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United States
Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
Keystone Consolidated Industries, Inc.
(Name of Issuer)
Common Stock
(Title Class of Securities)
0004934221
(CUSIP Number)
Anne E. Eisele
President
DeSoto, Inc.
900 E. Washington Street
Joliet, Illinois 60433
and
Peter Golden, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
June 26, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D,
and is filing this schedule because of Rule 13d-1(b)(3) or (4), check
the following box .
Check the following box if a fee is being paid with the statement .
(A fee is not required only if the reporting person: (1) has a
previous statement on file reporting beneficial ownership of more than
five percent of the class of securities described in Item 1; and (2)
has filed no amendment subsequent thereto reporting beneficial
ownership of five percent or less of such class.) (See Rule 13d-7.)
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class
of securities, and for any subsequent amendment containing information
which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the
Securities Exchange Act of 1934 ("Act") or otherwise subject to the
liabilities of that section of the Act but shall be subject to all
other provisions of the Act (however, see the Notes).
SCHEDULE 13D
CUSIP No. 0004934221 Page 2 of 6 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
DeSoto, Inc. 36-1899490
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) (b)
3 SEC USE ONLY
4 SOURCE OF FUNDS*
Not applicable
5 CHECK BOX IF DISCLOSURE IF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER 7 SOLE VOTING POWER
OF
SHARES 0
S
BENEF 8 SHARED VOTING POWER
ICIAL
LY 3,126,533
OWNED
BY 9 SOLE DISPOSITIVE POWER
EACH
REPORT- 0
ING
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,126,533
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
55.6%
14 TYPE OF REPORTING PERSON*
CO
Item 1. Security and Issuer
This statement on Schedule 13D (the "Statement") relates to the
shares of common stock (the "Shares") of Keystone Consolidated
Industries, Inc., a Delaware corporation (the "Company"). The
principal executive offices of the Company are located at 5430 LBJ
Freeway, Suite 1740, Three Lincoln Centre, Dallas, Texas 75240-2697.
Item 2. Identity and Background
This Statement is being filed by DeSoto, Inc., a Delaware
corporation ("DeSoto").
DeSoto manufactures and packages household cleaning products,
including laundry detergents. The address of its principal business
and of its principal office is 900 E. Washington Street, Joliet,
Illinois 60433. The name, business address and present principal
occupation of each executive officer and director of DeSoto is set
forth in Annex A hereto.
During the last five years, none of DeSoto nor, to the best of
DeSoto's knowledge, any person named in Annex A hereto (i) has been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) has been a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or
finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
No funds were required in connection with the Voting Agreement
described in Item 4.
Item 4. Purpose of Transaction
On June 26, 1996, DeSoto and the Company entered into an
Agreement and Plan of Reorganization (the "Merger Agreement") which
provides, among other things, that, subject to certain conditions, a
subsidiary of the Company will be merged with and into DeSoto (the
"Merger").
Also on June 26, 1996, DeSoto entered into a Voting Agreement
(the "Voting Agreement") with Contran Corporation ("Contran") pursuant
to which, among other things, Contran agreed to vote the 3,126,533
Shares it directly owns in favor of the Merger Agreement and the
transactions contemplated thereby at the meeting of the stockholders
of the Company to be called in connection with the Merger Agreement.
As a result of the Voting Agreement, DeSoto may be deemed to share
voting power over the Shares directly owned by Contran.
The purpose of the Voting Agreement is to facilitate and increase
the likelihood that the Merger will be consummated.
In the Merger, each share of common stock of DeSoto will be
converted into .7465 Shares, each option to acquire common stock of
DeSoto will be converted into an option to acquire .7465 Shares, and
Series B Senior Preferred Stock of DeSoto will be converted into
similar preferred stock of Keystone plus cash equal to accrued
dividends thereon. The holders of warrants to purchase 1,200,000
shares of common stock have agreed with the Company to cancel one-half
of their warrants in the Merger and each remaining warrant will
represent the right to purchase Shares.
The Merger Agreement also provides, among other things, that as
of the time the Merger is consummated the Board of Directors of the
Company (i) will be increased to nine members and two persons named by
DeSoto shall be appointed to the Board and (ii) will create an
Executive Committee composed of three members, one of whom shall be
named by DeSoto.
Except as set forth above, neither DeSoto nor, to the best of
DeSoto's knowledge, any of the persons listed in Annex A hereto have
any present plans or intentions which would result in or relate to any
of the transactions described in subparagraphs (a) through (j) of Item
4 of Schedule 13D.
The foregoing summaries of the Merger Agreement and the Voting
Agreement are qualified in their entirety by reference to such
agreements, copies of which are attached as exhibits hereto and
incorporated herein by reference.
Item 5. Interest in Securities of the Issuer
(a) As a result of the Voting Agreement, DeSoto may be deemed to
beneficially own the 3,126,533 Shares directly owned by Contran. Such
Shares represent approximately 55.6% of the outstanding Shares (based
upon 5,619,279 Shares reported by the Company to be issued and
outstanding in the Merger Agreement). To the best of DeSoto's
knowledge, none of the persons listed in Annex A hereto beneficially
owns any Shares.
(b) DeSoto may be deemed to share voting power with respect to
the 3,126,533 Shares subject to the Voting Agreement.
(c) Except as described above, none of DeSoto nor, to the best
of DeSoto's knowledge, any of the persons listed in Annex A hereto has
effected any transactions in the securities of the Company during the
past sixty days.
(d) and (e). Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
None of DeSoto nor, to the best of DeSoto's knowledge, any of the
persons named in Annex A hereto is a party to any contract,
arrangement, understanding or relationship with respect to any
securities of the Company, including but not limited to transfer or
voting of any of the securities, finder's fees, joint ventures, loan
or option agreements, puts or calls, guarantees of profits, divisions
of profits or losses or the giving or withholding of proxies.
Item 7. Material to Be Filed as Exhibits
(i) Voting Agreement
(ii) Agreement and Plan of Reorganization
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is
true, complete and correct.
June 28, 1996
DESOTO, INC.
By: Anne E. Eisele
Annex A
Directors and Executive Officers of DeSoto, Inc.
The names of the directors and executive officers of DeSoto are
set forth below. Unless otherwise indicated, each individual is a
citizen of the United States.
Executive Officers
Name Business Address
William Spier 101 East 52nd Street
Chairman of the Board and New York, New York 10022
Chief Executive Officer
Anne E. Eisele 900 E. Washington Street
President and Chief Financial Officer Joliet, Illinois 60433
Fred J. Flaxmayer 900 E. Washington Street
Corporate Controller Joliet, Illinois 60433
Directors
Name and Present Principal Occupation Business Address
Anne E. Eisele see above
President and Chief Financial Officer
of DeSoto
Paul E. Price
Retired Senior Vice President of
The Quaker Oats Company
(manufacturer of grocery products and pet
foods)
Daniel T. Carroll 101 N. Main St.
Chairman of the Board and President of Suite 906
the Carroll Group, Inc. Ann Arbor, MI 48104
(a management consulting firm)
David M. Tobey 101 East 52nd Street
Managing Director of Parkway M&A New York, New York 10022
Capital Corporation
(a company engaged in investments)
Anders U. Schroeder Riverside Three
Vice Chairman of DeSoto; Chief Executive 22 Hester Road
Officer of Asgard Ltd. London SW11 4 AN
(real estate investments and corporate Great Britain
investments)
(Mr. Schroeder is a citizen of Denmark)
William P. Lyons 101 East 52nd Street
Chairman of JVL Corp., (a manufacturer of New York, New York 10022
generic and over-the-counter
pharmaceutical products); President and
Chief Executive Officer of William P.
Lyons and Co., Inc. (an investment firm)
William Spier 101 East 52nd Street
Chairman of DeSoto; private investor New York, New York 10022
Exhibit (i)
VOTING AGREEMENT
Agreement dated as of June 26, 1996 between Contran
Corporation, a Delaware corporation (the "Principal
Shareholder"), and DeSoto, Inc., a Delaware corporation
("DeSoto"). Capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in the Merger Agreement
(as defined below).
In consideration of the execution by DeSoto of the
Agreement and Plan of Reorganization dated as of June 26, 1996
(the "Merger Agreement") between Keystone Consolidated
Industries, Inc., a Delaware corporation ("Keystone"), and
DeSoto, and other good and valuable consideration, receipt of
which is hereby acknowledged, the Principal Shareholder and
DeSoto hereby agree as follows:
1. Representations and Warranties of Principal
Shareholder. The Principal Shareholder hereby represents and
warrants to DeSoto as follows:
(a) Title. As of the date hereof, the Principal
Shareholder owns of record 3,126,533 shares of Common Stock
("Common Stock"), par value $1 per share, of Keystone (the shares
so owned being referred to as the "Shares"). The Shares
represent approximately 55% of the total voting power of
Keystone's capital stock as of the date hereof.
(b) Right to Vote. The Principal Shareholder has
full legal power, authority and right to vote all Shares in favor
of approval and adoption of the Merger Agreement and the
transactions contemplated by the Merger Agreement, including the
authorization of the issuance of shares of Common Stock to
holders of the common stock of DeSoto in the Merger, without the
consent or approval of, or any other action on the part of, any
other person or entity. Without limiting the generality of the
foregoing, except for this Agreement, the Principal Shareholder
has not entered into any voting agreement with any person or
entity with respect to any of the Shares, granted any person or
entity any proxy (revocable or irrevocable) or power of attorney
with respect to any of the Shares, deposited any of the Shares in
a voting trust or entered into any arrangement or agreement with
any person or entity, in each such case having the effect of
limiting or affecting the Principal Shareholder's legal power,
authority or right to vote the Shares in favor of the approval
and adoption of the Merger Agreement or any of the transactions
contemplated by the Merger Agreement, including the authorization
of the issuance of shares of Common Stock to holders of the
common stock of DeSoto in the Merger.
(c) Authority. The Principal Shareholder has
full legal power, authority and right to execute and deliver, and
to perform its obligations under, this Agreement. This Agreement
has been duly executed and delivered by the Principal Shareholder
and constitutes a valid and binding agreement of the Principal
Shareholder enforceable against the Principal Shareholder in
accordance with its terms, subject to (i) bankruptcy, insolvency,
moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and
(ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity). As of the date
of the Keystone shareholders meeting to vote on approval and
adoption of the Merger Agreement and, to the extent submitted to
shareholders for approval, the transactions contemplated by the
Merger Agreement, including any adjournment or postponement
thereof (the "Keystone Shareholders Meeting"), except for this
Agreement, the Principal Shareholder will have full legal power,
authority and right to vote all Shares in favor of the approval
and adoption of the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the issuance of
Common Stock to DeSoto stockholders, without the consent or
approval of, or any other action on the part of, any other person
or entity. From and after the date hereof, the Principal
Shareholder will not commit any act that could restrict or
otherwise affect such legal power, authority and right to vote
all Shares in favor of the approval and adoption of the Merger
Agreement and the transactions contemplated by the Merger
Agreement, including the issuance of Common Stock to DeSoto
stockholders. Without limiting the generality of the foregoing,
from and after the date hereof the Principal Shareholder (other
than this Agreement) will not enter into any voting agreement
with any person or entity with respect to any of the Shares,
grant any person or entity any proxy (revocable or irrevocable)
or power of attorney with respect to any of the Shares, deposit
any of the Shares in a voting trust or otherwise enter into any
agreement or arrangement limiting or affecting the Principal
Shareholder's legal power, authority or right to vote the Shares
in favor of the approval and adoption of the Merger Agreement and
the transactions contemplated by the Merger Agreement, including
the issuance of Common Stock to DeSoto stockholders.
(d) Conflicting Instruments; No Transfer.
Neither the execution and delivery of this Agreement nor the
performance by the Principal Shareholder of its agreements and
obligations hereunder will result in any breach or violation of
or be in conflict with or constitute a default under any term of
(i) any agreement, judgment, injunction, order, decree, law,
regulation or arrangement to which the Principal Shareholder is a
party or by which the Principal Shareholder (or any of its
assets) is bound, except for any such breach, violation, conflict
or default which, individually or in the aggregate, would not
impair or affect the Principal Shareholder's ability to cast the
votes represented by its Shares at the Keystone Shareholders
Meeting or (ii) the Certificate of Incorporation of Keystone.
(e) Notwithstanding any provision of this
Agreement, the pledge of the Shares by Contran existing as of the
date of this Agreement shall not constitute a default under this
Agreement.
2. Representations and Warranties of DeSoto. DeSoto
hereby represents and warrants to the Principal Shareholder that
this Agreement (along with DeSoto's obligations under this
Agreement) has been duly authorized by all necessary corporate
action on its part, has been duly executed and delivered by
DeSoto and is a valid and binding agreement of DeSoto enforceable
against DeSoto in accordance with its terms, subject to
(i) bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and the
rights of creditors of insurance companies generally and
(ii) general principles of equity (regardless of whether
considered in a proceeding at law or in equity).
