SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 4, 1997
------------------------
Blount, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-7002 63-0593908
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets.
On November 4, 1997, Blount, Inc. ("Company"), a wholly-owned subsidiary of
Blount International, Inc. ("Parent"), acquired all of the outstanding stock of
Federal-Hoffman, Inc., a Minnesota corporation, now by change of name Federal
Cartridge Company ("Federal") from Hoffman Enclosures, Inc. ("Hoffman"). The
acquisition was effected pursuant to a Stock Purchase Agreement dated November
4, 1997 (the "Stock Purchase Agreement") by and among Company, Hoffman as
successor by merger to FC Holdings Inc. ("FCH") and Pentair, Inc. ("Pentair"),
the parent of Hoffman. The purchase price was $112.0 million, subject to post-
closing adjustments. The sources of the $112.0 million paid at closing
consisted of debt of $71.5 million, with the balance paid by the Company from
general corporate funds.
Federal manufactures and markets shotshell, centerfire, and rimfire cartridges,
ammunition components, and clay targets. These products are distributed
throughout the United States through a network of distributors, directly to
large retail chains, and directly to the U.S. government and law enforcement
agencies. Federal markets its products under the brand names of "Premium",
"Gold Medal", "Classic", "BallistiClean", and "Tactical". Federal markets
include hunters; trap, skeet, sporting clay, and target shooters; the U.S.
government, and law enforcement. Federal had 1996 sales in the ammunition
business of approximately $130.0 million. The Parent and Company presently
intend to continue to operate the business of Federal as currently conducted.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
It is impracticable to provide the required financial statements at this
time. Such information will be filed as soon as practicable, but not later
than 60 days after November 19, 1997.
(b) Pro Forma Financial Information.
It is impracticable to provide the required pro forma financial information
at this time. Such information will be filed as soon as practicable, but
not later than 60 days after November 19, 1997.
(c) Exhibits.
Exhibit No. Description
2 Stock Purchase Agreement, dated November 4, 1997, by and
among Blount, Inc., Hoffman Enclosures Inc., Pentair, Inc.
and Federal-Hoffman, Inc. (all schedules and certain
exhibits omitted except for Exhibits E and J).
Blount, Inc. agrees to furnish the Commission with a copy of all schedules
and exhibits omitted from the foregoing Stock Purchase Agreement upon its
request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BLOUNT, INC.
By: /s/ Harold E. Layman
--------------------------------------
Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
Date: November 19, 1997
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Exhibit 2
STOCK PURCHASE AGREEMENT
BY AND AMONG
BLOUNT, INC.
HOFFMAN ENCLOSURES INC.
PENTAIR, INC.
AND
FEDERAL-HOFFMAN, INC.
NOVEMBER 4, 1997
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TABLE OF CONTENTS
Page
AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . 2
ARTICLE II PURCHASE AND SALE OF THE SHARES . . . . . . . . 14
2.1 Purchase of the Shares from the Seller . . . . . . . 14
2.2 Further Assurances . . . . . . . . . . . . . . . . . 14
2.3 Purchase Price for the Shares. . . . . . . . . . . . 14
2.4 Initial Payment of the Purchase Price. . . . . . . . 15
2.5 Closing. . . . . . . . . . . . . . . . . . . . . . . 15
2.6 Closing Audit. . . . . . . . . . . . . . . . . . . . 16
2.7 Determination and Payment of Purchase Price
Adjustment . . . . . . . . . . . . . . . . . . . . . 18
2.8 Payment for Special Inventory. . . . . . . . . . . . 18
ARTICLE III REPRESENTATIONS REGARDING PENTAIR AND FCH . . . 19
3.1 Title to Shares. . . . . . . . . . . . . . . . . . . 19
3.2 Authorizations . . . . . . . . . . . . . . . . . . . 19
3.3 Noncontravention . . . . . . . . . . . . . . . . . . 19
3.4 338(h)(10) Filing Eligibility. . . . . . . . . . . . 19
3.5 Books and Records. . . . . . . . . . . . . . . . . . 19
ARTICLE IV REPRESENTATIONS REGARDING THE COMPANY . . . . . 20
4.1 Organization, Qualification and Corporate Power. . . 20
4.2 Capitalization . . . . . . . . . . . . . . . . . . . 20
4.3 Authorization of the Company . . . . . . . . . . . . 20
4.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . 20
4.5 Noncontravention . . . . . . . . . . . . . . . . . . 21
4.6 Financial Statements . . . . . . . . . . . . . . . . 21
4.7 Permits, Consents and Approvals. . . . . . . . . . . 21
4.8 Undisclosed Liabilities. . . . . . . . . . . . . . . 22
4.9 Litigation . . . . . . . . . . . . . . . . . . . . . 22
4.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 22
4.11 Employee Benefit and Employment Matters. . . . . . . 24
4.12 Labor Agreements and Actions . . . . . . . . . . . . 26
4.13 Absence of Certain Changes . . . . . . . . . . . . . 27
4.14 Books and Records. . . . . . . . . . . . . . . . . . 28
4.15 Owned and Leased Personal Property . . . . . . . . . 28
4.16 Intellectual Property. . . . . . . . . . . . . . . . 29
4.17 Leased Real Property . . . . . . . . . . . . . . . . 30
4.18 Owned Real Property. . . . . . . . . . . . . . . . . 31
4.19 Material Contracts . . . . . . . . . . . . . . . . . 32
4.20 Insurance. . . . . . . . . . . . . . . . . . . . . . 33
4.21 Certain Relationships. . . . . . . . . . . . . . . . 33
4.22 Environmental Matters. . . . . . . . . . . . . . . . 34
4.23 Compliance with Law. . . . . . . . . . . . . . . . . 34
4.24 No Other Agreements to Sell Assets of the Company. . 34
4.25 Notes and Accounts Receivable. . . . . . . . . . . . 35
4.26 Inventories. . . . . . . . . . . . . . . . . . . . . 35
4.27 Certain Payments . . . . . . . . . . . . . . . . . . 35
4.28 Customers. . . . . . . . . . . . . . . . . . . . . . 35
4.29 Suppliers. . . . . . . . . . . . . . . . . . . . . . 36
4.30 Warranty and Product Liability . . . . . . . . . . . 36
4.31 Banking Facilities . . . . . . . . . . . . . . . . . 36
4.32 Powers of Attorney . . . . . . . . . . . . . . . . . 36
4.33 Compensation of and Contracts with Employees . . . . 36
4.34 Product Recalls. . . . . . . . . . . . . . . . . . . 37
4.35 Information Provided . . . . . . . . . . . . . . . . 37
4.36 Sufficiency of Assets. . . . . . . . . . . . . . . . 37
ARTICLE V REPRESENTATIONS OF THE BUYER . . . . . . . . . 37
5.1 Organization and Authority . . . . . . . . . . . . . 37
5.2 Authorization. . . . . . . . . . . . . . . . . . . . 37
5.3 Noncontravention . . . . . . . . . . . . . . . . . . 38
5.4 Investment Purpose . . . . . . . . . . . . . . . . . 38
5.5 Financing. . . . . . . . . . . . . . . . . . . . . . 38
5.6 Litigation . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI SEPARATION COVENANTS. . . . . . . . . . . . . . 38
6.1 Separation Agreement . . . . . . . . . . . . . . . . 38
6.2 Third Party Consents . . . . . . . . . . . . . . . . 38
6.3 Termination and Employment of Hoffman Division
Employees. . . . . . . . . . . . . . . . . . . . . . 39
6.4 Actions and Claims . . . . . . . . . . . . . . . . . 39
6.5 Insurance. . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VII ADDITIONAL COVENANTS OF THE COMPANY, SELLER
AND BUYER . . . . . . . . . . . . . . . . . . . 41
7.1 Public Announcements . . . . . . . . . . . . . . . . 41
7.2 Payment of Retention Bonus . . . . . . . . . . . . . 41
7.3 Costs and Expenses . . . . . . . . . . . . . . . . . 42
7.4 Confidential Information . . . . . . . . . . . . . . 42
7.5 No Solicitation or Hiring of Former Employees. . . . 42
7.6 Non-Competition Agreement. . . . . . . . . . . . . . 43
7.7 Tax Return Preparation and Examinations. . . . . . . 43
7.8 Access to Information and Records. . . . . . . . . . 45
7.9 Certain Employee Claims. . . . . . . . . . . . . . . 46
7.10 MIP Bonuses. . . . . . . . . . . . . . . . . . . . . 47
7.11 Severance Obligations. . . . . . . . . . . . . . . . 47
7.12 Salary and Wages and Employee Benefits.. . . . . . . 47
7.13 Section 338 Election . . . . . . . . . . . . . . . . 52
7.14 Name Change. . . . . . . . . . . . . . . . . . . . . 54
7.15 Environmental Matters. . . . . . . . . . . . . . . . 54
7.16 Payment of Uncollectible Accounts Receivable . . . . 58
7.17 Title Review . . . . . . . . . . . . . . . . . . . . 58
7.18 SEC Financial Statements . . . . . . . . . . . . . . 59
7.19 Third Party Consents . . . . . . . . . . . . . . . . 59
7.20 Further Cooperation and Assurances . . . . . . . . . 59
ARTICLE VIII SURVIVAL OF CERTAIN PROVISIONS;
INDEMNIFICATIONS. . . . . . . . . . . . . . . . 60
8.1 Survival of Representations, Warranties,
Indemnities and Other Agreements . . . . . . . . . . 60
8.2 Agreement to Indemnify . . . . . . . . . . . . . . . 61
8.3 Defense of Claims. . . . . . . . . . . . . . . . . . 62
8.4 Representatives. . . . . . . . . . . . . . . . . . . 63
8.5 Claim Method . . . . . . . . . . . . . . . . . . . . 64
8.6 Limitations on Indemnification . . . . . . . . . . . 64
ARTICLE IX DISPUTE RESOLUTION. . . . . . . . . . . . . . . 64
9.1 Dispute Resolution . . . . . . . . . . . . . . . . . 64
9.2 Mediation and Arbitration. . . . . . . . . . . . . . 65
ARTICLE X BROKERS . . . . . . . . . . . . . . . . . . . . 67
10.1 For Pentair. . . . . . . . . . . . . . . . . . . . . 67
10.2 For the Buyer. . . . . . . . . . . . . . . . . . . . 67
ARTICLE XI NOTICES . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . 69
12.1 Successors and Assigns . . . . . . . . . . . . . . . 69
12.2 Entire Agreement; Amendments; Attachments. . . . . . 69
12.3 Severability . . . . . . . . . . . . . . . . . . . . 69
12.4 Governing Law. . . . . . . . . . . . . . . . . . . . 69
12.5 Section Headings . . . . . . . . . . . . . . . . . . 69
12.6 Counterparts . . . . . . . . . . . . . . . . . . . . 69
12.7 Confidentiality Agreement. . . . . . . . . . . . . . 70
12.8 Third Party Beneficiaries. . . . . . . . . . . . . . 70
12.9 Cumulative Remedies. . . . . . . . . . . . . . . . . 70
12.10 Construction . . . . . . . . . . . . . . . . . . . . 70
Exhibit A - Confidentiality Agreement. . . . . . . . . . . . .(omitted)
Exhibit B - Officers, Directors and Other Personnel. . . . . .(omitted)
Exhibit C - Opinion of Counsel to Pentair and FCH. . . . . . .(omitted)
Exhibit D - Opinion of Counsel to Buyer. . . . . . . . . . . .(omitted)
Exhibit E - GAAP Standard for the Closing Date Net Equity
Statement. . . . . . . . . . . . . . . . . . . . .E-1
Exhibit F - Net Equity Report of Pentair's Accountants . . . .(omitted)
Exhibit G - Separation Agreement . . . . . . . . . . . . . . .(omitted)
Exhibit H - Retention Bonus Letter . . . . . . . . . . . . . .(omitted)
Exhibit I - Certain Actuarial Assumptions . . . . . . . . . .(omitted)
Exhibit J - Survival Periods of Representations and
Warranties . . . . . . . . . . . . . . . . . . . .J-1
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of
the 4th day of November, 1997, by and among Blount, Inc., a
Delaware corporation, (the "Buyer"), and Hoffman Enclosures Inc.,
a Minnesota corporation as successor by merger to FC Holdings Inc.,
a Delaware corporation, ("FCH"), Pentair, Inc., a Minnesota
corporation, ("Pentair") (FCH and Pentair are each individually
defined hereunder as the "Seller" and collectively shall be
referred to herein as the "Seller") and Federal-Hoffman, Inc., a
Minnesota corporation, (the "Company").
RECITALS
A. Pentair is the sole shareholder and corporate parent of FCH.
B. FCH owns and holds all of the issued and outstanding
shares (the "Shares") of the Company's common stock, $.01 par value
per share (the "Common Stock").
C. The Seller operates two distinct business divisions
within the Company, one known as the "Federal Division" and the
other known as the "Hoffman Division". The Federal Division, also
known as Federal Cartridge Co., produces small arms sporting
ammunition, including without limitation shotshell, centerfire and
rimfire cartridges, ammunition components and clay targets.
D. Prior to the sale of the shares contemplated hereby, FCH
shall cause the Company to distribute to FCH the assets and all
Liabilities that are not associated with the Business, or are not
otherwise to be retained by the Company pursuant to the terms of
this Agreement or the Separation Agreement (as defined below), in
a deemed complete liquidation under Section 332 of the Internal
Revenue Code of 1986, as amended, (the "Code") in order to
facilitate the sale of the Shares to Buyer and for which a joint
election will be made under Section 338(h)(10) of the Code (the
"Separation"). Major components involved in the Separation
include, without limitation (i) division of the Company's Anoka
site, (ii) identification and grant of easements, access and the
like, (iii) division of fences and security, (iv) entry pattern
allocation, (v) usage of office space, (vi) permitting and other
governmental consents and licenses, and (vii) shared facilities and
services, if any.
E. Upon completion of the Separation pursuant to the
Separation Agreement entered into among Pentair, FCH and the
Company which is satisfactory to Buyer in its sole discretion,
Buyer shall purchase and Seller shall sell the Shares.
F. The Parties have complied with the premerger notification
requirements of the Hart Scott Rodino Antitrust Improvements Act of
1976, as amended, and received clearance from the Department of
Justice on or about September 27, 1997.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing Recitals,
the mutual promises, covenants, agreements and conditions
hereinafter set forth and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the
Parties hereby agree as follows:
AGREEMENT
ARTICLE I
DEFINITIONS
As used herein, the terms below shall have the following
meanings. Any of such terms, unless the context otherwise
requires, may be used in the singular or plural, depending upon the
reference.
"Action" shall mean any legal action, cause of action, chose
in action, claim, suit, litigation, proceeding, labor dispute,
governmental audit, criminal prosecution or unfair labor practice
charge or complaint.
"Active Employee" means any employee of the Company who is as
of the Closing Date (i) actively employed in the Business or (ii)
not so actively employed by reason of vacation, workers'
compensation, short-term disability leave, military leave, layoff
with recall rights or other approved leave of absence, to the
extent that such employee in fact returns to work within six (6)
months after the Closing Date.
"Affiliate" or "Affiliates" shall have the meaning set forth
in the Exchange Act; provided, however, that the Buyer and its
Affiliates shall not be deemed Affiliates of the Company until the
Closing.
"Agreement" shall have the meaning set forth in the preamble
to this Agreement.
"Allocations" shall have the meaning set forth in Section
7.13(b) hereof.
"Assets" means without limitation all right, title, and
interest in and to all of the tangible and intangible assets
relating to the Federal Division, including all of its (a) Owned
Real Property, Leases, Leased Real Property, leasehold
improvements, fixtures, and fittings thereon, and easements,
rights-of-way, and other rights appurtenant thereto (such as
appurtenant rights in and to public streets), (b)Personal Property,
(c) Intellectual Property, goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and
rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all
applicable jurisdictions, (d) Contracts, Mortgages and other
similar arrangements, and rights thereunder, (e) accounts, notes,
and other receivables, (f) securities, (g) claims, deposits,
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prepayments, refunds, choses in action, causes of action and rights
of recovery, rights of set off, and rights of recoupment (including
any such item relating to the payment of Taxes, other than those
assets related to Liabilities other than Federal Liabilities), (h)
Permits, (i) Books and Records, (j) any cash, (k) Insurance
Policies to the extent such policies or coverage do not arise under
Pentair's captive insurance company, under which the Federal
Division, as owner, insured or otherwise, has a right to claim, (l)
rights under or pursuant to all warranties, representations and
guaranties, and (m) any of the rights of the Company under this
Agreement or the Transaction Documents, including the Separation
Agreement (or under any side agreement between the Company on the
one hand and Pentair or FCH on the other hand entered into on or
after the date of this Agreement). In addition, Assets shall
include the corporate charter, qualifications to conduct business
as a foreign corporation, arrangements with registered agents
relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, stock transfer books,
blank stock certificates, and other documents relating to the
organization, maintenance, and existence of the Company as a
corporation, but excluding the game farm, the gun club and
buildings 135, 136 and 137 as described in the survey of the Owned
Real Property.
"Audited Financial Statements" shall have the meaning set
forth in Section 7.18 hereof.
"Books and Records" shall mean without limitation (a) all
records of any kind or nature of the Company pertaining to the
Assets, (b) all records of any kind or nature pertaining to the
Business or customers, suppliers or Personnel of the Federal
Division, (c) product, business, development, and marketing plans
of the Federal Division, (d) books, ledgers, files, reports, plans,
drawings and operating records of every kind maintained by the
Federal Division, and (e) all records of any kind or nature which
arise from, in connection with or incident to the Company as a
corporate entity; provided, however, that books and records of the
Company pertaining solely to the Hoffman Division shall not
constitute "Books and Records."
"Business" shall mean the development, manufacture, marketing
and sale of ammunition and related products (including shotshell,
centerfire and rimfire cartridges, ammunition components and clay
targets) carried on by the Company.
"Buyer" shall have the meaning set forth in the preamble to this
Agreement.
"Buyer's Accountants" shall have the meaning set forth in
Section 2.6(c) hereof.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.).
"Claim" shall have the meaning set forth in Section 8.3 hereof.
"Claim Notice" shall have the meaning set forth in Section 8.3 hereof.
"Closing" shall have the meaning set forth in Section 2.1 hereof.
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"Closing Date" shall have the meaning set forth in Section 2.5 hereof.
"Closing Date Net Equity Statement" shall have the meaning set
forth in Section 2.6(a) hereof.
"COBRA Participants" shall have the meaning set forth in 7.12(g) hereof.
"Code" shall have the meaning set forth in the Recitals to
this Agreement.
"Common Control Entity" shall mean any Person, trade or
business which is or at any relevant time was under "common
control" with Seller or the Company, as defined in Section 414(b)
or (c) of the Code.
"Common Stock" shall have the meaning set forth in the
Recitals to this Agreement.
"Company" shall have the meaning set forth in the Preamble to
this Agreement.
"Confidential Information" shall mean all trade secrets and
confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and
cost information, and business and marketing plans and proposals),
except for trade secrets and information which (i) at the time of
disclosure or thereafter is generally available to the public
(other than as a result of disclosure in breach of the
Confidentiality Agreement, this Agreement or any Transaction
Document), (ii) was available to a party (against whom any Action
or claim is instituted or made) on a non-confidential basis from a
source other than such party or its Representatives, provided that
such source was not bound by a confidentiality agreement with any
Person, and in violation thereof at the time of disclosure or (iii)
has been independently acquired or developed by a party without
violating any of its obligations under the Confidentiality
Agreement, this Agreement or any Transaction Document.
"Confidentiality Agreement" shall mean that letter agreement
between Buyer and Pentair dated February 21, 1997 attached hereto
as Exhibit A.
"Contract" or "Contracts" shall mean and include any
agreement, arrangement, contract, note, loan, evidence of
indebtedness, right of payment, purchase order, letter of credit,
franchise agreement, covenant not to compete, employment agreement,
license, instrument, guarantee, obligation or commitment arising
out of or relating to the Business or to which any of the Assets or
the Shares are subject, whether oral or written, express or
implied, but excluding all Leases and Encumbrances.
"Copyrights" shall mean registered copyrights, copyright
applications, copyrightable works and unregistered copyrights, and
all applications, registrations, and renewals in connection
therewith.
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"Court Order" shall mean any judgment, award, decision,
consent decree, injunction, ruling, writ or order of any federal,
state or local court or governmental agency, department or
authority that is binding on any Person or its property under
applicable Regulation.
"Current Financial Statement" shall have the meaning set forth
in Section 4.6(a) hereof.
"Damages" shall have the meaning set forth in Section 8.2(a)
hereof.
"Deductible" shall have the meaning set forth in Section
8.6(a) hereof.
"Default" shall mean (i) a material breach of or default under
any Contract, Lease or Encumbrance or (ii) the occurrence of an
event that without the passage of time and without the giving of
notice gives rise to a right of termination or cancellation,
renegotiation, modification or acceleration under any Contract,
Lease or Encumbrance (see also "Potential Default").
"Defined Benefit Plan" shall mean the Pentair, Inc. Pension
Plan.
"Disclosure Schedule(s)" or "Schedule" shall mean the
schedules to this Agreement. Any Disclosure Schedule shall be
effective for disclosure hereunder as to any representation and
warranty if it clearly is able to be related to such representation
and warranty.
"Election" shall have the meaning set forth in Section 7.13
hereof.
"Employee Benefits" means any and all pension or welfare
benefit programs, plans, arrangements, agreements and
understandings which cover or otherwise benefit employees or former
employees of the Company generally or specific individual employees
of the Company and to which the Company contributes or is a party,
by which it may be bound, or under which it may have liability,
including, without limitation, pension or retirement plans,
deferred compensation plans, bonus or incentive plans, early
retirement programs, severance pay policies, support funds,
workers' compensation, medical, dental, life and disability
insurance, and payment or reimbursement plans.
"Encumbrance" shall mean and include:
(a)with respect to any Personal Property, any
intangible property or any property other than real property, any
security or other property interest or right, claim, lien, pledge,
option, charge, security interest, contingent or conditional sale,
or other title claim or retention agreement or lease or use
agreement in the nature thereof whether voluntarily incurred or
arising by operation of law, and including any agreement to grant
or submit to any of the foregoing in the future; and
(b)with respect to any real property (whether and including
Owned Real Property or Leased Real Property), any Mortgage, lien,
easement, interest, right-of-way, condemnation or eminent domain
proceeding, encroachment, any building, use or other form of
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restriction, encumbrance or other claim (including adverse or
prescriptive) or right of third parties (including Governmental
Agencies), any lease or sublease (other than a Lease), boundary
dispute, and agreements with respect to any real property
including: purchase, sale, right of first refusal, option,
construction, building or property service, maintenance, property
management, conditional or contingent sale, use or occupancy,
franchise or concession, whether voluntarily incurred or arising by
operation of law, and including any agreement to grant or submit to
any of the foregoing in the future.
