1 $ 26,946 $ (44,845) $ (17,898)
Net loss - - - - - - (1,042) (1,042)
------ ------ ----------- ----------- ------------
Balances, December 31, 1999 1,000 $ 1 $ 26,946 $ (45,887) $ (18,940)
====== ====== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 18 of 41
<PAGE> 19
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from (to) operating activities:
Net income (loss) $ (1,042) $ 2,251 $ (4,548)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 2,868 2,124 726
Amortization of intangible assets and computer
software 2,696 2,470 739
Amortization of financing costs 665 512 330
Provision for bad debts 398 297 38
Provision for loss (recovery) on disposal of
discontinued operations (428) - - 5,650
Deferred income taxes (2,026) 1,430 (2,206)
Loss on sale of fixed assets 21 220 22
Extraordinary losses on early extinguishments of
debt - - - - 1,631
Changes in assets and liabilities:
Accounts receivable 3,729 (1,160) 1,748
Inventory 1,882 (4,721) 862
Prepaid expenses (916) 105 17
Accounts payable (3,240) (747) 952
Accrued expenses 8,205 (734) 1,268
-------------- --------------- ---------------
Net cash provided by operating activities 12,812 2,047 7,229
-------------- --------------- ---------------
Cash flows from (to) investing activities:
Proceeds from sale of fixed assets 37 14 2
Capital expenditures (2,638) (1,852) (716)
Computer software and intangible expenditures (532) (143) - -
Acquisitions, net of cash acquired - - (28,365) (43,369)
-------------- --------------- ---------------
Net cash used in investing activities (3,133) (30,346) (44,083)
-------------- --------------- ---------------
Cash flows from (to) financing activities:
Cash overdraft 2,865 - - - -
Proceeds from long-term obligations 176,624 155,485 90,109
Principal payments on long-term debt (189,220) (139,334) (48,528)
Financing costs incurred - - (2,226) (3,502)
Capital contribution from parent company - - 4,860 8,240
-------------- --------------- ---------------
Net cash provided by (used in) financing activities (9,731) 18,785 46,319
-------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents (52) (9,514) 9,465
Cash and cash equivalents, beginning of period 177 9,691 226
-------------- --------------- ---------------
Cash and cash equivalents, end of period $ 125 $ 177 $ 9,691
============== =============== ===============
</TABLE>
Page 19 of 41
<PAGE> 20
AIRXCEL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
-------------- ---------------- -----------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 11,896 $ 5,836 $ 6,419
Income taxes, net 2,718 850 1,234
Supplemental disclosure of noncash investing and financing
activities:
Land acquired with debt, net of cash payment of $338 - - - - 375
Equipment financed with capital lease obligations - - 243 - -
Airxcel, Inc. purchased certain assets and liabilities of
Crispaire Corporation as follows:
Tangible assets $ 17,916
Liabilities assumed (4,092)
Intangible assets 29,545
--------------
Fair value of assets acquired $ 43,369
==============
Airxcel, Inc. acquired the outstanding stock of Suburban:
Tangible assets $ 29,007
Intangible assets 26,057
Liabilities assumed (26,699)
--------------
Fair value of assets acquired $ 28,365
==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 20 of 41
<PAGE> 21
AIRXCEL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Airxcel, Inc., formerly known as Recreation Vehicle Products, Inc. (the
"Company") is engaged in designing, manufacturing and marketing recreation
vehicle air conditioning equipment in the United States, Canada and certain
international markets. As described in Note 8, on November 10, 1997, the Company
acquired substantially all of the net assets, properties and rights and assumed
certain related liabilities of Crispaire Corporation ("Crispaire") which
designs, manufactures and markets air conditioning units and heat pump water
heaters. Crispaire markets its products to companies involved in modular
construction, telecommunications, utilities and school districts located
throughout the United States and selected foreign markets. The Crispaire
acquisition was accounted for as a purchase and, accordingly, the financial
statements include the accounts and results of operations of Crispaire since
November 10, 1997. On March 17, 1998 (Note 9) the company acquired 100% of the
outstanding stock of Suburban Manufacturing Company, formerly SUBURBAN
Enterprises Group, Inc. ("Suburban"), a designer and manufacturer of heating,
water heating, and cooking appliances for the recreation vehicle industry and
other specialty products for the heating, ventilating and air conditioning
industry. The Suburban acquisition was accounted for as a purchase and,
accordingly, the financial statements include the accounts and results of
operations of Suburban since March 17, 1998. Due to the similarities of the
economic characteristics, production processes, customers, distribution methods
and regulatory environment of the company's products, the Company is managed,
operated and reported as one segment.
The Company is a wholly-owned subsidiary of Airxcel Holdings Corporation,
formerly known as RV Holdings Corporation (Holdings). The Company is the only
subsidiary of Holdings and Holdings has no operating activities and Holdings has
no material assets other than its investment in the Company. Accordingly,
Holdings is dependent upon the Company for any cash requirements. However,
Holdings does have 1,544,237 shares of $.01 par value common stock and 9,076,923
shares of $1 par value Series A and Series B exchangeable preferred stock
outstanding as of December 31, 1999 and 1998. The Preferred stock which is
exchangeable at the stockholders' option for junior subordinated notes issued by
Holdings, is also subject to mandatory redemption by Holdings on August 31, 2006
for an amount equal to the original proceeds from sale of the stock plus accrued
but unpaid dividends which accrue at 14 percent annually. Total proceeds plus
accrued and unpaid dividends were $14,152 and $12,367 as of December 31, 1999
and 1998, respectively. All proceeds generated from the sale of such common and
preferred shares have been contributed to the Company. However, the Company is
not required to fund the mandatory redemption of these preferred shares. During
1996, Holdings also issued $4,015 of junior subordinated notes to the parent
company of a major stockholder in exchange for cash. All proceeds from the
issuance of these notes have been contributed to the Company. These notes, which
are due in August, 2006, bear interest at 14% payable semiannually in the form
of additional junior subordinated notes or cash at the election of Holdings.
Such notes, plus accrued interest totaled $6,350 and $5,536 as of December 31,
1999 and 1998, respectively. As part of the November 10, 1997, Airxcel
acquisition of Crispaire, Holdings issued $5,304 of junior subordinated notes
(the "PIK Notes") to the seller. The PIK Notes and $3,100 of cash received by
Holdings through the sale of its common stock was contributed by Holdings to the
Company. The PIK notes, which are due in November, 2008,
Page 21 of 41
<PAGE> 22
bear interest at 11.4% payable annually in the form of additional junior
subordinated notes or cash at the election of Holdings. Such notes, plus accrued
interest, totaled $6,694 and $5,996 as of December 31, 1999 and 1998,
respectively. All of the notes described above are uncollateralized and are not
guaranteed by the Company. Although Holdings is entirely dependent upon the
Company to service its note obligations and the mandatory redemption provisions
of the Preferred Stock, the Company has no cash requirement to fund Holdings
until at least 2006 based upon the stated intent of Holdings' management to
elect to make interest payments due on all such notes in the form of additional
junior subordinated notes.
During October 1997, the Company's board of directors adopted a formal plan to
dispose of its awning business (see Note 13).
On August 22, 1996 (the "closing date"), RV Products Holding Corporation and
Subsidiary consummated exchange offers and adopted amendments to its Restated
Certificate of Incorporation pursuant to which the outstanding debt and common
stock were restructured (the "Recapitalization"). The objective of the
Recapitalization was to refinance existing indebtedness and pay fees and
expenses associated with the Recapitalization.
The significant components of the Recapitalization on the Company are as
follows:
The Company issued new debt with interest rates ranging from 9.75% to
12.0% as of December 31, 1996 as follows:
<TABLE>
<S> <C>
Revolver $ 7,222
Term loan A 12,750
Term loan B 15,250
Senior subordinate note 14,000
---------------
Total $ 49,222
================
</TABLE>
The senior subordinate note was issued with detachable stock warrants to
purchase 65,882 shares of Class B Common Stock of Holdings at $.02 per share at
any time on or before August 22, 2006. The exercise price is subject to
adjustment from time to time in order to prevent dilution of the rights granted
under the warrants. The holders of these warrants are entitled to receive
dividend payments as if the warrants were exercised immediately prior to the
date of record for such dividends. The estimated fair value of the warrants at
the date of issuance has been recognized as a reduction of the note payable (as
debt discount) in the amount of $218 with the offset to additional paid-in
capital. On April 3, 1998 new warrants were issued for 229,662.50 shares of
Class B Common Stock of Holdings. The new warrants are entitled to the same
rights as the existing warrants. Proceeds of $765 were contributed by Holdings
to the Company.
The total proceeds from the debt were used to pay $1,700 in financing costs
relating to the recapitalization and to repay $21,300 of existing debt. The
repayment of debt was accounted for as an early extinguishment of debt whereby
the Company recognized a charge of $184 as an extraordinary loss, net of tax.
The remaining proceeds of the new debt, amounting to $26,200, were distributed
as part of a $33.3 million dividend to Holdings that was used by Holdings to
retire all remaining shares of Common Stock outstanding at that time.
Page 22 of 41
<PAGE> 23
2. SIGNIFICANT ACCOUNTING POLICIES:
a. Management's Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
b. Principles of Consolidation: The consolidated financial statements include
the accounts of the company and its wholly owned subsidiary. Intercompany
transactions and accounts are eliminated in consolidation.
c. Revenue Recognition: Revenue and related direct expenses are recognized
when the merchandise is shipped. Other operating expenses are recognized as
incurred.
d. Cash and Cash Equivalents: The Company classifies as cash and cash
equivalents amounts on deposit in banks and cash invested temporarily in various
instruments with maturities of three months or less at time of purchase.
e. Inventories: Inventories are stated at the lower of cost or market. Costs
are based on standards which approximate the first-in, first-out (FIFO) method.
f. Property, Plant and Equipment: Property, plant and equipment are recorded
at cost and depreciated on a straight-line basis over their estimated useful
lives as follows:
Buildings and leasehold improvements 15-45 years
Furniture and fixtures 4-10 years
Machinery and equipment 3-15 years
Expenditures for repairs and maintenance are charged to operations as
incurred. Expenditures which materially increase values, change capacities or
extend useful lives are capitalized. The cost of an asset and the related
accumulated depreciation is removed from the appropriate accounts upon sale of
the asset. The resulting gain or loss from the sale is included in operations.
g. Computer Software: All computer software acquisition and development costs,
including applicable internal labor, are capitalized and subsequently reported
at the lower of unamortized cost or net realizable value. The cost of
capitalized software is amortized over its estimated useful lives (generally 5
years). Accumulated amortization as of December 31, 1999, 1998 and 1997 was $66,
$654 and $635, respectively. Amortization for the years ended December 31, 1999,
1998 and 1997 was $32, $19, and $10, respectively.
Page 23 of 41
<PAGE> 24
h. Intangible Assets: Intangible assets are recorded at cost and are
amortized on a straight-line basis over their estimated economic lives as
follows:
<TABLE>
<CAPTION>
Amortization December 31, December 31,
Period 1999 1998
----------- -------- --------
<S> <C> <C> <C>
Non-compete agreement 3-5 years $ 1,100 $ 1,100
Trademarks and contract 1-50 years 19,811 19,811
Patents 5-7 years 3,609 3,600
Assembled work force 10-20 years 2,000 2,000
Customer base 20 years 7,500 7,500
Goodwill 40 years 23,036 23,036
-------- --------
57,056 57,047
Less accumulated amortization 5,559 2,896
-------- --------
$ 51,497 $ 54,151
======== ========
</TABLE>
i. Loan Financing Costs: Loan financing costs are amortized using the
effective yield method over the contracted terms of the related debt.
j. Income Taxes: The Company and its parent file a consolidated federal income
tax return. Deferred income taxes are recorded to reflect the tax consequences
in future years of operating loss carry forwards and temporary differences
between the tax basis of assets and liabilities and their financial reporting
amounts using enacted tax rates for the years in which these items are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
k. Advertising: The Company expenses advertising costs when the expense is
incurred and classifies it in selling, general and administrative expense. Total
advertising expense amounts to $450, $383, and $183 in 1999, 1998, and 1997,
respectively.
l. Allocation of Interest to Discontinued Operations: Interest expense is
allocated to discontinued operations based on the ratio of net assets of the
discontinued operations to the sum of total net assets of the Company plus debt.
m. Fair Value of Financial Instruments: The stated values of financial
instruments as of December 31, 1999, 1998 and 1997, excluding the $90 million of
senior subordinated notes, approximate fair market value. The fair value of the
Company's senior subordinated notes is $82.8 million at December 31, 1999 based
on the quoted market price for the same issue or similar issues.
n. Recently Issued Accounting Standards: Effective January 1, 1999 the Company
adopted, as required, Statement of Position 98-1 ("SOP 98-1"), Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1
required that certain costs for the development of internal use software be
capitalized, including the costs of coding, software configuration, upgrades and
enhancements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that a Company recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Pursuant to an amendment
by the FASB, SFAS 133 is effective for all fiscal quarters of fiscal
Page 24 of 41
<PAGE> 25
years beginning after June 15, 2000 and should not be retroactively applied to
financial statements of periods prior to adoption. The adoption of SFAS 133 will
not impact the Company's consolidated financial position, results of operations
or cash flows.
o. Derivatives: The Company uses an interest rate instrument to reduce the
impact of its floating rate debt. The notional amount of the interest rate
agreement is used to measure interest to be paid or received and does not
represent the amount of exposure to credit loss. The differential to be received
or paid is recognized in income over the life of the agreement as adjustments to
interest expense. The Company does not hold or issue derivative financial
instruments for trading purposes.
p. Reclassification: Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform with the 1999 presentation.
Page 25 of 41
<PAGE> 26
3. SUMMARY BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Inventory consists of the following: December 31, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Raw materials $ 11,860 $ 13,821
Work-in-process 1,825 2,787
Finished goods 11,867 10,826
--------- -----------
$ 25,552 $ 27,434
========= ===========
<CAPTION>
Property, plant and equipment consist of the following:
December 31, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Land and land improvements $ 1,230 $ 1,230
Buildings and building improvements 5,809 5,624
Machinery and equipment 16,017 15,110
Furniture and fixtures 1,445 1,333
Construction in process 1,774 660
--------- -----------
26,275 23,957
Less accumulated depreciation (8,404) (5,794)
--------- -----------
Net $ 17,871 $ 18,163
========= ===========
</TABLE>
4. LONG-TERM DEBT:
On March 13, 1998, the Company amended its credit agreement with a bank. The
proceeds of the $38,000 credit agreement were used by the Company to finance its
acquisition of the outstanding stock of Suburban Manufacturing Company (see Note
9).
On November 5, 1997, the Company issued $90,000 of 11% senior subordinated
debt. Substantially all of the proceeds were used by the Company to finance its
acquisition of substantially all of the net assets of the Crispaire Corporation
(see Note 8), to repay certain indebtedness and to pay financing costs
associated with the offering.
Page 26 of 41
<PAGE> 27
<TABLE>
<CAPTION>
Long-term debt consists of the following:
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Note payable to bank under a $10,000 term loan
which matures March 31, 2005, with interest at
prime or a Libor base rate plus a factor determinable
based on financial covenants, 8.46% and 7.44% at
December 31, 1999, and 1998, respectively, payable
quarterly. $ 8,000 $ 10,000
Note payable to bank under a $28,000 revolving line
of credit matures on March 31, 2003, with interest at
prime or a Libor base rate plus a factor determinable
based on financial covenants, 8.46% and 7.44% at
December 31, 1999 and 1998, respectively, payable
quarterly. 8,282 18,660
Senior subordinated notes, with interest at 11% payable
semiannually on May 15 and November 15, commencing on
May 15, 1998. 90,000 90,000
Note payable to individual for land purchase, 7.6%, due in
monthly principal and interest payments of $4 through
April 1, 2007, collateralized by the land 298 328
Capital leases 329 518
------------ ----------
106,910 119,506
Current portion of long term debt (1,387) (1,465)
------------ ----------
$ 105,523 $ 118,041
============ ==========
</TABLE>
Covenants under the Company's credit facility with the bank (both the term
loan and revolving line of credit) restrict the ability, subject to certain
exceptions, to dispose of assets, incur additional indebtedness, guarantee
obligations, prepay other indebtedness or amend other debt instruments, make
distributions or pay dividends, redeem or repurchase capital stock, create liens
on assets, make acquisitions, engage in mergers or consolidations, and change
the business conducted by the Company. In addition, the Company is required to
maintain compliance with various financial ratios including interest coverage
ratio, leverage ratio, minimum EBITDA, and debt service coverage ratio. The
credit facility is collateralized by accounts receivable, equipment, general
intangibles, inventory, and investment property.
The Company may redeem the senior subordinated notes, in whole or in part, at
any time on or after November 15, 2002, at redemption prices ranging from 100 to
105.5% of the principal being paid based on the redemption periods defined in
the agreement. The aforementioned notes are uncollateralized and contain, among
other things, certain financial covenants and restrictive provisions pertaining
to the use of funds, payment of dividends and ability to incur obligations.
Page 27 of 41
<PAGE> 28
Maturities of long-term debt, including minimum required reductions in the
revolving line of credit commitments based on balances outstanding at December
31, 1999 for each of the five succeeding years are as follows:
<TABLE>
<CAPTION>
Minimum Net Present Long-term
Lease Payment Interest Value Debt Total
------------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
2000 135 29 106 1,281 1,387
2001 99 17 82 1,534 1,616
2002 98 9 89 1,538 1,627
2003 54 2 52 10,324 10,376
2004 - - - - - - 1,793 1,793
Thereafter - - - - - - 90,111 90,111
---------- -------- ------- ---------- --------
$ 386 $ 57 $ 329 $ 106,581 $106,910
========== ======== ======= ========== ========
</TABLE>
Property, plant and equipment at year-end include the following amounts for
capitalized leases:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Machinery and equipment $ 200
Furniture and fixtures 145
------------
$ 345
Less accumulated depreciation (77)
------------
Net property, plant and equipment $ 268
============
</TABLE>
5. STOCK OPTION PLANS:
As part of the Recapitalization, Holdings adopted a Stock Option Plan for key
employees and/or directors of the Company to purchase up to 75,032 shares of
Class A Common Stock of Holdings at $1 per share. When granted, the stock
options may be exercised after the "trigger date", and will expire at the
earlier of 10 years from date of grant or the date the employee ceases to be an
employee of the company. As defined in the Stock Option Plan, the "trigger date"
is the date on which the majority shareholder has disposed of all the securities
(i.e. common stock, preferred stock and notes purchased by the majority
shareholder) for cash and/or marketable securities. The number of stock options
that may be exercised is based on the estimated annual interest rate of return
as of the trigger date as set forth in the plan agreement. No compensation
expense relating to this stock option plan will be recorded until the trigger
date.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company has chosen
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options granted to the Company's employees is
measured as the excess, if any, of the fair value of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
Page 28 of 41
<PAGE> 29
6. Income Taxes:
The significant components of the net deferred income tax asset (liability)
recognized in the accompanying balance sheets are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Provision for discontinued operations $ 256 $ 498
Accrued reserves and liabilities 5,069 2,477
Depreciation (2,710) (2,470)
Intangibles (3,292) (3,640)
State income tax net operating loss carry forwards,
expiring beginning 2010 11 154
AMT credits - - 183
Federal income tax net operating loss carry forwards,
expiring beginning in 2006 - - 106
-------------- --------------
(666) (2,692)
Less current deferred income tax 2,235 2,352
-------------- --------------
Total noncurrent deferred income tax $ (2,901) $ (5,044)
============== ==============
</TABLE>
The components of income tax expense before discontinued operations and
extraordinary items are as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Current $ 1,888 $ 120 $ 1,933
Deferred (2,268) 1,430 (380)
------------ ------------- ------------
Total income tax expense before discontinued
operations and extraordinary item $ (380) $ 1,550 $ 1,553
============ ============= ============
</TABLE>
Total income tax expense before discontinued operations and extraordinary
item differed from the amounts computed by applying the federal statutory rate
to pretax income as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Income tax expense before discontinued
operations and extraordinary item computed by
applying the federal statutory rate $ (590) $ 1,330 $ 1,431
Adjustment to prior year expense 95 - - (83)
State income taxes, net of federal income tax
benefit (77) 250 156
Goodwill 138 - - - -
Other 54 (30) 49
---------- --------- ---------
Total income tax expense before discontinued
operations and extraordinary item $ (380) $ 1,550 $ 1,553
========== ========= =========
</TABLE>
Net deferred income tax assets are recognized based on the expected timing
of the reversal of taxable temporary differences and future taxable income of
the Company.
Page 29 of 41
<PAGE> 30
7. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT:
In 1997, the Company extinguished $48,3000 of debt as part of the November 5,
1997 debt offering (see Note 4). The related unamortized loan financing costs
of $1,712 and prepayment penalty of $560 were recorded as an extraordinary loss
on early extinguishment of debt of $1,631 (net of a $641 income tax benefit).
8. ACQUISITION OF CRISPAIRE CORPORATION:
On November 10, 1997, the Company completed the acquisition of the business
of Crispaire Corporation. Pursuant to the purchase agreement, the Company
acquired certain assets and liabilities of the Crispaire Corporation. The
acquisition was funded with a portion of the cash proceeds from the $90,000
senior subordinated note (see Note 4), issuance of $5,300 of junior
subordinated notes by Holdings and the sale of $2,050 of common stock and
$1,000 of preferred stock by Holdings. The acquisition was accounted for as a
purchase. Accordingly, the purchase price was allocated to the underlying
assets and liabilities based on their respective fair values at the date of the
acquisition (see Note 2(h)).
The following reflects the operating results of the Company for the year
ended December 31, 1997 assuming the acquisitions occurred as of the beginning
of each of the respective periods:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
December 31,
1997
------------
Net sales $ 92,062
Loss before extraordinary item (3,691)
Net loss (5,322)
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisition been made at
the beginning of the respective periods, or the results which may occur in the
future.
9. ACQUISITION OF SUBURBAN MANUFACTURING COMPANY, FORMERLY SUBURBAN
ENTERPRISES GROUP, INC.:
On March 17, 1998, the Company completed the acquisition of 100% of the
outstanding common stock of Suburban Manufacturing Company. The acquisition was
funded with the proceeds from the amended credit agreement with the bank (see
Note 4). The acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the underlying assets and liabilities based on
their respective fair values as of the date of the acquisition (see Note 2(h)).
Page 30 of 41
<PAGE> 31
The following reflects the operating results of the Company for the years
ended December 31, 1998 and 1997 assuming the acquisition occurred as of the
beginning of the period:
PRO FORMA OPERATING RESULTS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, December 31
1998 1997
------------ -----------
<S> <C> <C>
Net sales $ 163,327 $ 135,527
Income (loss) before
extraordinary item 3,593 (3,055)
Net income (loss) 1,787 (4,247)
</TABLE>
The pro forma results of operations are not necessarily indicative of the
actual results that would have been obtained had the acquisition been made at
the beginning of the respective periods, or the results which may occur in the
future.
10. COMMITMENTS:
The Company leases buildings, machinery and equipment, office equipment and
vehicles which are accounted for as operating leases. Some leases include
renewal options and others contain purchase options. Total rental expense for
operating leases was $784, $578 and $448 for the years ended December 31, 1999,
1998 and 1997, respectively.
Commitments for minimum lease payments under noncancellable leases as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
2000 $ 589
2001 188
2002 77
2003 41
2004 26
---------
$ 921
=========
</TABLE>
As part of the Crispaire acquisition, the Company entered into certain
management and employment agreements. Compensation expense related to these
agreements was $379, $366, and $51 for the years ended December 31, 1999, 1998
and 1997, respectively. Under the agreements, future management fees are $282
for the year ended December 31, 2000.
11. BENEFIT PLAN:
Substantially all employees of the RV Products division and the Crispaire
division are eligible to participate in the 401(k) plans offered by each
company. Subject to certain conditions, the divisions may match up to 30% and
25% of the employees' contributions, respectively, up to a maximum of 6% of the
employees' annual salary. In addition, the divisions can make an additional
contribution determined at the discretion of the Company's Board of Directors.
The Company's contribution to its 401(k) plans for the years ended December 31,
1999, 1998 and 1997 totaled $315, $276 and $261, respectively.
Page 31 of 41
<PAGE> 32
Suburban sponsors two contributory defined benefit pension plans, the Suburban
Manufacturing Company Retirement Plan ("Plan 1") and the Suburban Manufacturing
Company Retirement Plan for Bargaining Employees ("Plan 2"). The plans cover
substantially all Suburban Manufacturing Company employees meeting certain
eligibility requirements. Assets of the plans consist of various marketable
securities and investments in bond funds. The Company's funding policy is to
contribute amounts that are sufficient, when added to participants'
contributions, to fund the retirement benefits of all participants in accordance
with the requirements of the Internal Revenue Code.
<TABLE>
<CAPTION>
Plan 1 Plan 2
------------ -------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at 9-30-98 $ 2,610 $ 1,698
Service cost 155 160
Interest cost 182 117
Benefits paid (65) (75)
Actuarial gain (loss) (79) 12
Change in assumptions (224) (136)
---------- ----------
Benefit obligation at 9-30-99 $ 2,579 $ 1,776
---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at 9-30-98 $ 1,942 $ 1,433
Employer contributions 142 97
Employee contributions 35 47
Actual return on plan assets 340 256
Benefits paid (65) (75)
---------- ----------
Fair value of plan assets at 9-30-99 $ 2,394 $ 1,758
---------- ----------
Unfunded status $ 185 $ 18
Unrecognized net actuarial gain 165 54
Unrecognized prior service cost - - - -
---------- ----------
Accrued benefit cost $ 350 $ 72
========== ==========
Weighted-average assumptions as of September 30, 1999:
Discount rate 7.5% 7.5%
Expected return on plan assets 8.5% 8.5%
Rate of compensation increase 3.0% 3.0%
</TABLE>
12. SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK:
The Company's ten largest customers accounted for approximately 50%, 50% and
85% of sales for the years ended December 31, 1999, 1998 and 1997, respectively,
and approximately 50%, 31% and 33% of accounts receivable at December 31, 1999,
1998 and 1997, respectively. The credit risk on trade receivables is controlled
through credit approvals, limits and monitoring procedures. Sales to customers
in excess of 10% of consolidated net revenues are as follows:
December 31, December 31, December 31
Customer 1999 1998 1997
------------ ------------ -----------
A. $ 24,514 $ 22,187 $ 18,985
B. - - 19,940 15,553
C. - - - - 7,110
Page 32 of 41
<PAGE> 33
The Company maintains its cash accounts primarily with major financial
institutions, and had bank balances at December 31, 1999 and1998 that exceeded
FDIC insurance limits by $393 and $10, respectively.
13. DISCONTINUED OPERATIONS:
During September 1997, the Company adopted a plan to discontinue its Faulkner
manufacturing division. A significant amount of the assets of the division were
liquidated and the liabilities were settled during 1999 and 1998. Accordingly,
Faulkner is reported as a discontinued operation for the years ended December
31, 1999, 1998 and 1997.
Net sales from Faulkner were $0, $5,569 and $7,964 for the years ended
December 31, 1999, 1998 and 1997, respectively. Interest expense allocated to
discontinued operations was $0, $0 and $1,494 for the years ended December 31,
1999, 1998 and 1997, respectively.
Liabilities of the discontinued operations are $662 and $1,290 at December 31,
1999 and 1998, respectively, which primarily consist of remaining warranty
obligations.
Components of the loss (recovery) on the disposal of Faulkner are as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
-------------- ------------- ------------
<S> <C> <C> <C>
Reduction in carrying value of inventories $ - - $ - - $ 2,400
Write-off of intangible assets - - - - 1,100
Accrued holding period loss (428) - - 1,000
Reduction in carrying value of property, plant
And equipment - - - - 450
Accrued employee severance costs - - - - 150
Accrued sales returns - - - - 250
Other accrued expenses - - - - 300
-------------- ------------- ------------
$ (428) $ - - $ 5,650
============== ============= ============
</TABLE>
14. CONTINGENCY:
During September 1997, the Company made a decision to upgrade certain air
conditioning units which were sold in previous years. In 1997 the Company's
portion of the costs to complete the upgrade was estimated and accrued at $500.
In 1998 the Company revised the estimate and accrued an additional $100.
Management has an agreement with the vendor that supplied the component to bear
a substantial portion of the total cost. At December 31, 1999 and 1998, the
remaining accrued liability was $99 and $212. Management believes the remaining
liability will be applied to the completion of the upgrade during 2000.
On July 9, 1999 the Company entered into a letter of credit totaling $1,250
which obligates the Company to make payment in the event of a default on a
contract with a customer. Management does not expect any material losses to
result from this off-balance sheet instrument because performance is not
expected to be required, and therefore, is of the opinion that the fair value of
this instrument is zero.
On September 21, 1999 the Company entered into a letter of credit totaling
$7,500 which
Page 33 of 41
<PAGE> 34
obligates the Company to make payment in the event the judgment in the matter
discussed in Note 15 is not stayed, vacated, reversed or paid.
15. LITIGATION:
On April 15, 1999, the jury in a case involving patent, trademark and trade
dress infringement, Bard Manufacturing Company et al. v. Crispaire Corporation,
No. 3:95-CV-7103 (N.D. Ohio 1998) awarded damages against Crispaire for patent
infringement in an amount of $9,000. Crispaire provided a bank letter of credit
to secure a stay of execution of the judgment and has filed an appeal. A
decision by the appellate court on the appeal is expected within nine to
twenty-four months from November 1999. Management of the Company believes that
the current damages award was the result of legal and factual errors both by the
judge and jury and that the ultimate result of its appeals process will be
either a reversal or a significant reduction in its liability. The Company does
not believe that the eventual resolution of the Bard Manufacturing litigation
will have a material adverse effect on the Company's financial position, results
of operations or liquidity although, given the inherent risks of litigation,
there can be no assurances in that regard.
In addition to the claim that was previously described, the Company is a party
to various other litigation matters incidental to the conduct of its business.
Management does not believe that the outcome of any of the matters in which it
is currently involved will have a material adverse effect on the financial
position, results of operations or liquidity of the Company.
16. DERIVATIVES:
The Company entered into a three year interest rate cap agreement on April 7,
1998 to reduce the impact of its floating rate debt. The agreement, based on a
notional principal amount of $10 million, entitles the Company to receive
payments on the last day of each quarter if the floating Libor rate exceeds the
rate of 7.69% stated in the agreement. The payment amount is calculated at the
actual Libor rate compared to the stated rate applied to the principal amount.
For the periods ended December 31, 1999 and 1998, the floating Libor rate did
not exceed the stated interest rate.
Page 34 of 41
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART 3
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to the persons who
are members of the Board of Directors or executive officers of the Company.
Name Age Position
- ------------------- --- -----------------------------------------------
Melvin L. Adams 53 President and Chief Executive Officer, Director
Gregory G. Guinn 51 President -- RV Products
Richard L. Schreck 47 Chief Financial Officer, Secretary, Treasurer
Lonnie L. Snook 64 Vice President -- RV Manufacturing and
Engineering
George D. Wyers 67 President -- Crispaire, Director
Dean T. DuCray 59 Director
Lawrence Jones 68 Director
Thomas F. McWilliams 56 Director
James A. Urry 45 Director
Melvin L. Adams. Mr. Adams has been a Director, the Chief Executive Officer
and President of Airxcel since 1991. From 1989 until 1991, he served as Vice
President of The Coleman Company. From 1979 through 1984, he served as General
Manager of The Coleman Company's Camping Trailer Division. In 1984, he was
promoted to Corporate Vice President & General Manager of Coleman's RV Group. In
1991, he and three officers of RVP led the buy out of Coleman RV Products with
Berkshire Partners from MacAndrews and Forbes.
Gregory G. Guinn. Mr. Guinn was promoted to President of the RV Products
Division of Airxcel, Inc. in 1999. From 1989 to 1998, he served as Vice
President of Sales and Marketing of RVP. Prior to that, Mr. Guinn held various
positions with The Coleman Company, including National Sales Manager and
Marketing Manager of RV Products and Corporate Vice President and General
Manager of RV Products. Mr. Guinn handles all of RVP's major accounts and its
internal sales force.
Richard L. Schreck. Mr. Schreck has been the Chief Financial Officer,
Secretary and Treasurer of Airxcel since 1991. Beginning in 1981, Mr. Schreck
held various positions at The Coleman Company, including Corporate Vice
president of Operational Finance, RV Group Controller and
Controller/Administrative Manager for RV Products. Mr. Schreck is responsible
for all financial and MIS functions at Airxcel.