3. Restriction on Transfer. The Principal
Shareholder agrees that it will not, and will not agree to, sell,
assign, dispose of, encumber, mortgage, hypothecate or otherwise
transfer (collectively, "Transfer") any Shares or any options,
warrants or other rights to acquire Common Stock to any person or
entity; provided that, notwithstanding the foregoing, the
Principal Shareholder shall be permitted to Transfer Shares to
any person if prior to and as a condition of such Transfer such
person agrees in writing to be bound by the terms of this
Agreement, including but not limited to, the obligation to vote
such Shares in accordance with Section 4 hereof.
4. Agreement to Vote of Principal Shareholder. The
Principal Shareholder hereby irrevocably and unconditionally
agrees to vote or to cause to be voted all Shares at the Keystone
Shareholders Meeting and at any adjournment thereof where such
matters arise in favor of the approval and adoption of the Merger
Agreement and the transactions contemplated by the Merger
Agreement, including the issuance of Common Stock to DeSoto
stockholders.
5. Action in Principal Shareholder Capacity Only.
The Principal Shareholder makes no agreement or understanding
herein as director or officer of Keystone. The Principal
Stockholder signs solely in its capacity as a recordholder and
beneficial owner of the Shares, and nothing herein shall limit or
affect any actions taken by any officer or director of Keystone
in his capacity as such.
6. Invalid Provisions. If any provision of this
Agreement shall be invalid or unenforceable under applicable law,
such provision shall be ineffective to the extent of such
invalidity or unenforceability only, without it affecting the
remaining provisions of this Agreement.
7. Executed in Counterparts. This Agreement may be
executed in counterparts each of which shall be an original with
the same effect as if the signatures hereto and thereto were upon
the same instrument.
8. Specific Performance. The parties hereto agree
that if for any reason the Principal Shareholder fails to perform
any of his agreements or obligations under this Agreement
irreparable harm or injury to DeSoto would be caused for which
money damages would not be an adequate remedy. Accordingly, the
Principal Shareholder agrees that, in seeking to enforce this
Agreement against the Principal Shareholder, DeSoto shall be
entitled to specific performance and injunctive and other
equitable relief.
9. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflicts of
laws thereof.
10. Amendments; Termination. (a) This Agreement may
not be modified, amended, altered or supplemented, except upon
the execution and delivery of a written agreement executed by the
parties hereto.
(b) The provisions of this Agreement shall
terminate upon the earlier to occur of (i) the consummation of
the Merger and (ii) the termination of the Merger Agreement.
(c) For purposes of this Agreement, the term
"Merger Agreement" includes the Merger Agreement, as the same may
be modified or amended from time to time; provided that no such
amendment or modification amends or modifies the Merger Agreement
in a manner such that the Merger Agreement, as so amended or
modified, is less favorable to the Principal Shareholder in any
material respect than is the Merger Agreement in effect on the
date hereof.
11. Additional Shares. If, after the date hereof, the
Principal Shareholder acquires direct ownership of any shares of
Common Stock (any such shares, "Additional Shares"), including,
without limitation, upon exercise of any option, warrant or right
to acquire Common Stock or through any stock dividend or stock
split, the provisions of this Agreement (other than those set
forth in Section 1) applicable to Shares shall be applicable to
such Additional Shares as if such Additional Shares had been
Shares as of the date hereof. The provisions of the immediately
preceding sentence shall be effective with respect to Additional
Shares without action by any person or entity immediately upon
the acquisition by the Principal Shareholder of direct ownership
of such Additional Shares.
12. Action by Written Consent. If, in lieu of the
Keystone Shareholders Meeting, shareholder action in respect of
the Merger Agreement or any of the transactions contemplated by
the Merger Agreement is taken by written consent, the provisions
of this Agreement imposing obligations in respect of or in
connection with the Keystone Shareholders Meeting shall apply
mutatis mutandis to such action by written consent.
13. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal successors and
permitted assigns; provided that no party may assign, delegate or
otherwise transfer any of its rights or obligations under this
Agreement without the consent of DeSoto (in the case of the
Principal Shareholder or any of its permitted assigns) or the
Principal Shareholder (in the case of DeSoto or any of its
permitted assigns). Without limiting the scope or effect of the
restrictions on Transfer set forth in Section 3 hereof, the
Principal Shareholder agrees that this Agreement and the
obligations hereunder shall attach to the Shares and shall be
binding upon any person or entity to which legal or beneficial
ownership of such Shares shall pass, whether by operation of law
or otherwise.
14. Notices. All notices and other communications
pursuant to this Agreement shall be delivered personally, by
telecopy, by certified or registered mail or by courier at the
addresses set forth below (or such other address specified by
such person) and shall be deemed given at the time of delivery.
If to Contran:
Contran Corporation
5430 LBJ Freeway
Suite 1700
Dallas, Texas 75240
Attention: General Counsel
with a copy to:
Rogers & Hardin
2700 Cain Tower
227 Peachtree Street N.E.
Atlanta, Georgia 30303
Attention: Alan Leet
If to DeSoto:
DeSoto, Inc.
101 East 52nd Street
New York, New York 10022
Attention: William Spier
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Peter Golden, Esq.
15. Integration. This Agreement constitutes the
entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersedes all prior
agreements and understandings of the parties with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of this 26th day of June, 1996.
CONTRAN CORPORATION
By:
Name:
Title:
DESOTO, INC.
By:
Name:
Title:
Exhibit (ii)
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
KEYSTONE CONSOLIDATED INDUSTRIES, INC.
AND
DESOTO, INC.
DATED AS OF
June 26, 1996
TABLE OF CONTENTS
Page
1. PLAN OF REORGANIZATION 1
1.1 The Merger 1
(a) Conversion of Shares of DSO Common Stock 1
(b) Conversion of Shares of DSO Preferred Stock 2
(c) Adjustments for Capital Changes 2
(d) Dissenting Shares 2
(e) Conversion of KCI Sub Common Stock 2
1.2 Fractional Shares 2
1.3 DSO Options 3
(a) Conversion 3
(b) Registration 3
1.4 Effects of the Merger 4
1.5 Registration on Form S-4 4
2. REPRESENTATIONS AND WARRANTIES OF DSO 5
2.1 Organization; Good Standing; Qualification and Power 5
2.2 Capital Structure 5
(a) Stock and Options 5
(b) DEMI 6
(c) Warrants 6
(d) No Other Commitments 6
2.3 Authority 7
(a) Corporate Action 7
(b) No Conflict 7
(c) Governmental Consents 7
2.4 SEC Documents 8
(a) SEC Reports 8
(b) Financial Statements 8
2.5 Information Supplied 9
2.6 Compliance with Applicable Law 9
2.7 Litigation and Legal Matters 9
2.8 ERISA and Other Compliance 10
2.9 Labor Matters 13
2.10 Absence of Undisclosed Liabilities 14
2.11 Absence of Certain Changes or Events 14
2.12 No Default 16
2.13 Certain Agreements 16
2.14 Taxes 16
2.15 Intellectual Property 18
2.16 Fees and Expenses 18
2.17 Environmental Matters 18
2.18 Interested Party Transactions 20
2.19 Contracts 21
2.20 Title to Properties 22
2.21 Insurance 22
2.22 Board Approval 22
2.23 Vote Required 22
2.24 Disclosure 22
2.25 Fairness Opinion 23
2.26 Restrictions on Business Activities 23
2.27 DSO Rights Agreement 23
2.28 Propriety of Past Payments 23
3. REPRESENTATIONS AND WARRANTIES OF KCI 23
3.1 Organization; Good Standing; Qualification and Power 23
3.2 Capital Structure 24
(a) Stock and Options 24
(b) No Other Commitments 24
3.3 Authority 25
(a) Corporate Action 25
(b) No Conflict 25
(c) Governmental Consents 25
3.4 SEC Documents 26
(a) SEC Reports 26
(b) Financial Statements 26
3.5 Information Supplied 27
3.6 Compliance with Applicable Law 27
3.7 Litigation and Legal Matters 27
3.8 ERISA and Other Compliance 28
3.9 Labor Matters 30
3.10 Absence of Undisclosed Liabilities 32
3.11 Absence of Certain Changes or Events 32
3.12 No Default 33
3.13 Certain Agreements 33
3.14 Taxes 34
3.15 Intellectual Property 35
3.16 Fees and Expenses 35
3.17 Environmental Matters 35
3.18 Interested Party Transactions 36
3.19 Contracts 37
3.20 Title to Properties 38
3.21 Insurance 38
3.22 Board Approval 38
3.23 Vote Required 38
3.24 Disclosure 38
3.25 Fairness Opinion 39
3.26 Restrictions on Business Activities 39
3.27 Propriety of Past Payments 39
4. DSO COVENANTS 39
4.1 Advice of Changes 39
4.2 Maintenance of Business 40
4.3 Conduct of Business 40
4.4 Stockholder Approval 42
4.5 Prospectus/Proxy Statement 42
4.6 Regulatory Approvals 42
4.7 Necessary Consents 43
4.8 Access to Information 43
4.9 Satisfaction of Conditions Precedent 43
4.10 No Other Negotiations 43
44
5. KCI COVENANTS 45
5.1 Advice of Changes 45
5.2 Maintenance of Business 45
5.3 Conduct of Business 45
5.4 Stockholder Approval 48
5.5 Prospectus/Proxy Statement 48
5.6 Regulatory Approvals 48
5.7 Necessary Consents 48
5.8 Access to Information 48
5.9 Satisfaction of Conditions Precedent 49
5.10 Listing 49
5.11 Nomination of Directors 49
5.12 Executive Committee 49
5.13 Director and Officer Indemnification 49
5.14 DSO Trade Debt 50
6. CLOSING MATTERS 50
6.1 The Closing 50
6.2 Exchange of Certificates 50
(a) Exchange Agent 50
(b) Exchange Procedures 50
(c) Distributions with Respect to Unsurrendered Certificates 51
(d) No Further Ownership Rights to DSO Stock 52
(e) Termination of Exchange Fund 52
(f) No Liability 52
6.3 Assumption of Options 52
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DSO 52
7.1 Accuracy of Representations and Warranties 52
7.2 Covenants 53
7.3 Absence of Material Adverse Change 53
7.4 Compliance with Law 53
7.5 Government Consents 53
7.6 The Form S-4 53
7.7 Documents 53
7.8 Stockholder Approval 53
7.9 KCI Approval 53
7.10 No Legal Action 54
7.11 Election of DSO Designees to Board of Directors of KCI 54
7.12 Tax Opinions 54
7.13 Legal Opinion 54
7.14 Listing 54
7.15 PBGC 54
7.16 Financing 54
7.17 Fairness Opinion 54
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF KCI 54
8.1 Accuracy of Representations and Warranties 55
8.2 Covenants 55
8.3 Absence of Material Adverse Change 55
8.4 Compliance with Law 55
8.5 Government Consents 55
8.6 Form S-4 55
8.7 Documents 55
8.8 Stockholder Approval 56
8.9 DSO Approval 56
8.10 No Legal Action 56
8.11 Tax Opinions 56
8.12 Legal Opinion 56
8.13 Agreement of Warrantholders 56
8.14 Financing 56
8.15 Amendment of DSO Retirement Plan 56
8.16 No Pending Termination 57
8.17 PBGC 57
8.18 Approval of Change of Control 57
8.19 Preferred Stockholders Consents 57
8.20 Prescott Obligation 57
8.21 Fairness Opinion 57
8.22 Lender Consent 57
8.23 Trade Creditor Agreement. 57
8.24 Merger of Pension Plans. 57
9. TERMINATION OF AGREEMENT; BREAK UP FEES 57
9.1 Termination 58
9.2 Notice of Termination 58
9.3 Effect of Termination 59
9.4 Breakup Fee 59
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS 59
11. MISCELLANEOUS 60
11.1 Governing Law 60
11.2 Assignment; Binding Upon Successors and Assigns 60
11.3 Severability 60
11.4 Counterparts 60
11.5 Other Remedies 60
11.6 Amendment and Waivers 60
11.7 Expenses 61
11.8 Attorney's Fees 61
11.9 Notices 61
11.10 Construction of Agreement 62
11.11 No Joint Venture 62
11.12 Further Assurances 62
11.13 Absence of Third Party Beneficiary Rights 62
11.14 Public Announcement 62
11.15 Entire Agreement 62
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is entered into as of this 26th day of June, 1996, by and between
KEYSTONE CONSOLIDATED INDUSTRIES, INC., a Delaware corporation
("KCI"), and DESOTO, INC., a Delaware corporation ("DSO").
RECITALS
A. The parties intend that, subject to the terms and
conditions of this Agreement, DSO will consolidate with a wholly
owned subsidiary of KCI (the "KCI Sub") in a statutory merger
(the "Merger") with DSO being the surviving corporation of the
Merger (the "Surviving Corporation"), all pursuant to the terms
and conditions of this Agreement and the applicable provisions of
the Delaware General Corporation Law, as amended (the "Delaware
Law"). Upon the effectiveness of the Merger, all the capital
stock of DSO outstanding immediately prior to the Effective Time
(as defined in Section 1.1) will be converted into capital stock
of KCI, and KCI w will assume all outstanding
options to purchase shares of common stock of DSO, as provided in
this Agreement.