"Environmental Claims" shall mean administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or
proceedings, consent decrees, judgments, administrative orders or
agreements, arising under any Environmental Law or any permit
issued under any such Law, including (i) Environmental Claims by
Governmental Agencies for enforcement, cleanup, removal, response,
remedial or other actions or Damages pursuant to any applicable
Environmental Law, and (ii) Environmental Claims by any third party
seeking Damages or injunctive relief resulting from Environmental
Conditions or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Conditions" shall mean the presence or
introduction into the environment of any Hazardous Materials (and
any resulting air, soil, groundwater or surface water contamination
without regard to location to which such resulting contamination
has migrated or spread) as a result of which the Federal Division
has or may become liable to any Person or by reason of which the
Federal Division or any assets of the Federal Division may suffer
or be subjected to any Encumbrance or Damages.
"Environmental Laws" shall mean any federal, state or local
statute, law, rule, regulation, ordinance, code, policy or rule of
common law in effect and in each case as amended from time-to-time
and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or
judgment, that (i) regulates or relates to the protection or clean-
up of the environment; the use, treatment, storage, transportation,
handling, disposal or Release of Hazardous Materials, the
preservation or protection of waterways, groundwater, drinking
water, air, wildlife, plants or other natural resources; or the
health and safety of Persons or property, including protection of
the health and safety of employees insofar as such health and
safety laws may apply to matters affecting the natural environment;
or (ii) imposes Liability with respect to any of the foregoing,
including CERCLA; RCRA; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
Section 300f et seq.; the Oil Pollution Act of 1990, 33 U.S.C.
Section 2701 et seq.; and the Occupational Safety and Health Act of
1970, as amended, as it applies to an effect upon the natural
environment, 29 U.S.C. Section 651 et seq.; or any other federal,
state or local law of similar effect, each as amended from time to
time; provided, however, that no change in any Environmental Law
after the Closing Date shall be deemed to amend the definition
herein of the term "Hazardous Materials," nor shall any subsequent
change in any Environmental Law be deemed to require reopening of
any Environmental Condition theretofore deemed closed prior to such
change in accordance with the provisions of Section 7.15 hereof.
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"Equipment" shall mean all of the furniture, trade fixtures,
furnishings, machinery, vehicles, tractors, trailers, spare parts,
supplies, equipment, snow removal equipment and vehicles, tooling,
jigs, molds, patterns, dies and other tangible Personal Property
owned by the Federal Division or primarily used in the Business
(including leased equipment), wherever located and including any
equipment in the possession of any supplier to or Affiliate of the
Federal Division, including all warranty rights with respect
thereto.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, and the rules and Regulations promulgated thereunder, as
amended.
"ERISA Affiliate" shall mean any entity which is (or at any
relevant time was) a member of a "controlled group of corporations"
with, or under "common control" with, or a member of an "Affiliated
service group" with, the Company, as defined in Section 414(b),
(c), (m) or (o) of the Code.
"Exceptions" shall mean, with respect to Owned Real Property,
Liabilities and Encumbrances that encumber such real estate or to
which such Real Estate is subject.
"FCH" shall have the meaning set forth in the Preamble of this
Agreement.
"Federal Division" shall mean the division of the Company,
also known as Federal Cartridge Co., that is engaged primarily in
the Business and consists of the assets (including the Assets)
utilized therein and the Federal Liabilities, and shall include the
Company acting solely on behalf of the Federal Division where the
context is appropriate, especially in cases of ownership and title.
After the Closing "Federal Division" shall be deemed to refer
hereunder to the "Company." The Federal Division shall not
include, without limitation, any operation, undertaking, Liability,
asset, Encumbrance, Action or other matter arising from, incident
to or in connection with the Hoffman Division, Pentair or FCH or
any Affiliate of such Persons, or that which is not otherwise
associated with the business of the Federal Division.
"Federal Liabilities" means, except as excluded by or stated
to the contrary in this Agreement, all of the liabilities of the
Federal Division, including (a) the Liabilities of the Federal
Division set forth on the face of the Final Closing Date Net Equity
Statement, (b) all Liabilities (including Taxes) of the Company
which arise after the Closing Date, (c) Liabilities of the Federal
Division directly related to the assets of the Federal Division
referenced in the definition of "Assets", such as, for example,
those Liabilities (excluding Defaults) arising under the terms of
Contracts and Leases, (d) Liabilities arising under Employee
Benefits for Active Employees, but only to the extent provided by
the terms of this Agreement or the Transaction Documents, (e) all
obligations of the Company on behalf of the Federal Division to
indemnify any Person (other than Pentair, FCH or any Affiliate) by
reason of the fact that such Person was a director, officer,
employee or agent of the Company on behalf of the Federal Division
or was serving as a partner, trustee, director, officer, employee
or agent of another entity (whether such indemnification is for
judgments, Damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such
indemnification is pursuant to any statute, charter document, bylaw,
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agreement, or otherwise), with respect to any Federal Liability to
the extent such indemnification extends to obligations otherwise
constituting Federal Liabilities, (f) other obligations of the
Federal Division set forth in the Disclosure Schedules or not
required to be set forth therein pursuant to the terms of this
Agreement and (g) Liabilities of the Federal Division specifically
described in this Agreement.
Notwithstanding any other provision contained in this
definition, but without duplication, Federal Liabilities shall not
include, without limitation, (i) any Liability of the Company for
unpaid Taxes and insurance premiums (with respect to the Federal
Division or otherwise) for periods on or before the Closing Date,
(ii) any Liability of the Company for income, transfer, sales, use,
and other Taxes arising in connection with the consummation of the
Transactions, including the transfer of non-Federal Division assets
and liabilities, including the assets and liabilities of the
Hoffman Division, or the deemed transfer of the Assets of the
Federal Division pursuant to the Election, or any excess loss
account in the stock of the Company, or any deferred gain on any
deferred intercompany transaction), (iii) any Liability of the
Company for the unpaid Taxes of any Person other than the Company
under Treas. Reg. Section1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract or otherwise, (iv) any obligation of the Company to
indemnify any Person by reason of the fact that such Person was a
director, officer, employee, or agent of the Company or was serving
at the request of the Company as a partner, trustee, director,
officer, employee, or agent of another entity (whether such
indemnification is for judgment, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses, or otherwise and
whether such indemnification is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) to the extent such
indemnification extends to obligations not otherwise constituting
Federal Liabilities, (v) any Liability of the Company for costs and
expenses incurred in connection with this Agreement and the
Transactions other than as specifically set forth in the Separation
Agreement, (vi) any Liability or obligation of the Company (other
than a Liability of the Federal Division) under this Agreement (or
under any side agreement between the Company on the one hand and
Pentair or FCH on the other hand entered into without the Knowledge
and prior written consent of Buyer), (vii) any Liability for
Special Claims under Section 8.2(a) of this Agreement and (viii)
any Liability for any other matter for which the Buyer (or the
Company) is indemnified pursuant to this Agreement.
"Final Closing Date Net Equity Statement" shall have the
meaning set forth in Section 2.6(e) hereof.
"Final Net Equity" shall have the meaning set forth in Section
2.6(e) hereof.
"Financial Statements" shall have the meaning set forth in
Section 4.6(b) hereof.
"GAAP" shall mean generally accepted accounting principles in
the United States of America, applied on a consistent basis.
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"Governmental Agency" or "Governmental Agencies" shall mean
any federal, state, local or foreign governments or their political
subdivisions, courts, agencies, authorities, commissions, boards or
bureaus having jurisdiction over the Company or the Business.
"Hazardous Materials" shall mean (i) any petroleum or
petroleum products, asbestos in any form, and polychlorinated
biphenyls; (ii) any radioactive substance; (iii) any toxic,
infectious, reactive, corrosive, ignitible or flammable chemical or
chemical compound; and (iv) any chemicals, materials or substances,
whether solid, liquid or gas defined as or included in the
definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," or words
of similar import, under any applicable Environmental Law, as
amended to the Closing Date.
"Hoffman Division" shall mean the division of the Company that
is engaged primarily in the business of development, manufacture,
marketing and sale of electrical and electronic enclosures and
related products.
"IRS" shall mean the Internal Revenue Service department of
the Treasury Department.
"Indemnification Threshold" shall have the meaning set forth
in Section 8.6(a) hereof.
"Insurance Policies" shall have the meaning set forth in
Section 4.20 hereof.
"Intellectual Property" shall mean (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice),
all improvements thereto, and all Patents, (b) all Trademarks, (c)
all Copyrights, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all
Confidential Information, (f) all computer software and software
licenses (including data and related documentation), (g) all other
similar proprietary rights, and (h) all copies and tangible
embodiments thereof (in whatever form or medium).
"Interim Unaudited Financial Statements" shall have the
meaning set forth in Section 7.18 hereof.
"Inventory" or "Inventories" shall include all of the
inventories of finished goods, raw materials, work in process,
spare parts, labeling, wrapping, supply and packaging items, of the
Federal Division wherever located, and, as applied to Special
Inventory, shall include all finished goods and all inventories of
raw materials, work in process, labeling, wrapping and packaging
items usable only for such products.
"Knowledge" or "best Knowledge" of Pentair, FCH or the
Company, when modifying any provision of this Agreement, including
a representation or warranty, shall mean that no Person listed on
Exhibit B hereto has any knowledge that such representation or
warranty is not true and correct to the same extent as provided
therein, and that:
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(i)Pentair, FCH and the Company have directed the
personnel set forth on Exhibit B to review diligently their
respective books and records with respect to the
representations and warranties set forth herein; and
(ii)nothing has come to the attention of such personnel
in the course of such investigation and review or otherwise
which should reasonably cause such Person, in the exercise of
due diligence, to believe such representation and warranty is
not complete, true or correct.
The foregoing shall have a cognate meaning with respect to
Buyer in Section 5.6 as to the Buyer personnel set forth on Exhibit
B hereto.
"Leased Real Property" shall have the meaning set forth in
Section 4.17 hereof.
"Leases" shall mean all of the leases, subleases, leasehold
estates and subleaseholds therein with respect to the personal or
real property of or associated with the Company on behalf of the
Federal Division and constituting Assets.
"Liability" shall mean without limitation any direct or
indirect liability, indebtedness, obligation, commitment, expense,
claim, deficiency, guaranty or endorsement of or by any Person of
any type, whether accrued, absolute, contingent, matured or
unmatured, known or unknown.
"MADSP" shall have the meaning set forth in Section 7.13(b)
hereof.
"Material Adverse Effect" or "Material Adverse Change" shall
mean (a) any significant and substantial adverse effect or change
in the condition (financial or other), Business, results of
operations, Assets, Federal Liabilities or operations of the
Federal Division, or (b) any event or condition which would, with
reasonable certainty with the passage of time, constitute a
"Material Adverse Effect" or "Material Adverse Change."
"Mortgages" shall mean all deeds of trust, mortgages or other
debt Encumbrances on Owned Real Property.
"Net Equity" shall mean (a) Assets (excluding Special
Inventory) minus (b) Federal Liabilities, as shown on the Final
Closing Net Equity Statement determined in accordance with Section
2.6 hereof.
"Ordinary Course of Business" or "ordinary course" or any
similar phrase shall mean the ordinary course of the Business
consistent with the past practice and custom.
"Owned Real Property" shall mean all real property owned in
fee by the Federal Division listed on Schedule 4.18, including
without limitation all rights, easements and privileges
appertaining or relating thereto, and all buildings, fixtures and
improvements located thereon.
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"Party" or "Parties" shall mean, in the singular, each of the
Buyer, Company, Pentair and FCH and, in the plural, collectively,
the Buyer, Company, Pentair and FCH, as determined herein by the
context in which used.
"Patents" shall mean all patents and patent disclosures and
applications, and registered design and registered design
applications, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and re-examinations
thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Pension Plan" shall mean the Defined Benefit Plan and any
"employee pension benefit plan" within the meaning of Section 3(2)
of ERISA provided to employees of the Federal Division.
"Pentair" shall have the meaning set forth in the Preamble of
this Agreement.
"Pentair's Accountants" shall have the meaning set forth in
Section 2.6(a) hereof.
"Permits" shall mean all licenses, certificates, permits,
franchises, approvals, authorizations, consents or orders of, or
filings with, any Governmental Agency, whether foreign, federal,
state or local, or any other Person, relating to the conduct of or
the operation of the Business.
"Permitted Encumbrances" shall mean:
(a)with respect to Owned Real Property (i) ad valorem
real property Taxes not yet due and payable, (ii) Exceptions of
record as to which there is no Default, and (iii) building, zoning
and subdivision ordinances, and
(b)with respect to Personal Property, intangible
property and other non-real property (i) minor imperfections of
title and encumbrances which, individually or in the aggregate, are
not material in amount and do not materially detract from the value
of or impair the use of the Assets to which they relate, (ii)
retention of title agreements with suppliers or capital or
operating leases entered into in the Ordinary Course of Business as
to which there is no Default, (iii) liens securing any Liabilities
set forth in the Final Closing Date Net Equity Statement, (iv)
liens for Taxes not yet due and payable, and (v) notwithstanding
any contrary provision of this Agreement, liens set forth on
Schedule 4.15.
"Person" shall mean an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental
entity (or any department, agency, or political subdivision
thereof).
"Personal Property" shall mean the personal property owned by
the Federal Division or used in the Business, including tangible
personal property, such as sales and promotional literature, customer,
supplier and distribution lists, art work, display units, Equipment and
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Inventory, and all general intangibles such as telephone and fax
numbers, but excluding Intellectual Property.
"Personnel" shall have the meaning set forth in Section
4.13(c) hereof.
"Plan Asset Transfer" shall have the meaning set forth in
Section 7.12(b)(i) hereof.
"Potential Default" shall mean (i) the occurrence of an event
that with the passage of time or the giving of notice or both would
constitute a Default, or (ii) the occurrence of an event that with
the passage of time or with the giving of notice or both would give
rise to a right of termination or cancellation, renegotiation,
modification or acceleration under any Contract, Lease or
Encumbrance.
"Purchase Price" shall have the meaning set forth in Section
2.3 hereof.
"RCRA" shall mean the Resource Conservation & Recovery Act (42
U.S.C. Section 6901 et seq.).
"Referral Firm" shall mean the Minneapolis, Minnesota office
of Ernst & Young LLP or such other nationally recognized firm of
independent certified public accounts selected by Buyer and Seller
with whom none of the Company, Buyer, Pentair or FCH, or any of
their respective Affiliates, have engaged within three (3) years
prior to the Closing Date.
"Regulations" shall mean any laws, statutes, ordinances, code,
regulations, rules, notice requirements, court decisions and orders
of any Governmental Agency, including Environmental Laws, and those
regulations concerning energy, motor vehicle safety, public
utility, zoning, building and health codes, occupational safety and
health and laws respecting employment practices, employee
documentation, terms and conditions of employment and wages and
hours.
"Release" shall mean and include any spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, migrating within the environment or
disposing into the environment or the work-place of any Hazardous
Material, and otherwise as defined in any Environmental Law.
"Report" shall have the meaning set forth in Section 7.13
hereof.
"Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and Regulations promulgated thereunder.
"Seller" shall have the meaning set forth in the preamble to
this Agreement.
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"Separation" shall have the meaning set forth in the Recitals
to this Agreement.
"Separation Agreement" shall have the meaning set forth in
Section 6.1 hereof.
"Shares" shall have the meaning set forth in the Recitals to
this Agreement.
"Special Claims" shall have the meanings set forth in Section
8.2.
"Special Inventory" shall mean the Inventory, wherever
located, of .22 Gold Medal Match and Ultra Match products, which
are in excess of one year's projected usage as agreed between the
parties.
"Specified Rate" shall mean, for any day, the prime rate
established by Morgan Guaranty Trust Company of New York from time-
to-time from and including the Closing Date to the date of payment.
"Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the
common stock or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Successor Plan" shall have the meaning set forth in Section
7.12(b)(i) hereof.
"Tax" or "Taxes" shall mean, except where the usage or context
otherwise dictates, any federal, state, local, foreign or other
tax, levy, impost, fee, assessment or other government charge,
including income, excise, custom, duty, contribution obligation
relating thereto, estimated income, business, occupation,
franchise, property, payroll, personal property, sales, transfer,
use, employment, commercial rent, occupancy, franchise or
withholding taxes, and any interest, penalties and additions in
connection therewith for which the Company may be liable.
"Tax Returns" shall mean and include, unless the usage or
context otherwise dictates, any federal, state, local and foreign
tax returns, declarations, elections, statements, reports,
schedules and information returns or the refiling of any such Tax
Returns previously filed.
"TCAAP" shall mean the Twin Cities Army Ammunition Plant, and,
where appropriate, the government-owned, contractor-operated
relationship between the Federal Division and the United States
Army or Department of Defense pertaining to such plant.
"Trademarks" shall mean registered or unregistered trademarks,
registered or unregistered service marks, all goodwill,
translations, adaptations, deviations, combinations, applications,
registrations and renewals in connection with any registered or
unregistered trademark or service mark, and all trade dress and logos.
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"Transaction Documents" shall mean this Agreement and the
ancillary agreements and instruments executed, filed or otherwise
prepared, exchanged or delivered in accordance with this Agreement,
including the Separation Agreement.
"Transactions" shall mean the purchase of the Shares and the
other transactions contemplated by the Transaction Documents.
"Treasury" or "Treasury Department" shall mean the Department
of the Treasury of the United States of America.
"Unaudited Financial Statements" shall have the meaning set
forth in Section 4.6(a) hereof.
"WARN Act" shall mean the Worker Adjustment and Retraining
Notification Act (P.L. 100-379), as amended, and any similar
Regulation of any Governmental Agency.
"Welfare Plan" shall mean any "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA provided to employees
of the Federal Division, but excluding any multiemployer plan.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.1 Purchase of the Shares from the Seller. Subject to and
upon the terms and conditions of this Agreement, at the Closing of
the Transactions contemplated by this Agreement (the "Closing"),
the Seller shall sell, transfer, convey, assign and deliver to the
Buyer, and the Buyer shall purchase, acquire and accept from the
Seller, all the Shares. Such sale, transfer, conveyance,
assignment and delivery of the Shares shall convey good and
marketable title free and clear of any and all Encumbrances, and at
such time the Shares shall be fully paid and non-assessable. At
the Closing the Seller shall deliver to the Buyer certificates
evidencing the Shares duly endorsed in blank or with stock powers
duly executed by the Seller.
2.2 Further Assurances. At any time and from time to time
after the Closing, at the Buyer's request and without further
consideration, the Seller shall promptly execute and deliver such
instruments of sale, transfer, conveyance, assignment and
confirmation, and take all such other action as the Buyer may
reasonably request, more effectively to transfer, convey and assign
to the Buyer, and to confirm the Buyer's title to, all of the
Shares to be conveyed by the Seller, to put the Buyer in actual
possession and operating control of the Business.
2.3 Purchase Price for the Shares. The aggregate purchase
price to be paid by the Buyer for the Shares shall be (i) $112
million, plus or minus (ii) the amount of the adjustment
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calculated pursuant to Section 2.7 hereof, plus (iii) the amount of
the separate payments in accordance with Section 2.8 hereof (the
"Purchase Price").
2.4 Initial Payment of the Purchase Price. At the Closing,
the Buyer shall deliver to FCH the sum of $112 million by wire
transfer of immediately available funds to an account as designated
by Pentair at least three (3) business days prior to Closing.
2.5 Closing. The Closing shall take place at the offices of
Briggs and Morgan, Professional Association, 2400 IDS Center,
Minneapolis, Minnesota, or such other place and time as the Parties
may agree, at 10:00 a.m., local time, on November 4, 1997,
effective as of the close of business on October 31, 1997 (the
"Closing Date"). All transactions occurring after the Closing Date
shall be for the account of Buyer or the Company.
(a)Seller Deliveries. The Seller shall deliver to the
Buyer at the Closing the following closing documents, instruments
and certificates:
(i)certificates representing the Shares duly endorsed
in accordance with Section 2.1 of this Agreement;
(ii)certificates of good standing dated within twenty
(20) days of the Closing for (1) the Company (including all
Tax clearance certificates other than for Ontario) from each
jurisdiction in which the Company is organized or qualified to
do business and (2) Pentair and FCH from the jurisdictions in
which they are organized;
(iii)certificates of (1) the Secretary of the
Company attesting to the incumbency and authority of the
Company's officers, and the authenticity and continuing
validity of the charter documents delivered to Buyer, and (2)
of the Secretary of each of Pentair and FCH attesting to the
incumbency and authority of Pentair's and FCH's signatories to
the Transaction Documents;
(iv)where required by any material Lease, an estoppel
certificate from each lessor from whom the Hoffman Division
leases real or personal property consenting to the assignment
of such Lease to FCH, and, to the extent reasonably
obtainable, representing that there are no outstanding claims
against the Company under such Lease;
(v)resignation of each member of the Board of Directors
and all officers (who are not employees of the Federal
Division) of the Company;
(vi)a certificate of the Secretary of each of Pentair
and FCH attesting to the authenticity of and attaching the
resolutions of Pentair and FCH authorizing the Transactions
contemplated by this Agreement and the Transaction Documents;
(vii)a cross receipt executed by the Buyer and the Seller;
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(viii)an opinion of counsel to Pentair, dated as of
the Closing, in substantially the form attached as Exhibit C;
(ix)within a reasonable time prior to the Closing a
summary of, and copies of, search reports which shall include
without limitation all recorded Encumbrances, including
security interests, tax liens and judgments relating to the
Federal Division of the Company; and
(x)All Transaction Documents duly executed by Seller or
its Representatives (as required) not set forth above.
(b)Buyer Deliveries. The Buyer shall deliver to the
Seller at the Closing the following closing documents, instruments
and certificates:
(i)payment of that portion of the Purchase Price
required by Section 2.4 hereof to be delivered at the Closing;
(ii)certificate of good standing dated within twenty
(20) days of the Closing for the Buyer from the jurisdiction
in which it is organized;
(iii)a certificate of the Secretary of the Buyer
attesting to the incumbency and authority of the Buyer's
signatories to the Transaction Documents;
(iv)a certificate of the Secretary of Buyer attesting to
the authenticity of and attaching the resolutions of Buyer
authorizing the Transactions contemplated by this Agreement
and the Transaction Documents;
(v)a cross receipt executed by the Buyer and the
Seller;
(vi)an opinion of counsel to Buyer, dated as of the
Closing, in substantially the form attached as Exhibit D; and
(vii)all Transaction Documents duly executed by
Buyer or its Representatives (as required) not set forth
above.
2.6 Closing Audit. Pentair shall cause to be completed an
audit of the Net Equity of the Federal Division as follows:
(a)Promptly following the Closing Date, Pentair shall
prepare and cause Deloitte & Touche, LLP, its independent certified
public accountants, ("Pentair's Accountants") to audit a statement
of net equity of the Federal Division as of the Closing Date (the
"Closing Date Net Equity Statement"). In connection with the audit
of the Closing Date Net Equity Statement, Representatives of
Pentair's Accountants acting for Pentair have observed the physical
inventory of the Federal Division on September 27, 1997. Buyer
reviewed the inventory observation plan
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and participated in the observation of the Federal Division
physical inventory by Pentair's Accountants. The Company shall
reconcile the activity occurring from the September 27, 1997
physical inventory to the Closing Date in accordance with the
Federal Division's normal practice and financial records. For
purposes of the Closing Date Net Equity Statement, inventory will
be valued in accordance with Exhibit E.