Lonnie L. Snook. Mr. Snook has been Vice President-Manufacturing and
Engineering of RVP since 1989. Prior to that, Mr. Snook held various positions
at The Coleman Company, including Industrial Engineer, Manager of Industrial
Engineering and Production Superintendent and Factory Manager of RV Products.
Page 35 of 41
<PAGE> 36
George D. Wyers. Mr. Wyers has been the President and Chief Executive Officer
of Crispaire since 1988. After the acquisition, he serves as President of the
Crispaire Division of Airxcel. Prior to joining Crispaire, Mr. Wyers spent
twelve years as a General Manager of a leading air conditioning equipment
distributor based in Dallas, Texas.
Dean T. DuCray. Mr. DuCray has been a director of the Company since 1996. In
April 1998 Mr. DuCray retired as Chief Financial Officer and Vice President of
York International Corporation, a position held since 1987, a manufacturer of
heating and air conditioning equipment. Mr. DuCray is currently serving as a
consultant for various companies.
Lawrence Jones. Mr. Jones has been a director of the Company since 1991. Mr.
Jones retired from The Coleman Company February 1, 1994 having served as its
Chairman and CEO since 1989. Mr. Jones served as Chairman of the Executive
Committee at The Coleman Company from 1994 to 1995. From 1995 to1997, Mr. Jones
served as consultant and Chairman of Roller Blade (in line skates) and Prince
Sports (tennis rackets). Mr. Jones currently serves as a Director to Union
Pacific Resources (gas exploration). Mr. Jones retired from the Fleming
Company's (food distribution) Board of Directors on January 1, 1998.
Thomas F. McWilliams. Mr. McWilliams has been a director of the Company since
1996. Mr. McWilliams has been affiliated with Citicorp Venture Capital, Ltd.
("CVC"), a private equity investment company, since 1983 and presently serves as
managing director of CVC as well as a member of CVC's investment committee. Mr.
McWilliams is currently a director of each of Chase Brass Industries, Inc., Ergo
Science Corporation and various privately owned companies.
James A. Urry. Mr. Urry has been a director of the Company since 1996. Mr.
Urry has been with Citibank, N.A. since 1981, serving as a vice president since
1986. He has been a vice president of CVC since 1989. He is a director of
AmeriSource Health Corporation, CLARK Material Handling Corporation, CORT
Business Services Corporation, Hancor Holding Corporation, International Knife
and Saw Corporation, Palomar Technologies, Inc., York International Corporation
and Brunner Mondple.
COMPENSATION OF DIRECTORS
Directors of the Company who are officers, employees of the Company or its
affiliates are presently not expected to receive compensation for their services
as directors. Directors of the Company who are not officers or employees of the
Company or any of its affiliates receive $2,000 per Board meeting attended. In
addition, directors of the Company will be entitled to reimbursement of their
reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the board of directors or committees thereof.
Page 36 of 41
<PAGE> 37
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company is determined by the
Board of Directors of the Company. The following table sets forth information
concerning compensation received by the five most highly compensated officers of
the Company for services rendered in the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation ------------------------------------
------------------------------ Options/ LTIP All Other
Name and Principal Position Year Salary Bonus SAR(#) Payouts Compensation(1)
- --------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Melvin L. Adams 1999 $ 244,174 $ 50,000 - - - - $ 5,211
President and Chief Executive Officer 1998 215,004 $ 55,052 - - - - 3,791
1997 215,004 - - - - - - 3,822
Gregory G. Guinn 1999 145,834 95,700 - - - - 680
President - RVP 1998 120,838 2,350 - - - - 542
1997 100,008 - - - - - - 535
Richard L. Schreck 1999 145,834 30,000 - - - - 511
Chief Financial Officer, Secretary and 1998 120,838 27,350 - - - - 428
Treasurer 1997 100,008 - - - - - - 355
Lonnie L. Snook 1999 137,504 87,696 - - - - 1,292
Vice President -- RVP Manufacturing 1998 120,838 2,350 - - - - 956
and Engineering 1997 100,008 - - - - - - 950
George D. Wyers 1999 203,859 9,947 - - - - 1,880
President - Crispaire division 1998 203,859 - - - - - - 1,550
1997 23,078 480,835 - - - - - -
</TABLE>
- -----------
(1) The named officers have participated in the Company's profit sharing, 401(k)
match, deferred compensation and excess benefit programs. The aggregate payments
made by the Company pursuant to such programs are listed as All Other
Compensation.
EMPLOYMENT AGREEMENTS
In connection with the Crispaire Acquisition, the Company entered into
employment agreements with Mr. Shuford and Mr. Wyers on November 10, 1997. Each
agreement is for a term that expires upon the earlier of October 31, 2000, the
employee's death, voluntary termination, termination by resolution by the Board
of Directors, at the Company's option, or the employee's disability. Mr.
Shuford's base salary is $98,946 per year. Mr. Wyers' base salary is $200,000
per year. An employment agreement with Mr. Sellers, also entered into on
November 10, 1997, has since been terminated by mutual agreement and Mr. Sellers
is no longer employed by the Company. Each employee is eligible for an annual
performance bonus. Each agreement contains a nonsolicitation provision, and Mr.
Wyers' agreement contains a noncompetition provision.
Page 37 of 41
<PAGE> 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the Company's issued and outstanding capital stock is owned by
Holdings. The following table sets forth certain information with respect to the
common and preferred equity interests of Holdings.
<TABLE>
<CAPTION>
Common Stock Percentage of Aggregate
Beneficially Common Voting
Name of Beneficial Owner Owned Stock Power
- ------------------------ ------------ ------------- --------------
<S> <C> <C> <C>
Citicorp Venture Capital, Ltd.("CVC") (1) 901,029.05 58.35(2) 40.25%
399 Park Avenue
New York, New York 10043
Melvin L. Adams 141,637.30 9.17 13.23%
George D. Wyers 138,331.53 8.96 12.92%
Gregory G. Guinn 76,348.75 4.94 7.13%
Richard L. Schreck 76,348.75 4.94 7.13%
Lonnie L. Snook 61,533.75 3.98 5.75%
All directors and executive officers as a group
(9 persons, including those named above) 512,324.24 33.18 47.84%
</TABLE>
- -----------
(1) Includes shares held by employees and affiliates of CVC.
(2) Includes shares of (i) voting Class A Common Stock representing 40.46% of
outstanding voting Class A Common Stock and (ii) non-voting Class B Common
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Page 38 of 41
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are included in Part 2, Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants 15
Consolidated Balance Sheets - December 31, 1999 and 1998 16
Consolidated Statements of Operations - Years ended
December 31, 1999, 1998, and 1997 17
Consolidated Statements of Changes in Stockholder's Equity (Deficiency)
Years ended December 31, 1999, 1998, and 1997 18
Consolidated Statements of Cash Flows - Years ended
December 31, 1999, 1998, and 1997 19
Notes to Consolidated Financial Statements 21
</TABLE>
(a)(2) The following financial statement schedules are included in Item 14, Part
IV of this report.
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules are omitted either because of the absence
of the conditions under which they are required or because the required
information is contained in the consolidated financial statements or notes
thereto.
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
1. Asset Purchase Agreement among Crispaire Corporation and Airxcel,
Inc. and Airxcel Holdings, Inc. dated October 17, 1997.
2. Stock Purchase Agreement among William S. Karol and Airxcel, Inc.
Dated March 17, 1998.
</TABLE>
Page 39 of 41
<PAGE> 40
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
------------------------
Allowance
Balance at at Balance at
Beginning Charged to Acquisition (1) End of
Description of Year Expense Accounts Deductions Year
- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year ended December 31,
1999 $ 478 $ 398 $ - - $ (386) $ 490
1998 364 297 100 (283) 478
1997 20 38 324 (18) 364
Allowance for Discounts
Year ended December 31,
1999 $ 52 $ 1,440 $ - - $ (1,389) $ 103
1998 52 1,225 - - (1,225) 52
1997 52 1,010 - - (1,010) 52
</TABLE>
- ----------------
(1) Deduction for purposes for which reserve was created.
Page 40 of 41
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Airxcel, Inc.
March 3, 2000 /s/ Melvin L. Adams
- ------------------------------- ---------------------------------
Date Melvin L. Adams
President and Chief Executive
Officer
March 3, 2000 /s/ Richard L. Schreck
- ------------------------------- ---------------------------------
Date Richard L. Schreck
Secretary/Treasurer and Chief
Financial Officer
March 3, 2000 /s/ Lawrence Jones
- ------------------------------- ---------------------------------
Date Lawrence Jones
Director
March 3, 2000 /s/ Dean T. DuCray
- ------------------------------- ---------------------------------
Date Dean T. DuCray
Director
March 3, 2000 /s/ James A. Urry
- ------------------------------- ---------------------------------
Date James A. Urry
Director
March 3, 2000 /s/ Thomas F. McWilliams
- ------------------------------- ---------------------------------
Date Thomas F. McWilliams
Director
March 3, 2000 /s/ George D. Wyers
- ------------------------------- ---------------------------------
Date George D. Wyers
Director
Page 41 of 41
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 125,000
<SECURITIES> 0
<RECEIVABLES> 15,576,000
<ALLOWANCES> 490,000
<INVENTORY> 25,552,000
<CURRENT-ASSETS> 44,509,000
<PP&E> 17,871,000
<DEPRECIATION> 8,404,000
<TOTAL-ASSETS> 118,212,000
<CURRENT-LIABILITIES> 28,728,000
<BONDS> 105,523,000
0
0
<COMMON> 1,000
<OTHER-SE> 26,946,000
<TOTAL-LIABILITY-AND-EQUITY> 118,212,000
<SALES> 178,946,000
<TOTAL-REVENUES> 178,946,000
<CGS> 140,771,000
<TOTAL-COSTS> 140,771,000
<OTHER-EXPENSES> 27,444,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,416,000
<INCOME-PRETAX> (1,685,000)
<INCOME-TAX> (380,000)
<INCOME-CONTINUING> (1,305,000)
<DISCONTINUED> (263,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,042,000)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
EXECUTION COPY
ASSET PURCHASE AGREEMENT
among
CRISPAIRE CORPORATION
as Seller,
and
AIRXCEL, INC.
and
AIRXCEL HOLDINGS, INC.
as Buyer
October 17, 1997
<PAGE> 2
EXECUTION COPY
TABLE OF CONTENTS
SECTION I
DEFINITIONS AND CONSTRUCTION ..........................................1
1.1 Certain Definitions..............................................1
1.2 Accounting Principles............................................7
1.3 Interpretation...................................................7
SECTION II
ACQUISITION OF THE ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES AND PURCHASE PRICE.................................8
2.1 Purchase of the Assets...........................................8
2.2 Excluded Assets..................................................8
2.3 Assumed Liabilities..............................................9
2.4 Excluded Liabilities.............................................9
2.5 Purchase Price..................................................11
2.6 Reduction of Purchase Price.....................................11
2.7 Closing.........................................................12
SECTION III
REPRESENTATIONS AND
WARRANTIES OF THE SELLER..............................................13
3.1 Organization and Qualification..................................13
3.2 Validity and Execution of Agreement.............................13
3.3 No Conflict.....................................................13
3.4 Capitalization/Subsidiaries.....................................14
3.5 Books and Records...............................................14
3.6 Financial Statements............................................14
3.7 Undisclosed Liabilities.........................................14
3.8 No Material Adverse Effect......................................15
3.9 Tax Matters.....................................................15
3.10 Litigation......................................................15
3.11 Contracts and Other Agreements..................................15
3.12 Real Estate.....................................................17
3.13 Transactions with Affiliates....................................18
3.14 Accounts Receivable and Inventory...............................19
3.15 Compensation Arrangements.......................................19
3.16 Operations......................................................19
3.17 Intellectual Property...........................................21
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3.18 Employees.......................................................22
3.19 Employee Benefits...............................................22
3.20 Environmental Health and Safety Matters.........................23
3.21 Insurance.......................................................24
3.22 Permits.........................................................25
3.23 Title; Liens....................................................25
3.24 Compliance with Laws............................................25
3.25 Sufficiency of Assets...........................................26
3.26 Substantial Customers and Suppliers.............................26
3.27 Banks, Brokers, and Proxies.....................................26
3.28 Brokers.........................................................26
3.29 Disclosure......................................................26
3.30 Investment Intent...............................................27
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER...........................27
4.1 Organization and Qualification..................................27
4.2 Validity and Execution of Agreement.............................27
4.3 No Conflict.....................................................28
4.4 Capitalization/Subsidiaries.....................................28
4.5 No Material Adverse Effect......................................28
4.6 Operations......................................................28
4.7 Employee Benefits...............................................30
4.8 Permits.........................................................31
4.9 Compliance with Laws............................................31
4.10 Brokers.........................................................31
4.11 Government Filings..............................................31
4.12 Operation of Business...........................................31
SECTION V
PRE-CLOSING COVENANTS.................................................32
5.1 Corporate Examinations and Investigations.......................32
5.2 Conduct of Business.............................................32
5.3 Notice of Events................................................32
5.4 Exclusivity.....................................................32
5.5 Mutual Assistance...............................................33
5.6 Name Changes....................................................34
5.7 Public Announcements............................................34
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EXECUTION COPY
SECTION VI
CONDITIONS PRECEDENT TO THE CLOSING...................................35
6.1 Conditions Precedent to the Obligations of the Buyer............35
6.2 Conditions Precedent to the Obligations of the Seller...........37
SECTION VII
POST-CLOSING COVENANTS................................................38
7.1 Further Information.............................................38
7.2 Record Retention................................................38
7.3 Tax Assistance..................................................39
7.4 No Assignment Causing Breach....................................39
7.5 Insurance Coverage..............................................39
7.6 Employee Matters and Employee Benefit...........................39
7.7 Non-Compete and Confidentiality.................................41
7.8 Further Assurances..............................................42
7.9 Mail and Other Receipts.........................................42
7.10 Business Operations.............................................42
SECTION VIII
SURVIVAL; INDEMNIFICATION.............................................43
8.1 Survival of Representations, Warranties,
Covenants and Agreements........................................43
8.2 Indemnification of the Buyer and Holdco.........................43
8.3 Indemnification of the Seller. .................................43
8.4 Limitations on Indemnification..................................43
8.5 Method of Asserting Claims......................................44
8.6 Remedies........................................................45
8.7 Bard Litigation.................................................46
SECTION IX
MISCELLANEOUS.........................................................46
9.1 Termination.....................................................46
9.2 Expenses........................................................47
9.3 Notices.........................................................47
9.4 Entire Agreement................................................48
9.5 Waivers and Amendments..........................................48
9.6 Governing Law...................................................48
9.7 Binding Effect; No Assignment...................................48
9.8 Severability of Provisions......................................49
9.9 Counterparts....................................................49
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9.11 Bulk Transfer Laws..............................................49
EXHIBITS:
A - Form of Seller Note
B - Form of Escrow Agreement
C - Form of Executive Employment Agreement
D - Form of Amendment No. 1 to Stockholders Agreement
E - Form of Joinder to Registration Rights Agreement
F - Form of Transfer and Assumption Agreement
SCHEDULES:
2.5(c)- Purchase Price Allocation
2.6 - Working Capital Calculation
3.1 - Qualification
3.3 - Conflicts
3.4 - Capitalization/Subsidiaries
3.5 - Books and Records
3.6 - Financial Statements
3.7 - Undisclosed Liabilities
3.8 - Material Adverse Effect
3.9 - Tax Matters
3.10 - Litigation
3.11 - Contracts
3.12 - Real Estate
3.13 - Affiliate Transactions
3.14 - Accounts Receivable
3.15 - Compensation
3.16 - Operations
3.17 - Intellectual Property
3.18 - Employees
3.19 - Benefit Plans
3.20 - Environmental
3.21 - Insurance
3.22 - Permits
3.23 - Title/Liens
3.24 - Compliance with Laws
3.25 - Assets
3.26 - Customers and Suppliers
3.27 - Banks, Brokers and Proxies
4.1 - Qualified Jurisdictions
4.3 - Conflicts
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4.4 - Capitalization/Subsidiaries
4.5 - No Material Adverse Change
4.6 - Operations
4.7 - Employee Benefits
4.8 - Permits
4.9 - Compliance With Laws
7.6 - Assumed Plans
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ASSET PURCHASE AGREEMENT
This Agreement is effective as of October 17, 1997, and made among
CRISPAIRE CORPORATION, a Georgia corporation (the "Seller"), AIRXCEL, INC., a
Delaware corporation (the "Buyer") and AIRXCEL HOLDINGS, INC. ("Holdco"), a
Delaware corporation.
RECITALS:
WHEREAS, the Seller is engaged in the business of designing,
manufacturing and selling specialty heating, air conditioning and water heating
products (the "Business");
WHEREAS, the Seller wishes to sell, and the Buyer wishes to acquire
the Business by purchasing the Assets (as hereinafter defined) and assuming
certain liabilities of the Seller comprising the Assumed Liabilities (as
hereinafter defined) upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein Holdco, the Buyer and the Seller hereby agree
as follows:
SECTION I
DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions. When used in this Agreement:
"Accounts Receivable" means all trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales occurring in the conduct of the Business and the
security agreements related thereto, including any rights of the Seller with
respect to any third party collection proceedings or any other Actions which
have been commenced in connection therewith.
"Actual Fraud" means knowing concealment or failure to disclose with
intent to mislead or defraud.
"Action" means any action, suit, proceeding or arbitration by any
Person or any investigation or audit by any Governmental Body.
"Affiliate" of any Person means (i) any other Person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with that Person and includes (a) any partner, shareholder,
officer, director or employee of that Person, and (b) any individual related by
blood, marriage or adoption to that Person or any partner, shareholder, officer,
director or employee of that Person, (ii) any Person in which any of the
foregoing owns a beneficial interest or (iii) any corporation or other business
organization of which that Person is an officer or
<PAGE> 8
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partner or is the beneficial owner, directly or indirectly, of ten percent (10%)
or more of any class of equity securities, any trust or estate in which that
Person has a substantial beneficial interest or as to which that Person serves
as a trustee or in a similar capacity. For purposes of this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlled" and "controlling" have meanings correlative thereto.
"Assets" means all of the assets, properties and rights owned by the
Seller, or used or usable by the Seller in the operation of the Business of
every type and description, real, personal and mixed, tangible and intangible,
wherever located and whether or not reflected on the Books and Records of the
Seller, other than the Excluded Assets.
"Assumed Liabilities" has the meaning specified in Section 2.3.
"Bard Litigation" means the civil action Bard Manufacturing Company
and Airxchange, Inc. (plaintiffs) v. Crispaire Corporation d/b/a Marvair
(defendant) in the US District Court for the Northern District of Ohio, #3:95 CV
7103 (CARR, J.) and any associated suits and proceedings.
"Base Rate" means the rate of interest announced from time to time
by Nationsbank, N.A. as its prime commercial lending rate.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records relating to the business, operations,
conditions of (financial or other), results of operations and assets and
properties of such Person, including financial statements, Tax Returns and
related work papers and letters from accountants, budgets, pricing guidelines,
ledgers, journals, deeds, title policies, minute books, stock certificates and
books, stock transfer ledgers, contracts and other agreements, licenses,
customer and supplier lists, employee information, computer files and programs,
retrieval programs, operating data and plans and environmental studies and
plans.
"Business Day" means any day other than a Saturday, Sunday or day on
which commercial banks are authorized or required by law to close in New York.
"Cash Payment" has the meaning specified in Section 2.5(a).
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" has the meaning specified in Section 2.7.
"Closing Balance Sheet" has the meaning specified in Section 2.6(a).
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"Closing Date" has the meaning specified in Section 2.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means all legally binding arrangements, including
executory contracts, agreements, indentures, notes, bonds, loans, instruments,
leases, mortgages, franchises, plans, permits, licenses or commitments (whether
written or oral, express or implied).
"Documents" means any document, agreement, instrument, certificate,
notice, consent, affidavit, letter, telegram, telex, statement, schedule
(including any Schedule to this Agreement) or exhibit (including any Exhibit to
this Agreement).
"Earnest Deposit" means an amount of $50,000.00 to be deposited by
the Buyer with Nationsbank, N.A. pursuant to Section 5.4.
"Environmental Lien" means a Lien, either recorded or unrecorded, in
favor of any Governmental Body, relating to any Liability of the Seller arising
under Environmental Requirements.
"Environmental Requirements" shall mean federal, state and local
statutes, regulations, ordinances and similar provisions having the force or
effect of law, all judicial and administrative orders and determinations and all
contractual obligations and all common law existing on or prior to the Closing
Date applicable to the Seller, the Business or the Assets concerning pollution
or protection of the environment, including without limitation all those
relating to the presence, use, production, generation, handling, transport,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, Release, threatened Release, control, or cleanup of any hazardous
materials, substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agreement" has the meaning specified in Section 2.5(a).
"Excluded Assets" has the meaning specified in Section 2.2.
"Excluded Liabilities" has the meaning specified in Section 2.4.
"Financial Statements" means the financial statements delivered
pursuant to Section 3.6(a).
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
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"Governmental Body" means court, tribunal, arbitrator or any
government or political subdivision thereof, whether federal, state, county,
local or foreign, or any agency, authority, official or instrumentality of any
such government or political subdivision or any entity exercising executive
legislative, judicial, regulatory or administrative function of government.
"Improvements" means all buildings, structures, facilities, fixtures
and other improvements.
"Indebtedness" means indebtedness for borrowed money incurred or
accrued before the Closing Date including bank lines of credit, the current
portions of any long-term debt, capitalized lease obligations (except to the
extent specifically included in the Assets), overdrafts, principal interest,
premium and penalties and includes any guarantee of or indemnity obligation for
any of the foregoing.
"Intellectual Property" means all patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); all trademarks, service marks, logos, slogans, trade
dress, trade names and corporate names and all goodwill associated therewith;
all copyrights; all registrations, applications and renewals for any of the
foregoing; all product formulations, trade secrets, confidential information,
research information, technical and computer data, documentation and software,
financial, business and marketing plans, customer and supplier lists, training
materials (including films, brochures and printed materials), catalogs and other
advertising and promotional material) and related information and all other
proprietary rights; and all copies and tangible embodiments of the foregoing,
along with all income, royalties, damages and payments due or payable as of the
Closing Date or thereafter (including damages and payments for past, present or
future infringements or misappropriations thereof), the right to sue and recover
for past infringements and misappropriations thereof, and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world, in each case together with all books, records, drawings, recipes,
application or other indicia thereof, and in each case together with goodwill
associated therewith.
"Inventory" means inventory, raw materials, work-in-process,
finished goods, consigned goods, merchandise, products under research and
development, demonstration equipment, packaging materials and other accessories
related thereto which are held at, or are in transit from or to, the locations
at which the Business is conducted, or located at suppliers' premises or
customers' premises on consignment, in each case, which are used or held for use
in the conduct of the Business, including any of the foregoing purchased subject
to any conditional sales or title retention agreement in favor of any other
Person, together with all rights against suppliers of such inventories.
"IRS" means the Internal Revenue Service.
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"Law" means any law, statute, rule, regulation, ordinance and other
pronouncement having the effect of law of the United States, any foreign country
or any domestic or foreign state, county, city or other political subdivision or
of any Governmental Body.
"Leased Real Property" means the real property (and Improvements
thereon) the subject of the Real Property Leases.
"Liabilities" means any indebtedness, liability, claim, loss,
damage, deficiency or legal obligation, whether direct or indirect, fixed or
unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured,
accrued, absolute, contingent or otherwise.
"Lien" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encroachment, encumbrance or any other restriction, limitation or defect in
title whatsoever.
"Loss" or "Losses" has the meaning specified in Section 8.2.
"Material Adverse Effect" means, in the case of any Person, any
change or changes or effect or effects that individually or in the aggregate
(with respect to similar events) are or may reasonably be expected to be
materially adverse to (i) the business, assets, properties, operations, income,
prospects, condition (financial or otherwise) or customer, employee, distributor
or supplier relations of such Person or the transactions contemplated by this
Agreement or (ii) the ability of such Person to perform its obligations under
this Agreement.
"Note" has the meaning specified in Section 2.5(a).
"Order" means any writ, judgment, decree, injunction or similar
order of any Governmental Body, in each case whether preliminary or final.
"Owned Property" means all real property owned by the Seller,
together with all easements, licenses, interests, all of the rights arising out
of the ownership thereof or appurtenant thereto, and Improvements thereon.
"Permits" means all licenses, permits, franchises, approvals,
authorizations, orders, registrations, certificates, variances, consents and
similar rights (including applications therefor), utilized in the conduct of the
Business and the rights to all data and records held by any Governmental Body or
other agency with respect thereto.
"Permitted Liens" means (i) purchase money security interests in
inventory, supplies and equipment, (ii) precautionary liens filed by lessors
with respect to leased equipment, and (iii) encumbrances which are not
substantial in amount, do not materially detract from the value of
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the property subject thereto and do not materially impair the use of the
property subject thereto or the operation of the Business.
"Person" means any individual, corporation, partnership, firm, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Body or other entity.
"Plan" means any (i) employee benefit plan (as defined in Section 3(3)
of ERISA), whether or not funded or terminated, (ii) employment agreement or
(iii) personnel policy, fringe benefit plan, program or arrangement, whether or
not subject to ERISA, qualified under the Code or not, funded or terminated,
including any stock bonus, deferred compensation, pension, severance, bonus,
incentive and health, life, sick-pay, disability or other welfare plan.
"Property Plans" means all site plans, surveys, soil substratus
studies, architectural drawings, plans and specifications, engineering,
electrical and mechanical plans and studies, floor plans, landscape plans,
appraisals, feasibility studies, and other plans and studies of any kind if
existing and in the possession or control of the Seller relating to the Real
Estate.
"Purchase Price" has the meaning specified in Section 2.5(a).
"Purchase Price Adjustment" has the meaning specified in Section
2.6(b).
"Real Estate" means the Owned Property and the Leased Real Property.
"Real Property Leases" means all leases and subleases of real property
as to which the Seller is the lessee or sublessee, together with any options to
purchase the underlying property and leasehold improvements thereon set forth on
Schedule 3.12(b) hereto, and in each case all other rights, subleases, licenses,
permits, deposits and profits appurtenant to or related to such leases and
subleases.
"Related Documents" means all documents and instruments to be executed
by the Seller, the Buyer or Holdco in connection herewith.
"Release" has the meaning set forth in CERCLA.
"Safety Requirements" shall mean such federal, state and local
statutes, regulations, ordinances and similar provisions having the force or
effect of law, all judicial and administrative orders and determinations and all
contractual obligations existing on the Closing Date, applicable to the Seller,
the Business or the Assets, and concerning public health or safety, workplace
health or the safety.
"Seller's Knowledge" means the actual knowledge of all current
directors and officers of the Seller and the knowledge which those persons
should have had after conducting all inquiries
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and investigations which should have been made by any of them in the ordinary
course of conduct of their employment or appointment and otherwise in the active
performance of the normal duties and obligations of such a person bearing in
mind that person's position with the Seller; provided that the aforementioned
person is not hereby required to conduct any investigation outside the ordinary
course.
"Stockholders Agreement" means the Stockholders Agreement dated as
of August 22, 1996 and made by and among Holdco and its stockholders.
"Tax Return" means with respect to any person, any return, report,
information return, or other document (including any related or supporting
information) filed or required to be filed by that person with any federal,
state, local, or foreign governmental entity or other authority in connection
with the determination, assessment or collection of any Tax (whether or not such
Tax is imposed on that person) or the administration of any laws, regulations or
administrative requirements relating to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign taxing authority,
whether disputed or not, including, without limitation, income, capital,
estimated, excise, property, sales, transfer, withholding, employment, payroll,
and franchise taxes and such terms shall include any interest, penalties or
additions attributable to or imposed on or with respect to such assessments.
"Working Capital" means the current assets less the current
liabilities of the Seller adjusted to exclude (i) from current assets, cash,
prepaid expenses, income tax refunds receivable and the current portion of
deferred income tax charges and (ii) from current liabilities, bank debt,
federal and state income taxes payable for the period through the Closing Date
and the current portion of deferred income tax credits. Working Capital shall be
calculated in accordance with Sections 1.2 and 2.6.
1.2 Accounting Principles. Each accounting term used herein shall
have the meaning that is applied thereto in accordance with GAAP and each
account included in the Closing Balance Sheet shall be calculated in accordance
with GAAP and shall be consistent with the books and records of the Seller
(which books and records shall be correct and complete); provided, that all
known errors and adjustments shall be taken into account in the calculation of
each account set forth above. With respect to the calculation of the levels of
the accounts set forth in Section 2, no change in accounting principles shall be
made from those utilized in preparing the Financial Statements including,
without limitation, with respect to the nature or classification of accounts,
closing proceedings, levels of reserves or levels of accruals other than as a
result of objective changes in the underlying business. For purposes of the
preceding sentence, "changes in accounting principles" includes all changes in
accounting principles, policies, practices, procedures or methodologies with
respect to financial statements, their classification or their display, as well
as all changes in practices, methods, conventions or assumptions utilized in
making accounting estimates.
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1.3 Interpretation. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement. All pronouns
and any variations thereof refer to the masculine, feminine or neuter, singular
or plural, as the context may require. References to statutes and agreements
include all amendments, extensions, restatements and waivers thereof. The
Exhibits and Schedules are a part of this Agreement as if fully set forth
herein. All references herein to Sections, subsections, clauses, Exhibits and
Schedules shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require. Any item disclosed on any Schedule to this
Agreement shall only be deemed to be disclosed in connection with (a) the
specific representation and warranty to which such Schedule is expressly
referenced, (b) any specific representation and warranty which expressly
cross-references such Schedule and (c) any specific representation and warranty
to which any other Schedule to this Agreement is expressly referenced if such
other Schedule expressly cross-references such Schedule. Any representation in
this Agreement as to the enforceability of any Contract or other obligation or
the collectibility of any receivable is to be read as being limited by general
equitable principles and by all applicable laws relating to bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors'
rights generally.
SECTION II
ACQUISITION OF THE ASSETS; ASSUMPTION OF THE
ASSUMED LIABILITIES AND PURCHASE PRICE
2.1 Purchase of the Assets. On the terms and subject to the
conditions set forth in this Agreement, on the Closing Date, the Seller agrees
to sell, transfer, assign, convey and deliver to the Buyer, and the Buyer agrees
to purchase, acquire and accept from the Seller, all of the right, title and
interest as of the Closing Date of the Seller in and to the Assets. Except as
specifically excluded pursuant to Section 2.2, the Assets include, without
limitation, all of the right, title and interest of the Seller in or to (a) all
securities and other investments (other than bank account balances, money market
securities or similar short-term investments or other cash equivalents), rights
in any funds, safe deposits and security deposits made by or on behalf of the
Seller; (b) all Real Estate, Real Property Leases, Inventory, Accounts
Receivable, Intellectual Property, Permits, Property Plans, Contracts and Books
and Records which are used or useful in the conduct of the Business or otherwise
relate to the Seller or its assets; (c) all prepaid expenses and other
prepayments (excluding insurance premium refunds relating to the insurance
policies to be retained by the Seller as set forth on Schedule 3.21 hereto)
relating to the Business; (d) all tangible and other assets, properties and
rights of the Seller reflected on the Financial Statements, subject to changes
in the ordinary course of business through the Closing Date; (e) all rights of
the Seller under or pursuant to all warranties, representations and guarantees
made by suppliers, manufacturers and contractors in connection with products
sold to or services provided to the Seller, or affecting the Real Estate,
property, machinery or equipment used in the conduct of the Business; (f) all
claims, deposits, warranties, guaranties, refunds (excluding Tax refunds due to
the Seller other than those reflected in the Closing Balance Sheet), causes of
action, rights of recovery, rights of set-off and rights of
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recoupment of every kind and nature; and (g) all transferable telephone exchange
numbers and the right to receive and retain mail and other communications
(directed to the Seller and not concerning Excluded Assets or Excluded
Liabilities) and collections, including mail and communications from customers,
suppliers, distributors, agents and others.
2.2 Excluded Assets. The Buyer shall not acquire and there shall be
excluded from the Assets, the Seller's interest in each of the following (the
"Excluded Assets"):
(a) The minute books, stock transfer books, corporate seals and
other similar corporate records of the Seller;
(b) All rights of the Seller under this Agreement and the
Documents delivered to the Seller pursuant to this Agreement;
(c) Insurance policies identified on Schedule 3.21 hereto as being
retained by the Seller and all claims and rights of the Seller
thereunder;
(d) All claims related to the Excluded Liabilities or Excluded
Assets;
(e) The deposit of $265,181.00 made by the Seller with the IRS
representing payments required by the Code Section 7519 for
entities electing not to have a required taxable year; and
(f) Cash, bank account balances, money market securities or
similar short-term investments or other cash equivalents and
Tax refunds due to the Seller (except to the extent the same
are reflected in the Closing Balance Sheet).