B. The Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
C. It is the intention and desire of KCI and DSO,
immediately after the Effective Time to cause a merger of the
pension plans of KCI and DSO.
The parties hereto hereby agree as follows:
1. PLAN OF REORGANIZATION
1.1 The Merger. Subject to the terms and conditions
of this Agreement, the Merger will occur pursuant to this
Agreement and in accordance with applicable provisions of
the Delaware Law as follows:
(a) Conversion of Shares of DSO Common Stock.
Each share of DSO Common Stock, $1.00 par value,
including the associated rights (the "Associated
Rights") issued pursuant to the Rights Agreement (the
"Rights Agreement") between DSO and Harris Trust and
Savings Bank (collectively the "DSO Common Stock"),
issued and outstanding immediately prior to the date
and time of filing of a Certificate of Merger (the
"Certificate of Merger") with the Secretary of State of
Delaware (the "Effective Time") will by virtue of the
Merger and at the Effective Time, and without further
action on the part of any holder thereof, be converted
into the right to receive .7465 of a share (the
"Exchange Ratio") of validly issued, fully paid and
nonassessable KCI Common Stock, $1.00 par value (the
"KCI Common Stock"). Shares of DSO's capital stock
held by DSO in its treasury will not be deemed
outstanding for purposes of this Agreement and will not
be converted into shares of KCI Common Stock, cash or
any other property and will be cancelled as of the
Effective Time. No holder of shares of DSO Common
Stock shall have any rights as a stockholder of KCI
prior to the date of issuance to such holder of a
certificate or certificates representing shares of KCI
Common Stock.
(b) Conversion of Shares of DSO Preferred
Stock. Each share of DSO Series B Senior Preferred
Stock, $1.00 par value (the "DSO Preferred Stock" and
collectively with the DSO Common Stock, the "DSO
Stock"), issued and outstanding immediately prior to
the Effective Time will by virtue of the Merger and at
the Effective Time, and without further action on the
part of any holder thereof, be converted into the right
to receive the Exchange Ratio of a share of validly
issued, fully paid and nonassessable KCI Series A
Senior Preferred Stock, no par value, as contemplated
by the Preferred Stockholder Waiver and Consent
Agreement of even date herewith (the "KCI Preferred
Stock" and collectively with the KCI Common Stock, the
"KCI Stock"). No holder of shares of DSO Preferred
Stock shall have any rights as a stockholder of KCI
prior to the date of issuance to such holder of a
certificate or certificates representing shares of KCI
Preferred Stock.
(c) Adjustments for Capital Changes. If,
prior to the Effective Time, DSO or KCI recapitalizes
through a subdivision of its outstanding shares into a
greater number of shares, or a combination of its
outstanding shares into a lesser number of shares, or
reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number
of shares of other classes, or declares a dividend on
its outstanding shares payable in shares of its capital
stock or securities convertible into shares of its
capital stock, then the Exchange Ratio, as applicable,
will be adjusted appropriately so as to maintain the
relative proportionate interests of the holders of the
shares of DSO Stock and the holders of the shares of
KCI Stock.
(d) Dissenting Shares. Holders of shares of
DSO Common Stock who dissent from the Merger are not
entitled to rights of appraisal under Section 262 of
the Delaware Law by virtue of Section 262(b)(1) of the
Delaware Law.
(e) Conversion of KCI Sub Common Stock. Each
share of common stock of KCI Sub issued and outstanding
immediately prior to the Effective Time will by virtue
of the Merger and at the Effective Time, and without
further action on the part of any holder hereof, be
converted into one share of validly issued, fully paid
and nonassessable common stock of the Surviving
Corporation.
1.2 Fractional Shares. No fractional shares of KCI
Common Stock will be issued in connection with the Merger,
but in lieu thereof each holder of DSO Common Stock who
would otherwise be entitled to receive a fraction of a share
of KCI Common Stock will receive from the Exchange Agent (as
defined in Section 6.2), at such time as such holder shall
receive a certificate representing shares of KCI Common
Stock as contemplated by Section 6.2, an amount of cash
equal to the per share market value of KCI Common Stock
(based on the average of the closing sale prices of KCI
Common Stock during the ten (10) trading day period ending
on the Closing Date (as defined in Section 6.1) as reported
in the Wall Street Journal) multiplied by the fraction of a
share of KCI Common Stock to which such holder would
otherwise have been entitled. The fractional interests of
each DSO stockholder will be aggregated so that no DSO
stockholder will receive cash in an amount equal to or
greater than the value of one full share of KCI Common Stock
(other than those holding shares as nominees or in similar
capacity, in which case, each interest of a beneficial owner
shall be aggregated separately). KCI shall provide
sufficient funds to the Exchange Agent to make the payments
contemplated by this Section 1.2.
1.3 DSO Options.
(a) Conversion. At the Effective Time, each
of the then outstanding options to purchase DSO Common
Stock (the "DSO Options") will by virtue of the Merger,
and without any further action on the part of any
holder thereof, be converted into an option to purchase
that number of shares of KCI Common Stock determined by
multiplying the number of shares of DSO Common Stock
subject to such DSO Option at the Effective Time by the
Exchange Ratio, at an exercise price per share of KCI
Common Stock equal to the exercise price per share of
such DSO Option immediately prior to the Effective Time
divided by the Exchange Ratio and rounded up to the
nearest whole cent (provided, however, in the case of
any DSO Options to which Section 421 of the Code
applies by reason of its qualification under Section
422 or Section 423 of the Code, the option price, the
number of shares purchasable pursuant to such DSO
Options and the terms and conditions of exercise of
such DSO Options shall be determined in order to comply
with Section 424 of the Code). If the foregoing
calculation results in an assumed DSO Option being
exercisable for a fraction of a share of KCI Common
Stock, then the number of shares of KCI Common Stock
subject to such option will be rounded up to the
nearest whole number of shares. The term,
exercisability, vesting schedule, status as an
"incentive stock option" under Section 422 of the Code,
if applicable, and all other terms and conditions of
the DSO Options shall be as set forth in the DSO
Disclosure Schedule (as defined in Article 2).
Continuous employment with DSO or any of the DSO
Subsidiaries (as defined in Section 2.1) will be
credited to an optionee of DSO for purposes of
determining the number of shares of KCI Common Stock
subject to exercise under DSO Options converted into
options to purchase KCI Common Stock (the "KCI
Converted Options"). Each KCI Converted Option shall
otherwise be subject to the terms and conditions as
were applicable to such converted DSO Option under the
applicable DSO Plan (as defined in Section 2.2).
(b) Registration. To the extent a
registration statement on Form S-8 is available, KCI
will cause the KCI Common Stock issuable upon exercise
of the KCI Converted Options to be registered on Form S-
8 promulgated by the Securities and Exchange Commission
(the "SEC") as soon as practicable after the Effective
Time and will use its best efforts to maintain the
effectiveness of such registration statement or
registration statements for so long as the KCI
Converted Options shall remain outstanding. With
respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements
under Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), KCI shall
administer, to the extent reasonably practicable, the
DSO Plans (as defined in Section 2.2(a)) assumed
pursuant to the Merger and this Section 1.3 in a manner
that complies with the rules promulgated by the SEC
under the Exchange Act. KCI will reserve a sufficient
number of shares of KCI Common Stock for issuance upon
exercise of the KCI Converted Options.
1.4 Effects of the Merger. At the Effective Time, the
Certificate of Merger shall be filed as contemplated by
Section 1.1(a), the effect of which shall be as follows: (a)
each share of KCI Common Stock outstanding immediately prior
to the Effective Time will continue to be an identical
outstanding share of KCI Common Stock; (b) each share of DSO
Stock and each DSO Option outstanding immediately prior to
the Effective Time will be converted as provided in Sections
1.1, 1.2 and 1.3 hereof; (c) each share of KCI Sub Common
Stock outstanding immediately prior to the Effective Time
will be converted as provided in Section 1.1(e) hereof; (d)
the Certificate of Incorporation, Bylaws, directors and
officers of the Surviving Corporation will be as provided in
the Certificate of Merger; and (e) the Merger will, from and
after the Effective Time, have all of the effects provided
by applicable law, including, without limitation, the
Delaware Law.
1.5 Registration on Form S-4. The KCI Stock to be
issued in the Merger shall be registered under the
Securities Act of 1933, as amended (the "Securities Act"),
on a Form S-4 registration statement promulgated by the SEC
(the "Form S-4"). As promptly as practicable after the date
of this Agreement, KCI and DSO shall prepare and file with
the SEC the Form S-4, together with the prospectus/joint
proxy statement to be included therein (the
"Prospectus/Proxy Statement") and any other documents
required by the Securities Act or the Exchange Act, in
connection with the Merger. Each of KCI and DSO shall use
its best efforts to respond promptly to any comments of the
SEC and to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing
and to cause the Prospectus/Proxy Statement to be mailed to
each company's stockholders at the earliest practicable
time. Each party shall as promptly as practicable furnish
to the other party all information concerning such party and
its stockholders as may be reasonably required in connection
with any action contemplated by this Section 1.5. The
Prospectus/Proxy Statement and Form S-4 shall comply in all
material respects with all applicable requirements of law.
Each of KCI and DSO will notify the other promptly of the
receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for amendments or
supplements to the Form S-4 or the Prospectus/Proxy
Statement or for additional information and will supply the
other with copies of all correspondence with the SEC or its
staff with respect to the Form S-4, the Prospectus/Proxy
Statement or any amendments or supplements thereto.
Whenever any event occurs which should be set forth in an
amendment or supplement to the Form S-4 or the
Prospectus/Proxy Statement, KCI or DSO, as the case may be,
shall promptly inform the other of such occurrence and
cooperate in filing as promptly as practicable with the SEC
or its staff, and/or mailing to stockholders of KCI and DSO,
such amendment or supplement.
2. REPRESENTATIONS AND WARRANTIES OF DSO
Except as set forth in a schedule dated the date of
this Agreement and delivered by DSO to KCI concurrently
herewith (the "DSO Disclosure Schedule") or as disclosed in
the Recent DSO SEC Documents (as defined in Section 2.4),
DSO represents and warrants to KCI as set forth below. In
this Agreement, any reference to any event, change or effect
being "material" with respect to any entity or group of
entities means any material event, change or effect related
to the condition (financial or otherwise), properties,
assets, liabilities, businesses, operations, results of
operations or prospects of such entity or group of entities
taken as a whole. In this Agreement, the term "Material
Adverse Effect" used in connection with a party or any of
such party's subsidiaries means any event, change or effect
that is materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, businesses,
operations, results of operations or prospects of such party
and its subsidiaries, taken as a whole.
2.1 Organization; Good Standing; Qualification and
Power. DSO and each of its subsidiaries, including
corporations, partnerships, trusts or any other type of
entity (the "DSO Subsidiaries") is duly organized, validly
existing and in good standing under the laws of the state of
its incorporation or organization, has all requisite
corporate power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes
such qualification necessary or where the failure to so
qualify would not have a Material Adverse Effect. The DSO
Disclosure Schedule sets forth a complete and correct list
of the DSO Subsidiaries. DSO has made available to KCI or
its counsel complete and correct copies of the Certificates
or Articles of Incorporation and Bylaws of DSO and each of
the DSO Subsidiaries, in each case as amended to the date of
this Agreement.
2.2 Capital Structure.
(a) Stock and Options. The authorized
capital stock of DSO consists of 20,000,000 shares of
DSO Common Stock, and 583,333 shares of DSO Preferred
Stock. At the close of business on June 17, 1996,
4,688,523 shares of DSO Common Stock were issued and
outstanding, 583,333 shares of DSO Preferred Stock were
issued and outstanding, 930,751 shares of DSO Common
Stock were held by DSO in its treasury, and 120,500
shares of DSO Common Stock were reserved for issuance
upon the exercise of the outstanding DSO Options. All
outstanding shares of DSO Stock are validly issued,
fully paid and nonassessable and not subject to
preemptive rights. All outstanding shares of DSO
Common Stock, including treasury shares, and all shares
reserved for issuance have been listed on the New York
Stock Exchange (the "NYSE"). All outstanding shares of
the capital stock of each of the DSO Subsidiaries are
validly issued, fully paid and nonassessable and are
owned by DSO or one of the DSO Subsidiaries free and
clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances . DSO has
made available to KCI, a true and correct copy of its
1992 Stock Plan and the DeSoto Stock Ownership Plus
Plan (collectively, the "DSO Plans"), and a complete
and correct list of each DSO Option outstanding as of
the date hereof, including the name of the holder of
each such DSO Option, the DSO Plan pursuant to which
each such DSO Option was issued, the security and
number of shares covered by each such DSO Option, the
per share exercise price of each such DSO Option and
the vesting schedule applicable to each such DSO
Option.
(b) DEMI. As of the date hereof, the
authorized capital stock of DeSoto Environmental
Management, Inc. ("DEMI") consists of one hundred (100)
shares of Class A Common Stock, one hundred (100)
shares of Class B Common Stock, and one hundred (100)
shares of preferred stock. At the close of business on
June 12, 1996, one (1) share of Class A Common Stock
was held by DSO, one hundred (100) shares of Class B
Common Stock were held by directors and officers of DSO
as set forth on the Disclosure Schedule, and no shares
of preferred stock were outstanding.