(b)The Closing Date Net Equity Statement shall be
prepared in accordance with GAAP, but also as GAAP is modified and
superseded by the instructions set forth in Exhibit E hereto. The
final draft of (i) the Closing Date Net Equity Statement, (ii) a
calculation of Net Equity based on the Closing Date Net Equity
Statement setting forth in reasonable detail the computation of the
adjustment to the Purchase Price in accordance with Section 2.7,
and (iii) the report, including the opinion, of Pentair's
Accountants in form attached as Exhibit F, shall be delivered to
the Buyer and its counsel for review as soon as reasonably possible
but in any event no later than 60 days after the Closing Date.
(c)In connection with the preparation of the Closing
Date Net Equity Statement, Buyer and the Company shall afford
Pentair and its Representatives reasonable access to the Books and
Records, Personnel and facilities of the Federal Division to permit
it to prepare, and Pentair's Accountants to audit, the Closing Date
Net Equity Statement. Buyer shall also cooperate with Pentair to
request that the persons who were officers and employees of the
Federal Division prior to the Closing, sign and deliver to
Pentair's Accountants a standard representation statement relating
to the Closing Date Net Equity Statement. The parties agree with
respect to the foregoing sentence that (i) such officers and
employees shall have the right to review such Books and Records and
workpapers prepared by Pentair and Pentair's Accountants as
reasonably necessary to enable such officers and employees to sign
the standard representation letter, and (ii) the standard
representation letter shall not be used and shall have no value as
evidence in the event the Referral Firm is required to make a
determination under Section 2.6(d) hereof. The Buyer and Buyer's
independent certified public accountants ("Buyer's Accountants")
shall have the right (i) immediately upon the deliveries described
in Section 2.6(b), to obtain copies and to review the work papers
of Pentair's Accountants underlying or utilized in preparing the
Closing Date Net Equity Statement and the calculation of Net
Equity, including without limitation the trial balance, all
adjustments and all other underlying books, records, and other
relevant documents and memoranda of the Company, Pentair and FCH
(as to Pentair and FCH to the extent reasonably necessary for
Buyer's review), and (ii) to utilize Personnel of FCH or Pentair
for purposes of such review, each of (i) and (ii) immediately above
as reasonably necessary to verify the accuracy and fairness in
conformity with GAAP as modified and superseded by the instructions
set forth in Exhibit E hereto of the presentation of the Closing
Date Net Equity Statement and calculation of Net Equity. Buyer
shall make available to Pentair (upon request following the giving
of objections to the Closing Date Net Equity Statement) its
workpapers generated in connection with its review of the Closing
Date Net Equity Statement.
(d)Within 30 days after its receipt of the final draft
of the Closing Date Net Equity Statement, Buyer shall either inform
Pentair in writing that the Closing Date Net Equity Statement is
acceptable or object thereto in writing, setting forth a specific
description of each of
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its objections. If the Buyer so objects, any such objection that
the Buyer and Pentair cannot resolve within 30 days from the date
Buyer notifies the Seller of any such objection shall be referred
to the Referral Firm for final determination, which final
determination shall be made by the Referral Firm on or before 30
days after referral. The final determination of the adjustments to
the Closing Date Net Equity Statement and the calculation of Net
Equity made by the Referral Firm shall be conclusive and binding
upon the Buyer, Pentair and FCH. In resolving any disputed item,
the Referral Firm (i) shall be bound by the provisions of this
Section 2.6 and (ii) may not assign a value to any item greater
than the greatest value claimed for such item by either Buyer or
Pentair or less than the smallest value for such item claimed by
either Party.
(e)If by agreement of the Buyer and the Seller or by
determination pursuant to Section 2.6(d), any amount shown in the
Closing Date Net Equity Statement or calculation of Net Equity is
determined to be inaccurate or not authorized by application of
GAAP as modified and superseded by the instructions set forth in
Exhibit E hereto, such inaccurate amount or unauthorized
presentation or treatment shall be corrected and the correct
amount, presentation or treatment shall be inserted in lieu
thereof. The Closing Date Net Equity Statement, including the
calculation of Net Equity, as so corrected or, as accepted if
undisputed by Buyer (within the period set forth in Section
2.6(d)), shall constitute the "Final Closing Date Net Equity
Statement" and "Final Net Equity" for purposes of this Agreement.
(f)The Buyer shall pay the fees and disbursements of
the Buyer's Accountants. Pentair shall pay the fees and
disbursements of Pentair's Accountants. The fees and
disbursements, if any, of the Referral Firm shall be paid one-half
by the Buyer and one-half by the Seller.
2.7 Determination and Payment of Purchase Price Adjustment.
Upon the determination of the Final Closing Date Net Equity
Statement and Final Net Equity in accordance with Section 2.6(e),
the Purchase Price and payment thereof shall be adjusted, up or
down, as follows: (a) if Final Net Equity is greater than $98.737
million, the amount of such difference shall be paid by Buyer to
FCH and (b) if Final Net Equity is less than $98.737 million, the
amount of such difference shall be paid by Seller to Buyer. Such
payments, if any, shall be made by wire transfer of immediately
available funds within five business days after the date upon which
such amount is finally determined hereunder to an account as
designated by the receiving party, together with interest thereon
from the Closing Date to the date of payment, calculated at the
Specified Rate.
2.8 Payment for Special Inventory. The standard cost of the
Special Inventory shall be determined as of the Closing Date in
accordance with the instructions set forth in Exhibit E hereto. As
a part of the Purchase Price, Buyer shall pay to Seller an amount
equal to eighty percent (80%) of the value computed at such
standard cost of the Special Inventory in three (3) equal payments,
without interest, on the first, second and third anniversaries of
the Closing Date.
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ARTICLE III
REPRESENTATIONS REGARDING PENTAIR AND FCH
As a material inducement to Buyer to enter into this
Agreement, Pentair, for itself and FCH, represents and warrants to
the Buyer that the following representations and warranties are, as
of the date hereof, true, complete and correct:
3.1 Title to Shares. FCH has good and marketable legal and
beneficial title to the Shares, free and clear of any and all
covenants, conditions, voting trust arrangements, options or
Encumbrances whatsoever.
3.2 Authorizations.
(a)FCH has the full right, power and authority to
transfer, convey and sell the Shares to the Buyer at the Closing
and, upon consummation of the Transactions, the Buyer will acquire
from FCH good and marketable title to such Shares, free and clear
of any and all Encumbrances.
(b) Pentair and FCH represent and warrant that each has
the requisite power and authority, and each has taken all action
necessary to execute and deliver this Agreement and the other
Transaction Documents to which it is a party and to perform their
respective obligations hereunder and thereunder. This Agreement
and the other Transaction Documents to which each is a party
constitute their respective valid and legally binding obligations
and, assuming due execution of this Agreement by the other Parties
hereto and of such other Transaction Documents by the Parties
thereto, are enforceable against Pentair and FCH in accordance with
their respective terms and conditions.
3.3 Noncontravention. Except as listed in Schedule 3.3,
neither the execution, delivery or performance of this Agreement or
the Transaction Documents by Pentair or FCH, nor the consummation
of the Transactions, will (a) violate, conflict with or result in
any breach of any provision of the articles or certificate of
incorporation or bylaws of either Pentair or FCH, (b) violate any
Regulation or Court Order to which either Pentair or FCH is
subject, (c) violate, conflict with, constitute a Default under,
result in the creation of any Encumbrance upon any of the Assets or
require any notice under any, without limitation, contract, lease,
mortgage or other instrument to which either Pentair or FCH is a
party, by which either of them is bound or to which any of their
respective assets is subject.
3.4 338(h)(10) Filing Eligibility. Pentair is eligible to
join in a filing of an election under Section 338(h)(10) of the
Code as described in Section 7.13 hereof.
3.5 Books and Records. Neither Pentair nor FCH presently maintain,
generate or have possession of Books and Records, except copies thereof.
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ARTICLE IV
REPRESENTATIONS REGARDING THE COMPANY
As a material inducement to Buyer to enter into this
Agreement, Pentair, for itself and FCH, represents and warrants to
Buyer that the following are, as of the date hereof true, complete
and correct:
4.1 Organization, Qualification and Corporate Power. The
Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Minnesota. Except as
set forth on Schedule 4.1, the Company is duly qualified to conduct
business, properly licensed and is in good standing under the laws
of each jurisdiction where such qualification and licensing is
required. Schedule 4.1 contains an accurate and complete list of
all jurisdictions in which Company is qualified to do business as
a foreign corporation. Schedule 4.1 contains copies of the
articles of incorporation and bylaws of Company, and all amendments
thereto, which are accurate and complete.
4.2 Capitalization. The entire authorized capital stock of
the Company consists of one class of capital stock, which is the
Company Common Stock and of which 99 Shares are issued and
outstanding. All of the issued and outstanding shares of Common
Stock have been duly authorized and are validly issued, fully paid,
and nonassessable. There are no outstanding or authorized
interests, options, warrants, rights, or other encumbrances, or
Contracts that could require the Company to issue, sell, or
otherwise cause to become outstanding, any of its capital stock, or
any other commitments of any kind for the issuance of additional
shares of capital stock or other securities issued by the Company.
There are no other outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect
to the Common Stock.
4.3 Authorization of the Company. The Company has full power
and authority (including full corporate power and authority), and
has taken all corporate action necessary, to own, lease and operate
the Assets, to conduct the Business as it is presently being
conducted, and to conduct the business of the Hoffman Division as
conducted prior to the effectiveness of the Separation Agreement.
The Company has not conducted any business other than the business
relating to the Federal Division (including the operation of
TCAAP), the Hoffman Division and the Subsidiaries of the Company.
4.4 Subsidiaries. Except for Hoffman Engineering S.A. de
C.V. and Federal-Hoffman International, Inc. which have been
transferred to FCH or an Affiliate thereof in connection with the
Separation, the Company does not, directly or indirectly, currently
own, possess, control or have any equity interest in, and has no
Liability with respect to any current or former Subsidiary or other
such Person.
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4.5 Noncontravention. Except as set forth on Schedule 4.5,
neither the execution, delivery or performance of this Agreement or
the other Transaction Documents, nor the consummation of the
Transactions, will (i) violate or conflict with any provision of
the articles of incorporation or bylaws of the Company, (ii)
violate any Regulation or Court Order to which the Company is
subject, (iii) result in a violation of, constitute a Default under
or require any notice under any Contract, Lease, or Permit, to
which the Company is a party or by which the Company is bound or to
which any of the Assets is subject or (iv) impose any Encumbrance
on the Assets.
4.6 Financial Statements.
(a)The Seller has previously delivered to the Buyer the
unaudited balance sheet of the Federal Division as of December 31,
1996, December 31, 1995 and December 31, 1994 and the related
statements of income, shareholder equity, retained earnings and
cash flow of the Federal Division for the fiscal years then ended
(collectively, the "Unaudited Financial Statements"). The Seller
has also previously delivered to the Buyer the unaudited balance
sheet of the Federal Division as of September 27, 1997, and the
related statements of income of the Federal Division for the month
ending September 27, 1997 and for the nine (9) month period then
ended (the "Current Financial Statement").
(b)The Unaudited Financial Statements and the Current
Financial Statement (collectively, the "Financial Statements") have
been prepared in accordance with the books and records of the
Federal Division which were used in preparation of Pentair's
consolidated financial statements for corresponding periods. The
Financial Statements are true and complete, and present fairly and
disclose the financial position and results of operations of the
Federal Division. Except as set forth on Schedule 4.6, the
Financial Statements have been prepared in accordance with GAAP,
but do not include (i) certain statements as well as income
statement, balance sheet and footnote disclosures required by GAAP
for completeness (but not accuracy) of financial statements or (ii)
certain tax and related accruals and other such information not
applicable for proper presentation of financial statements of a
consolidated subsidiary.
4.7 Permits, Consents and Approvals. Schedule 4.7 sets forth
a complete list of all material Permits used or necessary (in whole
or in part) in the operation of the Business or otherwise held by
the Company in connection with the operation of the Federal
Division. Each Permit listed on Schedule 4.7 is valid, binding and
in full force and effect. The Company has, and at all times has
had, all Permits required under any Regulation (including
Environmental Laws) in the operation of the Business. Except as
set forth on Schedule 4.7, (i) the Federal Division has all
requisite Permits to operate the Business, (ii) the Federal
Division is not in Default with respect to any material Permit,
(iii) to the Knowledge of Company, Pentair and FCH, the material
Permits are renewable and will continue in force without any
special qualification, notice, or compliance procedures that arise
from consummation of the Transactions, (iv) and except as set forth
in the Separation Agreement, no Affiliate of the Company, including
the Hoffman Division, has any direct or indirect interest in any
Permit required to operate the Business, and (v) neither the
Company, FCH nor Pentair has been advised of, nor to the
Knowledge of any of them is there, a reasonable probability of (A)
any revocation or anticipated revocation of any Permits, or (B) any
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changes or charges to or in connection with existing or pending
Permits which would materially and adversely affect the conduct of
the Business of the Federal Division as presently conducted.
4.8 Undisclosed Liabilities. Except as set forth on Schedule
4.8 or other Disclosure Schedules (or not required to be set forth
therein under the terms hereof) or as reflected or reserved for in
the unaudited balance sheet of the Federal Division dated as of
December 31, 1996, there are no liabilities of the Federal Division
except those (i) reflected or reserved for on the Final Closing
Date Net Equity Statement, (ii) incurred in the Ordinary Course of
Business since December 31, 1996, or (iii) otherwise specifically
disclosed and provided for herein.
4.9 Litigation.
(a)Except as set forth on Schedule 4.9 (i) there are no
pending proceedings before any Governmental Agency, (ii) the
Company is not subject to any outstanding Court Order; (iii) the
Company, to the Knowledge of the Company, FCH or Pentair, has not
been threatened to be made a party to any Action involving more
than $25,000, (iv) there is no Action or Court Order that involves
the risk of criminal liability, (v) there is no Action that
involves the Federal Division as a plaintiff, including any
derivative suit and (vi) there is no proceeding pending, or to the
Knowledge of the Company, FCH or Pentair threatened, that seeks to
delay, limit or enjoin the Transactions. The Company is not in
Default with respect to any Court Order, and there are no
unsatisfied judgments against the Company.
(b)Except as set forth on Schedule 4.11, Schedule 4.9
or as addressed in Section 7.15, there are no known or unknown
contingent liabilities arising out of or based upon the Company's
contract(s) with the Department of the Army or the Department of
Defense to operate TCAAP that are not fully covered by insurance or
indemnification under such contract(s). This paragraph 4.9(b)
shall not survive the Closing Date. Section 6.4 and Article VIII
provides indemnification with respect to TCAAP.
4.10 Taxes.
(a)All Tax Returns (including consolidated or combined
Tax Returns including the Company) required to be filed on or
before the Closing Date with respect to the Company have been or
will be filed timely (including within the time permitted by any
extension that is filed timely) by or on behalf of the Company and
all Taxes shown to be due on such Tax Returns have been or shall be
timely paid.
(b)From and after January 1, 1989, the Company has not
been a member of an affiliated group (within the meaning of Section
1504 of the Code) filing a consolidated federal Return, other than
a group the common parent of which is Pentair.
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(c)Schedule 4.10 lists all Tax Returns filed with
respect to the Company for taxable periods which remain open,
indicates those returns that have been audited and indicates those
Tax Returns that are currently the subject of audit or scheduled
for an examination by any relevant taxing authority.
(d)Except as disclosed in Schedule 4.10:
(i)no notice or claim has been made by a
Governmental Agency in a jurisdiction where the Company does
not file Tax Returns that it is or may be subject to Taxes in
that jurisdiction;
(ii)no extension of the statute of limitations with
respect to any assessment or claim for Taxes has been granted
by or on behalf of the Company;
(iii)there are no liens for Taxes upon the
assets of the Company except liens for Taxes not yet due;
(iv)no amended Tax Returns or refund claims have
been or are scheduled to be filed by or on behalf of the
Company;
(v)all Taxes and other liabilities with respect to
completed and settled audits, examinations or concluded
litigation have been paid; and
(vi)there are no pending appeals or other
administrative proceeding with respect to any Tax Return of
the Company, and there is no deficiency or refund litigation
with respect to any Tax Return of the Company. No material
issues have been raised by any relevant taxing authorities on
audit of the Tax Returns of the Company. The Company has not
received any notice of any Tax deficiency or assessment.
(e)The Company has not filed or had filed on its behalf
a consent to the application of Section 341(f) of the Code.
(f)Except as disclosed in Schedule 4.10, the Company is
not a party to any contractual obligation requiring the
indemnification or reimbursement of any person with respect to the
payment of any Taxes. Except as disclosed in Schedule 4.10, no
claim has been asserted, which has not been resolved or satisfied,
for any payment under any such agreement.
(g)Except as disclosed in Schedule 4.10, the Company is
not a party to or a beneficiary of any financing, the interest on
which is tax-exempt under the Code, and none of the assets of the
Company is "tax-exempt use property."
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(h)As of the Closing Date, the Company is not a party
to any agreement, contract, arrangement, or plan that has resulted
in or would result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section
280G of the Code.
(i)The Company is a "United States person" within the
meaning of the Code. The Company has not been a United States real
property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. The Transactions are not
subject to the tax withholding provisions of Section 3406 of the
Code, or of Subchapter A of Chapter 3 of the Code, or of any other
provision of law. Except as disclosed in Schedule 4.10, the
Company does not have and did not have a branch in any foreign
country.
(j)The Company is not a party to any joint venture,
partnership, or other arrangement or contract that could be treated
as a partnership for federal income Tax purposes.
(k)The Company has withheld and paid all Taxes required
to have been withheld and paid, including (i) amounts paid to any
employee or statutory employee or any foreign person or entity; and
(ii) any backup withholding required under Section 3406 of the
Code.
4.11 Employee Benefit and Employment Matters.
(a)Schedule 4.11 contains a complete list of Employee
Benefits which cover employees or former employees of the Company
employed by the Federal Division. Except as set forth on Schedule
4.11, (i) the costs of all such Employee Benefits that are paid
currently by the Federal Division are reflected as expenses in the
Financial Statements; and (ii) the cost of such Employee Benefits
which are, in whole or in part, not paid currently are adequately
reserved for in the Financial Statements.
(b)Seller has delivered to Buyer accurate and complete
copies of (i) the Pension Plans, (ii) the two most recent annual
reports on Form 5500 filed with the Internal Revenue Service with
respect to the Pension Plans, (if any such report was required),
(iii) each trust agreement and group annuity contract relating to
the Pension Plans, (iv) certified financial statements, if any, for
the Pension Plans and (v) the two most recent actuarial reports
prepared in connection with the Pension Plans and their funded
status.
(c)All contributions to, and payments from, the Defined
Benefit Plan required to have been made in accordance with the
Defined Benefit Plan and, if applicable, Section 302 of ERISA or
Section 412 of the Code, have been timely made. The funding method
used in connection with the Defined Benefit Plan is acceptable
under ERISA, and the actuarial assumptions used in connection with
such funding, in the aggregate, are reasonable.
(d)Except as set forth on Schedule 4.11, the Pension
Plans (and any related trust agreement or annuity contract or any
other funding instrument) materially comply currently,
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and have materially complied in the past, both as to form and operation,
with the provisions of ERISA and the Code (including Section 410(b)
of the Code relating to coverage), where required in order to be
tax-qualified under Section 401(a) of the Code, and all other
applicable laws, rules and regulations; all necessary governmental
approvals for such plans have been obtained. Except as set forth
in Schedule 4.11, the Pension Plans have received a determination
letter from the Internal Revenue Service to the effect that the
Pension Plans (and any related trust agreements or annuity
contracts or other funding instrument) are qualified and exempt
from Federal income taxes under Sections 401(a) and 501(a),
respectively, of the Code, and no such determination letter has
been revoked nor, to the best knowledge of Seller, has revocation
been threatened, nor has any Pension Plan been amended since the
date of its most recent determination letter or application
therefor in any respect which would adversely affect its
qualification or materially increase its cost.
(e)Except as set forth on Schedule 4.11, the Pension
Plans, and all other Employee Benefits, have been administered to
date in material compliance with the requirements of the Code and
ERISA. All reports, returns and similar documents with respect to
such Employee Benefits required to be filed with any Governmental
Agency or distributed to any such Employee Benefits participant
have been duly and timely filed or distributed. Except as set
forth in Schedule 4.11, there are no investigations by any
Governmental Agency, termination proceedings or other claims
(except claims for benefits payable in the normal operation of the
Employee Benefits), suits or proceedings against or involving any
of the Employee Benefits or asserting any rights or claims to
benefits under any Employee Benefits that could give rise to any
material liability, nor, to the best knowledge of Seller, are there
any facts that could give rise to any material liability in the
event of any such investigation, claim, suit or proceeding. No
event has occurred and no condition exists under any Employee
Benefits that would subject Company or Buyer to any tax under Code
Sections 4971, 4972, 4977 or 4979 or to a fine under ERISA Section
502(c).
(f)Except as set forth on Schedule 4.11, all premiums
(and interest charges and penalties for late payment, if
applicable) due to the PBGC have been paid for each plan year
thereof for which such premiums are required with respect to the
Defined Benefit Plan. No liability to the PBGC has been incurred
by Seller, Company or any Common Control Entity on account of any
termination of an employee pension benefit plan subject to Title IV
of ERISA. Except as set forth in Schedule 4.11, no filing has been
made by Seller or any Common Control Entity with the PBGC (and no
proceeding has been commenced by the PBGC) to terminate any
employee pension benefit plan subject to Title IV of ERISA
maintained, or wholly or partially funded, by Seller or any Common
Control Entity. Neither Seller nor any Common Control Entity has
(i) ceased operations at a facility so as to become subject to the
provisions of Section 4062(e) of ERISA, (ii) withdrawn as a
substantial employer so as to become subject to the provisions of
Section 4063 of ERISA, or (iii) ceased making contributions on or
before the Closing Date to any employee pension benefit plan
subject to Section 4064(a) of ERISA to which Seller or any Common
Control Entity made contributions during the five (5) years prior
to the Closing Date. No employee pension benefit plan of Seller
or any Common Control Entity subject to Title IV of ERISA has incurred
any material liability to the PBGC other than for the payment of premiums,
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all of which have been paid when due. No employee pension benefit plan
of Seller or any Common Control Entity has applied for or received
a waiver of the minimum funding standards imposed by Section 412 of
the Code, and no employee pension benefit plan has an "accumulated
funding deficiency" within the meaning of Section 412(a) of the
Code as of the most recent plan year.
(g)Except as disclosed on Schedule 4.11, no "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406
of ERISA) has occurred which involves the assets of the Pension
Plans or Employee Benefits and which could subject Company or its
employees, or a trustee, administrator or other fiduciary of any
trusts created under the Pension Plans to the tax or penalty on
prohibited transactions imposed by Section 4975 of the Code or the
sanctions imposed under Title I of ERISA. Except as set forth on
Schedule 4.11, no "reportable events" (as defined in Section 4043
of ERISA and the regulations thereunder) have occurred with respect
to the Pension Plans, except (i) such events for which no filing
with the PBGC was required (e.g., plan merger) and (ii) such events
which may occur as a result of the transactions contemplated
hereby. Neither Seller or any ERISA Affiliate, nor any trustee,
administrator or other fiduciary of the Pension Plans or the
Employee Benefits nor any agent of any of the foregoing, has
engaged in any transaction or acted or failed to act in a manner
which could subject Company or Buyer to any material liability for
breach of fiduciary duty under ERISA or any other applicable law.