2.3 Assumed Liabilities. Subject to the terms and conditions set
forth herein, the Buyer agrees that, on the Closing Date, the Buyer shall assume
and thereafter pay, perform or discharge out of its own funds, with no recourse
to the Seller or the Seller's shareholders except as in the case of Actual Fraud
or as provided in Section VIII, as and when due or required to be performed, as
the case may be, all undischarged Liabilities of the Seller which relate to
conduct of the Business prior to the Closing Date to the extent such liabilities
have been incurred in the ordinary course of business without violation of this
Agreement other than the Excluded Liabilities (the "Assumed Liabilities").
In the event of any claim against the Buyer with respect to any of the
Assumed Liabilities hereunder, the Buyer shall have, and the Seller hereby
assigns to the Buyer, any defense, counterclaim, or right of setoff which would
have been available to any the Seller if such claim had been asserted against
the Seller. The assumption by the Buyer of said liabilities shall not expand the
rights and remedies of any third party against the Buyer beyond those such third
party would have had but for the assumption.
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2.4 Excluded Liabilities. The Buyer will not assume or discharge,
and shall have no liability for any of the following Liabilities of the Seller
or relating to the Business (collectively, the "Excluded Liabilities").
(a) any liabilities with respect to income or other Taxes imposed
on the Seller for any period and any Taxes otherwise imposed
in relation to the Business prior to the Closing Date (except
to the extent such Taxes are accrued for in the Statement of
Working Capital (as defined in Section 2.6));
(b) any liabilities with respect to Indebtedness;
(c) any liabilities to any shareholder of the Seller or to any
Affiliate of the Seller or of any of the Seller's shareholders
(other than wages and other compensation in the ordinary
course of business and bonuses in accordance with the policy
set forth on Schedule 3.15);
(d) to the extent of coverage by the Seller's insurance policies,
any liabilities (whether asserted before or after the Closing
Date) for injury to or death of persons or damage to or
destruction of property (including, without limitation, any
worker's compensation claim) including any claim for
consequential damages in connection with the foregoing arising
from acts or omissions by the Seller which occur before the
Closing Date;
(e) to the extent of coverage, if any, by the Seller's insurance
policies, any liabilities arising out of any tort,
infringement, claim or lawsuit including any infringement,
misappropriation or other conflict with the Intellectual
Property rights of any Person (it is agreed that the Seller's
failure to adequately or timely notify its insurer(s) may
result in no coverage and in that event the matters referred
to shall not be Excluded Liabilities);
(f) any liabilities or investigatory, corrective or remedial
obligations arising under any Environmental Requirements, in
each case to the extent arising out of facts or circumstances
existing or acts or omissions occurring prior to the Closing
Date;
(g) legal fees and disbursements through the Closing Date
associated with the Bard Litigation;
(h) the brokers fees referred to in Section 3.28;
(i) any liabilities relating to the Excluded Assets; and
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(j) any liabilities relating to the capital stock of the Seller or
any shareholders' agreements pertaining to the capital stock
of the Seller.
The Seller shall pay and discharge as and when due or required to be
performed out of its own funds, with no right of contribution or recourse
against the assets of the Buyer or its Affiliates, or contest in good faith at
no cost or expense to the Buyer or its Affiliates, all of the Excluded
Liabilities. The Seller acknowledges that the fact of disclosure of any
Liability in any Schedule hereto does not affect the status of such Liability as
an Excluded Liability for all purposes hereunder.
2.5 Purchase Price.
(a) Subject to adjustment pursuant to Section 2.6, the aggregate
purchase price (the "Purchase Price") for the Assets to be acquired by the Buyer
from the Seller hereunder shall be the sum of: (i) $38,700,00.00 (the "Cash
Payment"), plus (ii) subordinated promissory notes of Holdco substantially in
the form of Exhibit A in an aggregate initial principal amount of $5,175,142.00
(collectively the "Note"), plus (iii) the assumption by the Buyer of the Assumed
Liabilities, less (iv) the amount of the Earnest Deposit. An amount of
$1,000,000 shall be deducted from the Cash Payment and deposited into escrow
pursuant to the terms of an escrow agreement substantially in the form of
Exhibit B (the "Escrow Agreement").
(b) The Cash Payment shall be paid to the Seller by the Buyer on the
Closing Date by cashiers check or by wire transfer of immediately available
funds to an account designated by Seller not less than three (3) Business Days
prior to Closing by notice to the Buyer. In addition, the Note shall be issued
to the Seller by Holdco on the Closing Date.
(c) The Purchase Price will be allocated for all purposes (including
Tax and financial accounting purposes) (x) among the Buyer and Holdco in the
manner shown in the allocation schedule attached hereto as Schedule 2.5(c) and
agreed to by the parties hereto on or before the Closing Date, and (y) among the
Assets in a manner to be agreed upon in writing by the Buyer, Holdco and the
Seller (consistent with Schedule 2.5(c)) (such written agreement the "Allocation
Schedule") as soon as practicable following the preparation of the Statement of
Working Capital (as defined below). Such allocations shall be consistent with
Section 1060 of the Code. Each of the parties hereto will not take a position on
any Tax Return, before any governmental agency charged with the collection of
any Tax, or in any judicial proceeding, that is in any way inconsistent with the
Allocation Schedule and will cooperate with each other in timely filing
consistent with such allocation on Forms 8594 with the IRS. For federal income
tax purposes, the Seller shall be deemed to have (i) sold to the Buyer an
undivided interest in the Assets transferred by it (which undivided portion will
correspond to the Cash Payment and the Assumed Liabilities, as shown on the
Allocation Schedules) and (ii) sold to Holdco an undivided interest in the
Assets transferred by it (which undivided portion will correspond to the amount
of the Note, shown on the Allocation Schedule), and Holdco shall contribute such
undivided portion to the Buyer immediately after such purchase.
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2.6 Reduction of Purchase Price. (a) As promptly as practicable, but
in any event not later than sixty (60) days after the Closing, the Buyer shall
cause to be prepared and delivered to the Seller, an audited, consolidated
balance sheet of the Seller as of the Closing Date (the "Closing Balance
Sheet"), setting forth the Working Capital of the Business as at the Closing
Date (the "Statement of Working Capital"). The Closing Balance Sheet shall be
prepared from the Seller's Books and Records and in accordance with Section 1.2;
provided, however, that the Closing Balance Sheet shall not contain any accruals
or reserves for Excluded Liabilities and shall not include as an asset any
Excluded Assets. Working Capital shall be calculated and determined in a manner
consistent with the method illustrated on Schedule 2.6 and shall not include any
contingent liabilities associated with the Bard Litigation.
(b) Subject to subsection (c) below, within twenty (20) days after
delivery to the Seller of the Closing Balance Sheet and the Statement of Working
Capital pursuant to subsection (a) above, the Seller agrees to pay to the Buyer
(i) the amount, if any, by which $9,631,766.00 exceeds the Working Capital of
the Business as at the Closing Date, plus (ii) interest on the amounts computed
pursuant to clause (i) above at the Base Rate for the period from the Closing
Date to the date of payment in full of such amount (the amounts payable pursuant
to clauses (i) and (ii) are hereinafter referred to collectively as the
"Purchase Price Adjustment"). Payments, if any, by the Seller pursuant to the
preceding sentence shall be made by wire transfer of immediately available funds
to an account or accounts designated by the Buyer. The parties shall treat any
payment made pursuant to this Section 2.6(b) as an adjustment to the Cash
Payment portion of the Purchase Price for all purposes.
(c) If the Seller in good faith disagrees with the Closing Balance
Sheet or the Statement of Working Capital, then the Seller shall notify the
Buyer in writing (the "Notice of Disagreement") of such disagreement within
twenty (20) days after delivery of the Closing Balance Sheet and the Statement
of Working Capital to the Seller. Thereafter, the Buyer and the Seller shall
attempt in good faith to resolve and finally determine the Closing Balance Sheet
and the Statement of Working Capital. If the Buyer and the Seller are unable to
resolve the disagreement within twenty (20) days after delivery of the Notice of
Disagreement, then the Buyer and the Seller shall select a mutually acceptable,
nationally recognized independent accounting firm (such accounting firm being
hereinafter referred to as the "Independent Accountant") to resolve the disputed
items and make a determination with respect thereto. Such determination will be
made, and written notice thereof given to the Buyer and the Seller, within
thirty (30) days after such selection. The determination by the Independent
Accountant shall be final, binding and conclusive upon the parties hereto. The
scope of such firm's engagement (which shall not be an audit) shall be limited
to the resolution of the items contained in the Notice of Disagreement, and the
recalculation, if any, of the Closing Balance Sheet and the Statement of Working
Capital in light of such resolution and shall be conducted in accordance with
the provisions of this Agreement and will use the definitions contained herein.
The fees, costs and expenses of the Seller and the Independent Accountant, if
any, in connection with the preparation of the Closing Balance Sheet and the
Statement of Working Capital shall be shared equally by the Buyer, on the one
hand, and the Seller, on the other hand. Within ten (10) days of delivery of a
notice of determination by the Independent Accountant as described above,
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any adjustment shall be paid as provided in Section 2.6(b), and shall constitute
timely payment notwithstanding the lapse of the twenty (20) day time period set
forth in Section 2.6(b). Any portion of the Purchase Price Adjustment not in
dispute shall be paid when due in accordance with Section 2.6(b).
2.7 Closing. The consummation of the transactions contemplated
hereby (the "Closing") shall be held at 10:00 a.m. (E.S.T.) on the first
Business Day after all conditions to respective obligations of the parties have
been satisfied or waived or at such other time and date as shall be mutually
agreed to by the parties (such date and time of the Closing being herein
referred to as the "Closing Date") at the offices of Kirkland & Ellis, 153 East
53rd Street, New York, NY 10022.
SECTION III
REPRESENTATIONS AND
WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows and only
as follows. The representations and warranties which follow are deemed repeated
on the Closing Date. The fact of making the following representations and
warranties does and did not in and of itself oblige the Seller to conduct or
have conducted any investigation.
3.1 Organization and Qualification. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia and has all requisite corporate power and authority to (i) own, lease
and operate its properties and assets as they are now owned, leased and
operated, (ii) carry on its business as now presently conducted and as proposed
to be conducted prior to the Closing Date and (iii) to execute and deliver this
Agreement and each Related Document to which it is a party and to carry out the
terms hereof and thereof. The Seller is duly qualified to do business in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary, except where the failure to do so would not have a
Material Adverse Effect on the Seller or the Buyer. The jurisdictions in which
the Seller is so qualified are set forth on Schedule 3.1.
3.2 Validity and Execution of Agreement. Subject to approval of the
Seller's shareholders of the transactions contemplated hereby, the Seller has
the full legal right, capacity and power and the Seller has all requisite
corporate authority and approval required to enter into, execute and deliver
this Agreement and each other Related Document to which it is a party and to
perform fully its obligations hereunder and thereunder and to deliver the Assets
in accordance herewith. The board of directors of the Seller has approved the
transactions contemplated pursuant to this Agreement and each of the Related
Documents required to be entered into pursuant hereto by the Seller. Subject to
approval of the Seller's shareholders of the transactions contemplated hereby,
this Agreement has been duly executed and delivered by the Seller and
constitutes the valid and binding obligation of the Seller enforceable against
it in accordance with its terms. By proceeding with the
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Closing the Seller represents and warrants that the Seller's shareholders have
approved the transactions contemplated by this Agreement and each of the Related
Documents to which the Seller is a party.
3.3 No Conflict. Except as set forth on Schedule 3.3, the execution,
delivery and performance by the Seller of this Agreement, the transactions
contemplated hereby or the Related Documents (to the extent the Seller is a
party thereto) will not: (a) violate or conflict with any of the provisions of
the Articles of Incorporation or By-Laws of the Seller; (b) violate, conflict
with, result in the acceleration of, or entitle any party to accelerate the
maturity or the cancellation of the performance of any obligation under, or
result in the creation or imposition of any Lien in or upon any of the
properties or assets of the Seller or constitute a default (or an event which
might, with the passage of time or the giving of notice, or both, constitute a
default) under any mortgage, indenture, deed of trust, lease, contract, loan or
credit agreement, license or other instrument to which the Seller is a party or
by which it or any of its properties or assets may be bound or affected; or (c)
violate or conflict with any provision of any Law applicable to the Seller, or
require any consent or approval of or filing or notice with any Governmental
Body.
3.4 Capitalization/Subsidiaries. All of the issued and outstanding
shares of capital stock or other equity interests of the Seller are owned,
directly or indirectly, beneficially and of record by the shareholders of the
Seller as set forth on Schedule 3.4. Except as set forth on Schedule 3.4, the
Seller does not own, directly or indirectly, any capital stock of, or any other
interest in, any other Person.
3.5 Books and Records. Except as set forth on Schedule 3.5, each of
the Books and Records of the Seller as supplied to the Buyer is true, correct,
complete and current in all material respects and, as applicable, accurately
reflects all actions taken by its board of directors or other governing body and
committees thereof. The Seller has heretofore delivered to the Buyer true,
correct and complete copies of the Articles of Incorporation (certified by the
Secretary of State of Georgia) and By-Laws as in full force and effect on the
date hereof.
3.6 Financial Statements. (a) Except as set forth on Schedule
3.6(a), the balance sheets of the Seller as of fiscal year ending October 31,
1996, and the related statements of income, stockholders' equity and cash flows
for the years then ended, including the footnotes thereto, certified by Mauldin
& Jenkins, L.L.C., certified public accountants, true and complete copies of
which have heretofore been delivered to the Buyer, have been prepared from, and
are in accordance with, the Books and Records of the Seller, are correct and
complete and present fairly, in all material respects, the transactions, assets
and liabilities of the Seller and the financial position of the Seller as at
such dates and the results of operations and cash flows of the Seller for the
years then ended, in each case, in accordance with GAAP consistently applied for
the periods covered thereby.
(b) Except as set forth on Schedule 3.6(b), the unaudited balance
sheet of the Seller as of June 30, 1997 (the "Latest Balance Sheet") and the
related statements of income, stockholders' equity and cash flows for the period
then ended, true and complete copies of which
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have heretofore been delivered to the Buyer, present fairly, in all material
respects, the financial position of the Seller as of such date and the results
of operations of the Seller for the period then ended, in each case in
accordance with GAAP consistently applied for the respective monthly periods
covered thereby from the most recent fiscal year end of the Seller.
3.7 Undisclosed Liabilities. Except as set forth on Schedule 3.7,
the Seller has no material Liability, whether or not of a kind required by GAAP
to be set forth on a financial statement, that is not fully and adequately
reflected or reserved against on the face of (as opposed to in the notes to) the
Financial Statements for the Seller, other than Liabilities incurred since the
date of the Latest Balance Sheet in the ordinary course of business without
violation of Sections 3.16 and 5.2, and fully reflected as Liabilities on the
Seller's Books and Records, none of which would have a Material Adverse Effect
on the Business.
3.8 No Material Adverse Effect. Except as set forth on Schedule 3.8,
since the date of the Latest Balance Sheet there has been no change in the
assets, properties, business, operations, income or condition (financial or
otherwise) of the Seller, nor to the Seller's Knowledge is any such change
threatened, nor has there been any damage, destruction or loss which could have
a Material Adverse Effect on the Buyer or the Business, whether or not covered
by insurance.
3.9 Tax Matters. Except as disclosed on Schedule 3.9, for the
previous six (6) tax years the Seller has timely filed all Tax Returns required
to be filed by it, which Tax Returns are true, correct and complete in all
material respects. Except as set forth in Schedule 3.9, for the previous six (6)
tax years the Seller has timely paid all Taxes due or claimed to be due from it
by any taxing authority. There are no liens for Taxes upon the Assets or any
other assets, tangible or intangible, of the Seller. During the previous six (6)
tax years the Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, Shareholder, or other third party. The
reserves for Tax liability (rather than any reserve for deferred taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Latest Balance Sheet (rather than in any notes thereto) are
sufficient for payment of all unpaid Taxes (whether or not currently disputed)
incurred with respect to the period ended June 30, 1997 and for all periods
ended prior thereto. With respect to periods commencing after June 30, 1997, the
Seller has not incurred any Liability for Taxes other than in the ordinary and
regular course of business. The Seller properly filed an election, in accordance
with the provisions of section 1362(a)(1) of the Code, to be an S corporation,
effective November 1, 1992, and all shareholder consents required by section
1362(a)(2) of the Code were properly filed. Such election has never been revoked
or otherwise terminated. Except as set forth in Schedule 3.9, there is no
examination or proceeding pending or, to the Seller's Knowledge, threatened by
any authority or agency relating to the assessment or collection of, or any
delinquencies in filing relating to, any Taxes from the Seller. Except as set
forth in Schedule 3.9, during the previous six (6) tax years the Seller has not
executed or filed any consent or agreement to extend the period of assessment or
collection of any Taxes. The Seller is not a party to any written Tax allocation
or sharing agreement.
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3.10 Litigation. Except as set forth on Schedule 3.10, there are no
outstanding Orders by which the Seller, or any of its securities, assets,
properties or businesses are bound. Except as set forth on Schedule 3.10, there
is no Action pending or, to the Seller's Knowledge, threatened (whether or not
the defense thereof or liabilities in respect thereof are covered by insurance)
against or affecting the Seller or any of its assets, properties or businesses,
nor are there any facts which are likely to give rise to any such Action which
if adversely decided, could have a Material Adverse Effect on the Seller or the
Buyer.
3.11 Contracts and Other Agreements. Schedule 3.11 sets forth all of
the following types of Contracts to which the Seller is a party or by or to
which the Seller, or its assets, properties or businesses is bound or subject
(collectively, the "Material Contracts"):
(a) all employment agreements and commitments, all consulting or
severance agreements or arrangements and all other contracts
or agreements, including indemnification agreements, with any
current or former officer, director, employee, consultant,
agent, other representative of the Seller or with any
shareholder or Affiliate of the Seller or of any shareholder
of the Seller;
(b) contracts and other agreements with any labor union or
association representing any employee;
(c) contracts and other agreements for the sale of any of its
assets or properties or for the grant to any Person of any
preferential rights to purchase any of its assets or
properties, in each case in an amount exceeding $25,000;
(d) joint venture and partnership agreements;
(e) all capitalized leases, pledges, conditional sale or title
retention agreements involving the payment of more than
$100,000;
(f) any take or pay or requirements contracts or agreements or any
other contracts or agreements requiring the Seller to pay
regardless of whether products or services are received;
(g) contracts and other agreements not cancelable without penalty
by the Seller party thereto on sixty (60) or fewer days notice
calling for an aggregate purchase price or payments to or from
the Seller in any one year of more than $25,000 in any one
case (or in the aggregate, in the case of any related series
of contracts and other agreements);
(h) contracts and other agreements with clients, customers or any
other Person for the sharing of fees, the rebating of charges
or purchase price or other similar arrangements;
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(i) contracts and other agreements containing covenants pertaining
to the right to compete or not compete in any line of business
or similarly restricting the ability to conduct business with
any Person or in any geographical area;
(j) contracts and other agreements relating to the acquisition by
the Seller of any operating business or the capital stock of
any other Person;
(k) all agreements relating to the consignment or lease of
personal property (whether the Seller is lessee, sublessee,
lessor, or sublessor), other than such agreements that provide
for annual payments of less than $25,000;
(l) all licences and franchise agreements involving an amount in
excess of $25,000;
(m) all mortgages, indentures, notes, bonds, letter of credit and
other agreements relating to the borrowing of money, creation
of Liens, any indemnity, or the guarantee of the payment of
liabilities or performance of obligations to or by the Seller,
to or by any other Person;
(n) any stockholder agreement, registration rights agreement or
any arrangement relating to or affecting the ownership of the
common stock or other equity interests of the Seller; and
(o) any other contract and other agreement made outside the
ordinary course of business relating to any one or more of the
Seller and involving an amount in excess of $25,000.
True and complete copies of all of the written Material Contracts have
been delivered to the Buyer. Except as disclosed on Schedule 3.11, all of the
Material Contracts are valid, subsisting, in full force and effect and binding
upon the Seller party thereto and, to the Seller's Knowledge, the other parties
thereto in accordance with their terms and the Seller has satisfied in full or
provided for all of its liabilities and obligations thereunder requiring
performance prior to the date hereof in all material respects, is not in
material default under any such Material Contract, nor does any condition exist
that with notice or lapse of time or both would constitute such a default. To
the Seller's Knowledge, no other party to any such Material Contract is in
material default thereunder, nor does any condition exist that with notice or
lapse of time or both would constitute such a default. Except as disclosed on
Schedule 3.11, none of the other parties to any such Material Contracts has
given notice to the Seller that it intends to terminate or materially alter the
provisions of such Material Contract. Except as separately identified on
Schedule 3.11, no approval or consent of any Person is needed for all of the
Material Contracts to continue to be in full force and effect, and subject to
any necessary approval or consent all of the rights of the Seller under such
Material Contracts will be conveyed to the Buyer upon consummation of the
transactions contemplated by this Agreement.
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3.12 Real Estate.
(a) Set forth on Schedule 3.12(a) is a complete and correct legal
description of each parcel of Owned Property. The Seller has good record and
marketable title to each parcel of Owned Property included in the Real Estate.
Except as set forth on Schedule 3.12(a), none of the Owned Property is subject
to any Lien.
(b) Set forth on Schedule 3.12(b) is a list of all Real Property Leases
(a true and correct copy of each applicable Real Property Lease as in effect as
of the Closing has been delivered by the Seller to the Buyer). Except as set
forth on Schedule 3.12(b), the Seller has valid and enforceable leasehold
interests in and to all of the Leased Real Property, free and clear of all
Liens. There exists no default (nor any condition or event which with notice,
lapse of time, or both would constitute a default) with respect to any such Real
Property Lease by any party thereto. Each such Real Property Lease is in full
force and affect and subsequent to the Seller's assignment of such Real Property
Lease to the Buyer pursuant to this Agreement, will be enforceable against the
lessor or lessee, as the case may be, in accordance with their terms.
(c) The Real Estate constitutes all of the real property owned, leased,
occupied or otherwise utilized in connection with the Business. Other than the
Seller, there are no parties in possession or, to the Seller's Knowledge,
parties having any current or future right to occupy any of the Real Estate,
other than the landlord's rights pursuant to the terms of any lease. The Real
Estate is in operating condition and repair and is sufficient and appropriate
for the conduct of the Business as presently conducted. The Real Estate and all
plants, buildings and Improvements located thereon conform to all applicable
building, zoning and other laws, ordinances, rules and regulations. All permits,
licenses and other approvals necessary to the current occupancy and use of the
Real Estate have been obtained, are in full force and effect, and the Real
Estate and the Business are conducted in conformity therewith. Except as set
forth on Schedule 3.12(c), there exists no violation of any covenant, condition,
restriction, easement, agreement or order affecting any portion of the Real
Estate. No Improvements located on the Real Estate or accessways encroach on
land not included in the Real Estate and no such Improvement is dependent for
its access, operation or utility on any land, building or other improvement not
included in the Real Estate. There is no pending or, to the knowledge of the
Seller, threatened condemnation proceeding affecting any portion of the Real
Estate.
(d) The Seller has delivered or made available to the Buyer true,
correct and complete copies of all permits, licenses, certificates,
authorizations, certificates of occupancy, deeds, mortgages and deeds of trust,
restrictive covenants, easements and other recorded agreements relating to the
Real Estate, all surveys, Property Plans, title reports and title insurance
policies of the Seller with respect thereto and all written licenses, permits,
certificates, authorizations, contracts and other agreements listed on Schedule
3.12(d). Except as set forth on Schedule 3.12(d), the Seller has not given or
received any citation, subpoena, summons or other notice alleging a violation
of, or asserting liability under, any applicable Laws with respect to the Real
Estate or the Improvements
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or the use or condition thereof. The Seller is not in default under, and to the
Seller's Knowledge, no condition exists which with the giving of notice or the
passage of time or both would constitute a default under any material licenses,
permits, certificates, authorizations, contracts or other agreements listed or
described on Schedule 3.12(d) and, except as separately identified on Schedule
3.12(d), no approval or consent of any Person is needed for any of the foregoing
to continue to be in full force and effect, and such documents will not become
unenforceable by the Buyer following the consummation of the transactions
contemplated by this Agreement.
3.13 Transactions with Affiliates. Except as set forth on Schedule
3.13, no director, officer, shareholder or Affiliate of the Seller or any
shareholder of the Seller has since the date of the Latest Balance Sheet: (a)
borrowed money from or loaned money to the Seller which remains outstanding; (b)
had any contractual or other claim, express or implied, of any kind whatsoever
against the Seller excluding claims for wages and other compensation in the
ordinary course of business and bonuses in accordance with the policy set forth
on Schedule 3.15 and other employment benefits; (c) owned any interest in any
property or assets (tangible or intangible) used or useful by the Seller in the
Business; (d) engaged in any other transaction (other than employment) with the
Seller or (e) owned, directly or indirectly, any interest in (except not more
than two percent (2%) stockholdings for investment purposes in securities of
publicly held and traded companies), or served as an officer, director, employee
or consultant of or otherwise receives remuneration from, any Person which is,
or has engaged in business as, a competitor, lessor, lessee, customer or
supplier of the Seller. Each Contract set forth on Schedule 3.13 is on terms no
less favorable to the Seller party thereto than would otherwise be available in
an arm's length transaction with an unaffiliated third party.
3.14 Accounts Receivable and Inventory. Except as set forth on
Schedule 3.14, all Accounts Receivable reflected on the Latest Balance Sheet,
and all Accounts Receivable arising subsequent to the date of the Latest Balance
Sheet, (a) have arisen from bona fide sales transactions in the ordinary course
of business of the Seller on ordinary trade terms, (b) represent valid and
binding obligations due to the Seller, enforceable in accordance with their
terms, and (c) have been collected or are collectible in the ordinary course of
business of the Seller in the aggregate recorded amounts thereof in accordance
with their terms without valid set-off or counterclaim. Schedule 3.14 lists any
obligor which together with all of its Affiliates owes uncollected amounts to
the Seller in an aggregate amount of $25,000 or more. Except as set forth on
Schedule 3.14, all the Inventory consists of a quality and quantity usable and
salable in the ordinary course of business consistent with past practice,
subject to normal and customary allowances in the industry for spoilage, damage
and outdated items. Except as set forth on Schedule 3.14, all items included in
the Inventory are the property of the Seller, free and clear of any Lien, have
not been pledged as collateral, are not held by the Seller on consignment from
others and conform in all material respects to all standards applicable to such
Inventory or its use or sale imposed by any Law.
3.15 Compensation Arrangements. Schedule 3.15 sets forth: (a) the
name and current annual salary, including any bonus or commitment to pay any
other amount or benefit in connection with a termination of employment, if
applicable, of all present officers, directors and
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employees of the Seller whose current annual salary, including any promised,
expected or customary bonus or such other amount or benefit, equals or exceeds
$75,000 and (b) the Seller's bonus policy for all other employees. Except as set
forth on Schedule 3.15, the Seller has not made a commitment or agreement
(verbally or in writing) to increase the compensation or to modify the
conditions or terms of employment of any Person listed on Schedule 3.15 or of
any other Person if the increase would cause such Person to be required to be
listed on Schedule 3.15, other than in the ordinary course of business
consistent with past practices. To the Seller's Knowledge none of such Persons
has made a threat or otherwise indicated any intent to the Seller, to any
Shareholder or to any of the officers or directors of the Seller to cancel or
otherwise terminate such Person's relationship with the Seller.
3.16 Operations. Except as disclosed on Schedule 3.16 or expressly
authorized by this Agreement, from the date of the Latest Balance Sheet through
the date hereof, the Seller has not:
(a) amended its Articles of Incorporation or By-Laws or merged
with or into or consolidated with any other Person, or changed
or agreed to rearrange in any material manner the character of
its business;
(b) issued, sold or purchased options or rights to subscribe to,
or entered into any contracts or commitments to issue, sell or
purchase, any shares of its capital stock or other equity
interests;
(c) entered into, amended or terminated any (i) written employment
agreement or collective bargaining agreement, (ii) adopted,
entered into or amended any arrangement which is, or would be,
a Plan or (iii) made any change in any actuarial methods or
assumptions used in funding any Plan or in the assumptions or
factors used in determining benefit equivalences thereunder;
(d) issued, incurred or assumed any Indebtedness except for
revolving credit loans made by Nationsbank, N.A. (South)
pursuant to the Second Amended and Restated Loan and Security
Agreement dated May 1, 1996;
(e) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to shareholders or holders
of its equity interests, or made any direct or indirect
redemption, retirement, purchase or other acquisition of any
shares of its capital stock or other equity interests other
than cash dividends paid to shareholders pro-rata;
(f) knowingly waived any right of material value to the Business;
(g) made any change in its accounting methods or practices or made
any changes in depreciation or amortization policies or rates
adopted by it or made any
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material write-down of Inventory or material write-off as
uncollectible of Accounts Receivable;
(h) made any payment or commitment to pay any severance or
termination pay to any Person or any of its officers,
directors, employees, consultants, agents or other
representatives, other than payments or commitments (including
wages and other compensation in the ordinary course of
business and bonuses in accordance with the policy set forth
on Schedule 3.15) to pay such Persons or its officers,
directors, employees in the ordinary course of business
consistent with past practice;
(i) (i) entered into any lease (as lessor or lessee), (ii) sold,
abandoned or made any other disposition of any of its assets
or properties other than in the ordinary course of business
consistent with past practice; (iii) granted or suffered any
Lien on any of its assets or properties; or (iv) except for
product warranties issued in the ordinary course of business
entered into or amended any contract or other agreement to
which it is a party, or by or to which it or its assets or
properties are bound or subject, or pursuant to which it
agrees to indemnify any Person or to refrain from competing
with any Person, in each case or type required to be disclosed
pursuant to Section 3.11 hereof;
(j) except for Inventory, supplies or equipment acquired in the
ordinary course of business, made any acquisition of all or
any part of the assets, properties, capital stock or business
of any other Person;
(k) made any capital expenditures or commitments for capital
expenditures other than in the ordinary course of business
consistent with past practice; or
(l) except in the ordinary course of business, terminated, failed
to renew, amended or entered into any contract or other
agreement of a type required to be disclosed pursuant to
Section 3.11.
3.17 Intellectual Property.
(a) Set forth on Schedule 3.17(a) is a complete and correct and
complete list of all (i) patented and registered Intellectual Property and
pending patent applications and applications for the registration of
Intellectual Property, in each case owned by the Seller; (ii) trade or corporate
names used by the Seller; (iii) computer software and databases created or used
by the Seller (other than mass-marketed software with a license fee of less than
$1,000); (iv) material unregistered trademarks and copyrights owned or used by
the Seller; and (v) licenses and other rights granted by the Seller to any third
party or by any third party to the Seller, in each case with respect to
Intellectual Property.
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(b) Except as set forth on Schedule 3.17(a), the Seller owns all right,
title and interest in and to, or has a valid and enforceable license to use, all
Intellectual Property necessary for the operation of the Business as currently
conducted and as currently proposed to be conducted, free and clear of any Liens
or adverse claims. Except as set forth on Schedule 3.17(b), no claim by any
third party contesting the validity, enforceability, ownership or use of any of
the Intellectual Property owned or used by the Seller has been made, is
currently outstanding or is threatened, and there are no grounds for the same.
Except as set forth on Schedule 3.17(b), the loss or expiration of any
individual Intellectual Property right or related group of Intellectual Property
rights owned or used by the Seller would not have a Material Adverse Effect, and
to the Seller's knowledge no such loss or expiration is threatened, pending or
reasonably foreseeable. Except as set forth on Schedule 3.17(b), the Seller has
not received any notice of, nor is the Seller aware of any facts which indicate
a likelihood of, any infringement or misappropriation by, or conflict with, any
third party with respect to the Intellectual Property owned or used by the
Seller. Except as set forth on Schedule 3.17(b), the Seller has not infringed,
misappropriated or otherwise conflicted with any Intellectual Property of any
third party, and the Seller is not aware of any infringement, misappropriation
or conflict which will occur as a result of the continued operation of the
Business as currently conducted or as currently proposed to be conducted. All
Intellectual Property owned or used by Seller in the conduct of the Business,
will be properly assigned or licensed to the Buyer immediately subsequent to the
Closing.