(c) Warrants. As of the date hereof warrants
to purchase an aggregate of 1,200,000 shares of DSO
Common Stock (the "DSO Warrants") were outstanding. As
of the date hereof, 1,200,000 shares of DSO Common
Stock were reserved for issuance upon exercise of the
DSO Warrants.
(d) No Other Commitments. Except for the DSO
Options, the DSO Warrants and the Contingent Value
Rights issued in connection with the acquisition of
J.L. Prescott Company, there are no options, warrants,
calls, rights, commitments, conversion rights or
agreements of any character to which DSO or any of the
DSO Subsidiaries is a party or by which DSO or any of
the DSO Subsidiaries is bound, obligating DSO or any of
the DSO Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, any shares of
capital stock of DSO or any of the DSO Subsidiaries or
securities convertible into or exchangeable for shares
of capital stock of DSO or any of the DSO Subsidiaries,
or obligating DSO or any of the DSO Subsidiaries to
grant, extend or enter into any such option, warrant,
call, right, commitment, conversion right or agreement.
Except for the parties affiliated with Sutton Holding
Corp. who have previously filed a Schedule 13-D with
respect to DSO, there are no voting trusts or other
agreements or understandings to which DSO or any DSO
Subsidiary is a party or, as of the date hereof, of
which DSO has knowledge, with respect to the voting of
the capital stock of DSO or any of the DSO
Subsidiaries.
2.3 Authority.
(a) Corporate Action. DSO has the requisite
corporate power and authority to enter into this
Agreement and, subject to approval of this Agreement
and the Merger by the stockholders of DSO, to perform
its obligations hereunder and to consummate the Merger
and the other transactions contemplated by this
Agreement. The execution and delivery of this
Agreement by DSO and, subject to approval of this
Agreement and the Merger by the stockholders of DSO,
the consummation by DSO of the Merger and the other
transactions contemplated hereby have been duly
authorized by all necessary corporate action on the
part of DSO. This Agreement has been duly executed and
delivered by DSO, and this Agreement is a valid and
binding obligation of DSO, enforceable in accordance
with its terms, except that such enforceability may be
subject to (i) bankruptcy, insolvency, reorganization
or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) No Conflict. Subject to approval of this
Agreement and the Merger by the stockholders of DSO,
neither the execution, delivery and performance of this
Agreement or the Certificate of Merger, nor the
consummation of the transactions contemplated hereby or
thereby, nor compliance with the provisions hereof or
thereof will conflict with, or result in any violation
of, or cause a default (with or without notice or lapse
of time, or both) under, or give rise to a right of
termination, amendment, cancellation or acceleration of
any obligation contained in, or the loss of any benefit
under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the
properties or assets of DSO or any of the DSO
Subsidiaries under any term, condition or provision of
(i) the Certificates or Articles of Incorporation or
Bylaws of DSO or any of the DSO Subsidiaries or (ii)
any agreement, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to DSO or any
of the DSO Subsidiaries or their respective properties
or assets, other than any such conflicts, violations,
defaults, losses, liens, security interests, charges,
or encumbrances which, individually or in the
aggregate, would not have a Material Adverse Effect.
(c) Governmental Consents. No consent,
approval or authorization of, or registration,
declaration or filing with, any court, administrative
agency or commission or other governmental authority or
instrumentality, domestic or foreign (each a
"Governmental Entity"), is required to be obtained by
DSO or any of the DSO Subsidiaries in connection with
the execution and delivery of this Agreement or the
Certificate of Merger or the consummation of the
transaction contemplated hereby or thereby except for
(i) the filing with the SEC of (A) the Form S-4, (B)
the Prospectus/Proxy Statement relating to the meeting
of the stockholders of DSO (the "DSO Stockholders
Meeting") to be held with respect to the approval by
DSO's stockholders of this Agreement and the Merger,
and (C) such reports and information under the Exchange
Act and the rules and regulations promulgated by the
SEC thereunder, as may be required in connection with
this Agreement and the transactions contemplated
hereby; (ii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware
and appropriate documents with relevant authorities of
other states in which DSO is qualified to do business;
(iii) such filings, authorizations, orders and
approvals as may be required under state "control share
acquisition," "anti-takeover" or other similar statutes
and regulations (collectively, the "State Anti-Takeover
Laws"); (iv) such filings, authorizations, orders and
approvals as may be required under foreign laws, state
securities laws and the rules of the NYSE; (v) such
filings and notifications as may be necessary under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"); and (vi) such consents,
approvals, etc. the failure of DSO to so obtain would
not prevent or delay the consummation of the Merger or
otherwise prevent DSO from performing its obligations
under this Agreement and would not reasonably be
expected to have a Material Adverse Effect.
2.4 SEC Documents.
(a) SEC Reports. DSO has made available to
KCI or its counsel complete and correct copies of each
report, schedule, registration statement and definitive
proxy statement filed by DSO with the SEC on or after
January 1, 1991 (the "DSO SEC Documents"), which are
all the documents (other than preliminary material)
that DSO was required to file with the SEC on or after
such date. As of their respective dates or, in the
case of registration statements, their effective dates
(and if amended or superseded by a filing prior to the
date of this Agreement, then also on the date of such
filing), none of the DSO SEC Documents (including all
exhibits and schedules thereto and documents
incorporated by reference herein) contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary in order to make the statements therein, in
light of the circumstances under which they were made,
not misleading, and the DSO SEC Documents were timely
filed and complied when filed, in form and content, in
all material respects with the then applicable
requirements of the Securities Act or the Exchange Act,
including the timeliness of the filing as the case may
be, and the rules and regulations promulgated by the
SEC thereunder. DSO has filed all documents and
agreements which were required to be filed as exhibits
to the DSO SEC Documents. For purposes hereof, "Recent
DSO SEC Documents" shall mean the most recent annual
report on Form 10-K of DSO, together with the most
recent quarterly report on Form 10-Q of DSO for any
quarter subsequent to the annual period covered by such
Form 10-K, together with any current reports on Form 8-
K filed by DSO subsequent to such most recent Form 10-
Q.
(b) Financial Statements. The financial
statements of DSO included in the DSO SEC Documents
complied as to form in all material respects with the
then applicable accounting requirements and the
published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent
basis during the periods involved or at the applicable
dates (except as may have been indicated in the notes
thereto or, in the case of the unaudited statements, as
permitted by Form 10-Q promulgated by the SEC) and
fairly present (subject, in the case of the unaudited
statements, to normal, year-end audit adjustments) the
consolidated financial position of DSO and its
consolidated DSO Subsidiaries as at the respective
dates thereof and the consolidated results of their
operations and cash flows for the respective periods
then ended.
2.5 Information Supplied. None of the information
supplied or to be supplied by DSO for inclusion or
incorporation by reference in the Form S-4 and
Prospectus/Proxy Statement will, at the time the Form S-4 is
declared effective, at the date the Prospectus/Proxy
Statement is mailed to the stockholders of DSO and at the
time of the KCI and DSO Stockholders Meetings, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they are made, not misleading. The material to
be supplied by DSO in respect of the Form S-4 and the
Prospectus/Proxy Statement will comply as to form in all
material respects with the provisions of the Securities Act,
Exchange Act, and the rules and regulations promulgated by
the SEC thereunder.
2.6 Compliance with Applicable Law. The businesses
of DSO and the DSO Subsidiaries are not being conducted in
violation of any law, ordinance, regulation, rule or order
of any Governmental Entity where such violation would have a
Material Adverse Effect. Except as disclosed in the Recent
DSO SEC Documents filed prior to the date of this Agreement
or where such notification would not reasonably be expected
to result in a Material Adverse Effect, DSO has not been
notified by any Governmental Entity that any investigation
or review with respect to DSO or any of the DSO Subsidiaries
is pending or threatened, nor has any Governmental Entity
notified DSO of its intention to conduct the same. DSO and
each of the DSO Subsidiaries have all permits, licenses and
franchises from Governmental Entities required to conduct
their businesses as now being conducted, except for those
the absence of which would not have a Material Adverse
Effect.
2.7 Litigation and Legal Matters. There is no suit,
action, arbitration, demand, claim or proceeding pending or
threatened against DSO or any of the DSO Subsidiaries, or
any of their officers, directors, employees or agents
involving, affecting or relating to any assets, operations
or properties of DSO or the DSO Subsidiaries, or any DSO
Employee Plans (as defined in Section 2.8), nor is there any
judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against DSO or
any of the DSO Subsidiaries that, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect. DSO has made available to KCI or its
counsel complete and correct copies of all correspondence
prepared by its counsel for DSO's auditors in connection
with the last five (5) completed audits of DSO's financial
statements and any such correspondence since the date of the
last such audit.
2.8 ERISA and Other Compliance.
(a) DSO has made available to KCI a list of
all employees of DSO and of any DSO Subsidiary, and
their salaries as of the date of this Agreement. DSO
has made available to KCI (i) a copy of each "employee
benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and (ii) a copy of all other written
or formal plans or agreements involving direct or
indirect compensation or benefits (including any
employment agreements entered into by DSO or any of the
DSO Subsidiaries, but excluding workers' compensation,
unemployment compensation and other government-mandated
programs) currently maintained, contributed to or
entered into by DSO or any of the DSO Subsidiaries
under which DSO or any of the DSO Subsidiaries or any
ERISA Affiliate (as defined below) thereof has any
present or future obligation or liability
(collectively, the "DSO Employee Plans"). For purposes
of this Agreement, "ERISA Affiliate" shall mean any
entity which is a member of (A) a "controlled group of
corporations," as defined in Section 414(b) of the
Code, (B) a group of entities under "common control,"
as defined in Section 414(c) of the Code, or (C) an
"affiliated service group," as defined in Section
414(c) of the Code, or treasury regulations promulgated
under Section 414(o) of the Code, any of which includes
DSO or any of the DSO Subsidiaries. Copies of all DSO
Employee Plans (and, if applicable, related trust
agreements) and all amendments thereto and all summary
plan descriptions, other than plans which are multi-
employer plans within the meaning of Title IV of ERISA,
have been made available to KCI or its counsel,
together with the three (3) most recent annual reports
(Forms 5500) prepared in connection with any such DSO
Employee Plan. Each DSO Pension Plan (as defined
below) operates in accordance with the reporting and
disclosure requirements imposed under ERISA and the
Code except for such noncompliance which would not have
a Material Adverse Effect. Copies of all DSO Employee
Plans which individually or collectively would
constitute an "employee pension benefit plan," as
defined in Section 3(2) of ERISA (collectively, the
"DSO Pension Plans"), have been made available to KCI.
Except for funding waivers which have been obtained,
all contributions due from DSO or any of the DSO
Subsidiaries through March 31, 1996 with respect to any
of the DSO Employee Plans have been made as required
under ERISA or have been accrued in accordance with
generally accepted accounting principles on DSO's or
any such DSO Subsidiary's financial statements as of
March 31, 1996. Each DSO Employee Plan has been
maintained since May 19, 1991 in substantial compliance
with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations,
including, without limitation, ERISA and the Code,
which are applicable to such DSO Employee Plans except
for such noncompliance which would not have a Material
Adverse Effect, and all such plans which are DSO
Pension Plans are fully funded on a termination basis.
(b) No DSO Pension Plan constitutes, or has
since May 19, 1991 constituted, a "multiemployer plan,"
as defined in Section 3(37) of ERISA. No DSO Pension
Plans other than the DeSoto Employees' Retirement Plan
which is the result of the merger of the DeSoto Hourly
Employees' Pension Plan and the J.L. Prescott Company
Employees' Retirement Plan into the DeSoto Salaried
Employees' Pension Plan, effective January 1, 1994, all
of which together currently constitute the DeSoto
Employees' Retirement Plan (the "DSO Retirement Plan")
are subject to Title IV of ERISA. To the best of the
knowledge of the officers of DSO, no "prohibited
transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to
any DSO Employee Plan which is covered by Title I of
ERISA which would result in a material liability to DSO
and the DSO Subsidiaries taken as a whole, excluding
transactions effected pursuant to a statutory or
administrative exemption. To the best of the knowledge
of the officers of DSO, nothing done or omitted to be
done and no transaction or holding of any asset under
or in connection with any DSO Employee Plan has or will
make DSO or any officer or director of DSO subject to
any material liability under Title I of ERISA or liable
for any material tax or penalty pursuant to Sections
4972, 4975, 4976 or 4979 of the Code or Section 502 of
ERISA. No DSO Pension Plan is liable for any federal,
state or local taxes other than unrelated business
taxable income as defined in Section 512 of the Code.