(h)Multiemployer Plans. Except as set forth on
Schedule 4.11, at no time has Seller or any Common Control Entity
been required to contribute to any multiemployer pension plan
within the meaning of Section 4001 of ERISA or incurred any
withdrawal liability, within the meaning of Section 4201 of ERISA,
or announced an intention to withdraw, but not yet completed such
withdrawal, from any such multiemployer pension plan.
4.12 Labor Agreements and Actions. Schedule 4.12 contains a
list of all collective bargaining agreements to which the Company
is a party which relate to the Federal Division. Except as set
forth on Schedule 4.12, in the past five years, the Federal
Division has not experienced any attempt to organize any of its
employees for the purpose of collectively bargaining or entering
into a labor Contract on behalf of such employees. As of the date
hereof, there is no concerted employee activity materially adverse
to the Federal Division, including labor strikes or disturbances,
pending or, to the Knowledge of Company, FCH or Pentair, threatened
against the Federal Division. Except as set forth on Schedule
4.12, there are no disputes or grievances subject to any grievance
procedure, unfair labor practice proceedings, arbitration or
litigation under such agreements, or as a result of such attempts
to organize, which have not been finally resolved, settled or
otherwise disposed of. The Federal Division is in compliance in
all material respects with all applicable Regulations respecting
employment practices, employment documentation, terms and
conditions of employment and wages and hours. There are no unfair
labor practice charges or complaints against or affecting the
Federal Division pending before any applicable Governmental Agency
and, to the Knowledge of the Company, Pentair or FCH, there
are no material facts or information which would have a reasonable
probability of giving rise thereto.
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4.13 Absence of Certain Changes. Except for matters
referenced in the Separation Agreement or as set forth on Schedule
4.13, since December 31, 1996 with respect to the Federal Division
there has not been:
(a)any Material Adverse Change;
(b)except for the operation of the cash management
system by Pentair with respect to the Federal Division, any
declaration, setting aside or payment of any dividend or other
distribution in respect of the Common Stock or any redemption,
purchase or other acquisition of any shares of the capital stock of
the Company or any fee or other payment to or on behalf of Pentair,
FCH or any Affiliate including any payment of principal or interest
on any debt owed to any Affiliate, other than the normal corporate
charges of the type reflected on the Financial Statements;
(c)except as disclosed on Schedule 4.11 and except for
increases occurring in the Ordinary Course of Business (which shall
include normal periodic performance reviews and related
compensation and benefit increases) any (i) increase in the rate or
terms of compensation or bonus payable or to become payable or
benefit due or to become due by the Federal Division to its
respective current and former directors, officers, employees or
agents (collectively, "Personnel"), (ii) adoption, creation or
amendment of any plan providing Employee Benefits, or (iii) other
change in employment terms for any of the officers, employees or
agents of the Federal Division, other than in connection with the
retention bonuses and severance arrangements referenced in Sections
7.2 and 7.11 hereof;
(d)any issuance of or commitment to issue any (i)
shares of Common Stock or (ii) rights, options, warrants or other
securities exercisable for or exchangeable or convertible into any
capital stock of the Company;
(e)any payment, discharge, compromise, waiver,
forgiveness or release of any rights or claims (or series of
related rights or claims) or any obligation or Liability involving
more than $50,000 and outside the Ordinary Course of Business;
(f)except as disclosed on Schedule 4.19, any amendment,
modification, acceleration, cancellation, termination, or, to the
Knowledge of the Company, Pentair or FCH any threatened
cancellation or termination of any Lease, Mortgage or Contract of
the Federal Division that (i) involves payments by or to the
Company in excess of $50,000 and (ii) is outside of the Ordinary
Course of Business or which otherwise would have a Material Adverse
Effect;
(g)except as disclosed on Schedule 4.19, any capital
expenditure or the incurring of Liability therefor by the Federal
Division involving payments in excess of $50,000;
(h)any delay or failure to repay when due any material
obligation of the Federal Division;
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(i)except as disclosed on Schedule 4.6, any change by
the Federal Division, or by Pentair with respect to the Federal
Division, in accounting methods, principles or practices of the
Federal Division, including any increase or change in any
assumptions underlying or methods of calculating any bad debt,
contingency or other reserves or any revaluation of the Assets or
Federal Liabilities;
(j)any material Encumbrance of any of the Assets other
than in the Ordinary Course of Business;
(k)any indebtedness incurred (contingent or otherwise)
by the Federal Division for borrowed money or any commitment to
borrow money entered into by the Federal Division, or any loans or
guarantees made, agreed to be made by, or obligating the Federal
Division (other than loans and advances made by Pentair to the
Federal Division);
(l)any capital investment in, loan to, or acquisition
of the securities or substantially all of the assets of any other
Person (i) involving an Affiliate of the Company, (ii) involving
more than $50,000 in the aggregate, or (iii) outside the Ordinary
Course of Business;
(m)except as set forth in Schedule 4.16, any grant of
any Contract rights under or with respect to any Intellectual
Property of the Federal Division except in the Ordinary Course of
Business; or
(n)to the Knowledge of the Company, FCH or Pentair, any
oral agreements by or obligating the Federal Division, or any of
its Personnel to do any of the foregoing.
4.14 Books and Records. The Company has made and kept books
and records and accounts, which, in reasonable detail, accurately
and fairly reflect the activities of the Company and the separate
business and financial activities of each of the Federal Division
and Hoffman Division so that the books and records of such
divisions are able to be separated, audited and traced. The minute
books of the Company, as previously made available to the Buyer and
its Representatives, contain accurate and adequate records of all
meetings of, and corporate actions taken by (including action taken
by written consent), the stockholder and Board of Directors of the
Company. The copies of the stock book records of the Company
heretofore delivered to the Buyer completely and accurately reflect
all transactions effected by or on behalf of the Company, or to
which it is or may be bound. At Closing all of the Books and
Records will be owned by and in the possession of the Company. The
Books and Records are sufficient to operate the Business as a
stand-alone company. All Books and Records have been maintained in
all material respects in accordance with all applicable Regulations
and good business practices.
4.15 Owned and Leased Personal Property. Schedule 4.15
attached hereto contains a true, correct and complete copy of the
asset register of the Federal Division as of September 27, 1997.
Schedule 4.15 also sets forth all items of Personal Property not
owned by Company, but in the possession of or used in the Business,
including Leases of Personal Property having rental payments
therefor in excess of $25,000 per year. Except as disclosed on
Schedule 4.15:
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(a)The Federal Division has good and marketable title
to each item of Personal Property listed in the asset register or
acquired (and not disposed of) in the Ordinary Course of Business
thereafter free and clear of all Encumbrances, except for Permitted
Encumbrances; and
(b)The Equipment is in good operating condition and
repair, normal wear and tear excepted, is currently used in the
Business in the ordinary course and normal maintenance has been
consistently performed with respect to the Equipment.
4.16 Intellectual Property.
(a)Possession, Rights and Ownership. The Federal
Division possesses all Intellectual Property necessary for the
conduct of its Business as presently conducted, including all
licenses and rights to use any Intellectual Property necessary for
the Business as presently conducted. The Federal Division is the
sole and exclusive owner of all right, title and interest in and to
the Intellectual Property owned by it, free and clear of all
Encumbrances, other than as set forth on Schedule 4.16 hereof.
Except as set forth on Schedule 4.16, no right of the Company in
the Intellectual Property used in the Business will be impaired or
Encumbered in any material way by reason of the consummation of the
Transactions.
(b)No Proceedings, Disclosure or Infringement. Neither
the Company, Pentair or FCH has received any notice of any event,
inquiry, investigation or proceeding threatening the validity or
exclusivity, where applicable, of any Intellectual Property used by
the Federal Division. The Federal Division has taken all
reasonable and prudent steps to protect the Intellectual Property
listed on Schedule 4.16, from infringement by any other Person.
Except as set forth on Schedule 4.16 no other Person (i) has the
right (including a license) to use any of the Intellectual Property
of the Company with respect to the goods and services on which they
are now being used in the Business either in identical form or in
such near resemblance thereto as to be likely, when applied to the
goods of any such Person, to cause confusion with such Intellectual
Property or to cause a mistake or to deceive, (ii) has notified the
Company, Pentair or FCH that it claims any ownership of or right to
use such Intellectual Property, or (iii) to the Knowledge of the
Company, FCH or Pentair is infringing upon any Intellectual
Property in any material respect. Except as set forth in Schedule
4.16, the Federal Division has full ownership rights and interests
in and to all of the trade secrets used in the Business, which
trade secrets have not been used, disclosed, or appropriated, and,
to the Knowledge of the Company, Pentair or FCH, are not now being
used, disclosed or appropriated, by any Person. The use of the
Intellectual Property used in the Business has not conflicted and
does not now conflict with, infringe upon or otherwise violate, in
any material respect, the rights of any third party. Except as set
forth in Schedule 4.16, no legal proceeding has been instituted
against, or notice or claim received by, nor to the
Knowledge of Company, Pentair or FCH, is there a reasonable
probability thereof, that alleges that the use by the Federal
Division of the Intellectual Property (or any intellectual property
or process) used in the Business infringes upon or otherwise
violates any rights of a third party, other than any such legal
proceeding or notice or claim that has been disposed of without the
imposition of any continuing adverse condition on the Business.
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(c)Proprietary Rights. Schedule 4.16 identifies each
Patent, Trademark and registered Copyright owned or used by the
Federal Division. Schedule 4.16 also sets forth: (i) for each
Patent, the issue number, issue date, normal expiration date (if
available) and subject matter for each country in which such Patent
has been issued, or, if applicable, the application number and date
of filing for each country, (ii) for each Trademark, (A) the
description, the application, serial number or registration number,
the class of goods covered and the issue and expiration or renewal
(as applicable) date for each country in which a Trademark has been
applied for or registered, (B) the description of each Trademark
for which registration has not been sought, (iii) for each
registered Copyright, the application or issue number and date of
filing for each country in which a Copyright has been registered.
True and correct copies of all Patents, Trademarks and Copyrights
(including all pending applications) evidencing Intellectual
Property which have been registered or issued by an applicable
Governmental Agency to or for the Federal Division have been
provided to the Buyer. Except for applications pending, all of the
Patents, registered Trademarks and registered Copyrights listed on
Schedule 4.16 have been duly and validly issued. All of the
pending Patent applications have been duly filed. Schedule 4.16
also identifies all material licenses and license rights to which
the Federal Division is a party or pursuant to which it is bound.
4.17 Leased Real Property. Schedule 4.17 attached hereto sets
forth a true, correct and complete list as of the date hereof of
all Leases of real property, identifying separately each ground
lease, to which the Federal Division is a party or pursuant to
which it is bound (collectively, the "Leased Real Property").
True, correct and complete copies of all Leases pertaining to the
Leased Real Property and all amendments, modifications and
supplemental agreements thereto, have previously been delivered to
the Buyer. The Leased Real Property Leases are in full force and
effect, are binding and enforceable against the Federal Division,
and, to the Knowledge of the Company, Pentair and FCH, against each
of the other parties thereto in accordance with their respective
terms. Except as set forth on Schedule 4.17, the Leased Real
Property Leases have not been modified or amended since the date of
delivery to the Buyer. No party to any Lease has sent written
notice to the other claiming that such party is in Default
thereunder or that such Default remains uncured. There has not
occurred any Default in the performance of any covenant, agreement
or condition contained in any Lease, nor to the Knowledge of the
Company, Pentair or FCH has there occurred any Potential Default.
Neither the execution, delivery or performance of this Agreement or
any other agreements or Transactions require the consent or
approval of any party to any Lease, nor will such execution,
delivery or performance constitute or result in a breach of or
Default in the performance of any covenant, agreement or condition
contained in any Lease. Except as reflected on the Final Closing
Net Equity Statement, no Encumbrances with respect to any of the
Leased Real Property remains to
be paid for or to be performed by the Federal Division and there
exist no other Encumbrances, other than Permitted Encumbrances.
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4.18 Owned Real Property. Schedule 4.18 attached hereto
contains a true, correct and complete list of (i) the legal
descriptions of all Owned Real Property and (ii) all Exceptions of
which Pentair, FCH or the Company have Knowledge. Seller has
caused to be prepared and delivered to Buyer a preliminary title
commitment. Except for (A) Permitted Encumbrances, (B) matters set
forth on Schedule 4.18, or (C) matters disclosed on the surveys of
all Owned Real Property previously delivered to Buyer:
(a)No work has been performed on or materials supplied
to the Owned Real Property within any applicable statutory period
that could give rise to any mechanic's or materialman's lien or
other Encumbrances, except in the Ordinary Course of Business.
(b)There is no pending or, to the Knowledge of the
Seller, threatened condemnation or eminent domain proceeding with
respect to the Owned Real Property.
(c)Except as may be incurred in effecting the
provisions of the Separation Agreement (and then, only to the
extent set forth therein), there are no Encumbrances, including (i)
Taxes pending or payable against the Owned Real Property, (ii)
contingencies existing under which any assessment for real estate
Taxes may be retroactively filed against the Owned Real Property,
and (ii) Taxes, Permit fees or connection fees that must be paid
respecting existing curb cuts, sewer hook-ups, water-main hook-ups
or services of a like nature.
(d)The Owned Real Property is, or Seller shall cause it
to be after the date hereof, legally subdivided and, except as may
relate to any such prospective subdivision, consists of separate
tax lots so that it is assessed separately and apart from any other
real property of Seller.
(e)Except as may be incurred in effecting the
provisions of the Separation Agreement (and then, only to the
extent set forth therein), all installation charges for utility
systems serving the Owned Real Property and all service charges
therefor that are due and payable on or before the Closing Date
have been paid by the Company on behalf of the Federal Division
before the Closing Date, or appropriate provision therefor on the
Closing Date Net Equity Statement will be made, to and including
the Closing Date.
(f)Except as set forth in Schedule 4.18, the Owned Real
Property complies in all material respects with all applicable
municipal zoning and building codes and ordinances; and there is no
Action pending or, to the Knowledge of the Company, Seller and
Pentair, threatened by any Governmental Agencies (or any other
third party) claiming that the Owned Real Property violates any
such codes or ordinances.
(g)All buildings (including their respective utility
systems) actively used in the administration of the Business and
the manufacture and warehousing of the products of the Business
are in good operating condition and repair, and the operation
thereof as presently conducted is not in material violation of
any applicable Regulations, including any building code
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or zoning ordinance. Other buildings located on the Owned
Real Property if not actively used are excluded from this
representation.
(h)Seller has delivered to Buyer copies of all title
insurance policies and commitments and surveys, heretofore prepared
for the Federal Division with respect to the Owned Real Property.
No representation or warranty regarding the title to Owned Real
Property shall survive Closing.
Section 4.19 Material Contracts.
(a)Contracts. Except for (i) purchase orders,
invoices, confirmations, trade payables and similar documents and
arrangements entered into by the Federal Division in the Ordinary
Course of Business, (ii) Leases, (iii) licenses of Intellectual
Property, (iv) Employee Benefits and (v) the Separation Agreement,
Schedule 4.19 lists, as of the date hereof, all of the following
material Contracts to which the Federal Division is a party:
(1)Contracts not in the Ordinary Course of Business;
(2)Contracts pertaining to the borrowing of money;
(3)Contracts creating Encumbrances, other than
Permitted Encumbrances;
(4)Contracts creating a guarantee of performance or
payment;
(5)Contracts relating to material licensing (other than
of Intellectual Property), management or consulting services,
including agency, marketing (including sales representation,
distributor or dealer arrangements) or advertising
arrangements;
(6)Contracts relating to material capital expenditures;
(7)Contracts limiting the freedom of the Federal
Division to engage in or compete with any business;
(8)Contracts for the acquisition or disposition of real
property or any business or line of business or for any merger
or consolidation;
(9)Contracts concerning any joint enterprise, venture
or partnership in which Federal Division has an interest;
(10)Contracts that individually require after the date hereof
(A) the payment of $100,000 or more during any 12-month period
and that cannot be terminated without cause within a period of
one (1) year after the Closing Date, (B) the Federal Division to
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indemnify any Person, or (C) the payment of
$250,000 or more during any 12-month period;
(11)Contracts for the purchase of raw materials or
supplies (including consignment, hedging and similar
Contracts) for, or the furnishing of services to, the Federal
Division, (A) for which, to the Knowledge of the Company,
comparable goods and services are not readily available in the
Ordinary Course of Business on comparable terms and conditions
or (B) the quantities of which are in excess of the normal
requirements of the Business.
Pentair, FCH and the Federal Division have made available to the
Buyer true, correct and complete copies of the written Contracts
listed on Schedule 4.19, including all amendments and supplements
thereto.
(b)Absence of Breaches and Defaults. Except as set
forth on Schedule 4.19, each Contract set forth thereon is in full
force and effect and there exists no Default thereunder and to the
Knowledge of Company or Seller, there is no Potential Default. All
of the Contracts set forth on Schedule 4.19 and, all of the other
Contracts to which the Federal Division, or the Company on behalf
of the Federal Division, is a Party or by which it or any of the
Assets is bound or affected, are enforceable in accordance with
their terms.
4.20 Insurance. Schedule 4.20 sets forth a summary of all
policies of property, fire and casualty, general liability,
products liability, workers' compensation, business interruption,
automobile and other forms of insurance owned, held by or purchased
for the benefit of the Federal Division or Pentair with respect to
the Business, or their respective employees, for the past five (5)
years (the "Insurance Policies"), other than insurance policies
relating to Employee Benefits. All Insurance Policies are
occurrence policies and not claims made policies, except for
executive risk (D&O) policies. To the Knowledge of Company,
Pentair or FCH, the Federal Division has not received (i) any
notice of cancellation of any policy described in Schedule 4.20,
(ii) any notice that any issuer of such policy has filed for
protection under applicable bankruptcy laws or is otherwise in the
process of liquidating or has been liquidated, or (iii) any other
written notice that such policies are no longer in full force or
effect or that the issuer of any such policy is no longer willing
or able to perform its obligations thereunder. Schedule 4.20 sets
forth all material outstanding unpaid claims under any of the
Insurance Policies. All policies and binders for the current
policy year are in force on the date hereof.
4.21 Certain Relationships. Except for the cash management
system operated by Pentair with respect to the Federal Division and
except for the arrangements and ownership of assets set forth in
the Separation Agreement, (i) no Affiliate of the Company has been
involved in any material business arrangement with the Federal
Division since December 31, 1995 and (ii) no Affiliate of the
Company owns any material asset, tangible or intangible, which is
used in the Business.
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4.22 Environmental Matters. To the Knowledge of the Company,
Seller or Pentair, except as set forth on Schedule 4.22:
(a)Hazardous Materials. Hazardous Materials are and
have been handled, transported, used, treated and stored on the
Owned Real Property as a part of the Ordinary Course of Business of
the Federal Division.
(b)Permits. The Company has, and at all times has had,
all material Permits required under any Environmental Law. The
Federal Division is and has been in material compliance with
Environmental Laws and the requirements of Permits issued
thereunder with respect to the Owned Real Property.
(c)Pending Actions. There are no pending or, to the
Knowledge of the Company, Seller or Pentair, threatened
Environmental Claims against the Federal Division.
(d)Environmental Audits or Assessments. The Company has
delivered to the Buyer true, complete and correct copies of all
material correspondence and written reports in its possession
relating to all environmental audits or assessments which have been
conducted with respect to the Owned Real Property within the last
five (5) years.
The warranties and representations contained in this Section 4.22
shall not survive the Closing; Section 7.15 and Article VIII of
this Agreement provides for the remediation of and indemnification
with respect to Environmental Conditions and certain claims under
the Environmental Laws.
4.23 Compliance with Law.
(a)Except as set forth on Schedule 4.23, the Company is
in material compliance with all Regulations applicable to the
Business, other than with respect to Environmental Laws which are
covered separately in Sections 4.22 and 7.15. Neither the Company,
Pentair nor FCH has received any notice to the effect that, or
otherwise been advised that, the Company is not in material
compliance with any Regulations or Court Orders affecting the
Business, and the Company, Pentair and FCH have no Knowledge that
any existing circumstances are reasonably likely to result in
violations of any of the foregoing.
(b)The Company is in material compliance with all
Regulations relating to the disposition of solid waste, as defined
under applicable Regulations. Neither the Company, Pentair nor FCH
has received any notice to the effect that, or otherwise been
advised that, the Company is not in material compliance with
Regulations and Court Orders relating to solid waste, and the
Company, Pentair and FCH have no Knowledge that there is a
reasonable probability of any such violations.
4.24 No Other Agreements to Sell Assets of the Company. Other
than as contemplated by this Agreement, neither the Company,
Pentair or FCH, has made any Contract with any other
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Person to sell, assign, transfer or effect a sale of all or
substantially all of the Assets, the Shares, or any capital
stock of or other equity interest in the Company, to effect any
merger, consolidation, liquidation, dissolution or other
reorganization of the Company, or agreed to enter into any Contract
with respect to any of the foregoing.
4.25 Notes and Accounts Receivable. The notes and accounts
receivable reflected on the Financial Statements and the Final
Closing Date Net Equity Statement, do and will represent bona fide
claims of the Company against debtors for sales, services performed
or other charges in connection with the Business arising on or
before the date hereof. Said notes and accounts receivable are
subject to no defenses, counterclaims or rights of set-off and are
fully collectible in the Ordinary Course of Business. The warranty
and representation contained in this Section 4.25 shall not survive
the Closing; Section 7.16 provides for the disposition of claims
between the Company and Pentair with respect to uncollectible
accounts receivable following the Closing.
4.26 Inventories. Except as set forth on Schedule 4.26 and
subject to the reserves therefor on the Final Closing Date Net
Equity Statement (a) all Inventories of the Business are of good,
usable and merchantable quality in all material respects and do not
include obsolete or discontinued items, (b) all such Inventories
are of such quality as to meet the usual and customary quality
control standards of the Business and any applicable governmental
quality control standards, (c) all such Inventories that are
finished goods are saleable as current Inventories in the Ordinary
Course of Business, and (d) all such Inventories are recorded on
the financial records of the Federal Division in accordance with
GAAP. Schedule 4.26 lists the location of all such Inventories.
The Company has followed all Company policies with respect to
excess and obsolete inventory, including any changes therein set
forth on Schedule 4.6. Special Inventory is hereby excluded from
the representations and warranties set forth in paragraphs (c) and
(d) of this Section 4.26; Section 2.8 hereof provides for separate
treatment and payment for the Special Inventory.
4.27 Certain Payments. The Company, Seller and their
Affiliates have not (i) directly or indirectly, paid or delivered
any fee, commission or other sum of money or item or property,
however characterized, or have agreed to do any of the foregoing,
to any Person, in the United States or any other country, which is
in any manner related to the Business, which was illegal when made
or consummated under any federal, state or local laws of the United
States (including without limitation the U.S. Foreign Corrupt
Practices Act) or any other country having jurisdiction, (ii)
participated, directly or indirectly, in any boycotts or other
similar practices affecting any of its actual or potential
customers, or (iii) established or maintained any unrecorded fund
or asset for any purpose or made any false entries on the Books and
Records.