3.18 Employees.
(a) Except as set forth on Schedule 3.18(a), the Seller is not party to
or bound by any contract or agreement for the employment of any Person.
(b) Except as set forth on Schedule 3.18(b), since January 1, 1995, no
more than 30 employees of the Seller relating to the business have been
terminated, or to the knowledge of the Seller, plans to terminate, employment
with the Seller. Except as set forth on Schedule 3.18(b), the Seller is not a
party to or bound by any collective bargaining agreement, nor has it experienced
any strike, union grievance, claim of unfair labor practice or other collective
bargaining dispute relating to the Business. Except as set forth on Schedule
3.18(b), to the knowledge of the Seller there is no organizational effort being
made or threatened by or on behalf of any labor union with respect to employees
of the Seller relating to the Business. The Seller has not committed any unfair
labor practice or violated any federal, state or local law or regulation
regulating employers or the terms and conditions of its employees' employment,
including laws regulating employee wages and hours, employment discrimination,
employee civil rights, equal employment opportunity and employment of foreign
nationals other than such practice or violations which would not cause a
Material Adverse Effect as to the Seller.
(c) Any notice required under any law or collective bargaining
agreement has been given, and all bargaining obligations with any employee
representative have been satisfied. The Seller has not implemented any plant
closing or mass layoff of employees as those terms are defined in the Worker
Adjustment Retraining and Notification ("WARN") Act of 1988, as amended,
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or any similar state or local law or regulation, and no layoffs that could
implicate such laws or regulations will be implemented before Closing without
advance notification to the Buyer.
3.19 Employee Benefits.
(a) Set forth on Schedule 3.19 is a list of all written Plans
contributed to, maintained or sponsored by the Seller, to which the Seller is
obligated to contribute or with respect to which the Seller has any liability or
potential liability, whether direct or indirect, including all Plans contributed
to, maintained or sponsored by a member of a controlled group of entities,
within the meaning of Section 414 of the Code (or with respect to which any such
controlled group member has any direct or indirect liability or potential
liability), of which the Seller is or was a member, to the extent the Seller has
any liability or potential liability with respect to such Plan.
(b) Except as set forth on Schedule 3.19, each Plan and all related
trusts, insurance contracts and funds have been maintained, funded, and
administered in compliance in all material respects with all applicable laws and
regulations, including ERISA and the Code. The Seller has complied in all
material respects with all applicable reporting and disclosure requirements with
respect to each Plan. Neither the Seller nor any trustee or administrator of any
Plan or other Person has engaged in any transaction with respect to any Plan
which could subject the Buyer or any trustee or administrator of such Plan, or
any party dealing with such Plan, to any material Tax, fine, penalty or other
liability (civil or otherwise) imposed by ERISA or the Code. No material
actions, suits, investigations or claims with respect to any Plan (other than
routine claims for benefits) or with respect to any fiduciary or other person
dealing with any Plan are pending or threatened and, to the knowledge of the
Seller, there are no facts which could give rise to or be expected to give rise
to any such actions, suits, investigations or claims. The Seller has complied in
all material respects with the requirements of COBRA (as defined in Section
7.6).
(c) No Plan that is subject to the minimum funding requirements of
Section 412 of the Code or Section 302 of ERISA has incurred any "accumulated
funding deficiency", as such term is defined in such Sections of ERISA and the
Code, whether or not waived. None of the assets of the Seller is the subject of
any Lien arising under Section 302(f) of ERISA or Section 412(n) of the Code,
and, to the best knowledge of the Seller there are no facts which could be
expected to give rise to such a Lien. Except as set forth on Schedule 3.19, the
assets of each employee pension benefit plan (as defined in Section 3(c) of
ERISA) exceed the benefit liabilities thereunder (as determined on a plan
termination basis). The Seller has no actual or potential liabilities under
Title IV of ERISA with respect to any Plan other than for the payment of PBGC
premiums.
(d) Each Plan that is intended to be qualified under Section 401(a) of
the Code, and each trust (if any) forming a part thereof, has received a
favorable determination letter from the IRS as to the qualification under the
Code of such Plan and the tax exempt status of such related trust, and nothing
has occurred since the date of such determination letter that could reasonably
be expected to have a material adverse effect on the qualification of such Plan
or the tax exempt status of such related trust.
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(e) Except as provided in Schedule 3.19(e), with respect to each
Plan relating to the Business, the Seller has provided the Buyer with copies, to
the extent applicable and requested by the Buyer, of all documents pursuant to
which the Plans are maintained, funded and administered, the most recent annual
report (Form 5500 series) filed with the IRS (with attachments), the most recent
financial statement, actuarial report and all governmental rulings,
determinations and opinions (including the most recent IRS favorable
determination letter) (and pending requests for governmental rulings,
determinations and opinions).
3.20 Environmental Health and Safety Matters.
(a) Except as set forth on Schedule 3.20(a), the Seller has not
violated any Environmental Requirements or Safety Requirements in the operation
of the Business.
(b) Except as set forth on Schedule 3.20(b), the Seller has obtained
and complied with, and is in compliance with, all permits, licenses or other
authorizations that may be required pursuant to Environmental Requirements or
Safety Requirements for the occupation of its facilities and the operation of
the Business.
(c) Except as set forth on Schedule 3.20(c), the Seller has not
received any claim, complaint, citation, report or other written or oral notice
regarding any Liabilities, including any investigatory, remedial or corrective
obligations, arising under Environmental Requirements or Safety Requirements.
(d) Except as set forth on Schedule 3.20(d) to the Seller's
Knowledge, none of the following exists at any property owned or occupied by the
Seller:
(i) Underground storage tanks or surface impoundments;
(ii) Asbestos-containing material in any form or condition;
(iii) Materials or equipment containing polychlorinated
biphenyls; or
(iv) Landfills or other waste disposal areas;
(e) No Environmental Lien has attached to any property owned, leased
or operated by the Seller.
(f) Except as set forth on Schedule 3.20(f), the Seller has not
expressly assumed or undertaken any liability, including, without limitation,
any obligation for corrective or remedial action, of any other person relating
to Environmental Requirements.
(g) Except as set forth on Schedule 3.20(g), the Seller has not
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any
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substance, including without limitation any hazardous substance, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to liabilities, (including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, or any investigative, corrective or remedial obligations),
pursuant to CERCLA, as amended, or any other current Environmental Requirements.
3.21 Insurance. Schedule 3.21 sets forth a list and brief description
(specifying the insurer, the policy number or covering note number with respect
to binders and the amount of any deductible, describing the pending claims if
such claims exceed applicable policy limits, setting forth the aggregate amount
paid out under each such policy through the date hereof and the aggregate limit,
if any, of the insurer's liability thereunder) of all policies or binders of
fire, liability, errors and omissions, workers' compensation, vehicular,
unemployment and other insurance held by or on behalf of the Seller. Schedule
3.21 also designates which said policies shall be retained by Seller and which
shall be transferred to Buyer. Such policies and binders are valid and
enforceable in accordance with their terms in all material respects, are in full
force and effect, and insure against risks and liabilities to the extent and in
respect of amounts, types and risks insured, all as are customary in the
industries in which the Seller operates. All of such policies have been issued
by reputable insurance companies actively engaged in the insurance business.
Except as set forth on Schedule 3.21, the Seller is not in default with respect
to any material provision contained in any such policy or binder or has failed
to give any notice or present any claim under any such policy or binder in due
and timely fashion. Except for claims disclosed on Schedule 3.21, there are no
outstanding unpaid claims under any such policy or binder which have gone unpaid
for more than forty-five (45) days or as to which the carrier has disclaimed
liability. All known claims or circumstances likely to give rise to any claims,
if any, made against the Seller has been disclosed and tendered to the
appropriate insurance companies and are being defended by such appropriate
insurance companies in accordance with the policy terms and limits. Except as
set forth on Schedule 3.21, the Seller has not received any notice of
cancellation or non-renewal of any such policy or binder or any notice from any
of its insurance carriers that any insurance premiums will be materially
increased in the future or that any insurance coverage listed on Schedule 3.21
will not be available in the future on substantially the same terms as now in
effect. None of the policies disclosed on Schedule 3.21 provides that premiums
paid in respect of periods may be adjusted or recomputed based on claims-paying
experience of such policies or otherwise. With regard to the policies to be
transferred to Buyer, except as separately disclosed on Schedule 3.21, all of
such policies or binders in the name of the Seller shall be in full force and
effect and enforceable by the Buyer following the consummation of the
transactions contemplated by this Agreement.
3.22 Permits. Schedule 3.22 sets forth a list of the Permits which the
Seller has obtained in connection with its assets, properties and the Business.
Except as set forth on Schedule 3.22 or Schedule 3.20(b), no Permits are
required to be obtained by the Seller in connection with its properties or the
Business. All such Permits are in full force and effect and in good standing,
except as otherwise provided on Schedule 3.22. The Seller has not received any
notice of any claim of revocation of any such Permits or has knowledge of any
event which might give rise to such a
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claim, nor is the Seller aware of any fact or circumstances which would prevent
the Buyer from obtaining such Permits.
3.23 Title; Liens. The Seller owns outright and has good and
marketable title to all of its assets and properties (tangible and intangible),
including, without limitation, all of the assets and properties (except Real
Estate and capitalized leases) reflected on the Latest Balance Sheet, and, at
the Closing Date, the Seller will have good and marketable title to all such
assets and properties, in each case free and clear of any Lien, except for
Permitted Liens and Liens set forth on Schedule 3.23.
3.24 Compliance with Laws. Except as set forth in Schedule 3.24, the
Seller (a) is in material compliance with all, and not in material violation of
any, and has not received any claim or notice that it is not in compliance in
any material respect with, or that it is in violation in any material respect
of, any Law to which the Seller or any of its businesses, operations, assets or
properties (including the use and occupancy thereof) are subject which
non-compliance or violation could have a Material Adverse Effect and (b) the
Seller has not failed to obtain or to adhere to the requirements of any
governmental permit, license, registration and other governmental consent or
authorization necessary in connection with its assets, properties or business,
which failure could have a Material Adverse Effect on the Seller or the Buyer.
3.25 Sufficiency of Assets. The sale of the Assets pursuant to this
Agreement will effectively convey to the Buyer all of the tangible and
intangible property used (whether owned, leased or held under license by the
Seller, its Affiliates or by others) in connection with the conduct of the
Business as heretofore conducted by the Seller (except for the Excluded Assets)
including, without limitation, all tangible assets and properties of the Seller
reflected in the Latest Balance Sheet and assets and properties acquired since
the Latest Balance Sheet Date in the conduct of the Business, other than the
Excluded Assets and assets and properties disposed of since such date without
violation of this Agreement. Except as disclosed in Schedule 3.25, there are no
material facilities, services, assets or properties shared with any other Person
which are used by the Seller and the Assets are in operating condition and
repair, normal wear and tear excepted.
3.26 Substantial Customers and Suppliers. Schedule 3.26 lists the
ten (10) largest customers of the Seller, on the basis of revenues for goods
sold or services provided for the most recently-completed fiscal year. Schedule
3.26 lists the five (5) largest suppliers of the Seller, on the basis of cost of
goods or services purchased as of August 31, 1997. Except as disclosed in
Schedule 3.26, no such customer or supplier has ceased or materially reduced its
purchases from, use of the services of, sales to or provision of services to the
Seller (as appropriate) since the Latest Balance Sheet date, or to the Seller's
Knowledge, has threatened to cease or materially reduce such purchases, use,
sales or provision of services to the Seller (as appropriate) after the date
hereof.
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3.27 Banks, Brokers, and Proxies. Schedule 3.27 sets forth (a) the name
of each bank, trust company, securities or other broker or other financial
institution with which the Seller has an account, credit line or safe deposit
box or vault, or otherwise maintains relations; (b) the name of each person
authorized by the Seller to draw thereon or to have access to any safe deposit
box or vault; (c) the purpose of each such account, safe deposit box or vault;
and (d) the names of all persons authorized by proxies, powers of attorney or
other instruments to act on behalf of the Seller in matters concerning its
business or affairs. Except as set forth on Schedule 3.27, all such accounts,
credit lines, safe deposit boxes and vaults are maintained by the Seller for
normal business purposes, and no such proxies, powers of attorney or other like
instruments are irrevocable.
3.28 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Seller directly
with the Buyer without the intervention of any Person on behalf of the Seller in
such manner as to give rise to any valid claim by any Person against the Seller
or the Buyer for a finder's fee, brokerage commission or similar payment other
than to NationsBanc Capital Markets, Inc.
3.29 Disclosure. Neither this Agreement, nor any Schedule or Exhibit to
this Agreement, contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. All information provided to the Buyer and its agents by the Seller
and its Affiliates or agents is true, complete and correct in all material
respects.
3.30 Investment Intent. The Seller is acquiring the Note for its own
account for the purpose of investment and not with a view to resale or any
distribution thereof except for a distribution to the Seller's shareholders
after the Closing Date. The Seller understands that (a) the Note has not been
registered under the Securities Act of 1933 by reason of its issuance in a
transaction exempt from the registration requirements of the Securities Act of
1933 pursuant to Section 4(2) thereof, (b) the Note must be held indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
of 1933, as amended, or is exempt from such registration, (c) the Note will bear
a legend to such effect and (d) Holdco will make a notation on its transfer
books to such effect. The Seller acknowledges that it has had a full opportunity
to request from the Buyer and to review and has received all information which
it deems relevant, in making a decision to acquire the Note and the Seller will
comply with the restrictions on transferability of the Note contained therein.
The Seller is an "accredited investor" within the meaning of Rule 501 under the
Securities Act of 1933, as amended.
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SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer and, with respect to Sections 4.1 through 4.6 and 4.8 through
4.11 only Holdco, represents and warrants to the Seller as follows. The
representations and warranties which follow are deemed repeated on the Closing
Date.
4.1 Organization and Qualification. Each of the Buyer and Holdco is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
(i) own, lease and operate its properties and assets as they are now owned,
leased and operated, (ii) carry on its business as now presently conducted and
as proposed to be conducted after giving effect to the purchase of the Assets
and (iii) to execute and deliver this Agreement and each Related Document to
which it is a party and to carry out the terms hereof and thereof. Each of the
Buyer and Holdco is duly qualified to do business in each jurisdiction in which
the nature of its business or properties makes such qualification necessary,
except where the failure to do so would not have a Material Adverse Effect on
the Buyer. The jurisdictions in which each of the Buyer and Holdco is so
qualified are set forth on Schedule 4.1.
4.2 Validity and Execution of Agreement. Each of the Buyer and Holdco
has the full legal right, capacity and power and has all requisite corporate
authority and approval required to enter into, execute and deliver this
Agreement and each other Related Document to which it is a party and to perform
fully its obligations hereunder and thereunder. The board of directors of each
of the Buyer and Holdco has approved the transactions contemplated pursuant to
this Agreement and each of the Related Documents required to be entered into
pursuant hereto by each such party. This Agreement has been duly executed and
delivered by them, the Buyer and Holdco and constitutes the valid and binding
obligation of each of them enforceable against them in accordance with its
terms.
4.3 No Conflict. Except as set forth on Schedule 4.3, neither the
execution, delivery nor performance by each of the Buyer and Holdco of this
Agreement, the transactions contemplated hereby or the Related Documents (to the
extent such Person is a party thereto) will: (a) violate or conflict with any of
the provisions of the Certificate of Incorporation or By-Laws (or similar
governing documents) of the Buyer or Holdco; (b) violate, conflict with, result
in the acceleration of, or entitle any party to accelerate the maturity or the
cancellation of the performance of any obligation under, or result in the
creation or imposition of any Lien in or upon any of the properties or assets of
the Buyer or Holdco or constitute a default (or an event which might, with the
passage of time or the giving of notice, or both, constitute a default) under
any mortgage, indenture, deed of trust, lease, contract, loan or credit
agreement, license or other instrument to which the Buyer or Holdco is a party
or by which they or any of their properties or assets may be bound or affected;
or (c) violate or conflict with any provision of any Law applicable to the Buyer
or Holdco, or require any consent or approval of or filing or notice with any
Governmental Body.
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4.4 Capitalization/Subsidiaries. All of the issued and outstanding
shares of capital stock or other equity interests of the Buyer and Holdco are
owned, directly or indirectly, beneficially and of record as set forth on
Schedule 4.4. Neither the Buyer nor Holdco owns, directly or indirectly, any
capital stock of, or any other interest in, any other Person other than the
Buyer, in the case of Holdco, and RVP International Sales Corp., a Barbados
corporation, in the case of the Buyer.
4.5 No Material Adverse Effect. Except as set forth on Schedule 4.5,
since June 30, 1997 there has been no change in the assets, properties,
business, operations, income or condition (financial or otherwise) of the Buyer
or Holdco, nor to the Buyer's or Holdco's knowledge is any such change
threatened, nor has there been any damage, destruction or loss which could have
a Material Adverse Effect on the Buyer or Holdco, whether or not covered by
insurance.
4.6 Operations. Except as disclosed on Schedule 4.6 or expressly
authorized by this Agreement, from June 30, 1997 through the date hereof,
neither the Buyer nor Holdco has:
(a) amended its Certificate of Incorporation or By-Laws or
comparable instruments or merged with or into or consolidated
with any other Person, or changed or agreed to rearrange in
any material manner the character of its business;
(b) issued, sold or purchased options or rights to subscribe to,
or entered into any contracts or commitments to issue, sell or
purchase, any shares of its capital stock or other equity
interests other than pursuant to Section 5.0 hereof;
(c) entered into, amended or terminated any (i) employment
agreement or collective bargaining agreement, (ii) adopted,
entered into or amended any arrangement which is, or would be,
a Plan or (iii) made any change in any actuarial methods or
assumptions used in funding any Plan or in the assumptions or
factors used in determining benefit equivalences thereunder;
(d) issued, incurred or assumed any Indebtedness, capitalized
lease or other absolute or contingent obligation except
pursuant to the Credit Agreement dated August 22, 1996 among
the Buyer (previously known as Recreation Vehicle Products,
Inc.) and the Chase Manhattan Bank, as Agent;
(e) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to its shareholders or
holders of its equity interests, or made any direct or
indirect redemption, retirement, purchase or other acquisition
of any shares of its capital stock or other equity interests;
(f) knowingly waived any right of material value to its business;
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(g) made any change in its accounting methods or practices or made
any changes in depreciation or amortization policies or rates
adopted by it or made any material write-down of Inventory or
material write-off as uncollectible of Accounts Receivable;
(h) made any payment or commitment to pay any severance or
termination pay to any Person or any of its officers,
directors, employees, consultants, agents or other
representatives, other than payments or commitments to pay
such Persons or its officers, directors, employees in the
ordinary course of business consistent with past practice;
(i) (i) entered into any lease (as lessor or lessee), (ii) sold,
abandoned or made any other disposition of any of its assets
or properties other than in the ordinary course of business
consistent with past practice; (iii) granted or suffered any
Lien on any of its assets or properties; or (iv) except
product warranties issued in the ordinary course of business
entered into or amended any contract or other agreement to
which it is a party, or by or to which it or its assets or
properties are bound or subject, or pursuant to which it
agrees to indemnify any Person or to refrain from competing
with any Person;
(j) except for Inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part of
the assets, properties, capital stock or business of any other
Person;
(k) paid, directly or indirectly, any of its Liabilities before
the same became due in accordance with the terms thereof or
otherwise than in the ordinary course of business, except to
obtain the benefit of discounts available for early payment;
(l) made any capital expenditures or commitments for capital
expenditures other than in the ordinary course of business
consistent with past practice; or
(m) except in the ordinary course of business, terminated, failed
to renew, amended or entered into any material contract or
other material agreement.
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4.7 Employee Benefits.
(a) Set forth on Schedule 4.7 is a list of all Plans contributed to,
maintained or sponsored by the Buyer, to which the Buyer is obligated to
contribute or with respect to which the Buyer has any liability or potential
liability, whether direct or indirect, including all Plans contributed to,
maintained or sponsored by a member of a controlled group of entities, within
the meaning of Section 414 of the Code (or with respect to which any such
controlled group member has any direct or indirect liability or potential
liability), of which the Buyer is or was a member, to the extent the Buyer has
any liability or potential liability with respect to such Plan.
(b) Each Plan and all related trusts, insurance contracts and funds
have been maintained, funded, and administered in compliance in all material
respects with all applicable laws and regulations, including ERISA and the Code.
The Buyer has complied in all material respects with all applicable reporting
and disclosure requirements with respect to each Plan. Neither the Buyer nor any
trustee or administrator of any Plan or other Person has engaged in any
transaction with respect to any Plan which could subject the Buyer or any
trustee or administrator of such Plan, or any party dealing with such Plan, to
any material Tax, fine, penalty or other liability (civil or otherwise) imposed
by ERISA or the Code. No material actions, suits, investigations or claims with
respect to any Plan (other than routine claims for benefits) or with respect to
any fiduciary or other person dealing with any Plan are pending or threatened
and, to the knowledge of the Buyer, there are no facts which could give rise to
or be expected to give rise to any such actions, suits, investigations or
claims. The Buyer has complied in all material respects with the requirements of
COBRA (as defined in Section 7.6).
(c) No Plan that is subject to the minimum funding requirements of
Section 412 of the Code or Section 302 of ERISA has incurred any "accumulated
funding deficiency", as such term is defined in such Sections of ERISA and the
Code, whether or not waived. None of the assets of the Buyer is the subject of
any Lien arising under Section 302(f) of ERISA or Section 412(n) of the Code,
and, to the best knowledge of the Buyer there are no facts which could be
expected to give rise to such a Lien. Except as set forth on Schedule 4.7, the
assets of each employee pension benefit plan (as defined in Section 3(c) of
ERISA) exceed the benefit liabilities thereunder (as determined on a plan
termination basis). The Buyer has no actual or potential liabilities under Title
IV of ERISA with respect to any Plan other than for the payment of PBGC
premiums.
(d) Each Plan that is intended to be qualified under Section 401(a) of
the Code, and each trust (if any) forming a part thereof, has received a
favorable determination letter from the IRS as to the qualification under the
Code of such Plan and the tax exempt status of such related trust, and nothing
has occurred since the date of such determination letter that could reasonably
be expected to have an adverse effect on the qualification of such Plan or the
tax exempt status of such related trust.
(e) With respect to each Plan relating to the Business, the Buyer has
provided the Seller with copies, to the extent applicable, of all documents
pursuant to which the Plans are
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maintained, funded and administered, the most recent annual report (Form 5500
series) filed with the IRS (with attachments), the most recent financial
statement, actuarial report and all governmental rulings, determinations and
opinions (including the most recent IRS favorable determination letter) (and
pending requests for governmental rulings, determinations and opinions).
4.8 Permits. Schedule 4.8 sets forth a list of the Permits which the
Buyer or Holdco or has obtained in connection with its assets, properties and
business. Except as set forth on Schedule 4.8, no Permits are required to be
obtained by the Buyer or Holdco or in connection with its properties or
business. All such Permits are in full force and effect and in good standing,
except as separately identified on Schedule 4.8. Neither the Buyer nor Holdco
has received any notice of any claim of revocation of any such Permits or has
knowledge of any event which might give rise to such a claim.
4.9 Compliance with Laws. Except as set forth in Schedule 4.9, each
of the Buyer and Holdco (a) is in compliance with all, and not in violation of
any, and has not received any claim or notice that it is not in compliance in
any material respect with, or that it is in violation in any material respect
of, any Law to which the Buyer or Holdco or any of its businesses, operations,
assets or properties (including the use and occupancy thereof) are subject and
(b) neither the Buyer nor Holdco has failed to obtain or to adhere to the
requirements of any governmental permit, license, registration and other
governmental consent or authorization necessary in connection with its assets,
properties or business, which failure could have a Material Adverse Effect on
the Buyer or Holdco.
4.10 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Buyer and Holdco
directly with the Seller without the intervention of any Person on behalf of the
Buyer or Holdco in such manner as to give rise to any valid claim by any Person
against the Seller for a finder's fee, brokerage commission or similar payment.
4.11 Government Filings. Holdco and the Buyer have each made all
necessary government filings and registrations required to be made by each of
them in connection with this Agreement, the transactions contemplated hereby and
the financing thereof.
4.12 Operation of Business. The Buyer intends to operate the
Business as an ongoing concern and does not currently intend to sell or
otherwise transfer all or a material part of the Business, or discontinue any
material part or all of the Business.
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SECTION V
PRE-CLOSING COVENANTS
5.1 Corporate Examinations and Investigations. At or prior to the
Closing Date, each of the parties and financing sources shall be entitled,
through their respective representatives and agents, to make such investigation
of the assets, properties, business and operations of the other parties hereto
and such examination of the books, records, Tax Returns, financial condition and
operations of the other parties hereto as such party, the Buyer or its lenders
may wish. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the relevant party shall
cooperate fully therein. No investigation by any party shall diminish or obviate
any of the representations, warranties, covenants or agreements of the other
parties under this Agreement.
5.2 Conduct of Business. From the date hereof until the Closing
Date, each of the parties shall (a) conduct its business in the ordinary course
consistent with past custom and practice in and in substantially the same manner
as it was being conducted prior to June 30, 1997; (b) in the case of the Seller
only, without the prior written consent of the Buyer, and in the case of the
Buyer and Holdco, without prior written notice to the Seller, not undertake any
of the actions specified in Sections 3.16 or 4.6, as applicable, and (c) use its
best efforts to (i) preserve intact its business, assets, properties and
organizations; (ii) keep available the services of its present officers,
employees, consultants and agents; and (iii) maintain its present suppliers and
customers and (iv) preserve its goodwill.
5.3 Notice of Events. Each party hereto, to the extent it has
knowledge thereof, shall promptly notify the other parties hereto of (a) any
event, condition or circumstance occurring from the date hereof until the
Closing Date that would constitute a violation or breach of this Agreement, (b)
any event, occurrence, transaction or other item which would have been required
to have been disclosed on any Schedule or statement delivered hereunder had such
event, occurrence, transaction or item existed on the date hereof, other than
items arising in the ordinary course of business which would not render any
representation or warranty made by that party materially misleading.
5.4 Exclusivity. Until the earlier occurs of the Closing or the
termination of this Agreement, none of NationsBanc Capital Markets, Inc., the
Seller nor any of their respective directors, officers, employees, agents,
representatives, members or Affiliates shall initiate, solicit, entertain,
negotiate, accept or discuss, directly or indirectly, or encourage inquiries or
proposals (each, an "Acquisition Proposal") with respect to, or furnish any
information relating to or participate in any negotiations or discussions
concerning, or enter into any agreement with respect to, any acquisition or
purchase of all or a substantial portion of the assets of, or of a substantial
equity interest in, the Business or any business combination with the Seller or
any reorganizations, dissolution, recapitalization, merger or consolidation of
the Seller other than as contemplated by this Agreement (a "Third Party
Acquisition"). The Seller shall, and shall cause each of its Affiliates to,
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immediately cease and cause to be terminated any existing activities, including
discussions or negotiations with any parties, conducted prior to the date hereof
with respect to any Acquisition Proposal. Notwithstanding the foregoing, the
Seller may furnish information or cause information to be furnished to, and may
participate in discussions and negotiations directly and through its
representatives and enter into an agreement relating to an Acquisition Proposal
with, any third party (including parties with whom the Seller or its
representatives have had discussions on any basis on or prior to the date
hereof) who makes a bona fide unsolicited proposal or offer to the Seller, if
the Seller's Board determines in good faith, after consultation with outside
counsel, that the failure to take any such actions could reasonably be deemed to
cause the members of the Seller's Board to breach their fiduciary duties under
applicable law. In addition, nothing contained in this Agreement shall prohibit
the Seller and its directors from making to its stockholders any recommendation
and related filings with the SEC as required by Rules 14e-2 and 14d-9 under the
Securities Exchange Act of 1934, with respect to any tender offer. Each of the
Seller and Shareholders represent that it is not a party to or bound by any
agreement with respect to an Acquisition Proposal other than under this
Agreement. The Seller shall cause its officers, directors, agents and advisors
to comply with the provisions of this Section 5.4. In the event the Closing does
not occur (other than by reason of the failure to satisfy the condition set
forth in Section 6.1(i), or by reason of the willful conduct of the Buyers or
Holdco) and all or substantially all of the Business or the stock of the Seller
is sold to or merged into a third party on or prior to June 30, 1998, the Seller
agrees to pay to the Buyer on demand all of its costs and expenses (including
the fees and costs of its professional advisors and financiers but excluding
incidental and consequential damages) in connection with this Agreement and the
attempted Closing not to exceed $500,000. In consideration of the foregoing, the
Buyer shall on the date of this Agreement is entered into, deposit into an
account with Nationsbank, N.A. the amount of $50,000.00. If the Closing does not
occur on or before November 10, 1997, by reason of the failure to satisfy the
condition set forth in Section 6.1(i), or by reason of the willful conduct of
the Buyer or Holdco then the Earnest Deposit shall be paid to the Seller. In the
event the Closing occurs on or prior to November 10, 1997, the Earnest Amount
shall be payable to the Seller on the Closing Date in part satisfaction of the
Cash Payment of the Purchase Price.
5.5 Mutual Assistance. The Seller and the Buyer agree that they will
cooperate in the expeditious filing of all notices, reports and other filings
with any Governmental Body required to be submitted jointly by the Seller and
the Buyer in connection with the execution and delivery of this Agreement, the
other agreements contemplated hereby and the consummation of the transactions
contemplated hereby or thereby, including any filings under any applicable state
tax statutes, in connection with the sale of the Assets to the Buyer.
Additionally, (i) to the extent a matter is the Seller's responsibility and/or
the Seller has a duty to cooperate with the Buyer and/or Holdco, the Seller will
use its best efforts to cause to be satisfied as soon as practicable, and prior
to the Closing Date, all of the conditions set forth in Section VI to the
obligation of the Buyer to enter into and complete the Closing; and (ii) to the
extent a matter is the Buyer's or Holdco's responsibility and/or either Buyer
and/or Holdco have a duty to cooperate with the Seller, Buyer and Holdco will
use their best efforts to cause to be satisfied as soon as practicable, and
prior to the Closing Date, all of the conditions set forth in Section VI to the
obligation of the Seller to enter into and complete the Closing.
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5.6 Name Changes. On or prior to the Closing, the Seller shall amend
its articles of incorporation to change its name to a name which does not
contain the word Crispaire, Marvair and E-Tech, or substantially or confusingly
similar words, and thereafter the Seller shall not use the name Crispaire,
Marvair and E-Tech in any capacity whatsoever in connection with the operation
of their respective businesses.
5.7 Public Announcements. None of the parties hereto shall make, nor
permit any agent or Affiliate to make, any public statements, including, without
limitation, any press releases, with respect to this Agreement and the
transactions contemplated hereby without the prior written consent of the other,
except any public disclosure (i) made to or by any of the Buyer's financing
sources, (ii) which either party in good faith believes is required by law (in
which case the disclosing party will consult with the other party prior to
making such disclosure) or (iii) in connection with a public offering of the
securities of the Buyer or any subsequent transferee of all or substantially all
of the Assets. The Buyer and the Seller shall jointly agree on the content and
substance of all public announcements concerning the transactions contemplated
hereby.
5.8 Holdco Equity. Holdco agrees to issue to certain employees of
the Seller pursuant to documents mutually agreed to on the Closing Date, in such
allocations as the Seller may elect, an aggregate of 833,334 shares of Holdco's
Series A Preferred Stock, par value $.01 per share ("A Preferred") and shares
representing 8.34% of Holdco's then outstanding Class A Common Stock, par value
$.01 per share ("A Common") for an aggregate consideration of $2,500,000.00
payable to Holdco by wire transfer on the Closing Date. Holdco agrees that for
an additional investment of $500,000.00, the shareholders shall be entitled to
be issued an additional 166,666 shares of A Preferred and shares representing an
additional 1.6% of the A Common. Holdco further agrees that for every additional
investment of $1,000,000.00 (after the $3,000,000.00 referred to above), the
shareholders shall be entitled to be issued additional shares representing an
additional 5% of the A Common. The percentages of A Common referred to in this
Section 5.8 are determined prior to dilution by issuances pursuant to Holdco's
RV Products Holding Corp. 1996 Stock Option Plan (as amended).
5.9 Transfer Taxes. Except for ad valorem taxes, the Seller and the
Buyer agree to each pay half of all sales, use, transfer, real property
transfer, recording, stamp, stock transfer and other similar taxes and fees
("Transfer Taxes") arising out of or in connection with the transactions
contemplated by this Agreement, and to deliver evidence of payment of, and
indemnify, defend and hold harmless each other with respect to, such Transfer
Taxes. The Seller and the Buyer shall each file all necessary documentation and
Tax Returns with respect to, such Transfer Taxes. All ad valorem taxes accrued
and owing on all real and personal property which are parts of the Assets shall
be apportioned between the Seller and Buyer based on the time period such real
and personal property was held by the Seller or Buyer.