(c) To the best of the knowledge of the
officers of DSO, each DSO 401(a) Plan is qualified
under Section 401(a) of the Code and has been so
qualified during the period from May 19, 1991 to date,
and the trust forming a part thereof is exempt from tax
pursuant to Section 501(c) of the Code. Each DSO
401(a) Plan operates in accordance with its terms and,
to DSO's knowledge, there exists no fact which would
adversely affect its qualified status. Except for
pending requests for favorable determination letters on
qualification filed with the Internal Revenue Service
(the "IRS") on March 29, 1995 for the DSO Retirement
Plan and the DeSoto Stock Ownership Plan, no DSO 401(a)
Plan is currently under investigation, audit or review
by the IRS, nor is such action contemplated, and the
IRS has not asserted that any DSO Pension Plan is not
qualified under Section 401(a) of the Code or that any
trust established under a DSO Pension Plan is not
exempt under Section 501(a) of the Code.
(d) With respect to each DSO Pension Plan
which is a defined benefit plan under Section 414(j) of
the Code and each defined contribution plan under
Section 414(i) of the Code:
(i) no liability to the Pension
Benefit Guaranty Corporation (the "PBGC") under
Sections 406 - 4064 of ERISA has been incurred by
DSO or the DSO Subsidiaries since May 19, 1991 and
all premiums due and owing to the PBGC have been
timely paid;
(ii) the PBGC has notified neither
DSO, any of the DSO Subsidiaries nor any DSO
Pension Plan of the commencement of proceedings
under Section 4042 of ERISA to terminate any such
plan;
(iii) since May 19, 1991 no event
has occurred, or to DSO's knowledge is threatened
or is about to occur which would constitute a
reportable event within the meaning of Section
4043(c) of ERISA for which reporting has not been
made;
(iv) no DSO Pension Plan has any
"accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code
for which a waiver has not been obtained); and
(v) no withdrawal liability has
been incurred with respect to any DSO Pension Plan
which is a multi-employer plan.
(e) DSO has made available to KCI a list of
each employment, severance or other similar contract,
arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage
(including any self-insured arrangements), workers'
benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock
purchases, phantom stock, stock appreciation rights or
other forms of incentive compensation or post-
retirement insurance, compensation or benefits for
employees, consultants or directors which (i) is not a
DSO Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by DSO or any of
the DSO Subsidiaries and (iii) covers any employee or
former employee of DSO or any of the DSO Subsidiaries.
Such contracts, plans and arrangements as are described
in this Section 2.8(e) are herein referred to
collectively as the "DSO Benefit Arrangements." To
DSO's knowledge, each DSO Benefit Arrangement has been
maintained since May 19, 1991 in material compliance
with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations
which are applicable to such DSO Benefit Arrangement,
is not currently under investigation, audit or review
by the IRS or any other federal or state agency and no
such actions are contemplated or under consideration,
has no liability for any federal, state, local or
foreign taxes and has no claim subject to dispute or
litigation. DSO has made available to KCI or its
counsel a complete and correct copy or description of
each DSO Benefit Arrangement.
(f) There has been no amendment to, written
interpretation by or announcement (whether or not
written) by DSO or any of the DSO Subsidiaries relating
to, or change in employee participation or coverage
under, any DSO Employee Plan or DSO Benefit Arrangement
that would increase materially the expense of
maintaining such DSO Employee Plan or DSO Benefit
Arrangement above the level of the expense incurred in
respect thereof from the fiscal year ended December 31,
1995.
(g) DSO has provided, or will have provided
prior to the Effective Time, to individuals entitled
thereto all required notices and coverage pursuant to
Section 4980B of the Code and the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended
("COBRA"), with respect to any "qualifying event" (as
defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Effective Time, and, to
DSO's knowledge, no material tax payable on account of
Section 4980B of the Code has been incurred with
respect to any current or former employees (or their
beneficiaries) of DSO or any of the DSO Subsidiaries.
(h) No benefit payable or which may become
payable by DSO or any of the DSO Subsidiaries pursuant
to any DSO Employee Plan or any DSO Benefit Arrangement
or as a result of or arising under this Agreement shall
constitute an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise tax under Section 4999 of the
Code or which would not be deductible by reasons of
Section 280G of the Code.
(i) No DSO Retirement Plan is the subject of
any investigation, audit or inquiry by the United
States Department of Labor or the PBGC and, at the
Effective Time, all items on the Disclosure Schedule
with respect to this Section 2.8(i) shall not be
required to remain on the Disclosure Schedule in order
to make this representation true and correct.
2.9 Labor Matters.
(a) DSO and each of the DSO Subsidiaries has
paid or made provision for the payment of all salaries,
accrued wages and accrued vacation pay in the ordinary
course of business and has complied in all material
respects with all applicable laws, agreements, rules
and regulations relating to the employment of labor,
including those relating to wages, hours, collective
bargaining and the payment and withholding of taxes,
and has withheld and paid to the appropriate
governmental authority, or is holding for payment not
yet due to such authority, all amounts required by law
or agreement to be withheld from the wages or salaries
of its employees.
(b) Neither DSO nor any of the DSO
Subsidiaries is a party to any (i) outstanding
employment agreements or contracts with officers or
employees that are not terminable at will, or that
provide for the payment of any bonus or commission,
(ii) agreement, policy or practice that requires it to
pay termination or severance pay to any employees
(other than as required by law), (iii) collective
bargaining agreement or other labor union contract
applicable to persons employed by DSO or any DSO
Subsidiary, nor, to the knowledge of DSO are there any
activities or proceedings of any labor union to
organize any such employees. DSO and the DSO
Subsidiaries have made available to KCI complete and
correct copies of all such agreements (the "Employment
and Labor Agreements"). Neither DSO nor any of the DSO
Subsidiaries has breached or otherwise failed to comply
with any provisions of any of the Employment and Labor
Agreement, and there are no grievances outstanding
thereunder which would have a Material Adverse Effect.
(c) With respect to DSO and the DSO
Subsidiaries, (i) there is no unfair labor practice,
charge or complaint pending before the National Labor
Relations Board (the "NLRB"), (ii) there is no labor
strike, material slowdown or material work stoppage or
lockout actually pending or threatened against or
affecting DSO or the DSO Subsidiaries, and neither DSO
nor any of the DSO Subsidiaries has experienced any
strike, material slowdown or material work stoppage,
lockout or other collective labor action by or with
respect to employees of DSO or the DSO Subsidiaries,
(iii) there is no representation, claim or petition
pending before the NLRB or a similar agency and no
question concerning representation exists relating to
the employees of DSO or the DSO Subsidiaries, (iv)
there are no charges with respect to or relating to DSO
or DSO Subsidiaries pending before the Equal Employment
Opportunity Commission or any state, local, or foreign
agency responsible for the prevention of unlawful
employment practices, (v) neither DSO nor any of the
DSO Subsidiaries has received formal notice from any
federal, state, local or foreign agency responsible for
the enforcement of labor or employment laws of an
intention to conduct an investigation of DSO or the DSO
Subsidiaries and no such investigation is in progress
and (vi) the consents of the unions that are parties to
any Employment and Labor Agreements are not required to
complete the transactions contemplated by this
Agreement.
(d) Neither DSO nor any of the DSO
Subsidiaries has caused any "plant closing" or "mass
layoff" as such actions are defined in the Worker
Adjustment and Retraining Notification Act, as codified
at 29 U.S.C. Sections 2101-2109, and the regulations
promulgated thereunder, where DSO or the DSO
Subsidiaries have failed to comply with the provisions
of such act.
2.10 Absence of Undisclosed Liabilities. Except as and
to the extent reflected, reserved against or otherwise
disclosed in DSO's consolidated balance sheet (including the
notes thereto) at December 31, 1995 (the "DSO Balance Sheet
Date"), as disclosed in the Recent DSO SEC Documents or
otherwise disclosed pursuant to this Agreement, neither DSO
nor any of the DSO Subsidiaries had, at December 31, 1995,
any liabilities or obligations of any nature (matured or
unmatured, fixed or contingent) which would have a Material
Adverse Effect on DSO. All reserves established by DSO and
set forth in the consolidated balance sheet of DSO
(including the notes thereto) at December 31, 1995 (the "DSO
Balance Sheet") were reasonably adequate as required by
generally accepted accounting principles.
2.11 Absence of Certain Changes or Events. Since the
DSO Balance Sheet Date (and other than in compliance with
Section 4.3) there has not occurred:
(a) any change in the condition (financial or
otherwise), properties, assets, liabilities,
businesses, operations or results of operations of DSO
and the DSO Subsidiaries, that constitutes or could
reasonably be expected to result in a Material Adverse
Effect;
(b) any amendments or changes in the
Certificate of Incorporation or Bylaws of DSO;
(c) any damage, destruction or loss, whether
covered by insurance or not, that constitutes or could
reasonably be expected to result in a Material Adverse
Effect;
(d) any redemption, repurchase or other
acquisition of shares of DSO Stock by DSO, or any
declarations, setting aside or payment of any dividend
or other distribution (whether in cash, stock or
property) with respect to DSO Stock;
(e) any increase in or modification of the
compensation or benefits payable or to become payable
by DSO to any of its directors or employees, except
pursuant to agreements or arrangements existing as of
the DSO Balance Sheet Date;
(f) any increase in or modification of any
bonus, pension, insurance, DSO Employee Plan or DSO
Benefit Arrangement (including, but not limited to, the
granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of
its employees, other than pursuant to agreements or
arrangements existing as of the DSO Balance Sheet Date;
(g) any acquisition or sale of a material
amount of property or assets of DSO, other than in the
ordinary course of business consistent with past
practice;
(h) any alteration in any term of any
outstanding security of DSO;
(i) any (A) incurrence, assumption or
guarantee by DSO of any debt for borrowed money or
other obligation; (B) issuance or sale of any security
convertible into or exchangeable for debt securities of
DSO; or (C) issuance or sale of options or other rights
to acquire from DSO, directly or indirectly, debt
securities of DSO or any securities convertible into or
exchangeable for any such debt securities;
(j) any creation or assumption by DSO of any
mortgage, pledge, security interest, lien or other
encumbrance on any asset, except as would not have a
Material Adverse Effect;
(k) any making of any loan, advance or
capital contribution to or investment in any person (as
defined in Section 2.18) other than (i) travel loans or
advances made in the ordinary course of business of
DSO, (ii) other loans and advances in an aggregate
amount which does not exceed $25,000 outstanding at any
time and (iii) purchases on the open market of liquid,
publicly traded securities;
(l) any entering into or amendment,
relinquishment, termination or non-renewal by DSO of
any contract, lease transaction, commitment or other
right or obligation other than in the ordinary course
of business, except as would not have a Material
Adverse Effect;
(m) any transfer or grant of a right of any
Intellectual Property Rights (as defined in Section
2.15 below) of DSO, other than those transferred or
granted in the ordinary course of business; or
(n) any agreement or arrangement made by DSO
to take any action which, if taken prior to the date
hereof, would have made any representation or warranty
set forth in this Agreement untrue or incorrect as of
the date when made unless otherwise disclosed.
2.12 No Default. Neither DSO nor any of the DSO
Subsidiaries is in default under, and there exists no event,
condition or occurrence which, after notice or lapse of
time, or both, would constitute such a default by DSO or any
of the DSO Subsidiaries under, any contract or agreement to
which DSO or any of the DSO Subsidiaries is a party and
which would, if terminated or modified, have, insofar as can
reasonably be foreseen, a Material Adverse Effect.
2.13 Certain Agreements. Other than the DSO Options,
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee
of DSO or any of the DSO Subsidiaries from DSO or any of the
DSO Subsidiaries, under any DSO Employee Plan, DSO Benefit
Arrangement or otherwise, (ii) increase any benefit
otherwise payable under any DSO Employee Plan, DSO Benefit
Arrangement or otherwise or (iii) result in the acceleration
of the time of payment or vesting of any such benefits.
2.14 Taxes.
(a) DSO and each of the DSO Subsidiaries have
(i) duly and timely filed with the appropriate
governmental authorities all Tax Returns (as defined in
subsection (c) below) required to be filed by it, and
has not filed for an extension to file any Tax Returns
and such Tax Returns are true, complete and correct in
all material respects, and (ii) duly paid in full or
made adequate provision for the payment of all Taxes
(as defined in subsection (b) below) shown to be due on
such Tax Returns. Tax Returns referred to in clause
(i) hereinabove have been examined by the IRS or the
appropriate governmental authority through the returns
for the year ending December 31, 1990 or the period of
assessment of the Taxes in respect of which such Tax
Returns were required to be filed has expired, all
deficiencies asserted or assessments made as a result
of such examination have been paid in full and no
proceeding or examination by or in front of the
relevant governmental authority in connection with the
examination of any of the Tax Returns referred to in
clause (i) hereinabove is currently pending. No claim
has been made in writing to them by any authority in a
jurisdiction where they do not file a Tax Return that
they are or may be subject to Tax in such jurisdiction.