4.28 Customers. Schedule 4.28 attached hereto sets forth a
true, correct and complete list of the names of each customer of
the Business who purchased $500,000 or more from the Federal
Division in the fiscal year ended December 31, 1996. None of the
Federal Division, Pentair or FCH has received any written or, to
the Knowledge of the Company, Pentair or FCH, oral notice that any
such customer (i) will cease to buy or use the products, goods or
services of the Federal Division, or (ii) will substantially reduce
the purchase or use of products, goods or services of the Federal
Division, in either case after the consummation of the
Transactions.
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4.29 Suppliers. Schedule 4.29 attached hereto sets forth a
true, correct and complete list of the names of each of the
suppliers of the Federal Division that accounted for a dollar
volume of purchases of $500,000 or more for the fiscal year ended
December 31, 1996. None of the Company, Pentair or FCH have any
Knowledge that any supplier will not continue to sell to it raw
materials, supplies, merchandise and other goods or services on
terms and conditions similar to those applicable to its current
sales to the Federal Division, subject to general and customary
price increases, product shortages or allocations or other
disruptions of supply outside the control of the Federal Division
after the consummation of the Transactions.
4.30 Warranty and Product Liability. Schedule 4.30 attached
hereto contains a true, correct and complete list of all warranty
claims in excess of $5,000 and all product liability claims made
against the Business through the date hereof that remain
outstanding and the current status of each such claim. Except as
set forth on Schedule 4.30 there are no pending or, to the
Knowledge of the Company, threatened claims with respect to any
material warranty or product liability, nor, to the Knowledge of
the Company, Pentair, or FCH, is there any reasonable probability
thereof. All information (to the extent available) relative to
such warranty and product liability claims has been made available
to the Buyer. Except as set forth in Schedule 4.30 and except for
warranties under applicable Regulation, the Company has given no
warranties, express or implied, written or oral with respect to the
products of the Business.
4.31 Banking Facilities. Schedule 4.31 attached hereto sets
forth a true, correct and complete list of:
(a)each bank, savings and loan or similar financial
institution in which the Federal Division, has an account or safety
deposit box and the numbers of the accounts or safety deposit boxes
maintained by the Federal Division, or the Company, FCH or Pentair
on behalf of the Federal Division, thereat; and
(b)the names of all persons authorized to draw on each
such account or to have access to any such safety deposit box
facility, together with a description of the authority (and
conditions thereof, if any) of each such person with respect
thereto.
4.32 Powers of Attorney. Except as set forth on Schedule
4.32, the Company has no general or special powers of attorney
outstanding (whether as grantor or grantee), other than for freight
forwarders and customs brokers for the purpose of making customs
and similar declarations for products of the Federal Division and
the Hoffman Division.
4.33 Compensation of and Contracts with Employees. The Buyer
has been provided with an accurate and complete list showing the
names of all employees of the Federal Division who (i) participate
in a Pentair management incentive plan or (ii) received more than
$75,000 in 1996 cash compensation (including salary, commission and
normal bonus (other than MIP)). Except as set forth in Schedule
4.33, the Company has not entered into written employment,
severance, "golden parachute" termination or similar contracts with
any employee of the Federal Division. It is the policy of the
Company to engage employees of the Business in at-will,
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unwritten employment arrangements. The employee manual of the
Federal Division has been delivered to Buyer and, as of the date
delivered, was true, complete and accurate, and no material
modification has been made since that date.
4.34 Product Recalls. Except as set forth on Schedule 4.34,
there have not been, within the past 5 years, nor are there
currently pending, or, to the Knowledge of the Company, Pentair or
FCH, is there any reasonable probability of, any market withdrawals
or recalls of any goods sold by the Federal Division that have been
announced either to its distributors, retail accounts or ultimate
consumers, or to the industry in which the Business operates, or to
the general public.
4.35 Information Provided. The information concerning the
Company set forth in this Agreement, the Exhibits and Schedules
attached hereto and any document, statement or certificate
specifically referred to herein or therein and furnished or to be
furnished to the Buyer pursuant hereto, does not and will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary
to make the statements and facts contained herein or therein, in
light of the circumstances in which they are made, not false and
misleading. The Disclosure Schedules have been prepared in good
faith and are contemplated to provide reasonable disclosure to
Buyer of the matters referenced therein. Copies of all documents
heretofore or hereafter delivered or made available to the Buyer
pursuant to this Agreement were or will be complete and accurate
copies of such documents.
4.36 Sufficiency of Assets. The Assets are sufficient to
operate the Business in the same manner as conducted by the Federal
Division on December 31, 1996 and as of the Closing Date.
ARTICLE V
REPRESENTATIONS OF THE BUYER
The Buyer represents and warrants to Pentair that the
following representations and warranties are, as of the date
hereof, true, complete and correct:
5.1 Organization and Authority. The Buyer is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has all requisite power and
authority (corporate and other) to own its properties and to carry
on its business as now being conducted. The Buyer has full power to
execute and deliver this Agreement and the agreements contemplated
herein, and to consummate the Transactions contemplated hereby and
thereby.
5.2 Authorization. The execution and delivery of this
Agreement by the Buyer, and the agreements provided for herein, and
the consummation by the Buyer of the Transactions contemplated
hereby and thereby, have been duly authorized by all requisite
corporate action. This Agreement and all other Transaction
Documents constitute the valid and legally binding obligations of
the Buyer, enforceable against the Buyer in accordance with their
respective terms.
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5.3 Noncontravention. Except as listed in Schedule 5.3,
neither the execution, delivery or performance by Buyer of this
Agreement or the other Transaction Documents, nor the consummation
of the Transactions, will (i) violate, conflict with or result in
any breach of any provision of the Articles of Incorporation or by-
laws of the Buyer, (ii) violate any Regulation or Court Order to
which the Buyer is subject or (iii) result in a material violation
of or constitute a Default under, or require any notice under, any
Contract, Lease or other instrument to which the Buyer is a party
or by which the Buyer is bound or to which any of its assets is
subject.
5.4 Investment Purpose. The Buyer is acquiring the Shares
for investment, for its own account only, and not with a view to,
or for resale in connection with, any "distribution" thereof
(within the meaning of the Securities Act or other applicable
securities laws).
5.5 Financing. Buyer has the financial capability to
purchase the Shares and to consummate the Transactions on the terms
and subject to the conditions set forth in this Agreement and in
the other Transaction Documents.
5.6 Litigation. Except as set forth in Schedule 5.6, there
is no proceeding pending, nor to the Buyer's Knowledge threatened,
that seeks to limit, delay or enjoin the Transactions.
ARTICLE VI
SEPARATION COVENANTS
6.1 Separation Agreement. The Company and FCH have entered
into an agreement whereby the Federal Division and the Hoffman
Division are being separated by transferring all of the assets and
Liabilities of the Company other than those of the Federal Division
to FCH or an entity owned or controlled by FCH (the "Separation
Agreement"). The Separation Agreement is incorporated in to this
Agreement as Exhibit G. The transfer of assets and assumption of
Liabilities specified therein shall be deemed to have taken place
immediately prior to the effective time of the transfer of the
Shares from FCH to Buyer hereunder. Pentair covenants to cause the
due performance of, and FCH acknowledges its obligation to perform,
the duties and obligations of FCH that arise from, are incident to,
or occur in connection with the Separation Agreement. The Buyer
covenants to cause the due performance of, and the Company
acknowledges its obligation to perform, the duties and obligations
of the Company that arise from, are incident to, or occur in
connection with the Separation Agreement.
6.2 Third Party Consents. Prior to the Closing Date, the
Company shall have obtained all consents and authorizations
necessary in connection with the Transactions for any and all
Contracts, Permits, Leases, Mortgages, Employee Benefits or
Regulations to which the Hoffman Division is a party or is bound,
under which it has or may have an obligation under, or those which,
if not so obtained, would have subjected the Company to any
material Liability, caused interruption of the operations of the
Business or otherwise materially and adversely affected the Business.
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6.3 Termination and Employment of Hoffman Division Employees.
In connection with the Separation, Pentair and FCH shall have
directed the Company, at the sole cost and expense of FCH and in
compliance with applicable Regulations, to cause all employees of
the Company who are not Active Employees to cease to be employees
of the Company as of the Closing Date, and FCH has engaged all
current employees of the Company other than Active Employees as
employees of FCH. FCH, with no financial assistance from Company,
agrees to make or cause to be made a clean cut-off of payroll and
payroll tax reporting with respect to employees of the Company
other than Active Employees and shall pay over to the federal,
state and city governments those amounts respectively withheld or
required to be withheld for periods of employment ending on or
prior to the Closing Date. FCH also agrees to issue or cause to be
issued timely Forms W-2 for wages paid to former employees of the
Company who are not Active Employees through the Closing Date,
unless some other less burdensome method of reporting is allowed by
the Code or other applicable Regulations.
6.4 Actions and Claims.
(a)Federal Liabilities include, and, following Closing,
the Company shall have responsibility for and liability with
respect to, all third-party Actions relating to the Business or the
Federal Division, regardless of the type of claim or the date on
which the claim arose or was brought to the attention of the
Company, except for
(i)workers' compensation claims for which the
occurrence took place on or before the Closing Date;
(ii)product liability claims based on occurrences
(and not the date of manufacture of the product involved nor
the date such claims are made) arising on or before the
Closing Date;
(iii)claims arising, whether or not prior to
Closing, with respect to Environmental Conditions to the
extent covered in Section 7.15 hereof;
(iv)claims for Taxes for which Seller is
responsible under Section 7.7 hereof, arising with respect to
periods prior to the Closing;
(v)claims based on occurrences on or before the
Closing Date for which the Federal Division has available to
it coverage under the Insurance Policies (without regard to
deductibles, retained limits, self-insured amounts or the
like) and any claim under paragraph 1a. of Schedule 4.9
regardless of insurance coverage; and
(vi)claims arising out of or with respect to TCAAP
to the extent not reimbursed to the Federal Division by
insurance or indemnification by any third party.
which shall be assumed by FCH following the Closing. The retention
by the Company of any responsibility or liability with respect to
any Actions pursuant to the foregoing shall not be deemed
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to limit the ability of the Company or the Buyer to recover Damages
for any breach of representation or warranty under Article IV
hereof, if otherwise permitted hereunder.
(b)The parties acknowledge and agree that some or all
of such Actions to be assumed by the FCH may not be validly or
legally transferable from the Company to FCH. Defense of all such
Actions shall nonetheless be irrevocably undertaken by FCH after
the Closing Date, all at the sole cost and expense of FCH,
including all costs of judgment or settlement. The Company shall
have no responsibility to defend, indemnify, incur costs or
expenses or otherwise participate in any such Actions; provided,
however, the Company shall be required to provide reasonable
assistance and cooperation to FCH in the defense thereof by making
Personnel of the Federal Division available and providing
continuing access to the Books and Records of the Federal Division
and other documentation that was not transferred from the Company
to FCH pursuant to this Agreement, for which assistance FCH will
pay to the Federal Division all reasonable out-of-pocket expenses
and straight hourly time personnel costs incurred. In the event
that FCH fails to undertake and diligently defend any such Action,
the Company shall be entitled to do so in accordance with the
indemnification procedures and remedies set forth in this
Agreement.
(c)Subject to the Federal Division's rights pursuant to
Section 6.4(a) above, and any corresponding right of Seller
pursuant to Section 8.3 hereof, defense of all other Actions that
are retained by the Federal Division under paragraph (a) hereof
shall be undertaken by the Company after the Closing Date, all at
the sole cost and expense of the Company, including all costs of
judgment or settlement. FCH shall have no responsibility to
defend, indemnify, incur costs or expenses or otherwise participate
in any such Actions; provided, however, Pentair and FCH shall be
required to provide reasonable assistance and cooperation to the
Company in the defense thereof by making their respective Personnel
available, for which assistance the Company will pay to the Seller
all reasonable out-of-pocket expenses and straight hourly time
personnel costs incurred.
6.5 Insurance. The parties intend and hereby agree that
notwithstanding anything to the contrary contained herein, that the
policies of insurance issued by Pentair's captive insurance company
in any event and all policies in excess of such captive policies
except as otherwise provided in this Section 6.5 are not available
to the Company. Further, the parties agree that any primary
policies (other than such captive policies) and excess policies
related to such primary policies are available to the extent
applicable. Therefore, in furtherance of such intent and
agreement, after the Closing:
(a)The Company shall have no right to make claims under
policies of insurance issued by Pentair's captive insurance company
which may have provided coverage to the Company as an Affiliate of
Pentair prior to the Closing Date. As of the Closing, the Federal
Division shall be removed as a named or an additional insured from
all such insurance policies and the prospective insurance
requirements of the Federal Division will be the sole
responsibility of the Buyer.
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(b)To the extent, however, that any claims arise under
separate policies of insurance issued by third parties and owned by
or covering the Federal Division with respect to occurrences
arising on or before the Closing Date, the Federal Division may
make claims under such policies without regard to any other
provision hereof, but subject to such conditions contained in any
such policies, including all reporting and notice requirements
thereof. The Company shall not have the right to claim directly
against Seller for any "self-insured" program of risk management or
the amount of any deductible or self-insured retention for any loss
suffered by the Company on or before the Closing Date, regardless
of the date on which the claim is made subsequent to the Closing
Date. The Federal Division shall be responsible for and shall pay
all expenses relating to services for claims administration,
investigation, appraisals and claim review incurred on or after the
Closing with respect to claims under such insurance policies.
(c)To the extent any claim made by the Federal Division
following the Closing Date pursuant to paragraph (b) above exceeds
any such separate policy's limits, the Federal Division shall be
entitled to an aggregate amount of coverage for each policy year
equal to ten percent (10%) of Pentair's aggregate umbrella and
excess coverage available with respect to such separate insurance
policy under which the Federal Division has a right to claim
hereunder. Buyer and the Company agree promptly to tender to
Pentair the amount of any proceeds thereof received from any of
such excess or umbrella carriers in excess of such percentage.
(d)Except as set forth above in Section 4.20, neither
Pentair nor FCH make any representations or warranties regarding
the scope, availability or amount of coverage under any Insurance
Policy. The Parties agree that neither Pentair nor FCH have any
responsibility, and shall not be held liable, for the actions of
the insurers under the Insurance Policies regarding claims
submitted by Buyer or the Federal Division.
ARTICLE VII
ADDITIONAL COVENANTS OF THE COMPANY, SELLER AND BUYER
7.1 Public Announcements. Buyer and Pentair shall cooperate
in the preparation of any announcements regarding the Transactions.
Except as required by applicable Regulations, neither Party shall
issue any announcement regarding the Transactions without the prior
consent of the other Party, which consent shall not be unreasonably
withheld, delayed or conditioned; provided, further, that if any
disclosure regarding the Transactions is required by applicable
Regulation, the Parties shall, to the extent reasonably
practicable, consult prior to disclosure on the form and content
thereof. The covenants set forth in this Section 7.1 shall be
enforceable in law or at equity by either party.
7.2 Payment of Retention Bonus. Pentair shall cause all
retention bonus arrangements to be honored in accordance with the
terms of the letter agreements entered into with employees eligible
therefor, which letter agreements are substantially in the form set
forth on Exhibit H.
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7.3 Costs and Expenses. Each of the Parties will bear its
own expenses incurred in connection with the preparation, execution
and delivery of this Agreement or the consummation of any
Transaction contemplated by this Agreement. Except as otherwise
provided in the Separation Agreement, the Parties agree that any
and all professional costs and expenses of any Representative of
the Company in connection with this Agreement and the Transactions
shall be properly chargeable to Seller, including the preparation
and delivery of the Separation Agreement. The expenses incurred as
a result of implementing the terms and conditions of the Separation
Agreement shall be allocated as set forth therein.
7.4 Confidential Information.
(a)Pentair and each of its Affiliates shall hold in
confidence and shall use their best efforts to have all officers,
directors and personnel hold in confidence all Confidential
Information with respect to the Business and not to disclose,
publish or make use of the same without the consent of the Buyer.
If (i) the employment of an officer, director or other employee of
Pentair or any Affiliate thereof, to whom Confidential Information
of the Business has been disclosed, is terminated and (ii) such
individual is subject to an obligation to maintain such information
in confidence after such termination, Pentair shall, upon request
by the Buyer, take all reasonable steps at Pentair's sole cost and
expense, to enforce such confidentiality obligation in the event of
an actual or threatened breach thereof.
(b)Buyer and each of its Affiliates shall hold in
confidence and shall use their best efforts to have all officers,
directors and personnel hold in confidence all confidential
information with respect to the Hoffman Division and not to
disclose, publish or make use of the same without the consent of
Pentair. If (i) the employment of an officer, director or other
employee of the Company or any post-closing Affiliate thereof, to
whom confidential information of the Hoffman Division has been
disclosed, is terminated and (ii) such individual is subject to an
obligation to maintain such information in confidence after such
termination, the Company shall, upon request by Pentair, take all
reasonable steps at Buyer's sole cost and expense, to enforce such
confidentiality obligation in the event of an actual or threatened
breach thereof.
(c)The parties agree that the remedy at law for any
breach of this Section 7.4 would be inadequate and that the injured
party shall be entitled to injunctive relief in addition to any
other remedy it may have upon breach of any provision of this
Section.
7.5 No Solicitation or Hiring of Former Employees. Without
the Company's prior written consent, for a period of two (2) years
after the Closing Date, neither Pentair nor any Affiliate shall (a)
solicit for employment as an employee or consultant any Person who
was an employee of the Federal Division on the Closing Date, (b)
offer to or discuss with any Person, who was such an employee on
the Closing Date, employment as an employee or consultant, unless
such employee has not been employed by the Federal Division for a
period of ninety (90) days or more, or (c) offer or pay
compensation, directly or indirectly, to any such Person with
reference to such ninety (90) day period.
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7.6 Non-Competition Agreement.
(a)As part of the consideration and ancillary to the
sale of the Shares to Buyer for a period of five (5) years after
the Closing Date, neither Pentair nor any Affiliate shall: (i)
develop, manufacture, market or sell any product that competes with
any existing or proposed product manufactured (or proposed to be
manufactured) in the Business on or prior to the Closing Date, or
(ii) engage in any business competitive with the Business as
conducted on the date hereof or on the Closing Date, in the United
States or any other country in which the Federal Division has
conducted its business during the two (2) years prior to the
Closing Date, unless and to the extent that any such competitive
activity may have arisen in connection with the acquisition by
Pentair of any Person who engaged in such competitive activity
prior to such acquisition, provided that Pentair shall make best
efforts after the consummation of the acquisition transaction to
dispose of such competitive activity or competing product as soon
as reasonably and prudently possible.
(b)The Parties hereto agree that the duration and
geographic scope of the non-competition provision set forth in this
Section 7.6 are reasonable. In the event that any court of
competent jurisdiction or arbitrator determines that the duration
or the geographic scope, or both, are unreasonable and that such
provision is to that extent unenforceable, the Parties hereto agree
that the provision shall remain in full force and effect for the
greatest time period and in the greatest area that would not render
it unenforceable. The Parties intend that this non-competition
provision shall be deemed to be a series of separate covenants, one
for each and every county of each and every state of the United
States of America and each and every political subdivision of each
and every country outside the United States of America where this
provision is intended to be effective. Pentair agrees that damages
are an inadequate remedy for any breach of this provision and that
the Buyer shall, whether or not it is pursuing any potential
remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunctions without bond or other
security upon any actual or threatened breach of this non-
competition provision.
7.7 Tax Return Preparation and Examinations.
(a)Pentair shall prepare or cause to be prepared and
shall timely file all income Tax Returns (including any amendments
thereto) relating to the Company with respect to any tax period
ending on or before the Closing Date. Pentair or FCH shall pay or
cause to be paid all Taxes of Company with respect to any period
ending on or before the Closing Date as determined in accordance
with Section 7.7(b), and shall reimburse the Company or Buyer for
other Taxes paid as determined in accordance with Section 7.7(c) to
the extent not reflected on the Final Closing Date Net Equity
Statement.
(b)Pentair or its continuing subsidiaries shall include
or cause to be included the income of Company (including any
deferred income and any excess loss accounts pursuant to relevant
rules and regulations of the Internal Revenue Service) on Pentair's
or its continuing subsidiaries' federal and state income Tax
Returns for all periods through on or before the Closing Date and
shall pay any federal and state income Taxes attributable to such
income. Company will furnish all tax information requested by
Pentair for inclusion in such income Tax Returns for the
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period which includes the Closing Date in accordance with Pentair's
past custom and practice. The income of the Company will be
apportioned up to and including the Closing Date and the period
after the Closing Date by closing the books of Company at the close
of business on the Closing Date.
(c)In the case of any Taxes other than those described
in Section 7.7(b) and which are imposed on a periodic basis and are
payable for a period that begins before the Closing Date and ends
after the Closing Date, Pentair or FCH shall reimburse Buyer or the
Company for the portion of such Taxes allocable to the period
ending on the Closing Date. For sales and use Taxes, excise Taxes,
payroll Taxes and other Taxes related to a specific taxable
transaction or event, the portion so allocable shall be such Taxes
for which the relevant taxable transaction or event occurs on or
before the Closing Date. For ad valorem property Taxes and the
like (e.g., real estate Tax), the portion of such Taxes payable for
the period ending on the Closing Date shall be deemed to be the
amount of such Taxes for the entire period multiplied by a
fraction, the numerator of which is the number of days in the
period ending on the Closing Date, and the denominator of which is
the number of days in the entire period. The preceding sentence
shall be applied with respect to Taxes relating to capital
(including net worth or long-term debt) or intangibles by reference
to the level of such items on the Closing Date.
(d)Notwithstanding anything to the contrary in this
Agreement whether expressed or implied, to the extent not reflected
in the Final Closing Date Net Equity Statement, Pentair and FCH,
jointly and severally, shall indemnify and hold harmless Buyer and
Company against:
(i)all Taxes imposed on Company with respect to any
period ending on or before the Closing Date;
(ii)all Taxes imposed on Buyer or on Company with
respect to any period which begins before the Closing Date and
ends after the Closing Date to the extent allocated to the
portion of such period ending on the Closing Date, determined
in accordance with Section 7.7(c);
(iii)all Taxes imposed on Buyer or on Company with
respect to income earned by Company for the period beginning
January 1, 1997 and ending on the Closing Date, determined in
accordance with Section 7.7(b);
(iv)all Taxes imposed on Seller or Company as a result
of the Section 338(h)(10) Election contemplated by Section
7.13;
(v)all Taxes imposed on any member of an affiliated,
consolidated, combined or unitary group which includes or has
included Company with respect to any taxable period that ends
on or before the Closing Date;
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(vi)all liability resulting from or attributable to a
breach of the representations, warranties and covenants
contained in Section 4.10 and this Section 7.7; and
(vii)any claim under Treas. Reg. Section1.1502-6 by
the Internal Revenue Service against Company as a member of
Pentair's consolidated group prior to the Closing Date with
respect to any federal income tax liability of Pentair for any
period ending on or prior to December 31, 1997.
(e)Pentair shall have the right, at its own expense, to
control any audit or determination by any taxing authority,
initiate any claim for refund or amended Tax Return and contest,
resolve and defend against any assessment, notice of deficiency or
other adjustment or proposed adjustment of Taxes for any taxable
period for which Pentair is charged with responsibility for filing
or causing to be filed a Tax Return under this Agreement or for
which Buyer or the Company claims a right to indemnify pursuant to
Section 7.7(d). Each party will allow the other and its counsel
(at its or their own expense) to be represented during any audits
of income Tax Returns to the extent that disputed items therein
relate to Company.