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SECTION VI
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to the Obligations of the Buyer. The
obligations of the Buyer to enter into and complete the Closing are subject to
the fulfillment on or prior to the Closing Date of the following conditions, any
one or more of which may be waived by the Buyer:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Seller contained in this Agreement shall be true, complete
and correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. The Seller shall
have performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing Date.
(b) Consents, Waivers, Licenses, Filings, etc. The consents,
approvals, authorizations, licenses, registrations, declarations or filings with
regard to the commercial lease contract listed on Schedule 3.3 hereto shall have
been obtained or made, as the case may be.
(c) Third Party Consents. Except as otherwise waived by the Buyer,
all consents, permits and approvals from parties to contracts or other
agreements with the Seller set forth on any Schedule to this Agreement, and any
other material consent, permit or approval that may be required in connection
with the performance by the Seller of its obligations under this Agreement or
the consummation of the transactions contemplated by this Agreement or the
continuance of the Seller's contracts or other agreements with the Buyer after
the Closing shall have been obtained.
(d) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Business or the Assets to be purchased by the Buyer hereunder.
(e) Opinion of Counsel. The Buyer shall have received the opinion of
Bovis, Kyle & Burch, LLC, counsel to the Seller.
(f) Closing Certificate of the Seller. The Seller shall have
delivered to the Buyer certificates signed by an authorized executive officer of
the Seller, dated the Closing Date, as to the matters set forth in Section
6.1(a) and in form and substance satisfactory to the Buyer.
(g) Other Agreements. The parties hereto shall have entered into the
Escrow Agreement, each of Mr. George D. Wyers, Mr. David L. Shuford and Mr. T.K.
Sellers, Jr. shall have entered into an executive employment agreement with the
Buyer in a form similar to that attached
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as Exhibit C, each of Mr. George D. Wyers, Mr. David L. Shuford and Mr. T.K.
Sellers, Jr. and Mr. Paul Mechler shall have executed Amendment No. 1 to the
Stockholders Agreement in a form similar to that attached as Exhibit D and the
Joinder To Registration Rights Agreement in a form similar to that attached as
Exhibit E and the Seller shall have terminated George D. Wyers from his
employment with the Seller.
(h) New Equity. Certain shareholders and/or management of the Seller
shall have invested at least $2,500,000.00 in cash for equity securities of
Holdco pursuant to Section 5.8.
(i) Financing. The Buyer shall have received cash proceeds from its
financing sources in an amount sufficient to consummate the transactions
contemplated by this Agreement and to pay all fees and expenses in connection
therewith and to provide for the ongoing working capital needs of the Buyer, all
on terms and conditions reasonably satisfactory to the Buyer.
(j) Conveyancing Documents. The Seller shall have executed and
delivered to the Buyer a Transfer and Assumption Agreement in substantially the
form of Exhibit F hereto and such further instruments and documents as may be
reasonably requested by the Buyer in order to complete the transfer of the
Assets to the Buyer.
(k) Environmental. The Buyer shall have completed to its
satisfaction an environmental due diligence review with respect to the Real
Estate and with respect to the Business.
(l) Intellectual Property. With regard to the Intellectual Property
owned by the Seller, the Seller shall have delivered to the Buyer duly executed
patent, trademark and copyright assignment documents in a form acceptable to the
Buyer and suitable for filing in the U.S. Patent and Trademark Office and the
U.S. Copyright Office.
(m) Real Property Deeds. The Seller shall have delivered to the
Buyer a limited warranty deed for each parcel of Owned Property in the form
customary in the jurisdiction where such parcel is located and an assignment of
lease with respect to each Real Property Lease, in each case in form and
substance reasonably acceptable to the Buyer.
(n) Title Insurance. A title insurance company selected by the Buyer
(the "Title Company") shall be willing to insure at standard rates the Seller's
marketable title in and to the Owned Property in fee simple, the Seller's
leasehold estate in any financeable Leased Real Property (a "Financeable
Leasehold"), and the Buyer's lender's (the "Lender") mortgage lien on the Owned
Property and each Financeable Leasehold free and clear of all Liens, defects,
claims, leases, rights of possession or other encumbrances (other than as
described in Schedules 3.12(a) and (b)) and with such endorsements and
affirmative coverages as the Buyer and Lender shall reasonably require
(including non-imputation endorsements). The Seller shall provide all such
affidavits and indemnities as the Title Company reasonably shall require in
order to afford such coverages and shall bear 50% of the cost of obtaining such
title insurance.
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(o) Surveys. The Buyer shall have the opportunity to have conducted and
shall receive a survey of each Owned Property and each Leased Real Property to
which the Seller holds a Financeable Leasehold conforming to the Minimum
Standard Detail Requirements jointly established and approved in 1992 by ALTA
and ACSM certified to the Seller, the Buyer, the Lender and the Title Company
and showing no defects, encroachments or encumbrances other than the matters
disclosed in Schedule 3.12(a). The Seller shall bear 50% of the cost of
obtaining such surveys.
(p) Real Estate. All Real Estate shall be in substantially the same
condition and repair as that on the date of this Agreement, reasonable wear and
tear excepted.
(q) Real Property Leases. The Buyer shall have received (i) from each
landlord under a Real Property Lease an estoppel, (ii) from each landlord under
a Real Property Lease identified in Schedule 3.12(b) as to which a consent is
required, a consent to the transactions contemplated by this Agreement and (iii)
from each mortgagee and ground lessor of any Leased Real Property a
nondisturbance agreement, in each case in form and substance reasonably
satisfactory to the Buyer and Lender. Lender shall have received from the
landlord under each Real Property Lease designated by the Lender an agreement
regarding the subordination to Lender of such landlord's lien against personal
property on the applicable premises and such other matters as the Lender
reasonably requires.
(r) Real Property Affidavits. The Buyer shall have received from the
Seller an affidavit (i) stating that the Seller is not a "foreign person", as
defined in Section 1445(f)(3) of the Internal Revenue Code, (ii) setting forth
the Seller's taxpayer identification number, (iii) stating that the Seller
intends to file a U.S. income tax return with respect to the sale of such Owned
Property, and (iv) granting the Buyer permission to furnish a copy of such
affidavit to the Internal Revenue Service.
6.2 Conditions Precedent to the Obligations of the Seller. The
obligations of the Seller to enter into and complete the Closing are subject to
the fulfillment on or prior to the Closing Date, of the following conditions,
any one or more of which may be waived by the Seller:
(a) Representations, Warranties and Covenants. The representations,
warranties and covenants of the Buyer and Holdco shall be true, complete and
correct in all material respects as of the Closing Date with the same force and
effect as though made on and as of the Closing Date. The Buyer and Holdco shall
have performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by the
Buyer and Holdco on or prior to the Closing Date.
(b) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the
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transactions contemplated by this Agreement or would be likely to have any
Material Adverse Effect on the Business or the Assets to be purchased by the
Buyer hereunder.
(c) Closing Certificates of the Buyer and Holdco. The Buyer and
Holdco shall have tendered to the Seller a certificate signed by a duly
authorized officer of the Buyer or Holdco, as the case may be, dated the Closing
Date, as to the matters set forth in Section 6.2(a) and in form and substance
satisfactory to the Seller.
(d) Delivery of Consideration. The Buyer and Holdco shall have
tendered to the Seller the Cash Payment and the Non-Cash Consideration in
accordance with Section 2.5 hereof.
(e) Opinion of Counsel. The Seller shall have received the opinion
of Kirkland & Ellis, counsel to the Buyer and Holdco.
(f) Other Agreements. The parties hereto shall have entered into the
Escrow Agreement, each of Mr. George D. Wyers, Mr. David L. Shuford and Mr. T.K.
Sellers shall have entered into an employment agreement with the Buyer in a form
similar to that attached as Exhibit C agreed to by the respective parties
thereto and each of Mr. George D. Wyers, Mr. David L. Shuford, Mr. T.K. Sellers,
Jr. and Mr. Paul Mechler shall have executed Amendment No. 1 to the Stockholders
Agreement in a form similar to that attached as Exhibit D and the Joinder To
Registration in Rights Agreement in a form similar to that attached as Exhibit
E.
(g) Consents, Waivers, Licenses, Filings, etc. The consents,
approvals (including stockholder approval), authorizations, licenses,
registrations, declarations or filings listed on Schedule 4.3 hereto shall have
been obtained or made, as the case may be.
SECTION VII
POST-CLOSING COVENANTS
The parties covenant to take the following actions after the Closing
Date:
7.1 Further Information. Following the Closing, each party will
afford to the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data of the
Seller or relating to the Business, the Assets, the Assumed Liabilities or the
Seller in its possession with respect to periods prior to the Closing and the
right to make copies and extracts therefrom, to the extent that such access may
be reasonably required by the requesting party (a) to facilitate the
investigation, litigation and final disposition of any claims which may have
been or may be made against any party or its Affiliates and (b) in connection
with any Tax Return, audit, examination, proceeding or determination and (c) for
any other reasonable business purpose.
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7.2 Record Retention. Each party agrees that for a period of not
less than seven (7) years following the Closing Date, it shall not destroy or
otherwise dispose of any of the Books and Records relating to the Business, the
Assets, the Assumed Liabilities, the Excluded Assets or the Seller in its
possession with respect to periods prior to the Closing. Each party shall have
the right to destroy all or part of such Books and Records after the seventh
anniversary of the Closing Date.
7.3 Tax Assistance. During the six years following the Closing, the
Seller and Shareholders, on the one hand, and the Buyer and Holdco, on the other
hand, will provide each other with such assistance as may reasonably be
requested in connection with the preparation of any Tax Return, any audit or
other examination by any taxing authority, or any judicial or administrative
proceedings relating to liability for Taxes.
7.4 No Assignment Causing Breach. Neither this Agreement nor any
document or instrument delivered pursuant hereto shall constitute an assignment
of any claim, Contract, lease, commitment or sales or purchase order if an
attempted assignment thereof without the consent of any other Person would be
ineffective, constitute a breach thereof or in any way adversely affect the
rights thereunder. Until such consent is obtained, the Seller, the Buyer and
Holdco will cooperate with each other to provide for the Buyer the benefits of,
and to permit the Buyer to assume all liabilities under, any such claim,
Contract, lease, commitment or sales or purchase order, including enforcement at
the request and expense of the Buyer for the benefit of the Buyer of any and all
rights of the Seller against a third party thereto; and any transfer or
assignment to the Buyer by the Seller of any property or property rights or any
Contract which requires the consent or approval of any third party shall be made
subject to such consent or approval being obtained.
7.5 Insurance Coverage. Whether or not the insurance policies listed
on Schedule 3.21 are being assigned to the Buyer on or before the Closing Date,
the Seller (effective on the Closing Date) shall have the Buyer named as an
additional insured and loss payee, as its interest may appear, on all current
insurance policies maintained by the Seller covering time periods beginning
prior to the date hereof and extending beyond the date hereof, until the
expiration date of such policy or policies. With respect to any Liabilities of
the Seller which the Buyer has agreed to assume pursuant to this Agreement or to
indemnify the Seller pursuant to Section 8.3, the Seller agrees to prosecute
diligently any insurance claims which may be asserted by it in respect thereof
and to promptly notify the Buyer of the assertion of each such claim. In the
event that the Seller recovers insurance proceeds in respect of any such
amounts, the Seller shall promptly remit such proceeds to the Buyer; provided
that the Buyer provides assurances reasonably satisfactory to the Seller that
the Buyer is satisfying its obligations with regard to the Assumed Liability and
under Section VIII.
7.6 Employee Matters and Employee Benefit.
(a) Assumed Plans. Subject to the Buyer's review of the Plans prior
to the Closing Date, the Buyer, and the Seller shall cause the Buyer to assume
sponsorship of the Plans
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listed on Schedule 7.6 hereto. The Plans assumed by the Buyer under the
foregoing provision of this Section 7.6(a) shall be referred to herein as the
"Assumed Plans." The Buyer and the Seller shall use their reasonable best
efforts to cooperate in the execution of any documents, adoption of any
corporate resolutions or the taking of any other reasonable actions necessary to
effectuate such assumption of sponsorship and related transfers of trust assets
or other funding vehicles or insurance contracts. After the date hereof the
Seller shall provide any information and assistance reasonably requested by the
Buyer in connection with the Buyer's efforts to maintain the Assumed Plans in
accordance with all applicable Laws, and in connection with the fulfillment by
the Buyer of any reporting, disclosure or filing requirements arising after the
date hereof with respect to the Assumed Plans.
(b) Non-Transferred Employees. Nothing in this Section 7.6 shall be
deemed to impose upon the Buyer any liabilities or responsibilities for periods
prior to the Closing regarding individuals who do not become employees of the
Buyer pursuant to offers of employment made under Section 7.6(d) (including
without limitation individuals to whom offers are not required to be made under
Section 7.6(d)), including without limitation liabilities or responsibilities
for (i) pension, retirement, profit-sharing, savings, medical, dental,
disability income, life insurance or accidental death benefits, whether insured
or self-insured, whether funded or unfunded, (ii) workers' compensation (both
long term and short term) benefits, whether insured or self-insured, whether or
not accruing or based upon exposure to conditions prior to the date of this
Agreement or for claims incurred or for disabilities commencing prior to the
Closing Date, or (iii) severance benefits; provided that the Buyer shall be
responsible with respect to Assumed Plans that are intended to be qualified
under Section 401(a) of the Code to the extent that such Plans must be
administered with respect to pre-Closing benefits accrued thereunder, and the
Buyer shall be responsible for such obligations under Code Section 4980B and
ERISA Section 601 et seq. ("COBRA") as are set forth on Schedule 7.6 hereto.
(c) Severance Expressly Excluded. Without limiting the generality of
any other responsibilities of the Seller, the Seller shall be (prior to and
after the date hereof) solely responsible for any severance pay obligations
arising prior to or through the Closing Date.
(d) Offers of Employment. The parties agree that the Buyer will
offer as of the Closing Date employment at will to all employees of the Seller
that are actively employed by the Seller immediately prior to the Closing Date
(other than the employees referred to in Section 6.1(g)); provided that nothing
herein shall require the continuation of any employment or any terms of
employment after the Closing Date. The Seller shall be responsible for complying
with the notice requirements of COBRA and the Workers Adjustment and Retraining
Notification Act with respect to any event or condition on or prior to the
Closing Date. However, the Buyer and Holdco represent and warrant that the Buyer
has no current intention of terminating any employee of the Seller.
Notwithstanding any other provision of this Agreement, the Buyer shall not have
any responsibilities for any legally mandated continuation of health care
coverage, or for compliance with any related requirements, for employees or
their dependents or beneficiaries who incur a loss of health care coverage due
to a qualifying event occurring before or through the Closing. Notwithstanding
the
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foregoing, Buyer shall, with respect to all employees accepting employment
offered pursuant to this Section, be responsible for all COBRA notices and
coverage and all certificates of coverage required under the Health Insurance
Portability Act required subsequent to the Closing.
7.7 Non-Compete and Confidentiality.
(a) Covenants Against Competition. The Seller acknowledges that the
Business (i) is national in scope, (ii) has been developed by a limited number
of persons who have received certain confidential information and trade secrets
of the Seller; and (iii) would not be the subject of this Agreement but for the
covenants of the Seller contained in this Section. Accordingly, the Seller
covenants and agrees not to (1) engage in the Business; (2) render any services
to any Person (other than the Buyer) engaged in such activities; or become
interested in any such Person as a partner, member, principal, agent, trustee,
consultant or in any other similar relationship or capacity; or (3) solicit or
encourage to leave the employment of the Buyer, any employee of the Buyer or
hire any employee who has left the employment of the Buyer after the date of
this Agreement within five (5) years of the termination of such employee's
employment with the Buyer; in the United States of America, directly or
indirectly, for a period commencing on the Closing Date and terminating 5 years
following the Closing Date.
(b) Confidentiality. From the date hereof the Seller shall keep
secret and retain in strictest confidence, and shall not use for the benefit of
itself or others all information about Holdco, the Buyer or the Buyer's business
learned by the Seller in the course of the negotiation of this Agreement and the
transactions contemplated hereby (the "Buyer Information"). As from the Closing,
the Seller shall keep secret and retain in strictest confidence, and shall not
use for the benefit of itself or others all confidential information with
respect to the Seller and its Business and the Assets, or learned by the Seller
heretofore or hereafter directly or indirectly from its own information or the
Buyer, including, without limitation, information with respect to (a)
prospective products and facilities, (b) sales figures, (c) profit or loss
figures, (d) customers, clients, suppliers, sources of supply and customer lists
(the "Confidential Company Information"), and shall not disclose such
Confidential Company Information except with the Buyer's express written
consent. This provision does not prohibit legally mandated disclosure or
disclosure or use of Buyer Information or Confidential Company Information which
becomes publicly known through no wrongful act of either the Buyer or Holdco or
the Seller or any of its shareholders, as the case may be. The parties
acknowledge that they remain bound by the documents referred to in Section 9.4
until Closing, whereupon such documents shall be superseded in their entirety by
the provisions hereof.
(c) Rights and Remedies. Upon the breach or threatened breach of any
of the covenants in this section (the "Restrictive Covenants"), the Buyer has
the right to have the Restrictive Covenants specifically enforced (without
posting any bond) by any court having equity jurisdiction, including, without
limitation, the right to an entry against the Seller of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Buyer and that money damages will not
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provide adequate remedy to the Buyer. Further, the Buyer has the right to
require the Seller to account for and pay over to the Buyer all compensation,
profits, monies, accruals, increments or other benefits derived or received by
such person the result of any transactions constituting a breach of any of the
Restrictive Covenants. The aforementioned rights and remedies are severally
enforceable and are in addition to, and not in lieu of, any other rights and
remedies available to the Buyer under law or in equity including pursuant to
Section VIII:
(d) Enforceability. The Buyer and the Seller intend to and hereby
confer jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of the Restrictive Covenants. If any
court determines that any of the Restrictive Covenants, or any part thereof, is
invalid or unenforceable, the remainder of the Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions. Further, if any of the Restrictive Covenants, or any part
thereof, is found unenforceable because of the duration of such provision or the
area covered thereby, such court shall have the power to reduce the duration or
area of such provisions and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
7.8 Further Assurances. From and after the Closing, each of the
Buyer, Holdco and the Seller will, and will cause their respective Affiliates
to, execute and deliver such further instruments of sale, conveyance, transfer,
assignment and delivery and such consents, assurances, powers of attorney and
other instruments and take such other action as reasonably may be necessary to
in order to vest in the Buyer (and record and perfect) all right, title and
interest of the Seller in and to the Assets, to put the Buyer in actual
possession and control of the Business and to otherwise fully effectuate and
carry out the transactions contemplated by this Agreement and the Related
Documents. The parties shall use their commercially reasonable best efforts to
fulfill or obtain the fulfillment of the conditions to the Closing, including,
without limitation, the execution and delivery of any Document, the execution
and delivery of which are conditions precedent to the Closing.
7.9 Mail and Other Receipts. The Seller agrees to deliver to the
Buyer promptly upon receipt thereof of any mail, checks or documents which it
receives pertaining to the Business, the Assets (but not the Excluded Assets) or
the Assumed Liabilities. Further, if the Seller receives any payment of the
Accounts Receivable or other asset included in the Assets after the Closing
Date, the Seller will hold such amounts received or paid as trustee for and
remit such payments to the Buyer as soon as practicable. After the Closing Date
the Buyer is entitled (i) to receive and open mail addressed to the Seller and
(ii) to deal with the contents thereof in any manner the Buyer sees fit. The
Buyer agrees to deliver to the Seller promptly upon receipt thereof of any mail,
checks or documents which it receives pertaining to the Excluded Assets or the
Excluded Liabilities.
7.10 Business Operations. The Buyer agrees to operate the Business
as a business unit separate from its own operations until such time as the
Buyer's Board of Directors in good faith determines that it is no longer in the
Buyer's interests to do so.
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7.11 Continued Management of the Seller. The current directors and
officers of the Seller shall not, by virtue of the transactions contemplated
hereby, be precluded from continuing to direct and operate the Seller after the
Closing Date.
SECTION VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of the
Seller, the Buyer and Holdco contained in this Agreement will survive the
Closing (a) for the applicable statutes of limitation (including all periods of
extension) with respect to the representations and warranties contained in
Sections 3.1 through 3.4, 3.9, 3.23 and 4.1 through 4.4, (b) for 3 1/2 years
from the Closing with respect to the representations and warranties contained in
Section 3.20, (c) until sixty (60) days after the receipt by the Buyer from its
independent accountants of its audited financial statements for the first full
fiscal year after the Closing in the case of all other representations and
warranties, and (d) with respect to each covenant or agreement contained in this
Agreement, until ninety (90) days following the last date on which such covenant
or agreement is to be performed, pursuant to this Agreement or, if no such date
is specified, indefinitely; provided however that any representation, warranty,
covenant or agreement that would otherwise terminate in accordance with clause
(a), (b), (c) and (d) above will continue to survive, if a Party gives notice to
another Party hereunder that it is aware of circumstances which may give rise to
a Claim Notice (as defined below) at, on or prior to such termination date,
until the related claim for indemnification has been satisfied or otherwise
resolved as provided in this Section VIII.
8.2 Indemnification of the Buyer and Holdco. Subject to the
limitations contained in this Section VIII, the Seller agrees to indemnify,
defend and hold harmless the Buyer, Holdco, and their respective Affiliates,
directors, officers, partners, employees, successors and assigns from and
against any and all losses, Liabilities (including punitive or exemplary damages
and fines or penalties and any interest thereon), expenses (including fees and
disbursements of counsel and expenses of investigation and defense), claims,
liens or other obligations of any nature whatsoever (hereinafter individually, a
"Loss" and collectively, "Losses") which, directly or indirectly, arise out of,
result from or relate to (a) any inaccuracy in or any breach of any
representation and warranty, (b) any breach of any covenant or agreement, of the
Seller contained in this Agreement or in any Related Document, or (c) any
Excluded Liability.
8.3 Indemnification of the Seller. Subject to the limitations
contained in this Section VIII, Holdco and the Buyer, jointly and severally,
agree to indemnify, defend and hold harmless the Seller, its Affiliates and
their respective directors, officers, partners, shareholders, employees,
successors and assigns from and against any and all Losses which, directly or
indirectly, arise out of, result from or relate to (a) any inaccuracy in or any
breach of any representation and warranty, or any breach of any covenant or
agreement, of the Buyer contained in this Agreement, or (b) any Assumed
Liability assumed by the Buyer pursuant to Section 2.3.
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8.4 Limitations on Indemnification. Notwithstanding anything to the
contrary contained in this Agreement, the Seller shall have no liability, nor be
subject to any claim or demand under this Section VIII, in each case in respect
of any inaccuracy in or any breach of any representation or warranty of the
Seller contained in this Agreement only, unless and until the amount of Losses
exceeds $500,000 in the aggregate, and then to the extent of such Losses;
provided, however, that in no event shall such liability for the recovery of any
Losses from the Seller exceed the amount of the funds held from time to time
pursuant to the Escrow Agreement and available for such Losses pursuant to the
terms of the Escrow Agreement plus the amount of $4,000,000.00 in the aggregate
(in the manner and as provided below). The first recourse of the Buyer and/or
Holdco under Section 8.2 shall be to the amounts held pursuant to the Escrow
Agreement. To the extent the Losses of Buyer and/or Holdco which are subject to
indemnification by the Seller under Section 8.2 thereafter exceed the amounts
held and available for such Losses pursuant to the Escrow Agreement at that
time, up and until the third anniversary of the Closing Date, Buyer's and/or
Holdco's second recourse for recovery from the Seller shall only be a set-off
against the principal amount of the Note, which set-off shall not exceed
$4,000,000 in the aggregate. No set-off against the Note may occur prior to the
delivery of the relevant Claim Notice. This second recourse shall be the final
recourse of Buyer and/or Holdco against the Seller and shall be the final
recourse of Buyer for all losses.
8.5 Method of Asserting Claims. The party making a claim under this
Section VIII is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under this Section VIII is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Section
VIII shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall as soon as reasonably practicable notify in writing the
Indemnifying Party of such claim or demand, (the "Claim Notice"); provided,
however, that any failure to give such Claim Notice will not be deemed a waiver
of any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced by such failure. Actually prejudiced,
when used in this Section 8.5(a), means prejudice resulting in an inability of
the Indemnifying Party to obtain any fact, evidence or witness, or which results
in an increase in cost or expense to the Indemnifying Party greater than would
likely have been incurred on the providing of prompt notice. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably acceptable to the Indemnified Party) to represent the Indemnified
Party and shall pay the reasonable fees and disbursements of such counsel with
regard thereto; provided, however, that any Indemnified Party is hereby
authorized prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose reasonable
fees and expenses shall be at the expense of the Indemnifying Party, to file any
motion, answer or other pleading and take such other action which it reasonably
shall deem necessary to protect its interests or those of the Indemnifying Party
until the date on which the Indemnified Party receives such notice from the
Indemnifying Party. After the Indemnifying Party shall retain such counsel, the
Indemnified Party shall have the right to retain its own counsel, but the
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fees and expenses of such counsel shall be at the expense of such Indemnified
Party unless (x) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the retention of such counsel or (y) the named parties of any
such proceeding (including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. The Indemnifying Party shall not, in connection with any
proceedings or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one such firm for the Indemnified Party (except
to the extent the Indemnified Party retained counsel to protect its (or the
Indemnifying Party's) rights prior to the selection of counsel by the
Indemnifying Party). If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any claim or demand which the Indemnifying Party defends. A claim or
demand may not be settled by the Indemnifying Party without the prior written
consent of the Indemnified Party (which consent will not be unreasonably
withheld) unless, as part of such settlement, the Indemnified Party shall
receive a full and unconditional release reasonably satisfactory to the
Indemnified Party and provided that the settlement does not impose a material
impediment or obligation on the Indemnified Party.
(b) In the event any Indemnified Party shall have a claim against
any Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party.
(c) After delivery of a Claim Notice, so long as any right to
indemnification exists pursuant to this Section VIII, the affected parties each
agree to retain all Books and Records related to such Claim Notice. In each
instance, the Indemnified Party shall have the right to be kept fully informed
by the Indemnifying Party and its legal counsel with respect to any legal
proceedings. Any information or documents made available to any party hereunder
and designated as confidential by the party providing such information or
documents and which is not otherwise generally available to the public and not
already within the knowledge of the party to whom the information is provided
(unless otherwise covered by the confidentiality provisions of any other
agreement among the parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third Person (except
for the representatives of the party being provided with the information, in
which event the party being provided with the information shall request its
representatives not to disclose any such information which it otherwise required
hereunder to be kept confidential).
(d) Notwithstanding that by virtue of the operation of the
$500,000.00 limitation in Section 8.4 a claim or demand (whether or not asserted
by a third party) would not result in a Loss with respect to which the Seller
would be an Indemnifying Party, nonetheless the Seller shall be provided with
notice of such claim or demand and may, by written notice, to the Buyer, elect
to undertake the responsibilities imposed on the Indemnifying Party in Section
8.5(a) above. Such undertaking shall not be deemed to be an assumption of any
liability or indemnification other than as set forth in this Agreement or a
waiver of any limitation on indemnification set forth in Section 8.4.
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8.6 Remedies. The Parties acknowledge that money damages would not be a
sufficient remedy for any breach of any covenant in this Agreement and agree
that each of the parties shall be entitled to specific performance and
injunctive relief as remedies for any such breach (without any requirement of
posting a bond). The parties acknowledge that, other than injunctive relief, and
in the absence of Actual Fraud, their sole and exclusive remedies with respect
to any inaccuracy in or breach of any representation, warranty or covenant in
this Agreement or any Related Document shall be as set forth in this Section
VIII, and that the representations, warranties and/or covenants in this
Agreement or any Related Document create no other rights among the parties
hereto or in favor of any third party.
8.7 Bard Litigation. The Seller hereby irrevocably agrees and covenants
with the Buyer and Holdco:
(a) to notify it insurers and make a request for coverage with respect
to the Bard Litigation and thereafter to take all possible actions to make and
preserve all claims thereunder with respect to the Bard Litigation; provided,
that the Seller's obligation to make any payment or financial contribution for
any legal fees or other costs associated with the Bard Litigation is only as
specifically provided in Section 8.7(c) below;
(b) to co-operate to the fullest degree practicable with the Buyer
in defending, appealing or settling the Bard Litigation or implementing any
redesign program to avoid or mitigate liability with respect to the products the
subject of the Bard Litigation; provided, that the Seller's obligation to make
any payment or financial contribution for any legal fees or other costs
associated with the Bard Litigation is only as specifically provided in Section
8.7(c) below;
(c) as a separate and independent indemnity, with respect to the
legal fees and disbursements associated with defending, appealing and/or
settling the Bard Litigation and all damages, settlement payments and/or
engineering, design and manufacturing fees, costs and expenses in relation to
any product redesign (including substitute product design) for the purpose of
liability avoidance or court order or settlement compliance with the respect to
the products the subject the Bard Litigation, in each case in excess of any
insurance coverage with respect thereto (together, the "Bard Costs"), that the
Seller will indemnify the Buyer as to 50% of all Bard Costs up to a maximum of
$1,000,000. The Buyer agrees that its first recourse with respect to such Bard
Costs is limited to $500,000 in cash held pursuant to the terms of the Escrow
Agreement and thereafter to a further $500,000 by way of set-off against the
Note; provided, that no set-off may occur without prior written notice thereof
to the Seller. This shall be the final recourse of Buyer and/or Holdco against
the Seller with regard to the Bard Litigation.
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SECTION IX
MISCELLANEOUS
9.1 Termination. This Agreement may be terminated at any time prior to
the Closing as follows:
(a) by the Buyer, on the one hand, or by the Seller, on the other hand,
by written notice to the other parties hereto, in the event that the Closing
shall not have occurred on or prior to the close of business on November 7, 1997
(unless such event has been caused by a breach of this Agreement by the party
seeking such termination); or
(b) at any time on or prior to the Closing Date, by written consent of
the Buyer and the Seller.
In the event this Agreement is terminated pursuant to this Section 9.1,
(i) this Agreement shall become null and void and of no further force and
effect, except for the provisions of Section 5.4 and 5.7, and (ii) there shall
be no liability on the part of the Seller, the shareholders of the Seller or the
Buyer, their Affiliates or their respective partners, officers, directors,
employees or agents, provided, however, that if such termination shall result
from the wilful breach by a party of the provisions contained in this Agreement,
such party shall be fully liable for any and all damages, costs and expenses
sustained or incurred as a result of such breach by the other parties hereto.
9.2 Expenses. Subject only to the provisions of Sections 5.4, 5.9,
6.1(n) and (o), each of the parties hereto shall pay its own expenses
(including, without limitation, attorneys' and accountants' fees and
out-of-pocket expenses) incident to this Agreement and the transactions
contemplated hereby.
9.3 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telexed, sent by facsimile transmission or sent
by prepaid air courier or certified, registered or express mail, postage
prepaid. Any such notice shall be deemed to have been given (a) when received,
if delivered in person, telegraphed, telexed, sent by facsimile transmission and
confirmed in writing within three (3) Business Days thereafter or sent by
prepaid air courier or (b) three (3) Business Days following the mailing
thereof, if mailed by certified first class mail, postage prepaid, return
receipt requested, in any such case as follows (or to such other address or
addresses as a party may have advised the other in the manner provided in this
Section 9.3):
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If to the Seller:
Crispaire Corporation
Highway 41 North
Cordele, Georgia 31015
Attn.: George D. Wyers
Fax: (912) 273-5154
With a copy to (which shall not constitute notice):
Bovis, Kyle & Burch, LLC
53 Perimeter Center East, 3rd Floor
Atlanta, Georgia 30346-2298
Attn: Greg Gale
Fax: (770) 668-0878
If to the Buyer and/or Holdco:
Airxcel, Inc.
3050 North St. Frances Street
Wichita, Kansas 67204
Attn.: Mel Adams
Fax: (316) 832-3482
With a copy to (which shall not constitute notice):
Kirkland & Ellis
153 East 53rd Street, 39th Floor
New York, NY 10022
Attn.: Kirk A. Radke, Esq.
Fax: (212) 446-4900
9.4 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto including the letter and
confidentiality agreement dated August 28, 1997 (to the extent provided in
Section 7.7(b) above).