No waivers of statutes of limitations have been given
by or requested in writing to them with respect to any
Taxes. They have not agreed to any extension of time
with respect to any Tax deficiency. The liabilities
and reserves for Taxes reflected in the DSO Balance
Sheet as of March 31, 1996 will be adequate to cover
all Taxes for all periods ending on or prior to such
date, except for the payment of such Taxes which, alone
or in the aggregate, would not have a Material Adverse
Effect on them, and there are no liens for Taxes upon
any property or asset of DSO or DSO Subsidiaries,
except for liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a
notice of deficiency, proposed deficiency or assessment
from the IRS or any other governmental taxing authority
with respect to their Taxes which, if decided
adversely, singly or in the aggregate, would have a
Material Adverse Effect on them. They are not parties
to any agreement providing for the allocation or
sharing of Taxes with any entity. They have not, with
regard to any asset or property held, acquired or to be
acquired by them, filed a consent to the application of
Section 341(f) of the Code. They have withheld and
paid all Taxes required to have been withheld and paid
in connection with amounts paid or owing to any
employee, independent contractor, creditor,
stockholder, or other third party, except for such
taxes which, alone or in the aggregate, would not have
a Material Adverse Effect on them. No Tax is required
to be withheld by them pursuant to Section 1445 of the
Code as a result of the transfer contemplated by this
Agreement. As a result of the Merger, they will not be
obligated to make a payment to any individual that
would be a "parachute payment" to a "disqualified
individual" as those terms are defined in Section 280G
of the Code without regard to whether such payment is
reasonable compensation for personal services performed
or to be performed in the future.
(b) For purposes of this Agreement, the term
"Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation,
income, gross receipts, excise, property, sales,
withholdings, social security, occupation, use,
service, service use, license, payroll, franchise,
transfer and recording taxes, fees and charges, imposed
by the United States or any state, local or foreign
government or subdivision or agency thereof whether
computed on a separate, consolidated, unitary, combined
or any other basis; and such term shall include any
interest, fines, penalties or additional amounts
attributable to or imposed with respect to any such
taxes, charges, fees, levies or other assessments.
(c) For purposes of this Agreement, the term
"Tax Return" shall mean any return, report or other
document or information required to be supplied to a
taxing authority in connection with Taxes.
2.15 Intellectual Property. DSO and the DSO
Subsidiaries own, or have the right to use, sell or license
all material Intellectual Property Rights (as defined below)
necessary or required for the conduct of their respective
businesses as presently conducted and such rights to use,
sell or license are reasonably sufficient for such conduct
of their respective businesses. To DSO's knowledge,
neither DSO nor any DSO Subsidiary is infringing or
otherwise violating Intellectual Property Rights of any
person, which infringement or violation would subject DSO or
any DSO Subsidiary to a liability which, individually or in
the aggregate, would have a Material Adverse Effect. No
claim has been made or, to DSO's knowledge, threatened
against DSO or any DSO Subsidiary alleging any such
violation which will have a Material Adverse Effect. As
used herein, the term "Intellectual Property Rights" shall
mean all worldwide industrial and intellectual property
rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark
applications, copyrights, copyright applications,
franchises, licenses, inventories, know-how, trade secrets,
customer lists, proprietary processes and formulae, all
source and object codes, algorithms, architecture,
structures, display screens, layouts, inventions,
development tools and all documentation and media
constituting, describing or relating to the above,
including, without limitation, manuals, memoranda, and
records.
2.16 Fees and Expenses. Except for Salomon Brothers,
Inc., neither DSO nor any of the DSO Subsidiaries has paid
or become obligated to pay any fee or commission to any
broker, finder or intermediary in connection with the
transactions contemplated by this Agreement.
2.17 Environmental Matters.
(a) DSO and the DSO Subsidiaries have duly
complied with, and the real property, equipment,
businesses, operations and assets of each are in
compliance with, the provisions of the Comprehensive
Environmental Response Compensation and Liability Act
of 1980, the Resource Conservation and Recovery Act of
1976, the Clean Air Act, the Federal Water Pollution
Control Act of 1972, the Toxic Substances Control Act,
the Safe Drinking Water Act, the Pollution Prevention
Act of 1990, the National Environmental Policy Act and
any other law, statute, ordinance or regulation
relating to the protection of the public health and/or
the environment, whether promulgated by the United
States, any state, municipality and/or other
governmental body, each as amended (hereinafter
collectively referred to as "Environmental Laws"),
except where any such failures to comply, when taken in
the aggregate, will not have a Material Adverse Effect.
(b) To the best of the knowledge of DSO, with
respect to DSO and the DSO Subsidiaries, there are no
conditions presently existing which may reasonably be
expected to lead to: (i) responsibilities or liability,
or an assertion thereunder by any governmental entity
or private person, pursuant to any Environmental Law
the subject of which is the management and disposal of
toxic or hazardous substances or wastes (intended
hereby and hereafter to include any and all such
materials listed in any foreign, federal, state or
local law, statute, code or ordinance and all rules and
regulations promulgated thereunder, as hazardous or
potentially hazardous and, if not so listed, asbestos,
lead and petroleum) or (ii) tort claims based on an
action or inaction of DSO or any of the DSO
Subsidiaries relating to the management and disposal of
toxic or hazardous substances or wastes prior to the
Effective Time, except where any such failures to
comply, when taken in the aggregate, will not have a
Material Adverse Effect.
(c) DSO and the DSO Subsidiaries have been
issued, will maintain until the Effective Time and will
cause to remain in effect immediately thereafter, all
required foreign, federal, state and local permits,
licenses, certificates and approvals relating to (i)
air emissions, (ii) discharges to surface water or
ground water, (iii) noise emissions, (iv) solid or
liquid waste disposal, (v) the use, generation,
storage, transportation or disposal of toxic or
hazardous substances or wastes and (vi) any other
environmental, health or safety matters, except where
any such failures to comply, when taken in the
aggregate, will not have a Material Adverse Effect.
(d) DSO and the DSO Subsidiaries have neither
received notice of, nor know of, nor have any reason to
suspect, any fact(s) which might constitute
violation(s) of any Environmental Laws which remain
uncured, except where the failure to cure any such
violation(s), when taken in the aggregate, will not
have a Material Adverse Effect.
(e) To the best of the knowledge of DSO, with
respect to DSO and the DSO Subsidiaries, there has
been, no emission, spill, release or discharge in
violation of Environmental Laws, whether on real
property, adjacent sites or at any other location or
disposal site, into or upon (i) the air, (ii) soils or
improvements, (iii) surface water or ground water, or
(iv) the sewer, septic system or waste treatment,
storage or disposal system servicing real property, of
any toxic or hazardous substances or wastes used,
stored, generated, treated or disposed at or from the
real property (any of which events is hereafter
referred to as a "Hazardous Discharge"), which, when
taken in the aggregate, will have a Material Adverse
Effect. To the best of the knowledge of DSO, there is
not located on the real property used by DSO and the
DSO Subsidiaries toxic or hazardous substances or
wastes in violation of Environmental Laws, which, when
taken in the aggregate, will have a Material Adverse
Effect.
(f) With respect to DSO and the DSO
Subsidiaries, there has been no complaint, order,
directive, claim, citation or notice received from any
governmental authority or any other person or entity
with respect to (i) air emissions, (ii) spills,
releases or discharges to soil or any improvements
located thereon, surface water, ground water or the
sewer, septic system or waste treatment, storage or
disposal systems servicing the real property and the
business conducted thereon, (iii) noise emissions, (iv)
solid or liquid waste disposal, (v) the use,
generation, storage, transportation or disposal of
toxic or hazardous substances or wastes or (vi) other
environmental, health or safety matters affecting DSO
or any DSO Subsidiary, the real property used by DSO
and the DSO Subsidiaries, any improvements located
thereon or the business conducted thereon (any of which
is hereafter referred to as an "Environmental
Complaint") which, when taken in the aggregate, will
result in a Material Adverse Effect.
(g) With respect to DSO and the DSO
Subsidiaries, there has been no lien asserted or
created by any foreign, federal, state or local
authority upon any or all of the assets, equipment,
real property or other facilities of DSO and the DSO
Subsidiaries by reason of a Hazardous Discharge or
Environmental Complaint initiated or occurring prior to
the Effective Time, except any which, when taken in the
aggregate, will not have a Material Adverse Effect.
(h) For the purposes of this Section 2.17,
the term "DSO and DSO Subsidiaries" shall also mean
subsidiaries or other properties previously owned or
operated by DSO or a DSO Subsidiary, either directly or
indirectly, which would create liability for DSO or the
DSO Subsidiary by virtue of their prior ownership.
(i) DSO has made available to KCI all
environmental studies and reports pertaining or
relating in any way to the real property or equipment
owned, occupied or leased by DSO or the DSO
Subsidiaries or otherwise relating or pertaining to the
business, operations or assets of DSO and the DSO
Subsidiaries.
2.18 Interested Party Transactions.
(a) As of the date hereof, neither DSO nor
any of the DSO Subsidiaries is a party to any oral or
written (i) consulting or similar agreement with any
present or former director, officer or employee or any
entity controlled by any such person not terminable on
thirty days' or less notice involving the payment of
more than $100,000 per annum, (ii) agreement with any
executive officer or other key employee, the benefits
of which are contingent or the terms of which are
materially altered, upon the occurrence of a
transaction involving it of the nature contemplated by
this Agreement, (iii) agreement with respect to any
executive officer or other key employee of it providing
any term of employment or compensation guarantee
extending for a period longer than one year or for the
payment in excess of $100,000 per annum, or (iv) except
for the DSO Options, agreement or plan, including any
stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of
which will be calculated on the basis of the
transactions contemplated by this Agreement.
(b) Neither DSO nor any of the DSO
Subsidiaries is indebted for money borrowed, either
directly or indirectly from any of its officers,
directors, or any Affiliate (as defined below) in any
amount whatsoever, nor are any of its officers,
directors, or Affiliates indebted for money borrowed
from it; nor are there any transactions of a continuing
nature between it and any of its officers, directors,
or Affiliates (other than the regular employment of
such persons) which will continue beyond the Effective
Time, including, without limitation, use of its assets
for personal benefit with or without adequate
compensation. For the purpose of this Agreement, the
term "Affiliate" shall mean any person that, directly
or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common
control with, the person specified. As used in the
foregoing definition, the term (i) "control" shall mean
the power through the ownership of voting securities,
contract or otherwise to direct the affairs of another
person and (ii) "person" shall mean an individual,
firm, trust, association, corporation, partnership,
government (whether federal, state, local or other
political subdivision, or any agency or bureau of any
of them) or other entity.
2.19 Contracts.
(a) Neither DSO nor any of the DSO
Subsidiaries is a party to any contracts, agreements,
commitments and other instruments (whether oral or
written), other than current insurance policies, that
(i) involve an expenditure by such party or require the
performance of services or delivery of goods to, by,
through, on behalf of or for the benefit of such party,
which in each case, relates to a contract, commitment
or instrument that requires payments in excess of
$25,000 per year and (ii) involve an obligation for the
performance of services or delivery of goods by such
party that cannot, or in reasonable probability will
not be performed within thirty days from the dates as
of which these representations are made, except for
arrangements for the manufacture or supply of products
and for the purchase or sale of merchandise or services
entered into the ordinary course of business.
(b) All of the material contracts,
agreements, commitments and other instruments that
either DSO or any of the DSO Subsidiaries is a party
to, or by which any of them is bound, are valid and
binding upon such party and the other parties thereto
and are in full force and effect and enforceable in
accordance with their terms, and neither such party nor
any other party to any such contract, agreement,
commitment or other instrument has breached any
provision thereof, and no event has occurred, in each
case, which, with the lapse of time or action by a
third party, could result in a default under the terms
thereof which, alone or in the aggregate, would have a
Material Adverse Effect, and there are no existing
facts or circumstances which would prevent such party's
contracts and agreements for the sale of goods from
maturing in due course into fully collectible accounts
receivable, except where such failure would have a
Material Adverse Effect.
2.20 Title to Properties. DSO and the DSO
Subsidiaries have good and marketable title to all of their
real and other properties and assets, tangible and
intangible, as reflected in the DSO Balance Sheet, except as
since sold or otherwise disposed of in the ordinary course
of business, free and clear of all claims and encumbrances
other than (i) specifically disclosed in the DSO Balance
Sheet, (ii) any liens for taxes not yet due and payable or
being contested, and (iii) such imperfections of title,
covenants, restrictions, easements and encumbrances, if any,
as do not materially detract from the value or materially
interfere with the present use of any of the properties or
otherwise materially impair the business operations or the
financial condition of DSO and the DSO Subsidiaries taken as
a whole.
2.21 Insurance. DSO and the DSO Subsidiaries have
insurance covering casualty, fire, liability, worker's
compensation and disability (the "DSO Policies") providing
coverage and having limitations and deductibles that are
customary for a business of the type operated by them and
sufficient for compliance in all material respects with all
requirements of law and of all agreements to which DSO and
the DSO Subsidiaries are a party, and such DSO Policies will
be in full force and effect for all periods up to and
including the Effective Time, and no notice of cancellation
or termination has been received with respect to any of the
DSO Policies. There are no pending claims under or relating
to any of the DSO Policies, which, individually or in the
aggregate, would have a Material Adverse Effect.