(f)Each of Buyer and Seller shall provide the other,
and Buyer shall following the Closing cause Company to provide to
Seller, with the right, at reasonable times and upon reasonable
notice, to have access to personnel, and to copy and use, any
records or information that may be relevant in connection with the
preparation of any Tax Returns, any audit or other examination by
any taxing authority or any litigation relating to liability for
Taxes. Information required in the filing of any Tax Return shall
be provided to the other party not less than thirty (30) days
before such Tax Return is due. Seller will allow Buyer an
opportunity to review and comment upon any Tax Returns referred to
in Section 7.7(a) (including any amended returns) to the extent
that they relate to Company. Seller and Buyer shall retain all
records relating to Taxes for as long as the statute of limitations
with respect thereto shall remain open.
(g)All sales and transfer Taxes (including all stock
transfer taxes, if any) incurred in connection with the
transactions contemplated hereby will be borne by the Seller. If
required by applicable law, Buyer or the Company, as the case may
be, will join in the preparation and execution of any Tax Returns
or other documentation related to the payment of any such sales or
transfer Taxes.
(h)The Parties recognize that for federal income tax
purposes, and for purposes of state and local income taxes which
adopt federal income tax or similar rules, the payment terms for
the Special Inventory may result in the deemed reduction of the
sales price for and basis in such inventory and the imputation of
original discount income to Seller and a corresponding interest
deduction to Buyer or the Company.
7.8 Access to Information and Records. (a) After the
Closing Date, Pentair and FCH acknowledge and agree to provide
Buyer and the Company with full and complete access to any and all
books and records of either or both Pentair and FCH relating to the
Federal Division. Pentair and FCH shall also provide to Buyer or
the Company reasonable access to employees and
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other Representatives to interpret or explain such books
and records, and to assist in defending or pursuing any Action
affecting the Business resulting from the operation of the
Federal Division prior to the Closing Date. Pentair and FCH agree
to respond timely to all inquiries and requests for documents and
information made by Buyer or Company with respect to such matters.
Notwithstanding any provision of this Agreement or the Transaction
Documents to the contrary, this covenant shall indefinitely survive
the Closing Date.
(b)After the Closing Date, Buyer and the Company acknowledge
and agree to provide Pentair or FCH with full and complete access
to any and all books and records of the Company relating to the
Federal Division and the Hoffman Division. Buyer and the Company
shall also provide to Pentair and FCH reasonable access to
employees and other Representatives to interpret or explain such
books and records, and to assist in defending or pursuing any
Action resulting from the operation of the Hoffman Division prior
to the Closing Date. Buyer and the Company agree to respond timely
to all inquiries and requests for documents and information made by
Pentair or FCH with respect to such matters. Notwithstanding any
provision of this Agreement or the Transaction Documents to the
contrary, this covenant shall indefinitely survive the Closing
Date.
7.9 Certain Employee Claims.
(a)Seller shall be responsible for all wages, salaries
and post-employment/ post-retirement benefits payable to current,
former or retired employees of the Company other than Active
Employees. Except as provided in Section 7.12(g) with respect to
certain COBRA responsibilities, Seller shall be responsible for all
obligations to give notice of and to provide continuation health
coverage for such persons and their dependents and any other
qualified beneficiaries of such individuals in accordance with the
requirements of COBRA, including all Liabilities and Taxes imposed
upon, incurred by, or assessed against Buyer or any Affiliate, and
their employees arising by reason of any failure of Seller to
comply with COBRA requirements applicable to current, former or
retired employees of the Company (and their dependents) other than
Active Employees with respect to any qualifying event occurring
prior to or in connection with the Transactions.
(b)Seller agrees to indemnify and hold harmless Buyer
from and against any and all claims regarding any Employee Benefits
made by current, former or retired employees of the Company (and
their dependents) other than Active Employees for actions taken up
and through the Closing Date. Seller agrees to satisfy, or cause to
be satisfied, all claims for benefits, whether insured or otherwise
(including unemployment compensation, life insurance, medical and
disability programs), or whether payable under the Company's
Employee Benefits, brought by, or in respect of, current, former or
retired employees of the Company (and their dependents), other than
Active Employees (and their dependents), in accordance with the
terms and conditions of such programs or applicable Regulations.
(c)With respect to Active Employees who are not
actively employed on the Closing Date, and who do not subsequently
return to active employment with the Federal Division
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within six (6) months following the Closing Date, and thereby no
longer qualify as Active Employees, the responsibility of the
Federal Division for such employees shall cease and FCH shall have
the responsibility therefor as of the Closing Date, as if such
Person had not qualified as an Active Employee. Buyer or the
Company shall provide Pentair with a written list of such
individuals. Further, FCH shall reimburse the Federal Division for
the amounts paid by it to or on behalf of such Person during the
period between the Closing Date and the date such Person no longer
qualifies as an Active Employee.
7.10 MIP Bonuses. Pursuant to the Management Incentive Plan
("MIP") adopted by Pentair and the terms of the employee letters
sent to participating employees in the MIP, in substantially the
form set forth in Exhibit H, the Federal Division shall pay all MIP
bonuses earned for the portion of the year from January 1, 1997 to
the Closing Date to the Active Employees eligible therefor. For
this purpose, there shall be accrued on the Final Closing Date Net
Equity Statement an amount equal to the amount of such bonuses
through the Closing Date. If any amount accrued therefor is not
paid by the Federal Division to such employees, such amount shall
be promptly reimbursed to Seller following the date on which
bonuses are payable in accordance with the terms of Exhibit H.
7.11 Severance Obligations. Except as provided below, Buyer
shall honor, satisfy and pay when due all Closing Date severance
obligations to employees of the Federal Division separated from
employment other than for cause in contemplation of or following
the Closing. Severance obligations shall be computed in accordance
with the Federal Division's policies and procedures as of the
Closing Date; provided, however, no severance benefits shall be
payable to any employee who is or becomes an employee of Seller or
any Affiliate of Seller. Seller or its Affiliates may, however, at
their sole expense with no charge to Buyer or the Federal Division,
offer supplementary severance benefits for selected employees (in
accordance with Exhibit H to this Agreement). Notwithstanding the
foregoing, in order for a Federal Division employee to receive
severance pay under such current policies and procedures, such
employee's termination must occur within 12 months after the
Closing Date. Within the first 12 months following the Closing
Date employees of the Company may enter into individual written
employment agreements with the Company, which agreements may
contain a severance pay provision, which shall govern with respect
to severance issues. After 12 months from the Closing Date,
employees without such employment agreements shall be subject to
the Company's severance policies, as in effect from time-to-time.
7.12 Salary and Wages and Employee Benefits.
(a)General Standard. Subject to the other provisions
of this Section 7.12 and Sections 7.9 and 7.11, it is Buyer's
intention to offer or cause Company to offer salary and wages and
Employee Benefits which are comparable in the aggregate to the
salary and wages and Employee Benefits provided to Active Employees
as of the Closing Date. In applying this standard, Employee
Benefits provided under or pursuant to the Pentair Sidekick (the
"Sidekick"), the Pentair Supplemental Employee Retirement Plan (the
"SERP"), and the Federal-Hoffman Employee Stock Ownership Plan (the
"F-H ESOP") shall be disregarded.
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(b)Pension Plan. (i) Plan Asset Transfer. Within
ninety (90) days after complete compilation and transmittal by
Federal Division personnel of relevant information to determine the
amount of the Plan Asset Transfer for Active Employees, and
assuming (A) compliance with Code Section 6058(b) relating to
thirty (30) days advance notice of certain plan transactions, and
(B) establishment of the Successor Plan and a letter from Buyer's
counsel evidencing such establishment and a commitment by Buyer to
take or cause to be taken all steps necessary to request and
receive a favorable determination letter from the IRS with respect
to the Successor Plan and related funding vehicle as of the date of
their establishment, the appropriate fiduciary under the Defined
Benefit Plan shall cause such plan to wire transfer in immediately
available funds, to the trust for the successor defined benefit
plan established and maintained by Buyer or the Company (the
"Successor Plan"), an amount determined in accordance with Exhibit
I (the "Plan Asset Transfer"). Before or coincident with the Plan
Asset Transfer, Seller's actuary shall provide such other
information as may be reasonably necessary to confirm the
calculation of such amount, including information which separately
shows the amount of the Plan Asset Transfer allocable to
individuals described in Section 7.9(c). The initial amount so
transferred shall not take into account such individuals and the
transfer, if any based upon whether such individual is ultimately
determined to be an Active Employee, of the amount allocable to
such individuals shall be made as soon as reasonably possible after
six (6) months following the Closing Date. In no event shall the
Plan Asset Transfer be less than the amount necessary to satisfy
Code Section 414(l).
Within thirty (30) days after the Plan Asset Transfer,
Buyer through its actuary shall provide in writing to Seller
through its actuary any and all objections related to the amount so
transferred. The Parties through their actuaries shall attempt to
resolve any such objections. In the event the Parties cannot
resolve such objections within thirty (30) days of receipt of such
objections, each Party through its actuary shall agree to the
appointment of an independent third actuary to resolve such
objections in a manner, to the extent relevant, which corresponds
to the dispute resolution procedures provided for in Section 2.6(d)
and (f).
Notwithstanding the pending Plan Asset Transfer, an
Active Employee, or the beneficiary of an Active Employee (e.g., a
surviving spouse), shall be entitled to commence receiving benefits
under the Defined Benefit Plan, in accordance with and as otherwise
provided thereunder, in the event the Active Employee retires,
terminates employment, or otherwise is entitled to receive benefits
under the Defined Benefit Plan (e.g., benefits payable by reason of
Code Section 401(a)(9)) and has a benefit commencement date under
the Defined Benefit Plan before the date of the Plan Asset
Transfer; provided, however, an Active Employee shall not be
considered to have retired or terminated employment so long as he
or she is employed by the Company, the Buyer, or any ERISA
Affiliate of Buyer. In such event, the Defined Benefit Plan shall
pay such benefits in accordance with its terms and provisions for
the period ending with the last day of the calendar month
immediately following the calendar month which includes the date of
the Plan Asset Transfer, and the amount of such benefits paid or
payable by the Defined Benefit Plan shall be deducted from the
amount of the Plan Asset Transfer. Thereafter, the Successor Plan
shall pay all benefits related to the Defined Benefit Plan for such
Active Employees or their beneficiaries.
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Also, notwithstanding the Plan Asset Transfer, Pentair
shall hold Buyer and Company harmless from any breach of fiduciary
duty or other violations of ERISA for any pre-transfer act or
omission committed by a fiduciary with respect to the Defined
Benefit Plan as to Active Employees or the assets and benefits
transferred, and Buyer shall hold Pentair harmless from any breach
of fiduciary duty or other violations of ERISA for any post-
transfer act or omission committed by a fiduciary with respect to
the Successor Plan as to Active Employees or the assets and
benefits received and assumed.
By the later of (a) six months after the Closing Date or
(b) 30 days after acceptance or resolution of the Plan Asset
Transfer, Pentair will provide to Buyer, to the extent not already
provided, a list showing other relevant pension information (e.g.,
each Active Employee's accrued benefit as of the Closing Date under
the Defined Benefit Plan) for Active Employees whose benefits were
taken into account in determining the Plan Asset Transfer.
(ii)Successor Plan. Effective immediately following the
Closing Buyer shall establish and maintain or cause to be
established and maintained a defined benefit plan which is
identical to, in all relevant and substantive respects, the Defined
Benefit Plan as of the Closing Date, taking into account the
features and special rules thereunder which apply to Active
Employees. The Successor Plan shall cover all Active Employees who
are participants under the Defined Benefit Plan as of the Closing
Date or who, as of the Closing Date, are eligible to participate
under the Defined Benefit Plan upon satisfaction of applicable age,
service and other such requirements.
The Successor Plan shall provide a vested accrued benefit
and related ancillary benefits to each Active Employee who is a
participant thereunder which is no less than such benefits earned
(regardless of whether vested) by such employee as of the Closing
Date under the Defined Benefit Plan. The Successor Plan shall
provide benefits (including normal and early retirement benefits,
and pre-retirement death benefits) for Active Employees with
respect to post-Closing covered service and compensation by taking
into account all service and other relevant items taken into
account under the Defined Benefit Plan.
(iii)Comparability of Retirement Benefits. It is
Buyer's intention is to provide or cause Company to provide
retirement benefits, including the Successor Plan, retiree medical
benefits and the Blount Savings Plan, which are comparable taken as
a whole to the retirement benefits, including the Defined Benefit
Plan, retiree medical benefits and the RSSIP, provided to Active
Employees as of the Closing Date. In applying this standard those
benefits that are excluded by operation of Section 7.12(a) shall be
disregarded.
(iv)Miscellaneous. Effective immediately following the
Closing Date, the Company or its successor in interest shall no
longer be a participating employer under the Defined Benefit Plan
and Active Employees shall no longer accrue benefits thereunder
with respect to post-Closing service and compensation. Consistent
with past practice, after the Closing the Company and Seller shall
cooperate with each other to insure continued coordination of
benefit payments under the Defined Benefit Plan and the Successor
Plan in conjunction with benefits provided to
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Company employees or former employees under the Aetna Group Annuity
Contract, GA-7641, purchased as part of the 1985 termination of the
Federal Cartridge Pension Plan.
(c)RSSIP and Blount Savings Plan. (i) RSSIP. After
the Closing, the Company or its successor in interest shall no
longer be a participating employer under the Pentair Retirement
Savings and Stock Incentive Plan (the "RSSIP") and Active Employees
shall not be entitled to make or authorize contributions
thereunder; provided, however, otherwise eligible Active Employees
shall be entitled to receive a matching contribution for 1997
consistent with past practice and the terms of the RSSIP and such
matching contribution shall be paid by Seller or Pentair and shall
not be reflected as a liability on the Closing Date Net Equity
Statement. Consistent with past practice, after Closing the
Company shall assist FCH and Pentair in gathering and transmitting
such information as may be reasonably necessary to determine such
match and the contributions made or authorized by Active Employees
under the RSSIP for relevant periods ending with or before the
Closing Date.
As soon as reasonably possible in 1998, but in no event
before the date by which matching contributions for 1997 have been
made and allocated and available account balances of Active
Employees have been finally determined under the RSSIP, Active
Employees with account balances under the RSSIP shall be entitled
to request a lump sum distribution of such account balances and, if
requested by the participant concerned, The Blount 401(K)
Retirement Savings Plan (the "Blount Savings Plan") shall accept a
direct rollover transfer of such account balance pursuant to Code
Section 401(a)(31); provided, however, (i) no such distribution or
transfer shall be made solely by reason of the sale of the Stock to
the extent such a distribution or transfer may adversely affect the
tax-qualified status of the RSSIP (see, e.g., Treas. Reg.
Section 1.401(k)-1(d)(4)(iii)), or the Blount Savings Plan, (ii)
any such distribution or transfer shall be subject to the otherwise
applicable benefit payment rules and procedures under the RSSIP,
and (iii) in no event shall the Blount Savings Plan be obligated to
accept a direct rollover transfer unless made in cash or a cash
equivalent (e.g., check or wire transfer). Pending such a
distribution or transfer or in the event such a distribution or
transfer is not made, Active Employees shall be entitled to retain
their benefits under the RSSIP subject to such rules, procedures
and limitations which otherwise apply thereunder to terminated
vested participants.
(ii)Extension of Blount Plan. Immediately following the
Closing Date, Buyer shall extend or cause to be extended the Blount
Savings Plan to Active Employees who are eligible to participate in
the RSSIP as of the Closing Date. Such Active Employees shall be
entitled to authorize salary reduction or other employee
contributions to the Blount Savings Plan, to the extent otherwise
allowed under such plan, and shall be entitled to receive employer
contributions thereunder in accordance with the applicable plan
formula and by taking into account pre-Closing service with the
Company or any other ERISA Affiliate. Prior to Closing, Buyer
shall be entitled to communicate the relevant terms and provisions
of the Blount Savings Plan to Active Employees and provide such
enrollment and other forms as may be necessary or appropriate to
allow such employees to participate thereunder.
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(d)F-H ESOP. After the Closing, the Company or its
successor in interest shall no longer be a participating employer
under the F-H ESOP. As soon as reasonably possible after Closing,
Active Employees with account balances under the F-H ESOP shall be
entitled to request a lump sum distribution of such account
balances and, if requested by the participant concerned, the Blount
Savings Plan shall accept a direct rollover transfer of such
account balance pursuant to Code Section 401(a)(31); provided,
however, (i) no such distribution or transfer will be made solely
by reason of the sale of the Stock to the extent such a
distribution or transfer may adversely affect the tax-qualified
status of the F-H ESOP, (ii) any such distribution or transfer
shall be subject to otherwise applicable benefit payment rules and
procedures under the F-H ESOP or the Blount Savings Plan, and (iii)
in no event shall the Blount Savings Plan be obligated to accept a
direct rollover transfer unless made in cash or a cash equivalent
(e.g., check or wire transfer). Pending such a distribution or
transfer or in the event such a distribution or transfer is not
made, Active Employees shall be entitled to retain their benefits
under the F-H ESOP subject to such rules, procedures and
limitations which otherwise apply thereunder to terminated vested
participants.
Immediately prior to the Closing FCH shall have caused
the Active Employees who serve on the administrative committee
provided for under the F-H ESOP to resign and FCH shall be solely
responsible to appoint their successors, if any. Nothing herein
shall limit (i) the right of FCH after Closing to terminate in
whole or part the F-H ESOP, or (ii) Pentair's right after Closing
to call the preferred shares owned by the F-H ESOP.
(e)Benefits Under Sidekick and SERP. Seller shall
assume the Company's obligation to provide benefits under the
Sidekick to an Active Employee or any other employee or former
employee of the Company, and any assets held to pay such benefits
shall be retained by the grantor trust related to the Sidekick.
Seller or Pentair shall assume the Company's obligation,
if any, to provide benefits under the SERP to an Active Employee or
any other employee or former employee of the Company.
The liability to pay the benefits under the Sidekick or
the SERP and any assets held to provide such benefits shall not be
taken into account in determining the Closing Date Net Equity
Statement.
(f)Other Employee Benefits. The Federal Division or
Pentair provides those additional Employee Benefits listed on
Schedule 4.11 to Active Employees and former employees. Except for
retiree medical benefits, the Company and the Buyer shall use
commercially reasonable efforts to continue such benefits under
such plans or insurance policies, to the extent such plans or
policies are transferable, until December 31, 1997. Thereafter,
the Company and Buyer shall have the complete discretion to offer
such Employee Benefits as they may deem fit, subject to the
statements of intent set forth in paragraphs 7.12(a) and
7.12(b)(iii) above.
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(g)COBRA Responsibilities. Certain former employees of
the Federal Division and certain dependents of current or former
employees of the Federal Division have elected to purchase medical
and dental coverage pursuant to applicable provisions of state and
federal law (the "COBRA Participants"). Buyer agrees to use
reasonable commercial efforts to cause the Company to maintain the
current contractual arrangements to provide such medical and dental
coverage to the COBRA Participants through December 31, 1997.
After December 31, 1997, COBRA Participants as of the
Closing Date shall have the right to participate under those
medical and dental plans that are applicable to Active Employees.
Such COBRA Participants shall pay the premium amounts charged to
them by Company or Buyer, as the case may be. Seller shall
reimburse the Federal Division for the cost of claims incurred by
each COBRA Participant to the extent that such cost exceeds the
aggregate premiums paid by such COBRA Participant (and his or her
covered dependents).
(h)Performance Bonus Plan. Active Employees shall be
entitled to a bonus payment based on the calendar year 1997 results
of the Federal Division (to the Closing Date) and the Company (from
the Closing Date to December 31, 1997) as determined under the
provisions of the Company's Performance Bonus Plan. Consistent
with past Company practice, profit for purposes of calculating
bonus payments shall be determined without regard to accounting
changes required to reflect the sale of Stock (i.e., without regard
to Accounting Principles Board Opinion No. 16). Pentair and the
Company shall share and allocate the cost of the 1997 Performance
Bonus Plan, such to be allocated between Pentair and the Company
based on profitability to and through the Closing Date, which will
be allocated to Pentair and appropriately accrued on the Final
Closing Date Net Equity Statement, and after the Closing Date,
which shall be allocated to the Company. If any amount accrued
therefore is not paid to such employees, such amount shall be
promptly reimbursed to Seller following the date on which such
bonuses are paid.
(i)Cooperation. The Parties shall reasonably cooperate
with each other (i) in sharing before distribution written
communications of general application directed to Active Employees
with respect to the impact of the Stock sale on Employee Benefits
and transition issues related thereto, (ii) sharing before filing
with the IRS their respective notices under Section 6058(b), (iii)
in gathering information necessary for each party to file annual
reports with the IRS or such other governmental filings as may be
required with respect to Employee Benefits for reporting periods
ending in or with 1997, and (iv) in taking or in refraining to take
such actions as may be necessary to effectuate the provisions of
this Section 7.12, but only to the extent otherwise consistent with
each party's duties and responsibilities with respect to Employee
Benefits under applicable law.
7.13 Section 338 Election. Pentair agrees to file jointly
with Buyer the election (the "Election") provided for by Section
338(h)(10) of the Code and the corresponding election under
applicable state or local tax law with respect to the sale of the
Shares. In connection with the Election:
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(a)Buyer and Pentair shall each provide to the other
all necessary information, including information as to tax basis,
to permit the Election to be made and its consequences to be
accurately reflected for all relevant accounting and tax reporting
purposes, and to take all other actions necessary to enable Buyer
and Pentair to make the Election.
(b)Buyer shall retain at Buyer's cost an appraiser to
prepare a report (a "Report") appraising the value of the Assets to
determine the proper allocations (the "Allocations") of the
"adjusted grossed-up basis" (within the meaning of Treasury
Regulation Section 1.338(b)-1) and the modified adjusted deemed
sale price ("MADSP") (within the meaning of Treasury Regulation
Section 1.338(h)(10)-1) among the Assets in accordance with Section
338(b)(5) and (h)(10) of the Code and Treasury Regulations
thereunder. Pentair and Company and their respective employees
shall cooperate fully with Buyer and its appraiser in connection
with the appraisal.
(c)The Report shall be finalized no later than 120 days
after the Closing Date. At least 30 days before such Report is
finalized, Buyer shall provide Pentair a copy of the appraiser's
preliminary report or indication of the Allocations. After receipt
of such preliminary report or indication, Pentair shall give to
Buyer in writing any objections or questions which Pentair may have
to such preliminary report or indication, and the parties shall
thereafter use their best efforts to resolve such objections or
questions so that the Report is finalized no later than 120 days
after the Closing Date and the Election is timely made.
(d)Buyer and Pentair shall jointly prepare an IRS Form
8023-A, together with all required attachments, and the
corresponding forms required or appropriate under state tax laws in
a manner consistent with the Allocations.
(e)As promptly as practicable after the Closing Date,
Buyer and Pentair shall take all action and file all documents to
effect and preserve a timely Election.