9.5 Waivers and Amendments. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof. The
rights and remedies of any parties based upon, arising out of or otherwise in
respect
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of any inaccuracy in or breach of any representation, warranty, covenant or
agreement contained in this Agreement shall in no way be limited by the fact
that the act, omission, occurrence or other state of facts upon which any claim
of any such inaccuracy or breach is based may also be the subject matter of any
other representation, warranty, covenant or agreement contained in this
Agreement (or in any other agreement between the parties as to which there is no
inaccuracy or breach).
9.6 Governing Law. All questions concerning the construction, validity
and interpretation of this Agreement hereto shall be governed by and construed
in accordance with the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
9.7 Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable by any party hereto without
the prior written consent of the other parties hereto except by operation of law
and any other purported assignment shall be null and void; provided, however,
that without the consent of the other parties hereto the Buyer may assign this
Agreement to any lenders to the Buyer or any subsequent purchaser of all or any
part of the Business, and the Seller may assign the benefit of this Agreement
pro-rata to its Shareholders in any liquidation or similar distribution.
9.8 Severability of Provisions. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance, shall be held invalid or unenforceable,
the remaining portion of such provision and the remaining provisions of this
Agreement, or the application of such provision or portion of such provision as
is held invalid or unenforceable to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby.
9.9 Counterparts. This Agreement may be executed by the parties hereto
in one or more counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
9.10 Waiver of Jury Trial. Each of the parties hereto waives to the
fullest extent permitted by law any right it may have to trial by jury in
respect of any claim, demand, action or cause of action based on, or arising out
of, under or in connection with this Agreement, or any course of conduct, course
of dealing, verbal or written statement or action of any party hereto, in each
case whether now existing or hereafter arising, and whether in contract, tort,
equity or otherwise. The parties to this Agreement each hereby agrees that any
such claim, demand, action or cause of action shall be decided by court trial
without a jury and that the parties to this Agreement may file an original
counterpart of a copy of this Agreement with any court as evidence of the
consent of the parties hereto to the waiver of their right to trial by jury.
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9.11 Bulk Transfer Laws. The Seller, Buyer and Holdco hereby agree
to waive compliance with the provisions of the Uniform Commercial Code - Bulk
Transfers, also known as the Bulk Sales Act, and the provisions of any similar
law.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date and year first above written.
CRISPAIRE CORPORATION
By: _____________________________
Its:
AIRXCEL, INC.
By: _____________________________
Its:
AIRXCEL HOLDINGS, INC.
By: _____________________________
Its:
<PAGE> 1
Exhibit 99.2
STOCK PURCHASE AGREEMENT
among
WILLIAM S. KAROL
as Seller,
and
AIRXCEL, INC.
as Buyer
March 17, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
Section I
DEFINITIONS AND CONSTRUCTION......................................... 1
1.1 Certain Definitions............................................ 1
1.2 Accounting Principles.......................................... 6
1.3 Interpretation................................................. 7
SECTION II
ACQUISITION OF STOCK AND PURCHASE PRICE.............................. 7
2.1 Purchase of Stock.............................................. 7
2.2 Purchase Price................................................. 7
2.3 Reduction of Purchase Price.................................... 7
2.4 Closing........................................................ 8
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE SELLER......................... 9
3.1 Organization and Qualification................................. 9
3.2 Validity and Execution of Agreement............................ 9
3.3 No Conflict.................................................... 9
3.4 Capitalization of the Company and its Subsidiaries............. 9
3.5 Books and Records.............................................. 10
3.6 Financial Statements........................................... 10
3.7 Undisclosed Liabilities........................................ 11
3.8 No Material Adverse Change..................................... 11
3.9 Tax Matters.................................................... 11
3.10 Litigation..................................................... 12
3.11 Contracts and Other Agreements................................. 12
3.12 Real Estate.................................................... 14
3.13 Transactions with Affiliates................................... 15
3.14 Accounts Receivable and Inventory.............................. 15
3.15 Compensation Arrangements...................................... 16
3.16 Operations..................................................... 16
3.17 Intellectual Property.......................................... 18
3.18 Employees...................................................... 18
3.19 Employee Benefits.............................................. 19
3.20 Environmental Matters.......................................... 20
3.21 Insurance...................................................... 21
3.22 Permits........................................................ 21
3.23 Title; Liens................................................... 22
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3.24 Compliance with Laws............................................ 22
3.25 Substantial Customers and Suppliers............................. 22
3.26 Banks and Proxies............................................... 22
3.27 Brokers......................................................... 22
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER........................... 23
4.1 Organization and Capitalization................................. 23
4.2 Validity and Execution of Agreement............................. 23
4.3 No Conflict..................................................... 23
4.4 Brokers......................................................... 23
SECTION V
PRE-CLOSING COVENANTS................................................. 23
5.1 Corporate Examinations and Investigations....................... 23
5.2 Conduct of Business............................................. 24
5.3 Notice of Events................................................ 24
5.4 [INTENTIONALLY OMITTED]......................................... 24
5.5 Mutual Assistance............................................... 24
5.6 Public Announcements............................................ 24
SECTION VI
CONDITIONS PRECEDENT TO THE CLOSING................................... 25
6.1 Conditions Precedent to the Obligations of the Buyer............ 25
6.2 Conditions Precedent to the Obligations of the Seller........... 26
SECTION VII
POST-CLOSING COVENANTS................................................ 27
7.1 Further Information............................................. 27
7.2 Record Retention................................................ 27
7.3 Transfer Taxes.................................................. 27
7.4 Post-Closing Assistance......................................... 28
7.5 Non-Compete and Confidentiality................................. 29
7.6 Name Changes; Covenant Not to Use Name.......................... 30
7.7 Certain Matters Regarding Workers' Compensation Claims.......... 30
7.8 Further Assurances.............................................. 31
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SECTION VIII
SURVIVAL; INDEMNIFICATION............................................. 31
8.1 Survival of Representations, Warranties, Covenants and
Agreements...................................................... 31
8.2 Indemnification of the Buyer.................................... 31
8.3 Indemnification of the Seller................................... 32
8.4 Method of Asserting Claims...................................... 32
8.5 Limitations on Indemnification.................................. 33
SECTION IX
TERMINATION OF AGREEMENT.............................................. 34
9.1 Termination..................................................... 34
9.2 Survival........................................................ 34
9.3 Expenses........................................................ 34
9.4 Notices......................................................... 34
9.5 Entire Agreement................................................ 35
9.6 Waivers and Amendments.......................................... 35
9.7 Governing Law................................................... 35
9.8 Binding Effect; No Assignment................................... 36
9.9 Severability of Provisions...................................... 36
9.10 Counterparts.................................................... 36
9.11 Specific Performance............................................ 36
9.12 Remedies Cumulative............................................. 36
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STOCK PURCHASE AGREEMENT
This Agreement is dated as of March __, 1998, and made between
William S. Karol (the "Seller") and AIRXCEL, INC., a Delaware corporation (the
"Buyer").
RECITALS:
WHEREAS, KODA Enterprises Group, Inc., a Delaware corporation (the
"Company"), through its Subsidiaries KODA Industries of Tennessee,
Inc.("KODA-Tenn") and Suburban Manufacturing Company ("Suburban") is engaged in
the business of designing, manufacturing, selling and installing specialized
heating and air conditioning products (the "Business");
WHEREAS, the Seller wishes to sell, and the Buyer wishes to acquire
the Business by purchasing 100% of the outstanding capital stock of the Company
upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein the Buyer and the Seller hereby agree as
follows:
SECTION I
DEFINITIONS AND CONSTRUCTION
1.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
"Accounts Receivable" means all trade accounts receivable and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales made by or services performed by the Company or
any of its Subsidiaries and any security agreements related thereto, including
any rights of the Company with respect to any third party collection proceedings
or any other Actions which have been commenced in connection therewith.
"Action" means any action, suit, proceeding or arbitration by any
Person or any investigation or audit by any Governmental Body.
"Affiliate" of any Person means any other Person directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with such first Person and includes any individual related
by blood, marriage or adoption to that Person. For purposes of this definition,
the term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlled" and "controlling" have meanings correlative thereto.
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"Base Rate" means the rate of interest announced from time to time
by The Chase Manhattan Bank at its prime commercial lending rate.
"Books and Records" of any Person means all files, documents,
instruments, papers, books and records in the possession or control of that
Person relating to the business, operations, conditions of (financial or other),
results of operations and assets and properties of such Person, including
without limitation financial statements, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, contracts and other agreements, licenses, customer and supplier lists,
employee information, computer files and programs, retrieval programs, operating
data and plans and environmental studies and plans.
"Business Day" means any day other than a Saturday, Sunday or day on
which commercial banks are authorized or required by law to close in New York.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" has the meaning specified in Section 2.4.
"Closing Balance Sheet" has the meaning specified in Section 2.3(a).
"Closing Date" has the meaning specified in Section 2.4.
"COBRA" means the requirements set forth in Section 4980B of the
Code and Sections 601 et. seq. of ERISA.
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means all executory contracts, agreements,
understandings, indentures, notes, bonds, loans, instruments, leases, mortgages,
franchises, plans, licenses, commitments or other legally binding arrangements
(whether written or oral).
"Divestiture" means the sale of the outstanding shares of J.T.
Nelson Company by KODA Industries of Kentucky, Inc. (formerly a wholly-owned
subsidiary of KODA Enterprises Group, Inc.) and the subsequent merger of KODA
Industries of Kentucky, Inc. with and into KODA Industries of Tennessee, Inc.,
which occurred on March 10, 1998.
"Environmental Lien" shall mean a Lien, either recorded or
unrecorded, in favor of any Governmental Body, relating to any Liability of the
Company or any of its Subsidiaries arising under Environmental Requirements.
"Environmental Requirements" shall mean all federal, state, local
and foreign statutes, regulations, ordinances and similar provisions having the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning
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pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transport, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, Release, threatened Release, control, or cleanup of any
hazardous materials, substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Financial Statements" means the financial statements delivered
pursuant to Section 3.6(a).
"GAAP" means generally accepted accounting principles applied on a
consistent basis.
"Governmental Body" means any court, tribunal, arbitrator or any
government or political subdivision thereof, whether federal, state, county,
local or foreign, or any agency, authority, official or instrumentality of any
such government or political subdivision or any entity exercising executive
legislative, judicial, regulatory or administrative function of government.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Improvements" means all buildings, structures, facilities, fixtures
and other improvements.
"Indebtedness" means indebtedness for borrowed money incurred or
accrued before the Closing Date including bank lines of credit, the current
portions of any long-term debt, capitalized lease obligations, overdrafts,
principal, interest, premium and penalties and includes any guarantee of or
indemnity obligation for any of the foregoing. Without limiting the foregoing,
the term "Indebtedness" does not include indebtedness with respect to items
other than borrowed money, such as trade accounts payable.
"Intellectual Property" means all patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice); all trademarks, service marks, logos, slogans, trade
dress, trade names and corporate names and all goodwill associated therewith;
all copyrights; all registrations, applications and renewals for any of the
foregoing; all product formulations, trade secrets, confidential information,
research information, technical and computer data, documentation and software,
financial, business and marketing plans, customer and supplier lists, training
materials (including films, brochures and printed materials, catalogs and other
advertising and promotional material) and related information and all other
proprietary rights; and all copies and tangible embodiments of the foregoing,
along with all income, royalties, damages and payments due or payable as of the
Closing Date or thereafter (including damages and payments for past, present or
future infringements or misappropriations thereof), the right to sue and recover
for past infringements and misappropriations thereof, and any and all
corresponding rights that, now or hereafter, may be secured throughout the
world, in each case together with all books, records,
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drawings, recipes, application or other indicia thereof, and in each case
together with goodwill associated therewith.
"Inventory" means inventory, raw materials, work-in-process,
finished goods, consigned goods, merchandise, products under research and
development, demonstration equipment, packaging materials and other accessories
related thereto which are held at, or are in transit from or to, the locations
at which the Business is conducted, or located at suppliers' premises or
customers' premises on consignment, in each case, which are used or held for use
in the conduct of the Business, including any of the foregoing purchased subject
to any conditional sales or title retention agreement in favor of any other
Person, together with all rights against suppliers of such inventories.
"IRS" means the Internal Revenue Service.
"Knowledge", when used with respect to the Seller, means the actual
knowledge of the Seller and the actual knowledge of James Peden, William Leaver,
Jane Wilkey, Bobby Vincent, Frank Blair, Roger Panoz and Steven Drake, who are
the individuals directly and significantly involved on behalf of the Seller in
the operation of the Business and negotiation and consummation of the
transactions contemplated by this Agreement.
"Law" means any law, statute, rule, regulation, ordinance and other
pronouncement having the effect of law of the United States, any foreign country
or any domestic or foreign state, county, city or other political subdivision or
of any Governmental Body.
"Latest Balance Sheet" has the meaning specified in Section 3.6(b).
"Leased Real Property" means the real property that is the subject
of the Real Property Leases.
"Lien" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encroachment, encumbrance or any other restriction, limitation or defect in
title whatsoever.
"Losses" has the meaning specified in Section 8.2.
"Material Adverse Effect" means, in the case of any Person, any
change or changes or effect or effects that individually or in the aggregate are
materially adverse to (i) the business, assets, or condition (financial or
otherwise) of such Person or the transactions contemplated by this Agreement or
(ii) the ability of such Person to perform its obligations under this Agreement.
"Order" means any writ, judgment, decree, injunction or similar
order of any Governmental Body, in each case whether preliminary or final.
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"Owned Property" means all real property owned by the Company and
each of its Subsidiaries, together with all easements, licenses, interests and
all of the rights arising out of the ownership thereof or appurtenant thereto,
and Improvements thereon.
"Permits" means all licenses, permits, franchises, approvals,
authorizations, orders, registrations, certificates, variances, consents and
similar rights (including applications therefor), utilized in the conduct of the
Business (other than state or local business or similar licenses required
of businesses generally) and the rights to all data and records held by any
Governmental Body or other agency with respect thereto.
"Permitted Liens" means (i) purchase money security interests in
supplies and equipment, (ii) precautionary liens filed by lessors with respect
to leased equipment, and (iii) encumbrances which are not substantial in amount,
do not materially detract from the value of the property subject thereto and do
not materially impair the use of the property subject thereto or the operation
of the Business.
"Person" means any individual, corporation, partnership, firm,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Body or other entity.
"Plan" means any (i) employee benefit plan (as defined in Section
3(3) of ERISA), whether or not funded or terminated, (ii) employment agreement
or (iii) personnel policy, fringe benefit plan, program or arrangement, whether
or not subject to ERISA, funded or terminated, including any stock bonus,
deferred compensation, pension, severance, bonus, incentive and health, life,
disability or other welfare plan covering any employee of the Company or any of
its Subsidiaries or pursuant to which the Company or any of its Subsidiaries may
have any obligation or liability.
"Property Plans" means all site plans, surveys, soil substratus
studies, architectural drawings, plans and specifications, engineering,
electrical and mechanical plans and studies, floor plans, landscape plans,
appraisals, feasibility studies, and other plans and studies of any kind if
existing and in the possession or control of the Company relating to the Real
Estate.
"Purchase Price" has the meaning specified in Section 2.2.
"Purchase Price Adjustment" has the meaning specified in Section
2.3(b).
"RCRA" means the Federal Resource Conservation and Recovery Act, as
amended.
"Real Estate" means the Owned Property and the Leased Real Property
and all Improvements thereon.
"Real Property Leases" means all leases and subleases of real
property as to which the Company or any of its Subsidiaries is the lessee or
sublessee, together with any options to purchase the underlying property and
leasehold improvements thereon set forth on Schedule 3.12(b)
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hereto, and in each case all other rights, subleases, licenses, permits,
deposits and profits appurtenant to or related to such leases and subleases.
"Release" shall have the meaning set forth in CERCLA.
"SARs" means the stock appreciation rights agreements, as amended,
entered into with certain employees of Suburban, as more specifically described
on Schedule 3.4 hereto.
"Shares" means the 100 outstanding shares of the Company's common
stock, par value $1.00 per share.
"Subsidiary" means, with respect to any Person, any Person of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a partnership,
association or other business entity, a majority of the partnership, membership
or other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in another Person if such Person or
Persons shall be allocated a majority of the gains or losses of or shall be or
control the managing director or a general partner of such other Person.
"Tax Return" means any return, report, information return, or other
document (including any related or supporting information) filed or required to
be filed with any federal, state, local, or foreign governmental entity or other
authority in connection with the determination, assessment or collection of any
Tax (whether or not such Tax is imposed on the Company) or the administration of
any laws, regulations or administrative requirements relating to any Tax.
"Tax" and "Taxes" means all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign taxing authority,
whether disputed or not, including, without limitation, income, capital,
estimated, excise, property, sales, transfer, withholding, employment, payroll,
and franchise taxes and such terms shall include any interest, penalties or
additions attributable to or imposed on or with respect to such assessments.
"Working Capital" means the current assets minus the current
liabilities (excluding the current portion of long-term debt) of Suburban, but
shall exclude from current assets any refund or other benefit in respect of
Taxes created by the payment of the SARs.
1.2 Accounting Principles. Each accounting term used herein shall
have the meaning that is applied thereto in accordance with GAAP and each
account included in the Closing Balance Sheet shall be calculated in accordance
with GAAP and shall be consistent with the books and records of the Company
(which books and records shall be correct and complete in all material
respects); provided, that all known errors and adjustments shall be taken into
account in the calculation of each account set forth above, regardless of their
materiality. With respect to the
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calculation of the levels of the accounts set forth in Section 2, no change in
accounting principles shall be made from those utilized in preparing the
Financial Statements, (without regard to materiality) including, without
limitation, with respect to the nature or classification of accounts, closing
proceedings, levels of reserves or levels of accruals other than as a result of
objective changes in the underlying business. For purposes of the preceding
sentence, "changes in accounting principles" includes all changes in accounting
principles, policies, practices, procedures or methodologies with respect to
financial statements, their classification or their display, as well as all
changes in practices, methods, conventions or assumptions utilized in making
accounting estimates.
1.3 Interpretation. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement. All pronouns
and any variations thereof refer to the masculine, feminine or neuter, singular
or plural, as the context may require. References to statutes and agreements
include all amendments, extensions, restatements and waivers thereof. The
Exhibits and Schedules are a part of this Agreement as if fully set forth
herein. All references herein to Sections, subsections, clauses, Exhibits and
Schedules shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require.
SECTION II
ACQUISITION OF STOCK AND PURCHASE PRICE
2.1 Purchase of Stock. On the terms and subject to the conditions
set forth in this Agreement, on the Closing Date, the Seller agrees to sell,
transfer, assign, convey and deliver to the Buyer, and the Buyer agrees to
purchase, acquire and accept from the Seller, all of the right, title and
interest as of the Closing Date of the Seller in and to the Shares.
2.2 Purchase Price. Subject to adjustment pursuant to Section 2.3
the aggregate purchase price (the "Purchase Price") for the Shares shall be the
sum of: (i) $36,000,000, plus (ii) the aggregate amount of cash and cash
equivalents (treating obligations of the Seller for monies due to the Company or
KODA-Tenn as cash equivalents) held by the Company and KODA-Tenn as of 12:01
a.m. on the Closing Date (excluding those amounts covering liabilities as
referred to in the last sentence of Section 2.3(a) below), which shall be net
the amount of $3,070,316.44 previously paid in full and final satisfaction of
the SARs, less (iii) the aggregate amount of Indebtedness of the Company and its
Subsidiaries on the Closing Date. The Purchase Price shall be paid to the Seller
by the Buyer on the Closing Date by wire transfer of immediately available funds
to an account designated by the Seller not less than three (3) Business Days
prior to Closing by notice to the Buyer.
2.3 Reduction of Purchase Price. (a) As promptly as practicable, but
in any event not later than sixty (60) days after the Closing the Seller shall
cause to be prepared and delivered to the Buyer, an audited, balance sheet of
Suburban as of 12:01 a.m. on the Closing Date (the "Closing Balance Sheet"),
setting forth the Working Capital of Suburban as at the Closing Date and the
monthly average Working Capital for the twelve months ended February 28, 1998
(the "Statement
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of Working Capital"). The Closing Balance Sheet shall be prepared in accordance
with Section 1.2, other than non-GAAP items specifically required by this
Agreement (such as treatment of workers' compensation reserves and liabilities
pursuant to Section 7.7), and shall be audited by the Seller's independent
certified public accountants but shall contain no assets, accruals or reserves
relating to the entities the subject of the Divestiture or otherwise relating to
the Company or any Affiliate of the Company other than Suburban. The Seller
represents and warrants to the Buyer that as at the Closing Date the Company and
its Subsidiaries other than Suburban have no liabilities which are not fully
covered by cash and cash equivalents (which include for this purpose, any
obligation of the Seller for money owed to the Company or any of its
Subsidiaries) held by the Company and its Subsidiaries other than Suburban on
and after the Closing Date.
(b) Subject to subsection (c) below, within fifteen (15) days after
delivery to the Buyer of the Closing Balance Sheet and the Statement of Working
Capital pursuant to subsection (a) above, the Seller agrees to pay to the Buyer
(i) the amount, if any, by which average Working Capital for the twelve months
ended February 28, 1998 exceeds the Working Capital on the Closing Balance
Sheet, plus (ii) interest on the amounts computed pursuant to clause (i) above
at the Base Rate for the period from the Closing Date to the date of payment in
full of such amount (the amounts payable pursuant to clauses (i) and (ii) are
hereinafter referred to collectively as the "Purchase Price Adjustment").
Payments, if any, by the Seller pursuant to the preceding sentence shall be made
by wire transfer of immediately available funds to an account or accounts
designated by the Buyer. The parties shall treat any payment made pursuant to
this Section 2.3(b) as an adjustment to the Purchase Price for all purposes.
(c) If the Buyer in good faith disagrees with the Closing Balance
Sheet or the Statement of Working Capital, then the Buyer shall notify the
Seller in writing (the "Notice of Disagreement") of such disagreement within
twenty (20) days after delivery of the Closing Balance Sheet and the Statement
of Working Capital to the Seller. Thereafter, the Buyer and the Seller shall
attempt in good faith to resolve and finally determine the Closing Balance Sheet
and the Statement of Working Capital. If the Buyer and the Seller are unable to
resolve the disagreement within twenty (20) days after delivery of the Notice of
Disagreement, then the Buyer and the Seller shall select a mutually acceptable,
nationally recognized independent accounting firm (such accounting firm being
hereinafter referred to as the "Independent Accountant") to resolve the disputed
items and make a determination with respect thereto. Such determination will be
made, and written notice thereof given to the Buyer and the Seller, within
thirty (30) days after such selection. The determination by the Independent
Accountant shall be final, binding and conclusive upon the parties hereto. The
scope of such firm's engagement (which shall not be an audit) shall be limited
to the resolution of the items contained in the Notice of Disagreement, and the
recalculation, if any, of the Closing Balance Sheet and the Statement of Working
Capital in light of such resolution and shall be conducted in accordance with
the provisions of this Agreement and will use the definitions contained herein.
The fees, costs and expenses of the Seller and the Independent Accountant, if
any, in connection with the preparation of the Closing Balance Sheet and the
Statement of Working Capital shall be shared equally by the Buyer, on the one
hand, and the Seller, on the other hand. Within ten (10) days of delivery of a
notice of determination by the Independent Accountant as described above, any
adjustment shall be paid as provided in Section 2.3(b). Any portion of the
Purchase Price Adjustment not in dispute shall be paid when due.
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2.4 Closing. The consummation of the transactions contemplated
hereby (the "Closing") shall be held at 10:00 a.m. (E.S.T.) on the first
Business Day after all conditions to respective obligations of the parties have
been satisfied or waived or at such other time and date as shall be mutually
agreed to by the parties (such date and time of the Closing being herein
referred to as the "Closing Date") at the offices of Kirkland & Ellis, 153 East
53rd Street, New York, NY 10022.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows.
3.1 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to (i) own, lease and operate its
properties and assets as they are now owned, leased and operated and (ii) carry
on its business as now presently conducted and as proposed to be conducted. Each
of the Company and its Subsidiaries is duly qualified to do business in each
jurisdiction in which the nature of its business or properties makes such
qualification necessary, except where the failure to do so would not have a
Material Adverse Effect on the Company. The jurisdictions in which each of the
Company and its Subsidiaries is so qualified are set forth on Schedule 3.1.
3.2 Validity and Execution of Agreement. The Seller has the full
legal right, capacity and power required to enter into, execute and deliver this
Agreement and to perform fully his obligations hereunder and to deliver the
Shares in accordance herewith. This Agreement has been duly executed and
delivered by the Seller and constitutes the valid and binding obligation of the
Seller enforceable against him in accordance with its terms.
3.3 No Conflict. Except as set forth on Schedule 3.3, neither the
execution, delivery nor performance by the Seller of this Agreement nor the
transactions contemplated hereby will: (a) violate or conflict with any of the
provisions of the Certificate of Incorporation or By-Laws (or similar governing
documents) of the Company or any of its Subsidiaries; (b) violate, conflict
with, result in the acceleration of, or entitle any party to accelerate the
maturity or the cancellation of the performance of any obligation under, or
result in the creation or imposition of any Lien in or upon any of the
properties or assets of the Company or any of its Subsidiaries or constitute a
default (or an event which might, with the passage of time or the giving of
notice, or both, constitute a default) under any mortgage, indenture, deed of
trust, lease, contract, loan or credit agreement, license or other instrument to
which the Company or any of its Subsidiaries is a party or by which they or any
of their properties or assets may be bound or affected; or (c) violate or
conflict with any provision of any Law applicable to the Company or any of its
Subsidiaries, or require any consent or approval of or filing or notice with any
Governmental Body.
3.4 Capitalization of the Company and its Subsidiaries. (a) The
Company's authorized capital stock consists of 1,000 shares of common stock, par
value $1.00 per share, of
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which 100 shares are issued and outstanding and held of record by the persons
and in the amounts set forth on Schedule 3.4(a). Except as set forth on Schedule
3.4(a), neither the Company nor any of its Subsidiaries has (i) any shares of
common stock or preferred stock reserved for issuance, or (ii) any outstanding
or authorized option, warrant, right, call or commitment relating to its capital
stock or any outstanding securities or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire
from it, any shares of its capital stock. Except for the SARs, there are no (i)
outstanding obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any securities described in the preceding sentence
or (ii) stock appreciation, phantom stock, profit participation or similar
rights with respect to the Company or any of its Subsidiaries. The amount set
forth in Section 2.2(iv) is the amount necessary to satisfy in full the SARs.
Except as set forth on Schedule 3.4(a), there are no preemptive or other
subscription rights with respect to any shares of the Company's or any of its
Subsidiaries' capital stock and all of the issued and outstanding shares of
capital stock of the Company and each of its Subsidiaries have been duly
authorized, validly issued, are fully paid and are nonassessable. Except as set
forth on Schedule 3.4(a), there are no voting trusts, proxies or any other
agreements or understandings with respect to the voting of the capital stock of
the Company or any of its Subsidiaries.
(b) All Subsidiaries of the Company are listed on Schedule 3.4(b).
Except as otherwise disclosed on Schedule 3.4(b), neither the Company nor any of
its Subsidiaries own any shares of stock of any corporation or any equity
interest in a partnership, joint venture or other business entity, and neither
the Company nor any of its Subsidiaries controls any other corporation,
partnership, joint venture or other business entity by means of ownership,
management contract or otherwise. All of the outstanding capital stock of, or
other ownership interests in, each Subsidiary of the Company is owned
beneficially and of record by the Company, directly or indirectly, is validly
issued, fully paid and nonassessable and free and clear of any preemptive
rights, restrictions on transfer or Taxes, except as provided under the
Securities Act or state securities laws.
3.5 Books and Records. The Books and Records of the Company and its
Subsidiaries as supplied to the Buyer are, when viewed as a whole, true,
correct, complete and current in all material respects and, as applicable,
accurately reflect in all material respects actions taken by its board of
directors or other governing body and committees thereof, and all the signatures
contained therein are the true signatures of the Persons whose signatures they
purport to be. The Seller has heretofore delivered to the Buyer true, correct
and complete copies of the Company's Certificate of Incorporation (certified by
the Secretary of State of Delaware) and ByLaws (certified by the secretary of
the Company) as in full force and effect on the date hereof.
3.6 Financial Statements. (a) The consolidated balance sheets of the
Company and its Subsidiaries (other than those entities the subject of the
Divestiture) as of fiscal years ended April 30, 1995, 1996 and 1997, and the
related statements of income, retained earnings and cash flows for the years
then ended, including the footnotes thereto, certified by Arthur Andersen LLP,
certified public accountants (with respect to the 1996 and 1997 fiscal years),
and KPMG Peat Marwick LLP, certified public accountants (with respect to the
1995 fiscal year), true and complete copies of which are attached as Schedule
3.6(a), have been prepared from, and are in accordance with, the Books and
Records of the Company and relevant Subsidiaries, are correct and complete
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and present fairly, in all material respects, the transactions, assets and
liabilities of the Company and relevant Subsidiaries and the financial position
of the Company and relevant Subsidiaries as at such dates and the results of
operations and cash flows of the Company and relevant Subsidiaries for the years
then ended, in each case, in accordance with GAAP consistently applied for the
periods covered thereby.
(b) The unaudited consolidated balance sheet of the Company and its
Subsidiaries (other than those entities the subject of the Divestiture) as of
January 31, 1998 (the "Latest Balance Sheet") and the related unaudited
statements of income, retained earnings and cash flows for the nine-month period
then ended, true and complete copies of which are attached as Schedule 3.6(b),
present fairly, in all material respects, the financial position of the Company
and relevant Subsidiaries as of such date and the results of operations of the
Company and relevant Subsidiaries for the period then ended, in each case in
accordance with GAAP consistently applied for the respective monthly periods
covered thereby from the most recent fiscal year end of the Company; provided,
however, that such unaudited financial statements are subject to normal year-end
adjustments (which will not be material individually or in the aggregate) and
lack footnotes.
3.7 Undisclosed Liabilities. (a) Neither the Company nor any of its
Subsidiaries has any material direct or indirect indebtedness, liability, claim,
loss, damage, deficiency, obligation or responsibility, fixed or unfixed, choate
or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise (all of the foregoing being collectively
referred to as "Liabilities" and individually as a "Liability"), whether or not
of a kind required by GAAP to be set forth on a financial statement, that is not
fully and adequately reflected or reserved against on the face of (as opposed to
in the notes to) the Financial Statements for the Company or described in the
Schedules to this Agreement, other than Liabilities incurred since the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
Liability resulting from, arising out of, relating to, in the nature of or
caused by any breach of contract, breach of warranty, tort, infringement, claim
or lawsuit) without violation of Sections 3.16 and 5.2, and fully reflected as
Liabilities on the Company's Books and Records, none of which individually or in
the aggregate, is material to the business, operations, income, condition
(financial or otherwise), assets or properties of the Company.
(b) The representations and warranties in Sections 3.6 and 3.7 shall
not be considered breached by acts, omissions, facts or circumstances which (i)
do not cause a breach of any other specific representation or warranty which
directly addresses such acts, omissions, facts or circumstances or (ii) any
other specific representation or warranty expressly disclaims.
3.8 No Material Adverse Change. Except as set forth on Schedule 3.8,
since the date of the Latest Balance Sheet there has been no material adverse
change in the assets, properties, business, operations, income or condition
(financial or otherwise) of the Company, other than the Divestiture, nor to the
Seller's Knowledge is any such change threatened, nor has there been any damage,
destruction or loss to any of the assets of the Company or any of its
Subsidiaries which could have a Material Adverse Effect on the Company, whether
or not covered by insurance.