2.22 Board Approval. The Board of Directors of DSO
has, as of the date hereof, unanimously (i) approved this
Agreement and the Merger, (ii) approved the Voting Agreement
between DSO and Contran Corporation, (iii) determined that
the Merger is in the best interests of the stockholders of
DSO and is on terms that are fair to such stockholders and
(iv) resolved to recommend that the stockholders of DSO
approve this Agreement and the Merger.
2.23 Vote Required. Except as required by applicable
law, the affirmative vote of holders of a majority of the
outstanding shares of DSO Stock voting as a single class is
the only vote of the holders of any class or series of DSO's
capital stock necessary to approve this Agreement and the
Merger.
2.24 Disclosure. No representation or warranty made by
DSO in this Agreement, nor any document, written
information, statement, financial statement, certificate or
exhibit prepared and furnished or to be prepared and
furnished by DSO or its representatives pursuant hereto or
in connection with the transactions contemplated hereby,
when taken together, contains any untrue statement of a
material fact, or omits to state a material fact necessary
to make the statements or facts contained herein or therein,
not misleading in light of the circumstances under which
they are furnished.
2.25 Fairness Opinion. DSO's Board of Directors has
received a written opinion from Salomon Brothers, Inc. that
as of the date hereof the Exchange Ratio is fair to DSO's
stockholders from a financial point of view.
2.26 Restrictions on Business Activities. There is no
agreement, judgment, injunction, order or decree binding
upon DSO or any of the DSO Subsidiaries that has or could
reasonably be expected to have the effect of prohibiting or
impairing any business practice of DSO or any of the DSO
Subsidiaries, any acquisition of property by DSO or any of
the DSO Subsidiaries or the conduct of business by DSO or
any of the DSO Subsidiaries as currently conducted, which
would have a Material Adverse Effect.
2.27 DSO Rights Agreement. The Rights Agreement, dated
as of February 20, 1989, between the Company and Harris
Trust & Savings Bank, as amended (the "Rights Agreement"),
shall be amended so as to provide (i) that the execution of
the Merger Agreement and the consummation of the
transactions contemplated thereby shall not cause any of the
rights (as defined in the Rights Agreement) to become
exercisable in accordance with the terms of the Rights
Agreement, and (ii) that the Rights Agreement shall
terminate at the Effective Time.
2.28 Propriety of Past Payments. No funds or assets of
DSO or any of the DSO Subsidiaries have been used for an
illegal purpose, nor have any unrecorded funds or assets of
DSO or the DSO Subsidiaries been established for any
purposes. No accumulation or use of DSO's or the DSO
Subsidiaries' corporate funds or assets has been made
without being properly accounted for in their respective
books and records and all payments by or on behalf of DSO or
the DSO Subsidiaries have been duly and properly recorded
and accounted for in their respective books and records. No
false or artificial entry has been made in the books and
records of DSO or the DSO Subsidiaries for any reason
(except in the case of unaudited financial statements, for
year-end adjustments). No payment has been made by or on
behalf of DSO or the DSO Subsidiaries with the understanding
that any part of such payment is to be used for any purpose
other than that described in the document supporting such
payment, and neither DSO nor any of the DSO Subsidiaries has
made, directly or indirectly, any illegal contributions to
any political party or candidate, either domestic or
foreign. Neither the IRS nor any other federal, state,
local or foreign government agency or entity has initiated
or threatened any investigation of any payment made by DSO
or the DSO Subsidiaries of, or alleged to be of, the type
described in this Section 2.28.
3. REPRESENTATIONS AND WARRANTIES OF KCI
Except as set forth in a schedule dated the date of
this Agreement and delivered by KCI to DSO concurrently
herewith (the "KCI Disclosure Schedule") or as disclosed in
the Recent KCI SEC Documents (as defined in Section 3.4),
KCI represents and warrants to DSO as set forth below.
3.1 Organization; Good Standing; Qualification and
Power. KCI and each of its subsidiaries, including
corporations, partnerships, trusts or any other type of
entity (the "KCI Subsidiaries") is duly organized, validly
existing and in good standing under the laws of the state of
its incorporation or organization, has all requisite
corporate power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes
such qualification necessary or where the failure to so
qualify would not have a Material Adverse Effect. The KCI
Disclosure Schedule sets forth a complete and correct list
of the KCI Subsidiaries. KCI has made available to DSO or
its counsel complete and correct copies of the Certificates
or Articles of Incorporation and Bylaws of KCI and each of
the KCI Subsidiaries, in each case as amended to the date of
this Agreement.
3.2 Capital Structure.
(a) Stock and Options. The authorized
capital stock of KCI consists of 12,000,000 shares of
KCI Common Stock, and 500,000 shares of preferred
stock, no par value. At the close of business on June
17, 1996, 5,688,558 shares of KCI Common Stock were
issued and outstanding, no shares of KCI Preferred
Stock were issued and outstanding, 1,134 shares of KCI
Common Stock were held by KCI in its treasury, and
348,100 shares of KCI Common Stock were reserved for
issuance upon the exercise of outstanding options to
purchase KCI Common Stock (the "KCI Options"). All
outstanding shares of KCI Stock are validly issued,
fully paid and nonassessable and not subject to
preemptive rights. All outstanding shares of the
capital stock of each of the KCI Subsidiaries are
validly issued, fully paid and nonassessable and are
owned by KCI or one of the KCI Subsidiaries free and
clear of any liens, security interests, pledges,
agreements, claims, charges or encumbrances. KCI has
made available to DSO, a true and correct copy of the
Keystone Consolidated Industries, Inc. 1992 Incentive
Compensation Plan and the Keystone Consolidated
Industries, Inc. 1992 Non-Employee Director Stock
Option Plan (collectively, the "KCI Plans"), and a
complete and correct list of each KCI Option
outstanding as of the date hereof, including the name
of the holder of each such KCI Option, the KCI Plan
pursuant to which each such KCI Option was issued, the
security and number of shares covered by each such KCI
Option, the per share exercise price of each such KCI
Option and the vesting schedule applicable to each such
KCI Option.
(b) No Other Commitments. Except for the KCI
Options, there are no options, warrants, calls, rights,
commitments, conversion rights or agreements of any
character to which KCI or any of the KCI Subsidiaries
is a party or by which KCI or any of the KCI
Subsidiaries is bound, obligating KCI or any of the KCI
Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, any shares of capital stock
of KCI or any of the KCI Subsidiaries or securities
convertible into or exchangeable for shares of capital
stock of KCI or any of the KCI Subsidiaries, or
obligating KCI or any of the KCI Subsidiaries to grant,
extend or enter into any such option, warrant, call,
right, commitment, conversion right or agreement.
There are no voting trusts or other agreements or
understandings to which KCI is a party or, as of the
date hereof, of which KCI has knowledge, with respect
to the voting of the capital stock of KCI or any of the
KCI Subsidiaries.
3.3 Authority.
(a) Corporate Action. KCI has the requisite
corporate power and authority to enter into this
Agreement and, subject to approval of this Agreement
and the Merger by the stockholders of KCI, to perform
its obligations hereunder and to consummate the Merger
and the other transactions contemplated by this
Agreement. The execution and delivery of this
Agreement by KCI and, subject to approval of this
Agreement and the Merger by the stockholders of KCI,
the consummation by KCI of the Merger and the other
transactions contemplated hereby have been duly
authorized by all necessary corporate action on the
part of KCI. This Agreement has been duly executed and
delivered by KCI, and this Agreement is a valid and
binding obligation of KCI, enforceable in accordance
with its terms, except that such enforceability may be
subject to (i) bankruptcy, insolvency, reorganization
or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii)
general equitable principles.
(b) No Conflict. Subject to approval of this
Agreement and the Merger by the stockholders of KCI,
neither the execution, delivery and performance of this
Agreement or the Certificate of Merger, nor the
consummation of the transactions contemplated hereby or
thereby, nor compliance with the provisions hereof or
thereof will conflict with, or result in any violation
of, or cause a default (with or without notice or lapse
of time, or both) under, or give rise to a right of
termination, amendment, cancellation or acceleration of
any obligation contained in, or the loss of any
material benefit under, or result in the creation of
any lien, security interest, charge or encumbrance upon
any of the material properties or assets of KCI or any
of the KCI Subsidiaries under any term, condition or
provision of (i) the Certificates or Articles of
Incorporation or Bylaws of KCI or any of the KCI
Subsidiaries or (ii) any material agreement, judgment,
order, decree, statute, law, ordinance, rule or
regulation applicable to KCI or any of the KCI
Subsidiaries or their respective properties or assets,
other than any such conflicts, violations, defaults,
losses, liens, security interests, charges, or
encumbrances which, individually or in the aggregate,
would not have a Material Adverse Effect.
(c) Governmental Consents. No consent,
approval or authorization of, or registration,
declaration or filing with any Governmental Entity is
required to be obtained by KCI or any of the KCI
Subsidiaries in connection with the execution and
delivery of this Agreement or the Certificate of Merger
or the consummation of the transaction contemplated
hereby or thereby except for (i) the filing with the
SEC of (A) the Form S-4 and the declaration of its
effectiveness, (B) the Prospectus/Proxy Statement
relating to the meeting of the stockholders of KCI (the
"KCI Stockholders Meeting") to be held with respect to
the approval by KCI's stockholders of this Agreement
and the Merger, (C) the filing contemplated by Section
1.3(b) hereof, and (D) such reports and information
under the Exchange Act and the rules and regulations
promulgated by the SEC thereunder, as may be required
in connection with this Agreement and the transactions
contemplated hereby; (ii) the filing of the Certificate
of Merger with the Secretary of State of the State of
Delaware and appropriate documents with relevant
authorities of other states in which KCI is qualified
to do business; (iii) such filings, authorizations,
orders and approvals as may be required under the State
Anti-Takeover Laws; (iv) such filings, authorizations,
orders and approvals as may be required under foreign
laws, state securities laws and the rules of the NYSE;
(v) such filings and notifications as may be necessary
under the HSR Act; and (vi) where the failure to obtain
such consents, approvals, etc. would not prevent or
delay the consummation of the Merger or otherwise
prevent KCI from performing its obligations under this
Agreement and would not reasonably be expected to have
a Material Adverse Effect.
3.4 SEC Documents.
(a) SEC Reports. KCI has made available to
DSO or its counsel complete and correct copies of each
report, schedule, registration statement and definitive
proxy statement filed by KCI with the SEC on or after
January 1, 1991 (the "KCI SEC Documents"), which are
all the documents (other than preliminary material)
that KCI was required to file with the SEC on or after
such date. As of their respective dates or, in the
case of registration statements, their effective dates
(or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such
filing), none of the KCI SEC Documents (including all
exhibits and schedules thereto and documents
incorporated by reference herein) contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary in order to make the statements therein, in
light of the circumstances under which they were made,
not misleading, and the KCI SEC Documents complied when
filed in all material respects with the then applicable
requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations
promulgated by the SEC thereunder. KCI has filed all
documents and agreements which were required to be
filed as exhibits to the KCI SEC Documents. For
purposes hereof, "Recent KCI SEC Documents" shall mean
the most recent annual report on Form 10-K of KCI,
together with the most recent quarterly report on Form
10-Q of KCI for any quarter subsequent to the annual
period covered by such Form 10-K, together with any
current reports on Form 8-K filed by KCI subsequent to
such most recent Form 10-Q.
(b) Financial Statements. The financial
statements of KCI included in the KCI SEC Documents
complied as to form in all material respects with the
then applicable accounting requirements and the
published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally
accepted accounting principles applied on a consistent
basis during the periods involved (except as may have
been indicated in the notes thereto or, in the case of
the unaudited statements, as permitted by Form 10-Q
promulgated by the SEC) and fairly present (subject, in
the case of the unaudited statements, to normal, year-
end audit adjustments) the consolidated financial
position of KCI and its consolidated KCI Subsidiaries
as at the respective dates thereof and the consolidated
results of their operations and cash flows for the
respective periods then ended.
3.5 Information Supplied. None of the information
supplied or to be supplied by KCI for inclusion or
incorporation by reference in the Form S-4 and
Prospectus/Proxy Statement will, at the time the Form S-4 is
declared effective, at the date the Prospectus/Proxy
Statement is mailed to the stockholders of KCI and at the
time of the KCI Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under
which they are made, not misleading. The material to be
supplied by KCI in respect of the Prospectus/Proxy Statement
will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations
promulgated by the SEC thereunder.
3.6 Compliance with Applicable Law. The businesses
of KCI and the KCI Subsidiaries are not being conducted in
violation of any law, ordinance, regulation, rule or order
of any Governmental Entity where such violation would have a
Material Adverse Effect. Except as disclosed in the KCI SEC
Documents filed prior to the date of this Agreement or where
such notification would not reasonably be expected to result
in a Material Adverse Effect, KCI has not been notified by
any Governmental Entity that any investigation or review
with respect to KCI or any of the KCI Subsidiaries is
pending or threatened, nor has any Governmental Entity
notified KCI of its intention to conduct the same. KCI and
the KCI Subsidiaries have all material permits, licenses and
franchises from Governmental Entities required to conduct
their businesses as now being conducted, except for those
whose absence would not have a Material Adverse Effect.