(f)Pentair shall allocate the MADSP resulting from the
Election in a manner consistent with the Allocations and shall not
take any position inconsistent with the Election or the Allocations
in connection with any Tax Return; provided, however, that Pentair
may take into account its and FCH's transaction costs when
calculating such MADSP.
(g)Buyer shall allocate the "adjusted grossed-up basis"
of the Shares among the Assets in a manner consistent with the
Allocations and shall not take any position inconsistent with the
Election or the Allocations in any Tax Return or otherwise;
provided, however, that Buyer may add its transaction costs to the
"adjusted grossed-up basis" of the Shares for purposes of
allocating such costs among the Assets.
(h)Pentair and Buyer acknowledge that for federal
income tax purposes (and for state income tax purposes in those
states whose income tax provisions follow the federal income tax
treatment), the sale of the Shares to Buyer will be treated as a
sale of Assets by Company to an unrelated buyer followed by a complete
liquidation of Company with and into FCH, and the parties agree to
report the transaction in a manner consistent with this treatment and
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to take no positions inconsistent with this treatment. The parties
also agree that neither Buyer nor Company shall be liable for any
Taxes resulting from the sale of the Shares.
7.14 Name Change. On or immediately following the Closing
Date Buyer shall legally cause Company to change its corporate name
from Federal-Hoffman, Inc. to Federal Cartridge Company (or such
other corporate name as determined in the sole discretion of Buyer
or the Company); Buyer covenants and agrees that it shall not use
"Hoffman" in its corporate or any assumed name. FCH shall legally
change its corporate name from FC Holdings, Inc. to Hoffman
Enclosures, Inc. (or such other name as determined in the sole
discretion of Seller); Seller covenants that it shall not use
"Federal" or "Cartridge" in its corporate or any assumed name.
7.15 Environmental Matters.
(a)Environmental Conditions. The Parties acknowledge
and agree that:
(i)the Company may become the subject of any claim
by a third party, including any Governmental Agency, for
contribution to or participation in any investigation or
remediation of any Environmental Condition, not located on any
Owned Real Property, which is attributable, in whole or in
part, to the disposition, spill or release of any Hazardous
Materials by the Company prior to the Closing Date.
(ii)certain Environmental Conditions are known to
exist on the Owned Real Property.
(iii)other Environmental Conditions may exist
on the Owned Real Property which were attributable to the
Company or any predecessor in interest, in whole or in part,
prior to the Closing Date and may thereafter become the
subject of an Environmental Claim.
(iv)Conditions may exist on the Owned Real
Property, whether or not falling within the strict definition
of Environmental Conditions relating to Hazardous Material,
such as primer mix residue in sewer pipes (A) which are not in
current use in the Business or (B) connect Buildings 135, 136
and/or 137 to Building 169, as reflected on the survey of the
Owned Real Property.
(b)Seller's Duty Regarding Environmental Conditions.
(i) With respect to the Environmental Conditions described in
Section 7.15(a) (i) to (iii) above, Seller, upon receipt of
Buyer's notice as provided hereinafter, shall take control of
the investigation, remediation, restoration or cleanup of such
Environmental Conditions, with the active assistance of the
Company, but at the direction of the Seller (including all
communications with third parties and Governmental Agencies),
and Seller shall promptly pay, when due, subject to Seller's
rights to challenge or appeal, all amounts required in
connection therewith.
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(ii)As to any such Environmental Conditions, Buyer
may give notice to Seller, in accordance with the provisions
of Section 8.3 and Article XI hereof, that such Environmental
Condition(s) is the subject of (A) an Environmental Claim by
a third party, including a Governmental Agency, or (B) an
opinion from Buyer's Counsel that Buyer has a duty to act or
(C) advice of counsel that it is proper environmental
compliance practice or necessary for Buyer to act to avoid the
risk of either noncompliance with Environmental Law or for the
avoidance or mitigation of an Environmental Claim, or both.
(iii)If and only if an Environmental Condition
had previously been closed pursuant to any applicable
Regulation or Court Order prior to any change in Environmental
Law, the Seller shall have no obligation under this Section
7.15 or otherwise to remediate or take any other action with
respect to such Environmental Condition which may arise as a
result of any subsequent change in Environmental Law.
(iv)With respect to the conditions described in
paragraph 7.15(a)(iv)(A) above, Seller shall be obligated to
remediate or take any other action with respect thereto upon
receiving notice from Buyer or the Company in accordance with
subparagraph 7.15(b)(ii) above. With respect to the
conditions described in paragraph 7.15(a)(iv)(B) above, if
Seller is required or determines to remediate or take any
other action with respect to the sewer lines on the Hoffman
Division site designated in paragraph 7.15(a)(iv)(B), Seller
shall be obligated to remediate or take any such other action
with respect to the extensions of such sewer lines which are
on the Federal Division site.
(c)Exacerbation or Mitigation of Environmental
Conditions. To the extent that any Environmental Condition
requiring remediation has been materially exacerbated or the costs
thereof materially increased by any affirmative acts or omissions
(excluding the mere passage of time) of the Company or any of its
Affiliates following the Closing Date, the Company shall be
responsible for, and shall indemnify Seller against, any increase
in costs or expenses attributable thereto, except to the extent
that Buyer or Company (i) has not mitigated or avoided such costs
or (ii) exacerbates any Environmental Condition requiring
remediation, because of (as to (i) and (ii) immediately preceding)
the limitations in Section 7.15(i) hereof.
(d)Allocation of Investigation and Remediation Costs.
(i)Contribution from the Company. As to
Environmental Conditions provided above in Section 7.15(a)(i)
or (iii), the Company shall be required to contribute to the
costs and expenses of Seller therefor in the proportion that
(A) Hazardous Materials deposited, spilled or released at a
site by the Company following the Closing Date, bears to (B)
like Hazardous Materials deposited, spilled or released by the
Company, at the same site, both prior to and following the
Closing Date, considering relative volumes, toxicity and
similar equitable factors.
(ii)Performance by the Company. The Company shall
have the sole responsibility for, and bear all of the expense
of, remediation or other required action with
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respect to primer mix residue which may be found in any sewer
line which is used in the Business as of the Closing Date
(other than those lines described in paragraph 7.15(a)(iv)(B)
above) or elsewhere on the Owned Real Property.
(iii)Co-pay Provisions. In the event of any
request or demand made by the Company or Buyer with respect to
any single Environmental Condition pursuant only to paragraph
7.15(b)(ii)(C) above, the costs and expenses of all actions
taken pursuant thereto shall be borne in the following manner:
(A)the first $10,000 of expenses shall be paid in
the first instance by the Company, which shall be
reimbursed fifty percent (50%) by the Seller, when the
aggregate costs with respect to such Environmental
Condition shall exceed $10,000;
(B)the next $90,000 of expenses with respect to
such Environmental Condition shall be borne one-half by
the Company and one-half by the Seller;
(C)the remainder of such expenses shall be borne
by the Seller.
The maximum aggregate amount payable by the Company under this
paragraph 7.15(d)(iii) shall not exceed $250,000 with respect
to all Environmental Conditions.
(e)Access to the Owned Real Property. The Company, its
Affiliates and all of its successors in interest at the Anoka site
shall, following the Closing and until the completion of Seller's
obligations under this Section 7.15 and any Court Orders pertaining
thereto for which Seller has any responsibility:
(i)permit Seller and its contractors, consultants
and Representatives reasonable access to and freedom of
movement on the Owned Real Property in order to perform all
activities required to be performed by Seller after the
Closing Date pursuant to this Section 7.15, including
performance of any cleanup, installation of ground water
monitoring wells, sampling of ground water, surface water,
surface and subsurface soil, air and other environmental
media, excavation of soil, installation of pollution control
and/or monitoring equipment, capping of or restriction of
access to contaminated areas, installation of groundwater
collection, treatment, pumping and piping systems and such
other measures as may be reasonably necessary;
(ii)permit any duly designated employee,
consultant, contractor, agent or Representative of any
Governmental Agency access to the Owned Real Property for
purposes of inspection, sampling and other activities
necessary to effectuate the oversight of Seller's activities
under this Section 7.15;
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(iii)provide Seller and its Representatives
reasonable access to its books and records, including the
Books and Records for the purpose of enabling Seller to
perform its undertakings under this Section 7.15.
(f)Conduct of Investigations or Cleanups. All
investigations and cleanups of Environmental Conditions under this
Section 7.15 shall be undertaken with the active assistance of the
Company and its environmental managers but acting under Seller's
control. Seller and the Company shall schedule the cleanup of the
Environmental Conditions in accordance with any Court Order in a
reasonable and cost-effective manner. The remediation of such
Environmental Conditions shall be designed to achieve compliance in
all material respects with Environmental Laws, taking into account,
to the extent permitted by such Regulations, that the Owned Real
Property is used for industrial purposes. Seller's remediation
activities on the Owned Real Property shall be conducted in a
manner so as to minimize the disruption to the Company's
operations. No plan to remediate any Environmental Condition will
be finalized, and no Action or appealable Court Order shall be
compromised or otherwise settled without the written consent of the
Company, which consent shall not be unreasonably delayed or
withheld.
(g)Company Rights and Obligations. In the event Seller
fails diligently to pursue the remediation of any Environmental
Condition for which it has responsibility hereunder, the Company
shall have the right to undertake, at Seller's cost and expense,
the investigation, review, assessment and remediation of such
Environmental Condition. Following the Closing Date, the Company
shall continue to be responsible for, and for payment of, any and
all costs of monitoring ground and/or surface water on the Owned
Real Property described in the Company's current and any future
Part B Hazardous Waste Permit (or similar successor Permit or Court
Order).
(h)Third Party Claims. In the event any Environmental
Claim is brought against the Company or Buyer or any of their
Affiliates with respect to any Environmental Condition for which
Seller has responsibility hereunder, Seller shall defend and
indemnify each of them in accordance with the provisions of Article
VIII and, in particular, Section 8.3 hereof.
(i)Post-Closing Investigations. Following the Closing,
neither the Company nor any Affiliate nor any of their
Representatives will arrange for or conduct investigations of any
Environmental Condition other than (i) as required by applicable
Environmental Law (ii) in the exercise of good faith business
judgment (exercised without regard to the availability of
indemnification hereunder), or (iii) in connection with a third
party claim with respect to which the Seller has failed to perform
its obligations under this Section 7.15. Any breach of this
covenant shall be taken into account in any proceeding under
Article IX involving any costs or expenses relating to any
Environmental Condition knowledge of which arises out of such
discovery.
(j)Emergency Actions. Notwithstanding the foregoing,
the Company may take immediate action on the Owned Real Property to
the extent necessary to protect the health and
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safety, to avoid the payment of significant fines or penalties or
to avoid a significant increase in remediation costs.
(k)No Reduction or Deductible. No claim by any party
for indemnification or contribution for any matter concerning any
Environmental Condition under this Section 7.15 shall be subject to
any deductible, threshold or reduction, including the provisions of
Section 8.6 (a) or (b), except for (A) the overall limit of
indemnification provided in Section 8.6 (c) and (B) the co-pay
provisions provided in Section 7.15(d)(iii).
(l)Time Limit. Seller's responsibilities under this
Section 7.15 shall cease ten (10) years after the Closing Date,
provided, however, that, except as otherwise provided in Section
7.15(g), Seller shall be responsible until final completion for any
investigation, remediation or monitoring of any Environmental
Condition which is (i) begun or (ii) the subject of any action by
any third party, including any Governmental Agency or (iii) the
subject of a notice under Section 7.15(b)(ii) prior to the tenth
anniversary of the Closing Date.
(m)Notice. Notwithstanding the requirements of Article
XI hereof, all notices under this Section 7.15 shall be made in
writing solely to the attention of the General Counsel of the Buyer
or Pentair in the manner and at the address(es) set forth pursuant
to Article XI.
7.16 Payment of Uncollectible Accounts Receivable. The
Company shall seek to collect all accounts receivable reflected on
the Final Closing Date Net Equity Statement in the Ordinary Course
of Business. Payments received by the Company from customers will
be applied first against such customer's oldest outstanding account
receivable, unless the credit of the payment is otherwise directed
to a specific invoice by the customer. The Company shall deliver
to Pentair a monthly itemized report of the collection status of
all outstanding accounts receivable and invoices reflected on the
Closing Date Net Equity Statement. Upon the Company's business
determination, made in good faith, that the balance of any account
receivable so reflected is not collectible, the Company shall
notify FCH, who shall promptly pay to the Company the amount of
such account receivable. Payment may not be demanded hereunder
with respect to any unpaid invoice until the later of (i) 120 days
following the due date of the unpaid invoice, or (ii) 60 days
following the Closing Date. Upon receipt of payment therefor, the
Company shall assign the account receivable to FCH, free and clear
of any claims or liens, (other than and subject to any and all
defenses, counterclaims or rights of set-off that may be asserted
by the customer that do not arise from the actions, other than
unsuccessful collection actions, of the Company after the Closing
Date), and FCH shall have the right thereafter to collect the
account receivable for its own account. The Company shall not take
any action outside of the Ordinary Course of Business with respect
to any such account receivable.
7.17 Title Review.
The Buyer has reviewed and approved, except for the objections
thereto described in the paragraph below, the preliminary title
commitments and the surveys described and defined in the Separation
Agreement with respect to the condition of title to the Owned Real
Property. Seller
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shall cure and/or indemnify to the reasonable satisfaction of Buyer
such objections and, subject to such cure and/or indemnification,
closing of the Transactions shall be deemed Buyer's acceptance of
the conditions of title to the Owned Real Property.
Seller hereby acknowledges and agrees that the Buyer has
objected to any restriction or Damages that may exist or hereafter
arise from (i) the Company's right to maintain the existing
buildings and improvements identified as Building Nos. 40 and 92 on
Schedule 5.2 of the Separation Agreement because of the
encroachment thereof onto an adjoining right-of-way ostensibly
owned by the Burlington Northern Railroad described on the survey
dated 9/26/97 by Edward Ames as "Building Encroachment Approx. 12'
x 180'," or (ii) the Company's right to maintain the process sewer
pipeline that crosses under the right-of-way ostensibly owned by
Burlington Northern Railroad. Buyer and Company shall be entitled
to indemnification for any claims arising from the foregoing or any
restriction of rights or Damages incurred by the Company or Buyer
on account of such encroachments in accordance with Article VIII of
this Agreement.
7.18 SEC Financial Statements. Pentair acknowledges that
Buyer is required to cause to be prepared audited financial
statements of the Federal Division containing an unqualified report
of the independent certified public accountants reviewing such
statements as of December 31st of the applicable fiscal year(s)
(the "Audited Financial Statements"), and interim unaudited
financial statements (comparative, if required) for the Federal
Division as of and for the interim period (which interim period end
shall be a date within 135 days of the date of filing of such
statement with the Securities and Exchange Commission) (the
"Interim Unaudited Financial Statements") sufficient to meet the
requirements of Rule 3-05 of Regulation S-X of the Securities and
Exchange Commission. Pentair agrees that it shall (i) cooperate to
the extent reasonably necessary in such preparation or review, and
(ii) pay one-half of the fees and expenses of the independent
certified public accountants in preparing such financial
statement(s), up to a maximum of $45,000.
7.19 Third Party Consents. The Parties shall cooperate in
good faith and make reasonable efforts to assist the other(s) to
obtain all consents and authorizations necessary or desirable in
connection with the Transactions that were not obtained prior to
the Closing, including consents and authorizations arising from, in
connection with or incident to all Contracts, Mortgages, Permits,
Leases, Employee Benefits, or Regulations to which the Federal
Division or the Hoffman Division is a party or is bound, under
those which, if not so obtained, would have subjected the non-
complying party to any material Liability, caused interruption of
operations of the Business, or the business of the Hoffman Division
or otherwise materially and adversely affect the Federal Division
or the Hoffman Division.
7.20 Further Cooperation and Assurances. The Parties agree to
cooperate with each other, and to execute and deliver or to cause
to be executed and delivered, all further documents and instruments
and to take all further action as shall be reasonably necessary or
appropriate to confirm or carry out the provisions and intents of
this Agreement and the Transaction Documents.
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ARTICLE VIII
SURVIVAL OF CERTAIN PROVISIONS; INDEMNIFICATIONS
8.1 Survival of Representations, Warranties, Indemnities and
Other Agreements. All statements contained in any Schedule or
Exhibit hereto or to any Transaction Document shall be deemed to be
representations and warranties of such Party. The representations,
warranties and agreements of the parties hereto shall survive the
Closing Date as follows:
(a)except as provided in Section 8.1(c) below, the
representations and warranties of the Buyer shall survive the
Closing Date for the periods set forth on Exhibit J. The covenants
and obligations of the Buyer, including those, if any, contained in
the Separation Agreement, shall survive the Closing Date and shall
terminate when the applicable statute of limitations expire (and an
additional period of six (6) months thereafter) with respect to the
covenants and obligations in question (giving effect to any
extensions and waivers thereof);
(b)except as provided in Section 8.1(c) below, the
representations and warranties of Pentair and FCH shall survive the
Closing Date for the periods set forth on Exhibit J. The covenants
and obligations of Pentair and FCH, including those contained in
the Separation Agreement and Article VI hereof, shall survive the
Closing Date and shall terminate when the applicable statute of
limitations expire (and an additional period of six (6) months
thereafter) with respect to the covenants and obligations in
question (giving effect to any extensions or waivers thereof);
(c)the definitions, covenants and obligations of the
parties set forth in the entirety of Articles I, II, VII, VIII, IX
and XII shall survive the Closing Date indefinitely; and
(d)the representations and warranties of the Company
shall expire on the Closing Date. The covenants and obligations of
the Company, including those contained in the Separation Agreement,
shall survive the Closing Date and shall terminate when the
applicable statute of limitations expire (and an additional period
of six (6) months thereafter) with respect to the covenants and
obligations in question expire (giving effect to any extensions or
waivers thereof). Except for the provisions of this Agreement
which give rise to actions or claims under the Separation
Agreement, Pentair and FCH shall have no right to contribution from
the Company after the Closing Date arising from, in connection with
or incident to the Claims of Buyer arising hereunder against
Pentair or FCH.
(e)except as otherwise provided in Section 8.1(c)
above, the indemnification obligations of the parties hereto shall
survive for the same period of time as the underlying warranty,
representation, covenant or obligation. An indemnified party shall
have the right to make a Claim hereunder at any time within the
relevant survival period of the applicable indemnification
obligation, and any such Claim made within such period shall
survive until its final resolution.
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8.2 Agreement to Indemnify.
(a)By Pentair and FCH. Pentair and FCH, jointly and
severally, shall indemnify, save and hold harmless the Buyer and
its Affiliates and Representatives, including the Company, from and
against any and all costs, losses, Taxes, Liabilities, obligations,
damages, lawsuits, deficiencies, claims, demands, and expenses
(whether or not arising out of third party claims), including
without limitation interest, penalties, costs of mitigation,
expenses and out-of-pocket costs of employee travel and lodging,
losses in connection with any Environmental Law (including, without
limitation, costs for any clean-up, remedial, corrective or
response action, costs of compliance activities, fines and
penalties), and other direct losses resulting from any shut down or
curtailment of operations, reasonable attorneys' fees and all
reasonable amounts paid in investigation, defense or settlement of
any of the foregoing (herein, "Damages"), directly incurred in
connection with, arising out of or resulting from:
(i)any breach or inaccuracy of any representation or
warranty made by Pentair or any Affiliate (excluding the
Company) in this Agreement or any other Transaction Document;
(ii)any breach of any covenant or obligation of Pentair
or any Affiliate (excluding the Company) contained in this
Agreement or any other Transaction Document;
(iii)any failure of the Seller to pay any
Liabilities of the Company other than Federal Liabilities;
(iv)Taxes for which Seller is responsible pursuant to
the provisions of Section 7.7 hereof; and
(v)any Employee Benefits, except those specifically
excluded in this Agreement or any Transaction Document, with
respect to any: event, action or failure to act occurring
prior to the Closing Date; and
(vi)except as otherwise set forth in Section 7.18 of
this Agreement or in the Separation Agreement, any out-of-
pocket expenses of sale incurred or paid by the Company in
connection with this Agreement or the Transactions.
The matters arising under Sections 8.2(a)(ii), (iii), (iv),
(v) and (vi) shall be deemed "Special Claims" for purposes of
this Article VIII (see Section 8.6).
(b)By Buyer and the Company. The Buyer and the
Company, jointly and severally, shall indemnify, save and hold
harmless the Seller and its Affiliates from and against any and all
Damages directly incurred in connection with, arising out of or
resulting from:
(i)any breach or inaccuracy of any representation or warranty
made by Buyer in this Agreement or any other Transaction Documents;
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(ii)any breach of any covenant or obligation of Buyer
contained in this Agreement or any other Transaction Document; and
(iii)any failure of the Company to pay any Federal
Liabilities.
The matters arising under Sections 8.2(b)(ii) and (iii) shall
be deemed "Special Claims" for purposes of this Article VIII
(see Section 8.6).
(c)Damages. The term "Damages" as used in this Section
8.2 is not limited to matters asserted by third parties against any
indemnified party, but includes Damages included or sustained by
any indemnified party in the absence of third party claims.
Payment by any indemnified party of amounts for which such
indemnified party is indemnified hereunder shall not be a condition
precedent to the right to make a Claim hereunder. No party shall
have any obligation to indemnify any other party for any
consequential damages (including lost profits), except insofar as
consequential damages constitute a part of the damages suffered by
any third party for which Claim indemnification is sought, or for
Damages that are (a) caused by the actions of the other or the
other's directors, officers, employees or Representatives, (b) to
the extent actually recovered by the indemnitee from any third
party (including any insurer), or (c) offset by tax savings
realized on account of such Damages by the indemnitee or any of its
Affiliates. Except as specifically provided in this Agreement, any
indemnifying party's obligation to indemnify any indemnified party
shall not limit any other rights, including without limitation
rights of contribution, which either party may have under statute
or common law.
(d)Cooperation. Each indemnified party shall cooperate
in good faith and in all reasonable respects with each indemnifying
party and its Representatives (including without limitation its
attorneys) in the investigation, trial and defense of any Action
(and any appeal arising therefrom); provided, however, that such
indemnified party may, at its own cost, participate in
negotiations, arbitrations and the investigation, trial and defense
of such Action (and any appeal arising therefrom). The Parties
shall cooperate with each other in any notifications to insurers,
and in the provision of information and documentation.