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3.9 Tax Matters. Each of the Company and its Subsidiaries has timely
filed all Tax Returns required to be filed by it, which Tax Returns are true,
correct and complete in all material respects. Except as set forth on Schedule
3.9, each of the Company and its Subsidiaries has timely paid all Taxes due or
claimed to be due from it by any taxing authority. There are no liens for Taxes
upon the assets, tangible or intangible, of the Company or any of its
Subsidiaries, including the Business. Each of the Company and its Subsidiaries
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to the Seller, any employee, independent
contractor, creditor, or other third party. The reserves for Tax liability
(rather than any reserve for deferred taxes established to reflect timing
differences between book and Tax income) shown on the face of the Company's
balance sheet dated as of December 31, 1997 (rather than in any notes thereto)
are sufficient for payment of all unpaid Taxes (whether or not currently
disputed) incurred with respect to the period ended December 31, 1997 and for
all periods ended prior thereto and will be sufficient for payment of all unpaid
Taxes of the Company and its Subsidiaries for the period commencing after such
date and ending on (and including) the Closing Date, taking into account
adjustments for operations and transactions through the Closing Date (other than
any payments made with respect to the SARs) made in accordance with the
Company's past custom and practice in filing Tax Returns. Except as set forth on
Schedule 3.9, there is no examination or proceeding pending or, to the Seller's
Knowledge, threatened by any authority or agency relating to the assessment or
collection of, or any delinquencies in filing relating to, any Taxes from either
the Company or any of its Subsidiaries. Except as set forth on Schedule 3.9, (i)
neither the Company nor any of its Subsidiaries has executed or filed any
consent or agreement to extend the period of assessment or collection of any
Taxes and (ii) neither the Company nor any of its Subsidiaries is a party to any
Tax allocation or sharing agreement. Neither the Company nor any Subsidiary has
filed a consent under Code Section 341(f) concerning collapsible corporations.
Neither the Company nor any Subsidiary has made any material payments, is
obligated to make any material payments, or is a party to any agreement that
under certain circumstances could obligate it to make any material payments that
will not be deductible under Code Section 280G. Except as set forth on Schedule
3.9, neither the Company nor any of its Subsidiaries (i) has been a member of an
affiliated group filing a consolidated U.S. federal income Tax Return (other
than a group the common parent of which was the Company) or (ii) has any
liability for the Taxes of any Person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
3.10 Litigation. Except as set forth on Schedule 3.10, there are no
outstanding Orders by which either the Company or any of its Subsidiaries, or
any of their respective securities, assets, properties or businesses, including
the Business, are bound. Except as set forth on Schedule 3.10 and except for
workers' compensation claims for which Buyer is indemnified by Seller pursuant
to Section 7.7, there is no Action pending or, to the Seller's Knowledge,
threatened (whether or not the defense thereof or liabilities in respect thereof
are covered by insurance) against or affecting the Company, any of its
Subsidiaries or any of their respective assets, properties or businesses, nor
are there any facts which at the time at which this representation is made,
would be likely to give rise to any such Action which if adversely decided,
could have a Material Adverse Effect on the Company.
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3.11 Contracts and Other Agreements. Schedule 3.11 sets forth all of
the following types of Contracts to which the Company or any of its Subsidiaries
is a party or by or to which the Company or any of its Subsidiaries, or their
respective assets, properties or businesses, including the Business, is bound or
subject (collectively, the "Material Contracts"):
(a) all employment agreements and commitments, all consulting or
severance agreements or arrangements and all other contracts
or agreements, including indemnification agreements, with any
current or former officer, director, employee, consultant,
agent, other representative of the Company or any of its
Subsidiaries or with any Affiliate of the Company or any of
its Subsidiaries.
(b) contracts and other agreements with any labor union or
association representing any employee;
(c) contracts and other agreements for the sale of any of its
assets or properties or for the grant to any Person of any
preferential rights to purchase any of its assets or
properties, in each case in an amount exceeding $25,000;
(d) joint venture and partnership agreements or contracts and
other agreements relating to the acquisition by the Company or
any of its Subsidiaries of any operating business or the
capital stock of any other Person;
(e) all capitalized leases, pledges, conditional sale or title
retention agreements involving the payment of more than
$100,000;
(f) any take or pay or requirements contracts or agreements or any
other contracts or agreements requiring the Company or any of
its Subsidiaries to pay regardless of whether products or
services are received;
(g) contracts and other agreements not cancelable without penalty
by the Company or any of its Subsidiaries party thereto on
sixty (60) or fewer days' notice calling for an aggregate
purchase price or payments to or from the Company or any of
its Subsidiaries, as the case may be, in any one year of more
than $25,000 in any one case (or in the aggregate, in the case
of any related series of contracts and other agreements);
(h) contracts and other agreements with clients, customers or any
other Person for the sharing of fees, the rebating of charges
or purchase price or other similar arrangements;
(i) contracts and other agreements containing covenants pertaining
to the right to compete or not compete in any line of business
or similarly restricting the ability to conduct business with
any Person or in any geographical area;
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<PAGE> 18
(j) all agreements relating to the consignment or lease of
personal property (whether the Company or any of its
Subsidiaries is lessee, sublessee, lessor, or sublessor),
other than such agreements that provide for annual payments of
less than $25,000;
(k) all licences and franchise agreements involving an amount in
excess of $25,000;
(l) all mortgages, indentures, notes, bonds, letter of credit and
other agreements relating to the borrowing of money, creation
of Liens, any indemnity, or the guarantee of the payment of
liabilities or performance of obligations to or by the Company
or any of its Subsidiaries, to or by any other Person;
(m) any stockholder agreement, registration rights agreement or
any arrangement relating to or affecting the ownership of the
common stock or other equity interests of the Company or any
of its Subsidiaries; and
(n) any other contract and other agreement made outside the
ordinary course of business relating to any one or more of the
Company or any of its Subsidiaries and involving an amount in
excess of $25,000.
True and complete copies of all of the Material Contracts have been
delivered to the Buyer. Except as disclosed on Schedule 3.11, all of the
Material Contracts are to the Seller's Knowledge binding upon the parties
thereto in accordance with their terms and the Company or relevant Subsidiary
has satisfied in full or provided for all of its liabilities and obligations
thereunder requiring performance prior to the date hereof in all material
respects, is not in default under any such Material Contract, nor to the
Seller's Knowledge does any condition exist that with notice or lapse of time or
both would constitute such a default. To the Seller's Knowledge, no other party
to any such Material Contract is in default thereunder, nor does any condition
exist that with notice or lapse of time or both would constitute such a default.
None of the other parties to any such Material Contracts has given notice to the
Company or relevant Subsidiary that it intends to terminate or materially alter
the provisions of such Material Contract. Except as separately identified on
Schedule 3.11, no approval or consent of any Person is required under any
Material Contract in connection with consummation of the transactions
contemplated by this Agreement.
3.12 Real Estate.
(a) Set forth on Schedule 3.12(a) is a complete and correct legal
description of each parcel of Owned Property. Either the Company or one of its
Subsidiaries, as the case may be, has good record and marketable title to each
parcel of Owned Property. Except as set forth on Schedule 3.12(a), none of the
Owned Property is subject to any Lien.
(b) Set forth on Schedule 3.12(b) is a list of all Real Property
Leases (a true and correct copy of each applicable Real Property Lease as
currently in effect has been delivered by the Seller to the Buyer). Except as
set forth on Schedule 3.12(b), either the Company or one of its
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<PAGE> 19
Subsidiaries, as the case may be, has valid and enforceable leasehold interests
in and to all of the Leased Real Property, free and clear of all Liens. There
exists no default (nor any condition or event which with notice, lapse of time,
or both would constitute a default) with respect to any such Real Property Lease
by any party thereto. Each such Real Property Lease is in full force and effect.
(c) The Real Estate constitutes all of the real property owned,
leased, occupied or otherwise utilized in connection with the Business. Other
than the Company or any of its Subsidiaries, there are no parties in possession
or parties having any current or future right to occupy any of the Real Estate
(except upon termination of a Real Property Lease, the owner of the underlying
Real Estate). The Real Estate is in good condition and repair and is sufficient
for the conduct of the Business. The Real Estate and all plants, buildings and
Improvements located thereon conform in all material respects to all applicable
building, zoning and other laws, ordinances, rules and regulations. All permits,
licenses and other approvals necessary to the current occupancy and use of the
Owned Property have been obtained, are in full force and effect, and the
Business is conducted in conformity therewith. There exists no violation of any
covenant, condition, restriction, easement, agreement or order affecting any
portion of the Owned Property. All Improvements located on the Real Estate have
direct access to a public road adjoining such Real Estate. No such Improvements
or accessways encroach on land not included in the Real Estate and no such
Improvement is dependent for its access, operation or utility on any land,
building or other improvement not included in the Real Estate. There is no
pending or, to the Seller's Knowledge, threatened, condemnation proceeding
affecting any portion of the Real Estate.
(d) The Seller has delivered or made available to the Buyer true,
correct and complete copies of all permits, licenses, certificates,
authorizations, certificates of occupancy, deeds, mortgages and deeds of trust,
restrictive covenants, easements and other recorded agreements relating to the
Real Estate, all surveys, Property Plans, title reports and title insurance
policies of the Company or any of its Subsidiaries, with respect thereto and all
written licenses, permits, certificates, authorizations, contracts and other
agreements listed on Schedule 3.12(b). Neither the Company nor any of its
Subsidiaries has given or received any citation, subpoena, summons or other
notice alleging a violation of any applicable Laws with respect to the Real
Estate or the Improvements or the use or condition thereof. Neither the Company
nor any of its Subsidiaries is in default under, and to the Seller's Knowledge,
no condition exists which with the giving of notice or the passage of time or
both would constitute a default under, any licenses, permits, certificates,
authorizations, contracts or other agreements listed or described on Schedule
3.12(b) and, except as separately identified on Schedule 3.12(b), no approval or
consent of any Person is needed for any of the foregoing to continue to be in
full force and effect, and such documents will not become unenforceable by the
Company or its Subsidiaries following the consummation of the transactions
contemplated by this Agreement.
3.13 Transactions with Affiliates. Except as set forth on Schedule
3.13, neither the Seller nor any director, officer or Affiliate of the Company,
any of its Subsidiaries or the Seller has: (a) borrowed money from or loaned
money to the Company or any of its Subsidiaries which remains outstanding; (b)
had any contractual or other claim, express or implied, of any kind whatsoever
against the Company or any of its Subsidiaries (other than claims for
compensation, benefits, expense reimbursement and similar matters in the
ordinary course of business); (c) owned
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<PAGE> 20
any interest in any property or assets (tangible or intangible) used or useful
by the Company or any of its Subsidiaries in the Business; (d) engaged in any
other transaction with the Company or any of its Subsidiaries or (e) owned,
directly or indirectly, any interest in (except not more than two percent (2%)
stockholdings for investment purposes in securities of publicly held and traded
companies), or served as an officer, director, employee or consultant of or
otherwise receives remuneration from, any Person which is, or has engaged in
business as, a competitor, lessor, lessee, customer or supplier of the Company
or any of its Subsidiaries. Except as set forth on Schedule 3.13, neither the
Company nor any of its Subsidiaries is bound by any contract or arrangement or
has any obligation or liability which would confer any direct or indirect
benefit on the Seller or his Affiliates.
3.14 Accounts Receivable and Inventory. All Accounts Receivable
reflected on the Latest Balance Sheet, and all Accounts Receivable arising
subsequent to the date of the Latest Balance Sheet, (a) have arisen from bona
fide sales transactions in the ordinary course of business of the Company or any
of its Subsidiaries on ordinary trade terms, and (b) represent valid and binding
obligations due to the Company or any of its Subsidiaries, enforceable in
accordance with their terms. Schedule 3.14 lists any obligor which together with
all of its Affiliates owes uncollected amounts to the Company or any of its
Subsidiaries in an aggregate amount of $25,000 or more as of February 28, 1998.
All the Inventory consists of a quality and quantity usable and salable in the
ordinary course of business consistent with past practice, subject to normal and
customary allowances in the industry for spoilage, damage and outdated items.
Except as set forth on Schedule 3.14, all items included in the Inventory are
the property of the Company or any of its Subsidiaries, free and clear of any
Liens (other than Permitted Liens), have not been pledged as collateral, are not
held by the Company or any of its Subsidiaries on consignment from others and
conform in all material respects to all standards applicable to such Inventory
or its use or sale imposed by any Law.
3.15 Compensation Arrangements. Schedule 3.15 sets forth the name
and current annual salary, including any bonus or commitment to pay any other
amount or benefit in connection with a termination of employment, if applicable,
of all present officers, directors and employees of the Company or any of its
Subsidiaries whose current annual salary, including any promised, expected or
customary bonus or such other amount or benefit, equals or exceeds $75,000.
Neither the Company nor any of its Subsidiaries has made a commitment or
agreement (verbally or in writing) to increase the compensation or to modify the
conditions or terms of employment of any Person listed on Schedule 3.15 or of
any other Person if the increase would cause such Person to be required to be
listed on Schedule 3.15, other than in the ordinary course of business
consistent with past practices. To the Seller's Knowledge, none of such Persons
has made a threat or otherwise indicated any intent to the Seller or to any of
the officers or directors of the Company or any of its Subsidiaries to cancel or
otherwise terminate such Person's relationship with the Company or any of its
Subsidiaries.
3.16 Operations. Except as disclosed on Schedule 3.16 or expressly
authorized by this Agreement, from the date of the Latest Balance Sheet through
the date hereof, neither the Company nor any of its Subsidiaries has:
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<PAGE> 21
(a) amended its Certificate of Incorporation or By-Laws or
comparable instruments or merged with or into or consolidated
with any other Person, or changed or agreed to rearrange in
any manner the character of its business;
(b) issued, sold or purchased options or rights to subscribe to,
or entered into any contracts or commitments to issue, sell or
purchase, any shares of its capital stock or other equity
interests;
(c) entered into, amended or terminated any (i) employment
agreement or collective bargaining agreement, (ii) adopted,
entered into or amended any arrangement which is, or would be,
a Plan or (iii) made any change in any actuarial methods or
assumptions used in funding any Plan or in the assumptions or
factors used in determining benefit equivalences thereunder;
(d) issued, incurred or assumed any Indebtedness except for
borrowings under existing lines of credit in the ordinary
course of business consistent with past practice;
(e) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to the Seller or holders
of its equity interests, or made any direct or indirect
redemption, retirement, purchase or other acquisition of any
shares of its capital stock or other equity interests;
(f) knowingly waived any right of material value to the Business;
(g) made any change in its accounting methods or practices or made
any changes in depreciation or amortization policies or rates
adopted by it or made any material write-down of Inventory or
material write-off as uncollectible of Accounts Receivable;
(h) paid or made payable or to become payable any wage or salary
increase, bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, directors,
employees, consultants, agents or other representatives, or
made any accrual for or commitment or agreement to make or pay
the same, other than increases made in the ordinary course of
business consistent with past practice;
(i) entered into any transactions with any of its Affiliates, the
Seller, officers, directors, employees, consultants, agents or
other representatives (other than employment arrangements made
in the ordinary course of business consistent with past
practice), or any Affiliate of the Seller, officer, director,
consultant, employee, agent or other representative;
(j) made any payment or commitment to pay any severance or
termination pay to any Person or any of its officers,
directors, employees, consultants, agents
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<PAGE> 22
or other representatives, other than payments or commitments
to pay such Persons or its officers, directors, employees in
the ordinary course of business consistent with past practice;
(k) (i) entered into any lease (as lessor or lessee), (ii) sold,
abandoned or made any other disposition of any of its assets
or properties other than in the ordinary course of business
consistent with past practice; (iii) granted or suffered any
Lien on any of its assets or properties (other than Permitted
Liens); or (iv) entered into or amended any contract or other
agreement to which it is a party, or by or to which it or its
assets or properties are bound or subject, or pursuant to
which it agrees to indemnify any Person or to refrain from
competing with any Person, in each case or type required to be
disclosed pursuant to Section 3.11 hereof;
(l) except for Inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part of
the assets, properties, capital stock or business of any other
Person;
(m) paid, directly or indirectly, any of its Liabilities before
the same became due in accordance with its terms or otherwise
than in the ordinary course of business, except to obtain the
benefit of discounts available for early payment;
(n) created, incurred or assumed any indebtedness for borrowed
money, or guaranteed any indebtedness for borrowed money or
any capitalized lease obligation, in each case in excess of
$25,000 individually or in the aggregate;
(o) made any capital expenditures or commitments for capital
expenditures other than in the ordinary course of business
consistent with past practice; or
(p) except in the ordinary course of business, terminated, failed
to renew, amended or entered into any contract or other
agreement of a type required to be disclosed pursuant to
Section 3.11.
3.17 Intellectual Property.
(a) Set forth on Schedule 3.17 is a list of all (i) patented and
registered Intellectual Property and pending patent applications and
applications for the registration of Intellectual Property, in each case owned
by each of the Company or any of its Subsidiaries; (ii) trade or corporate names
used by each of the Company or any of its Subsidiaries; (iii) computer software
and databases created or used by each of the Company or any of its Subsidiaries
(other than mass-marketed software with a license fee of less than $1,000); (iv)
material unregistered trademarks and copyrights owned or used by each of the
Company or any of its Subsidiaries; and (v) licenses and other rights granted by
each of the Company or any of its Subsidiaries to any third party or by any
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<PAGE> 23
third party to each of the Company or any of its Subsidiaries, in each case with
respect to Intellectual Property.
(b) Except as set forth on Schedule 3.17, (i) the Company owns or
has a valid and enforceable license to use all Intellectual Property necessary
for the operation of the Business as currently conducted free and clear of any
Liens or adverse claims, (ii) no claim by any third party contesting the
validity, enforceability, ownership or use of any of the Intellectual Property
owned or used by the Company has been made, is currently outstanding or is
threatened, and, to the Seller's Knowledge, there are no grounds for the same,
(iii) no loss or expiration of any individual Intellectual Property right or
related group of Intellectual Property rights owned or used by the Company is
threatened, pending or to the Seller's Knowledge, reasonably foreseeable, (iv)
the Company has not received any notice of, nor is the Seller or the Company
aware of any facts which indicate a likelihood of any infringement or
misappropriation by any third party with respect to the Intellectual Property
owned or used by the Company, and (v) to the Seller's Knowledge, the Company has
not infringed or misappropriated any Intellectual Property of any third party,
and neither the Seller nor the Company is aware of any infringement or
misappropriation which will occur as a result of the continued operation of the
Business as currently conducted or as currently proposed to be conducted. The
Company has taken all necessary action to maintain and protect all material
Intellectual Property owned or used by it.
3.18 Employees.
(a) Except as set forth on Schedule 3.18, neither the Company nor
any of its Subsidiaries is a party to or bound by any collective bargaining
agreement, nor has it experienced any strike, union grievance, claim of unfair
labor practice or other collective bargaining dispute relating to the Business
that remain outstanding and unresolved. Except as set forth on Schedule 3.18, to
the Seller's Knowledge there is no organizational effort being made or
threatened by or on behalf of any labor union with respect to employees of the
Company or any of its Subsidiaries relating to the Business and there is no
other question concerning representation of the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has committed any
unfair labor practice or violated any federal, state or local law or regulation
regulating employers or the terms and conditions of its employees' employment,
including laws regulating employee wages and hours, employment discrimination,
employee civil rights, equal employment opportunity and employment of foreign
nationals other than such practice or violations which would not cause a
Material Adverse Effect.
(b) Any notice required under any law or collective bargaining
agreement has been given, and all bargaining obligations with any employee
representative have been satisfied. Neither the Company nor any of its
Subsidiaries has implemented any "plant closing" or "mass layoff" of employees
as those terms are defined in the Worker Adjustment Retraining and Notification
("WARN") Act of 1988, as amended, or any similar state or local law or
regulation, and no layoffs that could implicate such laws or regulations will be
implemented before Closing without advance notification to the Buyer.
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<PAGE> 24
3.19 Employee Benefits.
(a) Set forth on Schedule 3.19 is a list of all Plans contributed
to, maintained or sponsored by the Company or any of its Subsidiaries, to which
the Company or any of its Subsidiaries is obligated to contribute or with
respect to which the Company or any of its Subsidiaries has any liability or
potential liability, whether direct or indirect, including all Plans contributed
to, maintained or sponsored by a member of a controlled group of entities,
within the meaning of Section 414 of the Code (or with respect to which any such
controlled group member has any direct or indirect liability or potential
liability), of which the Company or any of its Subsidiaries is or was a member,
to the extent the Company or any of its Subsidiaries has any liability or
potential liability with respect to such Plan. None of the Plans is a
multiemployer plan (as defined in Section 3(37) of ERISA), and none of the Plans
provides post-employment medical or life insurance benefits (except as required
by COBRA).
(b) Each Plan and all related trusts, insurance contracts and
funds have been maintained, funded, and administered in compliance in all
material respects with all applicable laws and regulations, including ERISA and
the Code. The Company and each of its Subsidiaries has complied in all material
respects with all applicable reporting and disclosure requirements with respect
to each Plan. Neither the Company or any of its Subsidiaries nor any trustee or
administrator of any Plan or other Person has engaged in any transaction with
respect to any Plan which could subject the Buyer or any trustee or
administrator of such Plan, or any party dealing with such Plan, to any material
Tax, fine, penalty or other liability (civil or otherwise) imposed by ERISA or
the Code. No material actions, suits, investigations or claims with respect to
any Plan (other than routine claims for benefits) or with respect to any
fiduciary or other person dealing with any Plan are pending or threatened and,
to the Seller's Knowledge, there are no facts which could give rise to or be
expected to give rise to any such actions, suits, investigations or claims. The
Company and each of its Subsidiaries has complied in all material respects with
the requirements of COBRA.
(c) No Plan that is subject to the minimum funding requirements of
Section 412 of the Code or Section 302 of ERISA has incurred any "accumulated
funding deficiency", as such term is defined in such Sections of ERISA and the
Code, whether or not waived. None of the assets of the Company or any of its
Subsidiaries, including the Business, is the subject of any Lien arising under
Section 302(f) of ERISA or Section 412(n) of the Code, and, to the Seller's
Knowledge there are no facts which could be expected to give rise to such a
Lien. Except as set forth on Schedule 3.19, the assets of each employee pension
benefit plan (as defined in Section 3(c) of ERISA) exceed the benefit
liabilities thereunder (as determined on a plan termination basis). Neither the
Company nor any of its Subsidiaries has actual or potential liabilities under
Title IV of ERISA with respect to any Plan other than for the payment of PBGC
premiums.
(d) Each Plan that is intended to be qualified under Section
401(a) of the Code, and each trust (if any) forming a part thereof, has received
a favorable determination letter from the IRS as to the qualification under the
Code of such Plan and the tax exempt status of such related trust, and nothing
has occurred since the date of such determination letter that could reasonably
be expected to have an adverse effect on the qualification of such Plan or the
tax exempt status of such related trust.
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(e) With respect to each Plan relating to the Business, the Seller
has provided the Buyer with copies, to the extent applicable, of all documents
pursuant to which the Plans are maintained, funded and administered, the most
recent annual report (Form 5500 series) filed with the IRS (with attachments),
the most recent financial statement, actuarial report and all governmental
rulings, determinations and opinions (including the most recent IRS favorable
determination letter) (and pending requests for governmental rulings,
determinations and opinions).
3.20 Environmental Matters.
(a) Neither the Company nor any of its Subsidiaries has violated
in any material respect any Environmental Requirements in the operation of the
Business.
(b) Except as disclosed on Schedule 3.20, each of the Company and
its Subsidiaries has obtained and complied with, and is in compliance with, all
Permits, licenses or other authorizations that may be required pursuant to
Environmental Requirements for the occupation of its facilities and the
operation of the Business.
(c) Neither the Company nor any of its Subsidiaries has received
any claim, complaint, citation, report or other written or oral notice regarding
any liabilities, including any investigatory, remedial or corrective
obligations, arising under Environmental Requirements.
(d) Except as set forth on Schedule 3.20, none of the following
exists at any property owned or occupied by the Company or any
of its Subsidiaries:
(i) Underground storage tanks or surface impoundments;
(ii) Asbestos-containing material in any form or condition;
(iii) Materials or equipment containing polychlorinated
biphenyls; or
(iv) Landfills or similar waste disposal areas;
(e) To the Seller's Knowledge, no Environmental Lien has attached
to any property owned, leased or operated by either the Company or any of its
Subsidiaries.
(f) Neither this Agreement nor the consummation of the
transactions contemplated hereby will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental Requirements.
(g) Neither the Company or any of its Subsidiaries has, either
expressly or by operation of law, assumed or undertaken any liability, including
without limitation any obligation for corrective or remedial action, of any
other person relating to Environmental Requirements.
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(h) Except as set forth on Schedule 3.20, neither the Company or any
of its Subsidiaries has (i) treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance and no Owned Property or
Leased Real Property is contaminated by any such substance, or (ii) owned or
operated the Owned Property or Leased Real Property, in a manner that has given
or would give rise to liabilities, including any liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages or attorney fees, or any investigative, corrective or remedial
obligations, pursuant to the CERCLA or the Solid Waste Disposal Act, as amended,
or any other Environmental Requirements.
3.21 Insurance. Schedule 3.21 sets forth a list and brief
description (specifying the insurer, the policy number or covering note number
with respect to binders and the amount of any deductible, describing the pending
claims if such claims exceed applicable policy limits, setting forth the
aggregate amount paid out under each such policy through the date hereof and the
aggregate limit, if any, of the insurer's liability thereunder) of all policies
or binders of fire, liability, errors and omissions, workers' compensation,
vehicular, unemployment and other insurance held by or on behalf of each of the
Company and its Subsidiaries. Neither the Company nor any of its Subsidiaries is
in default with respect to any material provision contained in any such policy
or binder or has failed to give any notice or present any claim under any such
policy or binder in due and timely fashion. Except for claims disclosed on
Schedule 3.21, there are no outstanding unpaid claims under any such policy or
binder which have gone unpaid for more than forty-five (45) days or as to which
the carrier has disclaimed liability. All known claims or circumstances likely
to give rise to any claims, if any, made against either the Company or any of
its Subsidiaries have been disclosed and tendered to the appropriate insurance
companies and are being defended by such appropriate insurance companies in
accordance with the policy terms and limits. Neither the Seller nor the Company
or any of its Subsidiaries has received any notice of cancellation or
non-renewal of any such policy or binder or any notice from any of its insurance
carriers that any insurance premiums will be materially increased in the future
or that any insurance coverage listed on Schedule 3.21 will not be available in
the future on substantially the same terms as now in effect. Except as
separately disclosed on Schedule 3.21, all of such policies or binders in the
name of the Company or any of its Subsidiaries shall be in full force and effect
and enforceable by either the Company or one of its Subsidiaries following the
consummation of the transactions contemplated by this Agreement.
3.22 Permits. Schedule 3.22 sets forth a list of the Permits which
the Company and each of its Subsidiaries has obtained in connection with the
Business. Except as set forth on Schedule 3.22 or Schedule 3.20, no Permits are
required to be obtained by the Company or any of its Subsidiaries in connection
with its properties or the Business. All such Permits are in full force and
effect and in good standing, except as separately identified on Schedule 3.22.
Neither the Seller nor the Company or any of its Subsidiaries has received any
notice of any claim of revocation of any such Permits or has Knowledge of any
event which might give rise to such a claim.
3.23 Title; Liens. Either the Company or one of its Subsidiaries
owns outright and has good and, with respect to the Real Estate, marketable
title to all of its assets and properties (tangible and intangible), including,
without limitation, all of the assets and properties (except Leased Real
Property and capitalized leases) reflected on the Latest Balance Sheet, and, at
the
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Closing Date, either the Company or one of its Subsidiaries will have good and,
with respect to the Real Estate, marketable title to all such assets and
properties, in each case free and clear of any Lien, except for Permitted Liens
and Liens set forth on Schedule 3.23.
3.24 Compliance with Laws. Except as set forth on Schedule 3.24, the
Company and each of its Subsidiaries (a) is in compliance with all, and not in
violation of any, and has not received any claim or notice that it is not in
compliance in any material respect with, or that it is in violation in any
material respect of, any Law to which the Company or any of its Subsidiaries or
any of their respective businesses, operations, assets or properties, including
the Business (including the use and occupancy thereof) are subject and (b)
neither the Company nor any of its Subsidiaries has failed to obtain or to
adhere to the requirements of any governmental permit, license, registration and
other governmental consent or authorization necessary in connection with its
assets, properties or business, which failure could have a Material Adverse
Effect on the Company.
3.25 Substantial Customers and Suppliers. Schedule 3.25 lists the
ten (10) largest customers of the Company and its Subsidiaries, on the basis of
revenues for goods sold or services provided for the most recently-completed
fiscal year. Schedule 3.25 lists the five (5) largest suppliers of the Company
and its Subsidiaries, on the basis of cost of goods or services purchased, as of
December 31, 1997. Except as disclosed on Schedule 3.25, no such customer or
supplier has ceased or materially reduced its purchases from, use of the
services of, sales to or provision of services to the Company or any of its
Subsidiaries since the Latest Balance Sheet date, or to the Seller's Knowledge,
has threatened to cease or materially reduce such purchases, use, sales or
provision of services after the date hereof.
3.26 Banks and Proxies. Schedule 3.26 sets forth (a) the name of
each bank, trust company, securities or other broker or other financial
institution with which the Company and each of its Subsidiaries has an account,
credit line or safe deposit box or vault, or otherwise maintains relations; (b)
the name of each person authorized by the Company and each of its Subsidiaries
to draw thereon or to have access to any safe deposit box or vault; (c) the
purpose of each such account, safe deposit box or vault; and (d) the names of
all persons authorized by proxies, powers of attorney or other instruments to
act on behalf of the Company and each of its Subsidiaries in matters concerning
its business or affairs. All such accounts, credit lines, safe deposit boxes and
vaults are maintained by the Company and its Subsidiaries for normal business
purposes, and no such proxies, powers of attorney or other like instruments are
irrevocable.
3.27 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Seller directly
with the Buyer without the intervention of any Person on behalf of the Seller in
such manner as to give rise to any valid claim by any Person against the
Company, any of its Subsidiaries, or the Buyer for a finder's fee, brokerage
commission or similar payment other than to Sperry, Mitchell & Company, Inc.
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SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows.
4.1 Organization and Capitalization. The Buyer is a corporation duly
formed and validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and lawful authority to (a) enter into this
Agreement and to perform its obligations hereunder, (b) own, lease and operate
its properties and assets as they are now owned, leased and operated and (c)
carry on its business as now conducted and presently proposed to be conducted.
4.2 Validity and Execution of Agreement. The Buyer has the full
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement and to perform fully its obligations
hereunder. This Agreement has been duly executed and delivered by the Buyer and
constitutes the valid and binding obligation of the Buyer enforceable against
the Buyer in accordance with its terms.
4.3 No Conflict. Neither the execution and delivery of this
Agreement by the Buyer nor the performance by the Buyer of the transactions
contemplated hereby will: (a) violate or conflict with any of the provisions of
the Certificate of Incorporation or By-Laws of the Buyer; (b) violate or
conflict with any provisions of any Law applicable to the Buyer; or (c) require
any consent or approval by or filing or notice with any Governmental Body except
for: (i) filings under federal or state securities or "blue sky" laws (which
have been or will be made) and (ii) such as would not have a Material Adverse
Effect on the Buyer.
4.4 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Buyer directly
with the Seller without the intervention of any Person on behalf of the Buyer in
such manner as to give rise to any valid claim by any Person against the Seller
for a finder's fee, brokerage commission or similar payment.
SECTION V
PRE-CLOSING COVENANTS
The Seller and the Buyer hereby covenant and agree as follows:
5.1 Corporate Examinations and Investigations. From the date hereof
to the Closing Date, the Buyer and its financing sources shall be entitled,
through their respective representatives and agents, to make such investigation
of the assets, properties, business and operations of the Company and its
Subsidiaries and such examination of the books, records, Tax Returns, financial
condition and operations of the Company and its Subsidiaries as the Buyer or its
lenders may wish. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the Seller and the
Company and its Subsidiaries shall
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cooperate fully therein. No investigation by the Buyer shall diminish or obviate
any of the representations, warranties, covenants or agreements of the Seller
under this Agreement. Until the Closing and if the Closing shall not occur,
thereafter, the Buyer and its Affiliates shall keep confidential and shall not
use in any manner inconsistent with the transactions contemplated by this
Agreement and after termination of this Agreement, the Buyer and its Affiliates
shall not disclose, nor use for their own benefit, any information or documents
obtained from the Seller or the Company or any of its Subsidiaries unless (a)
readily ascertainable from public or published information, or trade sources,
(b) already known or subsequently developed by the Buyer independently of any
investigation of the Company or any of its Subsidiaries, (c) received from a
third party not under an obligation to the Seller or his Affiliates to keep such
information confidential or (d) required by any Law. In the event this
transaction does not close for any reason, the Buyer and its Affiliates shall
return or destroy all such confidential information and compilations thereof as
is practicable, and shall certify such destruction or return to the Seller.
5.2 Conduct of Business. From the date hereof through the Closing
Date, each of the Company and its Subsidiaries shall (a) conduct its business in
the ordinary course consistent with past custom and practice in the same manner
as it was being conducted prior to the date of the Latest Balance Sheet, (b)
without the prior written consent of the Buyer, not undertake any of the actions
specified in Section 3.16 hereof and (c) use its best efforts to preserve intact
its business and assets, keep available the services of its present officers,
employees, consultants and agents, and maintain its present suppliers and
customers and otherwise preserve its goodwill.