8.3 Defense of Claims. If any claim for Damages (a "Claim")
is to be made by a party entitled to indemnification hereunder
against the indemnifying party, the party claiming such
indemnification shall, subject to Section 8.1, give written notice
(a "Claim Notice") to the indemnifying party as soon as practicable
after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Section 8.3. If any
Action is filed against any party entitled to the benefit of
indemnity hereunder, written notice hereof shall be given to the
indemnifying party as promptly as practicable (and in any event
within fifteen (15) calendar days after service of the citation or
summons). The failure of any indemnified party to give timely
notice hereunder shall not affect the rights to indemnification
hereunder, except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. Except as
otherwise provided in the following paragraph of this Section 8.3,
after such notice, if the indemnifying party shall acknowledge in
writing to the indemnified party that the indemnifying party shall
be obligated under the terms of
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its indemnity hereunder in connection with such Action, then the
indemnifying party shall be entitled, if it so elects at its own
cost, risk and expense (a) to take control of the defense and
indemnification of such Action, (b) to employ and engage attorneys
of its own choice to handle and defend the same unless the named
parties to such Action (including any impleaded parties) include
both the indemnifying party and the indemnified party and in the
good faith determination of counsel to the indemnified party,
notice of which shall be promptly delivered to the indemnifying
party, there is an actual or potential conflict of interest between
the indemnified party and the indemnifying party, in which event
the indemnified party shall be entitled, at the indemnifying
party's reasonable costs, risk and expense to separate counsel of
its own choosing, and (c) to compromise or settle such Action,
which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be
unreasonably withheld, delayed or conditioned. If the indemnifying
party fails to assume the defense of such Action within fifteen
(15) calendar days after receipt of the Claim Notice, the
indemnified party against which such Action has been asserted will
(upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and
expense, the defense, compromise or settlement of such Action on
behalf of and for the account and risk of the indemnifying party;
provided, however, that such Action shall not be compromised or
settled without the written consent of the indemnifying party,
which consent shall not be unreasonably withheld, delayed or
conditioned. The indemnifying party shall be liable for any
settlement of any Action effected pursuant to and in accordance
with this Section 8.3 and for any final judgment (subject to any
right of appeal), and the indemnifying party agrees to indemnify
and hold harmless an indemnified party from and against any Damages
by reason of such settlement or judgment.
A Party to an Action who might otherwise be entitled to
indemnification of Claims but for the threshold set forth in
Sections 8.6(a) and (b) shall give written notice to the other
Party of such inchoate Claims. The other Party shall have the
right to observe the handling of such inchoate Claims. The Party
named in the Action shall have the right in good faith and at its
own cost, risk and expense subject to subsequent rights of
indemnification under this Article VIII to:
(a) undertake and control the investigation and defense of
such Action;
(b) employ and engage attorneys and other professionals and
agents of its own choice to investigate and control and
defend the same; and
(c) compromise or settle such Action, without the necessity
of obtaining consent from the other Party.
If such Party becomes entitled to indemnification under Article
VIII thereafter as a result of reaching such threshold, the
Indemnifying Party shall not have the right to contest any matters
pertaining to such Actions taken in good faith.
8.4 Representatives. No individual Representative of any
Party, or their respective Affiliates, shall be personally liable
for any Damages under the provisions contained in Article
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VIII. Nothing herein shall relieve any Party of any Liability to
make any payment expressly required to be made by such Party
pursuant to this Agreement.
8.5 Claim Method. To the extent any Claim is made hereunder
by any indemnified party, such Claim shall include a written
explanation of the nature of and reason for the Claim, a good faith
estimate of the dollar amount thereof and such other supporting
detail as can be reasonably provided by the indemnified party.
8.6 Limitations on Indemnification.
(a)No Party shall be liable to any indemnitee for
Damages resulting from a breach of a representation or warranty
under this Agreement to the extent the Damages associated with such
a breach does not exceed $25,000 (the "Deductible"), and then only
to the extent of the excess over $25,000, until the aggregate of
all claims for Damages (including the Deductible, but excluding
Special Claims) exceed $1 million, in which event the indemnifying
party shall be liable to and shall pay to the indemnitee $1
million, less the sum of the Deductible amounts aggregated for the
purpose of calculating the $1 million threshold. For the purposes
hereof, an individual breach shall include the aggregate of all
damage claims that arise out of or are caused by a single set of
facts or circumstances or a group of related facts or
circumstances.
(b)Once the threshold of $1 million is reached pursuant
to Section 8.6(a) above, the indemnifying party shall be liable to
pay all claims for Damages exceeding $20,000 in their entirety; any
claims resulting from a breach of a representation and warranty for
Damages that are $20,000 or less shall not be subject to
indemnification hereunder.
(c)The total aggregate liability of Pentair and FCH to
Buyer or the Company for Damages that are indemnifiable and must be
paid pursuant to this Article VIII, and the total aggregate
liability of Buyer and the Company to Pentair or FCH for Damages
that are indemnifiable and must be paid pursuant to this Article
VIII, excluding indemnification under Sections 8.2(a)(iii) and
8.2(b)(iii) (which shall not be so limited as to the amount of
liability), shall not exceed the Purchase Price.
ARTICLE IX
DISPUTE RESOLUTION
9.1 Dispute Resolution. In the event a dispute arises under this
Agreement, except with respect to Sections 2.6 or 7.13, such dispute
shall be resolved in the manner set forth in Section 9.2 below.
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9.2 Mediation and Arbitration.
(a)Mediation. If a dispute arises under this
Agreement, including any question regarding the existence,
validity, interpretation or termination hereof, which is not
described as an exception in Section 9.1, any Party may invoke the
dispute resolution procedure set forth in this Section 9.2 by
giving written notice to the other Party designating a Person with
appropriate authority to be its Representative in negotiations
relating to the dispute. Upon receipt of such notice, the other
Party shall, within five (5) business days, designate a Person with
similar authority to be its Representative. Such Representatives
shall, following whatever investigation each deems appropriate,
enter into discussions concerning the dispute. If the dispute is
not resolved as a result of such discussion, an attempt will be
made to resolve the matter by a formal non-binding mediation with
an independent neutral mediator agreed to by the Parties. If the
Parties cannot agree on the mediator within a period of thirty (30)
days, then the CPR Institute for Dispute Resolution, Inc., New
York, New York shall be asked to select a mediator and the Parties
agree to be bound by this choice and to enter into a mediation
procedure with that mediator. Upon commencement of the mediation
process, the Parties shall promptly communicate with respect to a
procedure and schedule for the conduct of the proceeding and for
the exchange of documents and other information related to the
dispute. The mediation process will be deemed ended when either
Party or the mediator, in good faith, asserts in writing that an
impasse has been reached.
(b)Arbitration. Any dispute between the Parties
arising under this Agreement which is not resolved in accordance
with the provisions of Section 9.2(a) above within ninety (90) days
after appointment of the mediator, shall be conclusively determined
by final and binding arbitration to be held in Atlanta Georgia
under the auspices of the then applicable Commercial Arbitration
Rules of the American Arbitration Association as herein modified or
supplemented or otherwise agreed to in writing by the Parties
thereto; the Parties may modify such rules of such association at
any time. The final arbitral award of the arbitrator(s) shall be
exclusive, final and binding upon the Parties, and judgment upon
the award may be entered in any court of competent jurisdiction.
The arbitrator(s) shall not act as an amiable compositor. The
arbitrator(s) shall be selected in accordance with the rules. The
number of arbitrators when the amount is $500,000 or less shall be
one (1), and the number of arbitrators when the amount is more than
$500,000 shall be three (3). The arbitrator(s) so designated shall
not be an employee, consultant, officer, director or shareholder of
any Party hereto or any Affiliate of any Party to this Agreement.
Within fifteen (15) days after the designation of the
arbitrator(s), the arbitrator(s) and the Parties shall meet, at
which time the Parties shall be required to set forth in writing
all disputed issues and a proposed ruling on each such issue. The
arbitrator(s) shall set a date for a hearing, which shall be no
later than thirty (30) days after the submission of the written
proposals, to discuss each of the issues identified by the Buyer
and the Seller. Each such Party shall have the right to be
represented by counsel. The arbitration shall be governed by the
Commercial Arbitration Rules of the American Arbitration
Association; provided, however, that the arbitrator(s) shall have
sole discretion with regard to the rules pertaining to
admissibility of evidence and their application to any oral or
documentary evidence. The arbitrator(s) shall use best efforts
to rule on each disputed issue within thirty (30) days
after completion of the hearings(s)
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described above. The determination of the arbitrator(s) as to the
resolution of any dispute shall be binding and conclusive upon all
Parties hereto. All rulings of the arbitrator(s) shall be in writing
and shall be delivered to the Parties hereto. Pentair and Buyer
shall equally share in the cost and expenses of the arbitrator(s).
(c)The parties agree that the arbitrator(s) may call
and question any witness, including any expert witness, and may
require a party to produce any relevant documents or evidence prior
to or at any hearing. The Parties and the arbitrator(s) shall
proceed expeditiously so that the arbitral award is issued as soon
as practicable. The final arbitral award may, in the discretion of
the arbitrator(s), include interest from the date of the breach or
other violation of the Agreement until the award is fully paid.
Any additional costs, fees, or expenses incurred in enforcing the
arbitral award will be charged against the Party that resists
enforcement.
(d)Equitable Remedies. Notwithstanding any other
provision of this Agreement, the Parties agree that, upon the
application of a Party hereto, the arbitrator(s) shall have the
power and authority to grant such Party equitable remedies and
relief as the arbitrator(s) shall deem necessary and appropriate in
the circumstances. In the event that the seeking Party is granted
equitable relief by order of the arbitrator(s), such Party may file
such order with any court of competent jurisdiction seeking
enforcement thereof by such court. In furtherance of the foregoing
the Parties agree that:
(i)the arbitrator(s) shall have the authority to
allocate the Parties' costs and expenses arising from the
arbitration (excluding the expense of the arbitrator(s)) among
the Parties thereto in any manner deemed equitable by the
arbitrator(s);
(ii)the required performance of the respective covenants
and agreements of the Parties set forth in this Agreement must
be faithfully performed by the Party charged with such
performance;
(iii)the Party not charged with such performance may
be irreparably injured by such breach of performance and money
damages alone would not be an appropriate remedy for the harm
to such Party from the continuing breach of the applicable
covenant or agreements; and
(iv)based on the foregoing, equitable relief, including
specific performance or injunction by restraining order, may
be an appropriate remedy for the breach of such covenants and
agreements and the non-breaching Party shall be entitled to
seek equitable relief without the necessity of posting bond to
ensure and enforce the full and faithful performance of the
material covenants and agreements herein.
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ARTICLE X
BROKERS
10.1 For Pentair. Pentair represents and warrants that no
Person has acted in the capacity of broker or finder on behalf of
Pentair, FCH or the Company in connection with the sale of the
Shares or to bring about the negotiation of this Agreement.
Pentair agrees to defend, indemnify and to hold harmless the
Company and the Buyer against any claims or liabilities asserted
against either of them by any Person acting or claiming to act as
a broker or finder on behalf of Pentair, FCH or the Company.
10.2 For the Buyer. The Buyer represents and warrants that no
Person has acted in the capacity of broker or finder on its behalf
in connection with the purchase of the Shares or to bring about the
negotiation of this Agreement. The Buyer agrees to defend,
indemnify and hold harmless Pentair and FCH against any claims or
liabilities asserted against either of them by any Person acting or
claiming to act as a broker or finder on behalf of the Buyer.
ARTICLE XI
NOTICES
Any notice, request, demand, consent and other communication
required or permitted hereunder shall be in writing signed by a
duly authorized Representative of the Party giving notice and given
to the other Party by delivery in person; by recognized national
overnight courier service; or by facsimile transmission at the
following addresses (or to such other Person or at such other
address as either Party may subsequently furnish the other by
notice in accordance with this section):
If to Buyer:
Harold E. Layman
Executive Vice President
Blount, Inc.
4520 Executive Park Drive
Montgomery, AL 36116-1602
and by facsimile to: 334-271-8177
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with a copy to:
Richard H. Irving, III
Senior Vice President and General Counsel
Blount, Inc.
4520 Executive Park Drive
Montgomery, AL 36116-1602
and by facsimile to: 334-271-8130
If to the Seller:
Joseph R. Collins
Executive Vice President
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
St. Paul, MN 55113-3105
and by facsimile to: 612-639-5203
With a copy to:
Louis L. Ainsworth
Senior Vice President and General Counsel
Pentair, Inc.
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113-3105
and by facsimile to: 612-639-5203
Any such notice and other communication addressed as provided
herein will be deemed duly and validly given upon delivery if in
person; upon delivery by a recognized national overnight courier
service; and upon receipt of a confirmation slip evidencing
satisfactory transmission if by facsimile transmission.
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ARTICLE XII
MISCELLANEOUS
12.1 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their
respective successors and assigns. No assignment shall release any
Party from any obligation or liability under this Agreement.
12.2 Entire Agreement; Amendments; Attachments
(a)This Agreement, all Disclosure Schedules and
Exhibits hereto, and all Transaction Documents represent the entire
understanding and agreement between the Parties hereto with respect
to the subject matter hereof and supersede all prior oral and
written and all contemporaneous oral negotiations, commitments and
understandings between such Parties. The Parties may amend or
modify this Agreement, in such manner as may be agreed upon, by a
written instrument executed by the Buyer and by Pentair, FCH and
the Company.
(b)The Exhibits and Disclosure Schedules attached
hereto or to be attached hereafter are hereby incorporated as
integral parts of this Agreement.
12.3 Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument
referred to herein, shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, or shall be incapable of
performance in any material respect, for any reason other than
breach by a party of its obligations hereunder, then to the maximum
extent permitted by law, the validity or enforceability of the
remaining provisions of this Agreement or any other instrument
referred to herein shall not be affected thereby. In such event,
the parties hereby undertake to substitute for any such invalid
provision or for any provision incapable of performance, a
provision which corresponds to the spirit and purpose of such
invalid or unperformable provision as permitted under applicable
Regulation, so as to provide to the parties to the fullest extent
possible the economic purpose and effect of this Agreement.
12.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota.
12.5 Section Headings. The section headings are for the
convenience of the Parties and in no way alter, modify, amend,
limit, or restrict the contractual obligations of the Parties.
12.6 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original,
but all of which shall be one and the same document.
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12.7 Confidentiality Agreement. The Confidentiality Agreement
terminates effective upon the consummation of the Transactions on
the Closing Date.
12.8 Third Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the
Parties and their respective successors and permitted assigns;
provided, however, that the provisions of Section 8.2 above
concerning insurance and indemnification are intended for the
benefit of the Person specified therein.
12.9 Cumulative Remedies. All rights and remedies of any
Party hereto are cumulative of each other and of every other right
or remedy such Party may otherwise have at law or in equity, and
the exercise of one or more rights or remedies shall not prejudice
or impair the concurrent or subsequent exercise of other rights or
remedies.
12.10 Construction. The Parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed to also refer to
all rules and regulations promulgated thereunder, unless the
context otherwise requires. The word "including" shall mean
including without limitation.
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IN WITNESS WHEREOF, this Agreement has been duly executed by
the Parties as of and on the date first above written.
THE BUYER:
BLOUNT, INC.
By: /s/Richard H. Irving, III
Name: Richard H. Irving, III
Title: Senior Vice President
THE SELLER:
HOFFMAN ENCLOSURES INC.
(Successor by merger to FC Holdings, Inc.)
By: /s/Gerald C. Kitch
Name: Gerald C. Kitch
Title: Chairman of the Board
PENTAIR, INC.
By: /s/Joseph R. Collins
Name: Joseph R. Collins
Title: Executive Vice President
COMPANY:
FEDERAL-HOFFMAN, INC.
By: /s/Gerald C. Kitch
Name: Gerald C. Kitch
Title: President
<PAGE>
EXHIBIT E
TO
STOCK PURCHASE AGREEMENT
GAAP STANDARD FOR THE CLOSING DATE
NET EQUITY STATEMENT
Exclusions and Accounting Adjustments and Modifications
The following lists accounts, reserves and accruals which
will be excluded from the Closing Date Net Equity Statement
("CDNES").
Account Number Description
104 First Mpls. - Accounts payable*
170 Allowance for bad debts
170 Allowance for bad debts (Champion)
173 Allowance for finance charges
1002 LIFO reserve
1003 LIFO contra reserve
1353 Common stock - gun club
1700 Due to/from Pentair
3059 Accounts payable - negative cash
3110 Accrued ESOP
3309 Long-term disability
3323 Product liability
3324 Environmental liability
3340 Accrued workers' comp.
3500 Federal income taxes payable
3551 Deferred income taxes - LT
3552 Prepaid (income) taxes
__________________
* In addition, Pentair will retain the Funding Account -
Zero Balance (account number 1-801-2107-0395). There is
no general ledger account number for this account.
The following list accounting adjustments and
modifications that will impact the balances shown on the CDNES:
Inventory - See Schedule "Inventory" for inventory
physical counting and costing procedures.
E-1
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Ultra-Match - This "Special Inventory" per Section 2.8
includes the following four specific finished goods items:
Dept. Item Description Standard Cost
30 UM1 22 Gold Medal Ultra-Match $472.16
30 900 22 Gold Medal Match $447.23
30 1000B 22 Gold Medal Ultra-Match $464.52
30 900B 22 Gold Medal Match $439.33
The Special Inventory amounts (including raw material and
work-in-process inventory, if any, which can only be used for
the above four items) will be excluded from inventory and the
related reserve (excess and obsolete and lower of cost or
market) calculations. For Section 2.8, the above items will be
priced at the above standard cost and any raw material or work-
in-process items will be priced at standard cost.
Property. Exclude the net book value of the Gun Club and
Game Farm from the property accounts. The detail as of August
1997 is as follows: (Note, this needs to be updated to reflect
the net book value at closing.)
Cost Depreciation Net Value
Gun Club (Department 6040)
Land Improvement $ 3,505 $ 2,115 $ 1,390
Building 52,669 14,302 38,367
Equipment 124,857 36,318 88,539
Furniture & Fixtures 2,937 2,937 0
Cars & Trucks 2,500 2,500 0
-------- ------- --------
Total $186,468 $58,172 $128,296
======== ======= ========
A book value of $23,000 will be attributed to the Gun Club
and Game Farm land.
Retiree Medical. The combined current accrual (a/c 3350)
and long-term accrual (a/c 3580) will be limited to the
liability for participants actively employed at the Closing
Date. The calculation will be done using Seller's January 1,
1997 assumptions except the discount rates will be determined
based on cash flow projections for the applicable active
participants and Bloomberg rate (AA utilities) as of the
Closing Date. These assumptions are summarized on Exhibit I.
E-2
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Employee Benefits and Other Obligations. All reserves or
accruals relating to employee benefit and other obligations
specifically retained by Pentair in the Agreement or Schedules
thereto will be adjusted on the CDNES to reflect these
liabilities retained by Pentair.
Excess and Obsolete Reserve. The finished goods excess and
obsolete ("E&O") reserve will include the cost of all inventory
(excluding Special Inventory and new products) in excess of one
year's projected usage. New products are those introduced within
one year but for this purpose will exclude items, if any, where
the only change was to the name, item number of packaging.
Sales Tax Refund. This has been recorded on the cash basis.
Accordingly, no accrual will be made for claims to be
made/received in the future.
Schedule - Inventory
Physical Existence. A physical count of inventory was made
September 27, 1997 and September 28, 1997.
Shrink Reserve. This was zero at September 27, 1997 since a
full physical count was taken. In accordance with past monthly
accrual practice at $50,000 shrink reserve will be established by
October 31, 1997.
Cost. The intent of the procedures below is to determine
the actual cost of the inventory in a way that is efficient and
consistent with prior practices. The procedures recognize that
(a) to totally re-do standards to equal actual costs would be
very difficult at this time and (b) amortization of volume
related cost variances must consider the seasonality of
production levels. The following describes current procedures
which will accomplish the above objectives.
Standard Cost. The physical inventory will be extended at
the standard costs effective January 1, 1997.
Variances. Purchase price (accounts 710, 720 and 730) and
raw material usage and direct labor (accounts 715, 725 and 735)
variances will reflect the normal monthly deferral and subsequent
amortization at the percentage of cost of sales to WIP and
Finished Goods inventory. This FIFO (first-in; first-out) method
does not appear to be distorted by seasonal trends, is consistent
with year-end and provides a reasonable estimate of actual FIFO
costs; however, to the extent it does not, an adjustment will be
made such that the amount will be substantially the same as
actual FIFO costs.
E-3
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Overhead Capitalized. Overhead will not be capitalized on a
rolling FIFO basis. The under/over absorbed overhead (versus the
January 1, 1997 standards) for the 12-month period preceding the
Closing Date will be converted to a percentage (under/over
absorbed divided by overhead component of production) which will
be used to adjust the overhead component of inventory at standard.
The calculation will consider annual plant shut-down costs. This
method of overhead capitalization adjusts inventory so that the
result approximates FIFO cost; however, to the extent it does
not, an adjustment will be made such that the amount will be
substantially the same as actual FIFO costs. The September 27,
1997 over applied balance is approximately 11% representing the
variance for October 1996 through September 1997. (Note, this
will be updated at Closing.)
LIFO. The LIFO value of inventory does not need to be re-
calculated. The two general ledger account balances which net to
zero will be excluded from the general ledger.
Futures. Account 1219, Futures Deposits, will include
deferred gains on futures contracts to be amortized as a
reduction of the cost of the components of brass (copper and
zinc) to be purchased through December 1997.
Tooling/Supplies. This inventory will be priced at actual
cost consistent with the practice used since March 1996. A
reserve for excess will be provided for all items in excess of
their historical usage over the three-year period immediately
preceding Closing.
Lower of Cost or Market. This reserve is the difference
between standard cost and average actual selling price calculated
on an item-by-item basis.
E-4
<PAGE>
EXHIBIT J
TO
STOCK PURCHASE AGREEMENT
SURVIVAL PERIODS OF REPRESENTATIONS AND WARRANTIES
No Survival: The following representations and warranties
shall not survive the Closing Date:
4.9(b) TCAAP
4.18 Owned Real Property (as to matters of title only)
4.22 Environmental Matters
4.25 Notes and Accounts Receivable
5.5 Financing
18 Months: The following representations and warranties
shall survive the Closing Date and terminate 18
months after the Closing Date:
4.2 Capitalization
4.6 Financial Statements
4.8 Undisclosed Liabilities
4.12 Labor Agreements and Actions
4.13 Absence of Certain Changes
4.15 Owned and Leased Personal Property
4.17 Leased Real Property
4.20 Insurance
4.21 Certain Relationships
4.24 No Other Agreements to Sell Assets of the Company
4.26 Inventories
4.28 Customers
4.29 Suppliers
4.31 Banking Facilities
4.33 Compensation of and Contracts with Employees
5.6 Litigation
36 Months: The following representations and warranties
shall survive the Closing Date and terminate 36
months after the Closing Date:
3.5 Books and Records
4.1 Organization, Qualification and Corporate Power
4.4 Subsidiaries
4.7 Permits, Consents and Approvals
4.9(a) Litigation
4.14 Books and Records
4.16 Intellectual Property
4.19 Material Contracts
4.23 Compliance with Law
4.27 Certain Payments
4.30 Warranty and Product Liability
4.34 Product Recalls
4.35 Information Provided
4.36 Sufficiency of Assets
5.1 Organization and Authority
Statute of Limitations:
The following representations and warranties shall
survive the Closing Date and terminate when the
applicable statute of limitations expire (and an
additional period of six (6) months thereafter,
giving effect to any extensions and waivers thereof):
3.2 Authorizations
3.3 Noncontravention
3.4 338(h)(10) Filing Eligibility
4.3 Authorization of the Company
4.5 Noncontravention
4.10 Taxes
4.11 Employee Benefit and Employment Matters
4.18 Owned Real Property (excluding matters of title)
4.32 Powers of Attorney and Suretyships
5.2 Authorization
5.3 Noncontravention
5.4 Investment Purpose
Indefinite: The following representations and warranties
shall survive the Closing Date and shall not
terminate:
3.1 Title to Shares