5.3 Notice of Events. The Seller and the Buyer shall each promptly
notify the other of (a) any event, condition or circumstance occurring from the
date hereof through the Closing Date that would constitute a violation or breach
of this Agreement, (b) any event, occurrence, transaction or other item which
would have been required to have been disclosed on any Schedule or statement
delivered hereunder had such event, occurrence, transaction or item existed on
the date hereof, other than items arising in the ordinary course of business
which would not render any representation or warranty of the disclosing party
materially misleading.
5.4 [INTENTIONALLY OMITTED]
5.5 Mutual Assistance. The Seller and the Buyer agree that they will
mutually cooperate in the expeditious filing of all notices, reports and other
filings with any Governmental Body required to be submitted jointly by the
Seller and the Buyer in connection with the execution and delivery of this
Agreement, the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby or thereby. Expenses of the Seller and his
Affiliates related to providing financial and other information requested by the
Buyer for the Buyer's securities filings under applicable Law shall be the
responsibility of the Buyer, and the Buyer shall pay directly or reimburse the
Seller for same promptly upon request. Any such expenses that have been paid by
the Company or any of its Subsidiaries, and which have not been reimbursed as of
the Closing Date, shall be treated as if they had been reimbursed to the payor
in cash for purposes of the Statement of Working Capital.
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5.6 Public Announcements. Prior to the Closing Date, neither the
Seller nor the Buyer shall make, nor permit any agent or Affiliate to make, any
public statements, including, without limitation, any press releases, with
respect to this Agreement and the transactions contemplated hereby without the
prior written consent of the other, except any public disclosure (i) made to or
by any of the Buyer's financing sources or (ii) which either party in good faith
believes is required by law (in which case the disclosing party will consult
with the other party prior to making such disclosure).
SECTION VI
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Conditions Precedent to the Obligations of the Buyer. The
obligations of the Buyer to enter into and complete the Closing are subject to
the fulfillment on the Closing Date of the following conditions, any one or more
of which may be waived by the Buyer:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Seller contained in this Agreement shall be true, complete
and correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date. The Seller shall
have performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by him on
or prior to the Closing Date.
(b) Consents, Waivers, Licenses, Filings, etc. The consents,
approvals, authorizations, licenses, registrations, declarations or filings
listed on Schedule 3.3 hereto shall have been obtained or made, as the case may
be.
(c) Third Party Consents. Except as otherwise waived by the Buyer,
all material consents, permits and approvals from parties to contracts or other
agreements with the Company or any of its Subsidiaries set forth on any Schedule
to this Agreement, and any other material consent, permit or approval that may
be required in connection with the performance by the Seller of his obligations
under this Agreement or the consummation of the transactions contemplated by
this Agreement or the continuance of the Seller's contracts or other agreements
with the Buyer after the Closing shall have been obtained.
(d) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Company or the Business to be purchased by the Buyer hereunder.
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(e) Opinion of Counsel to the Seller. The Buyer shall have received
the opinion of Sutherland, Asbill & Brennan LLP, counsel to the Seller,
substantially in the form of Exhibit A hereto.
(f) Closing Certificate of the Seller. The Seller shall have
delivered to the Buyer a certificate signed by the Chief Financial Officer of
the Company, dated the Closing Date, as to the amounts described in Section
2.2(ii) and (iii) and in form and substance reasonably satisfactory to the
Buyer.
(g) Other Agreements. James Peden shall have entered into an
employment agreement with the Buyer substantially in the form of Exhibit B.
(h) Management Agreement Termination. The Seller shall have
delivered an executed termination of the agreement referred to as item 7 of
Schedule 3.13
(i) Conveyancing Documents. The Seller shall have executed and
delivered to the Buyer such further instruments and documents as may be
reasonably requested by the Buyer in order to complete the sale of the Shares to
the Buyer.
(j) Title Insurance. A title insurance company selected by the Buyer
(the "Title Company") shall be willing to insure at standard rates the Company's
and it's Subsidiaries marketable title in and to the Owned Property in fee
simple, the Company's and its Subsidiaries leasehold estate in any financeable
Leased Real Property (a "Financeable Leasehold"), and the Buyer's lender's (the
"Lender") mortgage lien on the Owned Property and each Financeable Leasehold
free and clear of all Liens (other than as described on Schedules 3.12(a) and
(b)) and with such endorsements and affirmative coverages as the Buyer and
Lender shall reasonably require (including non-imputation endorsements). Seller
and the Company shall provide all such affidavits and indemnities as the Title
Company reasonably shall require in order to afford such coverages.
(k) Surveys. The Buyer shall have received a survey of each Owned
Property and each Leased Real Property to which the either Company or any of its
Subsidiaries holds a Financeable Leasehold conforming to the Minimum Standard
Detail Requirements jointly established and approved in 1992 by ALTA and ACSM
certified to the Company, the Buyer, the Land and the Title Company and showing
no defects, encroachments or encumbrances other than the matters disclosed on
Schedule 3.12.
(l) Real Property Affidavits. The Buyer shall have received from the
Company or any Affiliate that owns any of the Owned Property an affidavit (i)
stating that the Seller or such Affiliate is not a "foreign person", as defined
in Section 1445(f)(3) of the Internal Revenue Code, (ii) setting forth the
Company's or such Affiliate's taxpayer identification number, (iii) stating that
the Company or such Affiliate intends to file a U.S. income tax return with
respect to the sale of such Owned Property, and (iv) granting the Buyer
permission to furnish a copy of such affidavit to the Internal Revenue Service.
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(m) HSR Clearance. The applicable waiting period imposed by the HSR
Act shall have expired or been terminated.
(n) Bond. The Seller shall deliver to the Buyer the bond or letter
of credit referred to in Section 7.7(b) (or a commitment from the issuer to
deliver the same, in form satisfactory to the Buyer).
6.2 Conditions Precedent to the Obligations of the Seller. The
obligation of the Seller to enter into and complete the Closing subject to the
fulfillment on or prior to the Closing Date, of the following conditions, any
one or more of which may be waived by the Seller.
(a) Representations, Warranties and Covenants. The representations,
warranties and covenants of the Buyer shall be true, complete and correct in all
material respects as of the Closing Date with the same force and effect as
though made on and as of the Closing Date. The Buyer shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by the Buyer on or prior to the
Closing Date.
(b) Injunction, etc. At the Closing, there shall not be any Order
outstanding against any party hereto or Law promulgated that restrains,
prohibits, invalidates or otherwise prevents consummation of the transactions
contemplated by, or seeks damages as a result of or otherwise interferes with
this Agreement or any of the conditions to the consummation of the transactions
contemplated by this Agreement or would be likely to have any Material Adverse
Effect on the Company or the Business to be purchased by the Buyer hereunder.
(c) Delivery of Consideration. The Buyer shall have tendered to the
Seller the Purchase Price in accordance with Section 2.2 hereof.
(d) HSR Clearance. The applicable waiting period imposed by the HSR
Act shall have expired or been terminated.
(e) Opinion of Counsel to the Buyer. The Seller shall have received
the opinion of Kirkland & Ellis, counsel to the Buyer, substantially in the form
of Exhibit C hereto.
SECTION VII
POST-CLOSING COVENANTS
The parties covenant to take the following actions after the Closing
Date:
7.1 Further Information. Following the Closing, each party will
afford to the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data of the
Company and its Subsidiaries or relating to the Business in its
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possession with respect to periods prior to the Closing and the right to make
copies and extracts therefrom, to the extent that such access may be reasonably
required by the requesting party (a) to facilitate the investigation, litigation
and final disposition of any claims which may have been or may be made against
any party or its Affiliates and (b) for any other reasonable business purpose.
7.2 Record Retention. Each party agrees that for a period of not
less than seven (7) years following the Closing Date, it shall not destroy or
otherwise dispose of any of the Books and Records relating to the Business in
its possession with respect to periods prior to the Closing. Each party shall
have the right to destroy all or part of such Books and Records after the
seventh anniversary of the Closing Date or, at an earlier time by giving each
other party hereto thirty (30) days prior written notice of such intended
disposition and by offering to deliver to the other party, at the other party's
expense, custody of such Books and Records as such party may intend to destroy.
7.3 Transfer Taxes. The Seller agrees to pay all sales, use,
transfer, real property transfer, recording, stamp, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") arising out of or in connection
with the transactions contemplated by this Agreement, and shall deliver evidence
of payment of, and indemnify, defend and hold harmless the Buyer with respect
to, such Transfer Taxes (subject to the relevant provisions of Section 8.4 and
8.5). The Seller shall file all necessary documentation and Tax Returns with
respect to such Transfer Taxes.
7.4 Post-Closing Assistance. (a) The Seller, on the one hand, and
the Buyer, on the other hand, will provide each other with such assistance as
may reasonably be requested in connection with the preparation of any Tax
Return, any audit or other examination by any taxing authority, or any judicial
or administrative proceedings relating to liability for Taxes, and each will
retain and provide the requesting party with any records or information that may
be reasonably relevant to such return, audit or examination, proceedings or
determination. The party requesting assistance shall reimburse the other party
for reasonable out-of-pocket expenses (other than salaries or wages of any
employees of the party or its Affiliates) incurred in providing such assistance.
Any information obtained pursuant to this Section 7.4 or pursuant to any other
Section hereof providing for the sharing of information or the review of any Tax
Return or other Schedule relating to Taxes shall be kept confidential by the
parties hereto. The Seller shall prepare, or cause to be prepared, in a timely
manner, all applicable Tax Returns of the Company and its Subsidiaries, or which
include the Company and its Subsidiaries, for taxable periods ending on or prior
to the Closing Date, which have not been filed as of the Closing Date. Such Tax
Returns shall be prepared on a basis consistent with those prepared for prior
taxable periods unless a different treatment of any item is required by law or
regulation. The Buyer shall have the right to review prior to filing, any such
Tax Return of the Company and its Subsidiaries and no such Tax Return shall be
filed without the prior consent of the Buyer, which shall not be unreasonably or
untimely withheld. The Buyer shall give due consideration to tax positions taken
by the Seller for which there is a reasonable and supportable basis. The Buyer
shall promptly notify the Seller in writing of the commencement of any claim,
audit, examination, or other proposed change or adjustment of which it or any of
its Affiliates has been informed by any taxing authority which may affect the
liability of Seller under Section VIII with respect to Taxes. Such notice shall
describe the claim, audit, examination or other proposed change or adjustment in
reasonable detail and shall include copies of any notices and other documents
received from any taxing authority in respect of same. The Seller shall have the
right to
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control any audits of or administrative or court proceedings relating to taxable
periods of the Company and its Subsidiaries ending on or prior to the Closing
Date, to employ counsel of his choice, and to settle issues and take any other
actions in connection with such audit or proceedings; provided, however, that
the Seller shall not settle any such audit or proceeding in a manner that could
reasonably be expected to have an adverse effect on the Buyer or the Company and
its Subsidiaries for a period after the Closing Date without the prior consent
of the Buyer, which consent shall not be unreasonably withheld. In the event the
Seller fails to defend any such proceedings, the Buyer and the Company shall be
permitted to control such proceedings.
(b) From and after the Closing Date, the Seller and his agents and
representatives shall be permitted to make such investigations or examinations
of the real property and facilities of Suburban as may reasonably be deemed
necessary or appropriate by the Seller in connection with obtaining and
maintaining one or more policies of insurance with respect to the Seller's
indemnification obligations hereunder as to environmental matters and otherwise
to monitor the operations of Suburban insofar as is reasonably necessary in
connection with assessing and managing such indemnification obligations. Without
limiting the foregoing, Seller's investigation may consist of such environmental
audits and assessments by third-party consultants as are deemed appropriate by
Seller or his insurance carrier. Any such investigation, examination or
assessment shall be conducted at reasonable times and under reasonable
circumstances and the Buyer and its Subsidiaries (including Suburban) shall
cooperate fully therein. In connection with the Seller's efforts to remain
apprised of developments on the properties and at the facilities of Suburban
that could affect the Seller's environmental indemnification obligations
hereunder, the Buyer agrees, and agrees to cause Suburban, to use all reasonable
efforts to promptly communicate to the Seller material developments at
Suburban's facilities that could result in Losses to the Buyer with respect to
environmental matters, and to involve the Seller in any meeting or negotiation
with regulators that could give rise to liability for environmental remediation,
damages, fines, penalties, or other charges or assessments. References in this
paragraph to "Suburban" shall be deemed to include Suburban's successors by
operation of law, and any successor to the properties or facilities of Suburban.
7.5 Non-Compete and Confidentiality.
(a) Covenants Against Competition. The Seller acknowledges that the
Business is national in scope, has been developed by a limited number of persons
who have received certain confidential information and trade secrets of the
Company, and would not be the subject of this Agreement but for the covenants of
the Seller contained in this Section. Accordingly, the Seller covenants and
agrees that neither he nor any of his Affiliates will, directly or indirectly,
during the period commencing on the Closing Date and terminating three (3) years
following the Closing Date (i) engage in the business of manufacturing,
distributing, marketing or selling and of any of the product lines being sold by
the Company, the Buyer or any of their respective Subsidiaries on the date
hereof, render any services to any Person (other than the Buyer, the Company or
their respective Subsidiaries) engaged in such activities; or become interested
in any such Person as a partner, member, principal, agent, trustee, consultant
or in any other similar relationship or capacity, in each case, in the United
States of America; or (ii) solicit or encourage to leave the employment of the
Company or any of its Subsidiaries, any employee of the Company or any of its
Subsidiaries or hire any employee other than James Peden who has voluntarily
left the employment of the Company or
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any of its Subsidiaries after the date of this Agreement; provided, that the
prohibition in Section 7.5(a)(i) does not preclude the Seller from acquiring an
existing business which engages in the activities referred to in that Section.
(b) Confidentiality. From and after the Closing, the Seller shall
keep secret and retain in strictest confidence, and shall not use for the
benefit of itself or others or to the detriment of Buyer and its Subsidiaries
all confidential information with respect to the Company and any of its
Subsidiaries and the Business, or learned by the Seller heretofore or hereafter
directly or indirectly from its own information or the Buyer, including, without
limitation, information with respect to (a) prospective products and facilities,
(b) sales figures, (c) profit or loss figures, (d) customers, clients,
suppliers, sources of supply and customer lists (the "Confidential Company
Information"), and shall not disclose such Confidential Information except with
the Buyer's express written consent. Further, the Seller covenants not to obtain
or use or permit any of his Affiliates to obtain or use any information
concerning the Buyer and its Subsidiaries (including the Company and its
Subsidiaries) known or made available by James Peden or other employees of the
Company and its Subsidiaries on or after the Closing Date. This provision does
not prohibit legally mandated disclosure or disclosure or use of any
confidential information which becomes publicly known through no wrongful act of
either the Buyer or any of its shareholders or the Seller. The parties
acknowledge that the confidentiality letter dated September 3, 1997 between
Sperry, Mitchell & Company, Inc. (on behalf of Suburban Manufacturing Company)
and the Buyer is superseded in its entirety by the provisions hereof.
(c) Rights and Remedies. Upon the breach or threatened breach of any
of the covenants in this section (the "Restrictive Covenants"), the Buyer has
the right to have the Restrictive Covenants specifically enforced (without
posting any bond) by any court having equity jurisdiction, including, without
limitation, the right to an entry against the Seller of restraining orders and
injunctions (preliminary, mandatory, temporary and permanent) against
violations, threatened or actual, and whether or not then continuing, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Buyer and that money damages will not provide adequate
remedy to the Buyer. The aforementioned rights and remedies are severally
enforceable and are in addition to, and not in lieu of, any other rights and
remedies available to the Buyer under law or in equity including pursuant to
Section VIII.
(d) Enforceability. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions. Further, if any of
the Restrictive Covenants, or any part thereof, is found unenforceable because
of the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provisions and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
7.6 Name Changes; Covenant Not to Use Name. Within two days after
the Closing, the Buyer shall amend the certificate of incorporation of the
Company and its Subsidiary KODA Industries of Tennessee, Inc. to change the name
of each such corporation to eliminate the use of the name "KODA," and thereafter
the Buyer shall not use, and shall cause its Affiliates not
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to use, the name KODA or any confusingly similar name in connection with the
operation of its business.
7.7 Certain Matters Regarding Workers' Compensation Claims. (a) From
and after the Closing Date, the Seller will retain all liability of the Company
and its Subsidiaries with respect to workers compensation claims whose date of
loss occurred prior to the Closing Date, and will, in accordance with the
procedures set forth in Section 8.4, indemnify, defend and hold harmless the
Buyer from any Losses (as defined in Article 8) attributable to such claims. In
recognition of the Seller's retention of such workers compensation liability,
the Buyer (i) acknowledges that the Closing Balance Sheet will not reflect
reserves, liabilities, receivables or payables attributable to workers
compensation claims; (ii) agrees to cooperate with the Seller to permit the
Seller to utilize any applicable workers compensation insurance of the Buyer or
any of its Subsidiaries (including policies benefitting the Company and its
Subsidiaries prior to the Closing Date) to pay for any claims as to which the
Seller would otherwise have liability pursuant to this Section 7.7; (iii) agrees
to maintain in effect policies of workers compensation insurance with respect to
the Company and its Subsidiaries having coverages and terms no less favorable to
the insured than those maintained by the Company and its Subsidiaries
immediately prior to the Closing; and (iv) agrees to promptly forward to the
Seller any payments received by the Buyer or any of its Subsidiaries in respect
of any workers compensation claim having a date of loss prior to the Closing
Date, endorsed as payable to the Seller. The Buyer, on behalf of itself and its
Subsidiaries (including, as of the Closing, the Company and its Subsidiaries)
appoints the Seller and William J. Leaver, or either of them, as its
attorneys-in-fact and agents, with full power of substitution, to endorse any
checks received from workers' compensation insurance carriers in respect of
workers' compensation claims whose date of loss occurred prior to the Closing
Date in the name of the payee so that the funds represented thereby can be
promptly deposited by the Seller; provided that the relevant attorney shall
advise the Buyer in writing of each such deposit and copy to the Buyer evidence
of such deposit within 2 Business Days of the deposit being made.
(b) As security for the Seller's indemnification obligation under
this Section 7.7, the Seller agrees to maintain, from and after the Closing Date
a bond or letter of credit in favor of the Buyer issued by a reputable insurance
company or financial institution and in the amount of $1,000,000; provided that
the amount of such bond shall be reduced, on each anniversary of the Closing
Date, to the greater of the Seller's good faith estimate of the amount that
would have been reserved for outstanding workers' compensation claims in
accordance with GAAP or (i) as of the first anniversary of the Closing Date,
$750,000; (ii) as of the second anniversary, $500,000; (iii) as of the third
anniversary, $250,000; and (iv) as of the fourth anniversary and thereafter, $0
(in which event the bond or letter of credit will be terminated); and provided
further that if workers' compensation claims remain outstanding after such
fourth anniversary the Seller agrees at the Buyer's reasonable request to
maintain a further bond or letter of credit in an amount sufficient to secure
such claims.
7.8 Further Assurances. From and after the Closing, each of the
Buyer and the Seller will, and will cause their respective Affiliates to,
execute and deliver such further instruments of sale, conveyance, transfer,
assignment and delivery and such consents, assurances, powers of attorney and
other instruments and take such other action as reasonably may be necessary in
order to put the Buyer in actual possession and control of the Company and the
Business and to otherwise
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fully effectuate and carry out the transactions contemplated by this Agreement.
The parties shall use all reasonable commercial efforts to fulfill or obtain the
fulfillment of the conditions to the Closing, including, without limitation, the
execution and delivery of any document, the execution and delivery of which are
conditions precedent to the Closing.
SECTION VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival of Representations, Warranties, Covenants and
Agreements. The representations, warranties, covenants and agreements of the
Seller and the Buyer contained in this Agreement will survive the Closing (a)
sixty (60) days after the expiration of all applicable statutes of limitation
(including all periods of extension, whether automatic or permissive) with
respect to the matters covered by the representations and warranties contained
in Sections 3.1, 3.2, 3.4, 3.9 and 3.20, (b) until fifteen (15) months after the
Closing in the case of all other representations and warranties, or (c) with
respect to each covenant or agreement contained in this Agreement, until ninety
(90) days following the last date on which such covenant or agreement is to be
performed or, if no such date is specified, indefinitely; provided, however,
that any representation, warranty, covenant or agreement that would otherwise
terminate in accordance with clause (a), (b) or (c) above will continue to
survive, if a Party gives notice to another Party hereunder that it is aware of
circumstances which may give rise to a Claim Notice on or prior to such
termination date, until the related claim for indemnification has been satisfied
or otherwise resolved as provided in this Section VIII.
8.2 Indemnification of the Buyer.
(a) Subject to the limitations contained in this Section VIII, the
Seller agrees to indemnify, defend and hold harmless the Buyer, its Affiliates,
and their respective directors, officers, partners, employees, successors and
assigns, from and against any and all losses, liabilities (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including fees and disbursements of counsel and expenses of investigation and
defense), claims, liens or other obligations of any nature whatsoever after
giving credit for any applicable insurance proceeds (hereinafter individually, a
"Loss" and collectively, "Losses") which directly or indirectly result from any
inaccuracy in or any breach of any representation and warranty, or any breach of
any covenant or agreement, of the Seller contained in this Agreement.
(b) As a separate and independent covenant, the Seller agrees to
indemnify, defend and hold harmless the Buyer, its Affiliates and their
respective directors, officers, partners, employees, successors and assigns,
from and against all Losses which directly or indirectly result from the
Divestiture, the Subsidiaries the subject of the Divestiture and their
respective assets and businesses, and any transactions with Affiliates not
disclosed on Schedule 3.12. Further, the Seller agrees (i) to indemnify the
Buyer with respect to any penalty or liability resulting from its failure to
file a Schedule F with respect to the Form 5500 for the Educational Assistance
Plan of the Company and (ii) to pay to the Buyer any amount (A) not disclosed on
the certificate delivered pursuant to
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Section 6.1(f) which, if properly included thereon, in accordance with the terms
of such certificate, would have reduced the Purchase Price and (B) disclosed on
the certificate delivered pursuant to Section 6.1(f) which should not have been
disclosed thereon, in accordance with the terms of such certificate, and which
by its inclusion increased the Purchase Price.
(c) With respect to any Loss of the Buyer as to which insurance is
or may be available, the Buyer agrees to proceed first against the applicable
insurance carrier before instituting any claim against the Seller for
indemnification hereunder. Any proceeds recovered by the Buyer or any of its
Subsidiaries with respect to such Loss shall reduce the amount to be indemnified
by the Seller. The Buyer agrees to maintain in effect commercial insurance
policies covering the Company and its Subsidiaries having coverages and terms
that are in the aggregate no less favorable than those maintained by the Company
and its Subsidiaries immediately prior to Closing.
8.3 Indemnification of the Seller. Subject to the limitations
contained in this Section VIII, the Buyer agrees to indemnify, defend and hold
harmless the Seller and his Affiliates and their respective directors, officers,
partners, employees, successors and assigns, from and against any and all Losses
which, directly or indirectly result from (a) any inaccuracy in or any breach of
any representation and warranty, or any breach of any covenant or agreement, of
the Buyer contained in this Agreement, or (b) except with respect to any matter
which is the subject of indemnification by the Seller pursuant to Section 8.2,
the operation of the Business after Closing.
8.4 Method of Asserting Claims. The party making a claim under this
Section VIII is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under this Section VIII is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Section
VIII shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand (the "Claim Notice"); provided,
however, that any failure to give such Claim Notice will not be deemed a waiver
of any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced by such failure. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably acceptable to the Indemnified Party) to represent the Indemnified
Party and shall pay the reasonable fees and disbursements of such counsel with
regard thereto; provided, however, that the Indemnified Party is hereby
authorized prior to the date on which it receives written notice from the
Indemnifying Party designating such counsel, to retain counsel, whose fees and
expenses shall be at the expense of the Indemnifying Party if the Indemnified
Party has delivered a Claim Notice, to file any motion, answer or other pleading
and take such other action which it reasonably shall deem necessary to protect
its interests or those of the Indemnifying Party until the date on which the
Indemnified Party receives such notice from the Indemnifying Party. After the
Indemnifying Party shall retain such counsel, the Indemnified Party shall have
the right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (x) the Indemnifying
Party and the Indemnified Party shall have mutually agreed to the retention of
such counsel or (y) the named parties of any such proceeding (including any
impleaded
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parties) include both the Indemnifying Party and the Indemnified Party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. The Indemnifying Party
shall not, in connection with any proceedings or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one such firm for
the Indemnified Party (except to the extent the Indemnified Party retained
counsel to protect its (or the Indemnifying Party's) rights prior to the
selection of counsel by the Indemnifying Party). If requested by the
Indemnifying Party, the Indemnified Party agrees to cooperate with the
Indemnifying Party and its counsel in contesting any claim or demand which the
Indemnifying Party defends. A claim or demand may not be settled by the
Indemnifying Party without the prior written consent of the Indemnified Party
(which consent will not be unreasonably withheld) unless, as part of such
settlement, the Indemnified Party shall receive a full and unconditional release
reasonably satisfactory to the Indemnified Party; provided, that if,
notwithstanding the full and unconditional release of the Indemnified Party from
all liability in respect of such claim or demand, the Indemnified Party refuses
to consent to such settlement, then thereafter the Indemnifying Party's
liability to the Indemnified Party in respect of such third party claim shall
not exceed the settlement amount included in such settlement offer, and the
Indemnified Party shall either assume the defense of such third party claim or
pay the Indemnifying Party's attorneys' fees and other out-of-pocket costs
incurred thereafter in continuing the defense of such thirty party claim.
(b) In the event any Indemnified Party shall have a claim against
any Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party.
(c) After delivery of a Claim Notice, so long as any right to
indemnification exists pursuant to this Section VIII, the affected parties each
agree to retain all Books and Records related to such Claim Notice. In each
instance, the Indemnified Party shall have the right to be kept fully informed
by the Indemnifying Party and its legal counsel with respect to any legal
proceedings. Any information or documents made available to any party hereunder
and designated as confidential by the party providing such information or
documents and which is not otherwise generally available to the public and not
already within the best knowledge of the party to whom the information is
provided (unless otherwise covered by the confidentiality provisions of any
other agreement among the parties hereto, or any of them), and except as may be
required by applicable law, shall not be disclosed to any third Person (except
for the representatives of the party being provided with the information, in
which event the party being provided with the information shall request its
representatives not to disclose any such information which it otherwise required
hereunder to be kept confidential).
8.5 Limitations on Indemnification. The Seller shall have no
liability, nor be subject to any claim, under Section 8.2(a) in respect of any
inaccuracy in or any breach of any representation and warranty of the Seller
contained in this Agreement unless and until the amount of Losses exceeds
$720,000 in the aggregate, and then only to the extent of Losses in excess of
such amount; provided, however, that in no event shall the liability of the
Seller with respect to Losses exceed $10,000,000. Notwithstanding the foregoing,
the provisions of the previous sentence shall not apply with respect to the
indemnities contained in Section 8.2(b) or to any Loss arising out of
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any inaccuracy in or any breach of the representations and warranties contained
in the last sentence of Section 2.3(a) or in Sections 3.1, 3.2, 3.4, 3.9 or
3.20; provided, however, that the Seller shall have no liability, nor be subject
to any claim, under Section 8.2(a) in respect of any inaccuracy in or any breach
of the representations and warranties contained in Section 3.20 unless and until
the amount of Losses exceeds $100,000 in the aggregate, and then only to the
extent of Losses in excess of such amount and such $100,000 in Losses retained
by the Buyer shall not apply toward the $720,000 in Losses retained by the Buyer
under the preceding sentence. In no event shall either party be liable to the
other for lost profits, lost revenues, lost opportunity costs, costs of
financing, or punitive damages. If the Closing occurs, indemnification pursuant
to this Section VIII shall be the exclusive remedy of the parties for money
damages under this Agreement. No indemnification is available pursuant to this
Section VIII in respect of any liability to the extent the same is included in
the Statement of Working Capital as defined in Section 2.3.
SECTION IX
TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time prior
to the Closing by the Buyer, on the one hand, or by the Seller, on the other
hand, by written, notice to the other party hereto, in the event that the
Closing shall not have occurred on or prior to the close of business on March
17, 1998 unless the failure to close has been caused by a breach of this
Agreement by the party seeking such termination.
9.2 Survival. In the event this Agreement is terminated pursuant to
Section 9.1, (i) this Agreement shall become null and void and of no further
force and effect, except for the provisions of Section 5.l, relating to the
obligation to keep confidential certain information, 5.4 and this Section 9.2
and (ii) there shall be no liability on the part of the Seller or the Buyer,
their Affiliates or their respective partners, officers, directors, employees or
agents, provided, however, that if such termination shall result from the wilful
breach by a party of the provisions contained in this Agreement, such party
shall be fully liable for any and all damages, costs and expenses sustained or
incurred as a result of such breach by the other parties hereto.
9.3 Expenses. Each of the parties hereto shall pay its own expenses
(including, without limitation, attorneys' and accountants' fees and
out-of-pocket expenses) incident to this Agreement and the transactions
contemplated hereby.
9.4 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, sent by facsimile transmission or sent by prepaid overnight
air courier. Any such notice shall be deemed to have been given (a) when
received, if delivered in person, (b) the Business Day after a confirmation has
been generated, if sent by facsimile transmission, and (c) two Business Days
after dispatch, if sent by prepaid overnight air courier, in each case if
delivered, sent or addressed as follows (or to such other address or addresses
or facsimile number as a party may have advised the other in the manner provided
in this Section 9.4):
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If to the Seller:
William S. Karol
KODA Enterprises Group, LLC
800 South Street
Waltham, MA 02154
Fax: (617) 891-9712
With a copy to (which shall not constitute notice):
Sutherland, Asbill & Brennan LLP
999 Peachtree Street, N.E.
Atlanta, GA 30309-3996
Attn: Thomas C. Herman, Esq.
Fax: (404) 853-8806
If to the Buyer:
Airxcel, Inc.
3050 N. Saint Frances Street
Wichita, KS 67219
Attn.: Mel Adams
Fax: (316) 832-3493
With a copy to (which shall not constitute notice):
Kirkland & Ellis
153 East 53rd Street, 39th Floor
New York, NY 10022
Attn.: Kirk A. Radke, Esq.
Fax: (212) 446-4900
9.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered on the
Closing Date in connection with this Agreement (including the funds flow
memorandum) contain as at the date hereof the entire agreement among the parties
with respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto (including without limitation
the "letter of intent" among Airxcel Holdings, Inc., the Seller and the Company
dated December 23, 1997).
9.6 Waivers and Amendments. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof. The
rights and remedies of any parties based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty, covenant
or agreement contained in
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this Agreement shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement contained in this Agreement (or in any other
agreement between the parties as to which there is no inaccuracy or breach).
9.7 Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement hereto shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
9.8 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable by any party hereto without
the prior written consent of the other party hereto except by operation of law
after the Closing Date and any other purported assignment shall be null and
void; provided, however, that the Buyer may assign this Agreement without the
consent of the Seller to any lenders to the Buyer or any subsequent purchaser of
all or any part of the Business.
9.9 Severability of Provisions. If any provision or any portion of
any provision of this Agreement or the application of such provision or any
portion thereof to any Person or circumstance shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby.
9.10 Counterparts. This Agreement may be executed by the parties
hereto in one or more counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
9.11 Specific Performance. The Seller acknowledges that money
damages would not be a sufficient remedy for any breach of this Agreement and
agree that the Buyer shall be entitled to specific performance and injunctive
relief as remedies for any such breach (without any requirement of posting a
bond).
9.12 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
9.13 Waiver of Jury Trial. Each of the parties hereto waives to the
fullest extent permitted by law any right it may have to trial by jury in
respect of any claim, demand, action or cause of action based on, or arising out
of, under or in connection with this Agreement, or any course of conduct, course
of dealing, verbal or written statement or action of any party hereto, in each
case
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whether now existing or hereafter arising, and whether in contract, tort,
equity or otherwise. The parties to this Agreement each hereby agrees that any
such claim, demand, action or cause of action shall be decided by court trial
without a jury and that the parties to this Agreement may file an original
counterpart of a copy of this Agreement with any court as evidence of the
consent of the parties hereto to the waiver of their right to trial by jury.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date and year first above written.
AIRXCEL, INC.
By: _____________________________
Its:
____________________________________
WILLIAM S. KAROL