3.7 Litigation and Legal Matters. There is no suit,
action, arbitration, demand, claim or proceeding pending or
threatened against KCI or any of the KCI Subsidiaries, or
any of their officers, directors, employees or agents
involving, affecting or relating to any assets, operations
or properties of KCI or the KCI Subsidiaries, or any KCI
Employee Plans (as defined in Section 3.8), nor is there any
judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against KCI or
any of the KCI Subsidiaries that, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect. KCI has made available to DSO or its
counsel complete and correct copies of all correspondence
prepared by its counsel for KCI's auditors in connection
with the last five (5) completed audits of KCI's financial
statements and any such correspondence since the date of the
last such audit.
3.8 ERISA and Other Compliance.
(a) KCI has made available to DSO a list of
all employees of KCI and of any KCI Subsidiary, and
their salaries as of the date of this Agreement. KCI
has made available to DSO (i) a copy of each "employee
benefit plan," as defined in Section 3(3) of ERISA, and
(ii) a copy of all other written or formal plans or
agreements involving direct or indirect compensation or
benefits (including any employment agreements entered
into by KCI or any of the KCI Subsidiaries, but
excluding workers' compensation, unemployment
compensation and other government-mandated programs)
currently maintained, contributed to or entered into by
KCI or any of the KCI Subsidiaries under which KCI or
any of the KCI Subsidiaries or any ERISA Affiliate
thereof has any present or future obligation or
liability (collectively, the "KCI Employee Plans").
Copies of all KCI Employee Plans (and, if applicable,
related trust agreements), all amendments thereto and
all summary plan descriptions, other than plans which
are multiemployer plans within the meaning of Title IV
of ERISA, have been made available to DSO or its
counsel, together with the three (3) most recent annual
reports (Forms 5500) prepared in connection with any
such KCI Employee Plans. Each KCI Pension Plan (as
defined below) operates in accordance with the
reporting and disclosure requirements imposed under
ERISA and the Code except for such noncompliance which
would not have a Material Adverse Effect. Copies of
all KCI Employee Plans which individually or
collectively would constitute an "employee pension
benefit plan," as defined in Section 3(2) of ERISA
(collectively, the "KCI Pension Plans"), have been made
available to DSO. Except for funding waivers which
have been obtained, all contributions due from KCI or
any of the KCI Subsidiaries through March 31, 1996 with
respect to any of the KCI Employee Plans have been made
as required under ERISA or have been accrued in
accordance with generally accepted accounting
principles on KCI's or any such KCI Subsidiary's
financial statements as of March 31, 1996. Each KCI
Employee Plan has been maintained since May 19, 1991 in
substantial compliance with its terms and with the
requirements prescribed by any and all statutes,
orders, rules and regulations, including, without
limitation, ERISA and the Code, which are applicable to
such KCI Employee Plans except for such noncompliance
which would not have a Material Adverse Effect .
(b) No KCI Pension Plan constitutes, or has
since May 19, 1991 constituted, a "multiemployer plan,"
as defined in Section 3(37) of ERISA. No KCI Pension
Plans other than the Keystone-Bartonville Pension Plan,
the Keystone Steel & Wire Company Pension Plan and the
Sherman Wire Pension Plan (collectively, the "KCI
Retirement Plans") are subject to Title IV of ERISA.
No "prohibited transaction," as defined in Section 406
of ERISA or Section 4975 of the Code, has occurred with
respect to any KCI Employee Plan which is covered by
Title I of ERISA which would result in a material
liability to KCI and the KCI Subsidiaries taken as a
whole, excluding transactions effected pursuant to a
statutory or administrative exemption. To the best of
the knowledge of the officers of KCI, nothing done or
omitted to be done and no transaction or holding of any
asset under or in connection with any KCI Employee Plan
has or will make KCI or any officer or director of KCI
subject to any material liability under Title I of
ERISA or liable for any material tax or penalty
pursuant to Sections 4972, 4975, 4976 or 4979 of the
Code or Section 502 of ERISA. No KCI Pension Plan is
liable for any federal, state or local taxes other than
unrelated business taxable income as defined in Section
512 of the Code.
(c) To the best knowledge of the officers of
KCI, each KCI 401(a) Plan is qualified under Section
401(a) of the Code and has been so qualified during the
period from May 19, 1991 to date, and the trust forming
a part thereof is exempt from tax pursuant to Section
501(c) of the Code. Each KCI 401(a) Plan operates in
accordance with its terms and, to KCI's knowledge,
there exists no fact which would adversely affect its
qualified status. No KCI 401(a) Plan is currently
under investigation, audit or review by the IRS, nor is
such action contemplated and the IRS has not asserted
that any KCI Pension Plan is not qualified under
Section 401(a) of the Code or that any trust
established under a KCI Pension Plan is not exempt
under Section 501(a) of the Code.
(d) With respect to each KCI Pension Plan
which is a defined benefit plan under Section 414(j) of
the Code and each defined contribution plan under
Section 414(i) of the Code:
(i) no liability to the PBGC under
Sections 406 - 4064 of ERISA has been incurred by
KCI or the KCI Subsidiaries since May 19, 1991 and
all premiums due and owing to the PBGC have been
timely paid;
(ii) the PBGC has notified neither
KCI, any of the KCI Subsidiaries nor any KCI
Pension Plan of the commencement of proceedings
under Section 4042 of ERISA to terminate any such
plan;
(iii) since May 19, 1991, no event
has occurred, or to KCI's knowledge is threatened
or is about to occur which would constitute a
reportable event within the meaning of Section
4043(c) of ERISA for which reporting has not been
made; and
(iv) no KCI Pension Plan has any
"accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code
for which a waiver has not been obtained).
(e) KCI has made available to DSO a list of
each employment, severance or other similar contract,
arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage
(including any self-insured arrangements), workers'
benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock
purchases, phantom stock, stock appreciation rights or
other forms of incentive compensation or post-
retirement insurance, compensation or benefits for
employees, consultants or directors which (i) is not a
KCI Employee Plan, (ii) is entered into, maintained or
contributed to, as the case may be, by KCI or any of
the KCI Subsidiaries and (iii) covers any employee or
former employee of KCI or any of the KCI Subsidiaries.
Such contracts, plans and arrangements as are described
in this Section 3.8(e) are herein referred to
collectively as the "KCI Benefit Arrangements". To
KCI's knowledge, each KCI Benefit Arrangement has been
maintained since May 19, 1991 in material compliance
with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations
which are applicable to such KCI Benefit Arrangement,
is not currently under investigation, audit or review
by the IRS or any other federal or state agency and no
such actions are contemplated or under consideration,
has no liability for any federal, state, local or
foreign taxes and has no claim subject to dispute or
litigation. KCI has made available to DSO or its
counsel a complete and correct copy or description of
each KCI Benefit Arrangement.
(f) There has been no amendment to, written
interpretation by or announcement (whether or not
written) by KCI or any of the KCI Subsidiaries relating
to, or change in employee participation or coverage
under, any KCI Employee Plan or KCI Benefit Arrangement
that would increase materially the expense of
maintaining such KCI Employee Plan or KCI Benefit
Arrangement above the level of the expense incurred in
respect thereof from the fiscal year ended December 31,
1995.
(g) KCI has provided, or will have provided
prior to the Effective Time, to individuals entitled
thereto all required notices and coverage pursuant to
Section 4980B of the Code and COBRA, with respect to
any "qualifying event" (as defined in Section
4980B(f)(3) of the Code) occurring prior to and
including the Effective Time, and no material tax
payable on account of Section 4980B of the Code has
been incurred with respect to any current or former
employees (or their beneficiaries) of KCI or any of the
KCI Subsidiaries.
(h) No benefit payable or which may become
payable by KCI or any of the KCI Subsidiaries pursuant
to any KCI Employee Plan or any KCI Benefit Arrangement
or as a result of or arising under this Agreement shall
constitute an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise tax under Section 4999 of the
Code or which would not be deductible by reasons of
Section 280G of the Code.
3.9 Labor Matters.
(a) KCI and each of the KCI Subsidiaries has
paid or made provision for the payment of all salaries
and accrued wages in the ordinary course of business
and has complied in all material respects with all
applicable laws, agreements, rules and regulations
relating to the employment of labor, including those
relating to wages, hours, collective bargaining and the
payment and withholding of taxes, and has withheld and
paid to the appropriate governmental authority, or is
holding for payment not yet due to such authority, all
amounts required by law or agreement to be withheld
from the wages or salaries of its employees.
(b) Neither KCI nor any of the KCI
Subsidiaries is a party to any (i) outstanding
employment agreements or contracts with officers or
employees that are not terminable at will, or that
provide for the payment of any bonus or commission,
(ii) agreement, policy or practice that requires it to
pay termination or severance pay to any employees
(other than as required by law), (iii) collective
bargaining agreement or other labor union contract
applicable to persons employed by KCI or any KCI
Subsidiary, nor, to the knowledge of KCI, are there any
activities or proceedings of any labor union to
organize any such employees. KCI and the KCI
Subsidiaries have made available to DSO complete and
correct copies of all such agreements (the "KCI
Employment and Labor Agreements"). Neither KCI nor any
of the KCI Subsidiaries has breached or otherwise
failed to comply with any provisions of any KCI
Employment and Labor Agreement, and there are no
grievances outstanding which will have a Material
Adverse Effect.
(c) With respect to KCI and the KCI
Subsidiaries, (i) there is no unfair labor practice,
charge or complaint pending before the NLRB, (ii) there
is no labor strike, material slowdown or material work
stoppage or lockout actually pending or threatened
against or affecting KCI or the KCI Subsidiaries, and
neither KCI nor any of the KCI Subsidiaries has
experienced any strike, material slowdown or material
work stoppage, lockout or other collective labor action
by or with respect to employees of KCI or the KCI
Subsidiaries, (iii) there is no representation, claim
or petition pending before the NLRB or a similar agency
and no question concerning representation exists
relating to the employees of KCI or the KCI
Subsidiaries, (iv) there are no charges with respect to
or relating to KCI or KCI Subsidiaries pending before
the Equal Employment Opportunity Commission or any
state, local, or foreign agency responsible for the
prevention of unlawful employment practices, (v)
neither KCI nor any of the KCI Subsidiaries has
received formal notice from any federal, state, local
or foreign agency responsible for the enforcement of
labor or employment laws of an intention to conduct an
investigation of KCI or the KCI Subsidiaries and no
such investigation is in progress and (vi) the consents
of the unions that are parties to any Employment and
Labor Agreements are not required to complete the
transactions contemplated by this Agreement.
(d) Neither KCI nor any of the KCI
Subsidiaries has caused any "plant closing" or "mass
layoff" as such actions are defined in the Worker
Adjustment and Retraining Notification Act, as codified
at 29 U.S.C. Sections 2101-2109, and the regulations
promulgated thereunder, where KCI or the KCI
Subsidiaries have failed to comply with the provisions
of such act.
3.10 Absence of Undisclosed Liabilities. Except as and
to the extent reflected, reserved against or otherwise
disclosed in KCI's consolidated balance sheet (including the
notes thereto) at December 31, 1995 (the "KCI Balance Sheet
Date"), as disclosed in the Recent KCI SEC Documents or
otherwise disclosed pursuant to this Agreement, neither KCI
nor any of the KCI Subsidiaries had, at December 31, 1995,
any liabilities or obligations of any nature (matured or
unmatured, fixed or contingent) which would have a Material
Adverse Effect on KCI. All reserves established by KCI and
set forth at the December 31, 1995 consolidated balance
sheet of KCI (including the notes thereto) (the "KCI Balance
Sheet") were reasonably adequate as required by generally
accepted accounting principles.
3.11 Absence of Certain Changes or Events. Since the
KCI Balance Sheet Date (and other than in compliance with
Section 5.3) there has not occurred:
(a) any change in the condition (financial or
otherwise), properties, assets, liabilities,
businesses, operations or results of operations of KCI
and the KCI Subsidiaries, that constitutes or could
reasonably be expected to result in a Material Adverse
Effect;
(b) any amendments or changes in the
Certificate of Incorporation or Bylaws of KCI;
(c) any damage, destruction or loss, whether
covered by insurance or not, that constitutes or could
reasonably be expected to result in a Material Adverse
Effect;
(d) any redemption, repurchase or other
acquisition of shares of KCI Stock by KCI, or any
declarations, setting aside or payment of any dividend
or other distribution (whether in cash, stock or
property) with respect to KCI Stock;
(e) any material increase in or modification
of the compensation or benefits payable or to become
payable by KCI to any of its directors or employees,
except in the ordinary course of business consistent
with past practice or pursuant to agreements or
arrangements existing as of the KCI Balance Sheet Date;
(f) any material increase in or modification
of any bonus, pension, insurance, KCI Employee Plan or
KCI Benefit Arrangement (including, but not limited to,
the granting of stock options, restricted stock awards
or stock appreciation rights) made to, for or with any
of its employees, other than in the ordinary course of
business consistent with past practice or pursuant to
agreements or arrangements existing as of the KCI
Balance Sheet Date;
(g) any acquisition or sale of a material
amount of property or assets of KCI, other than in the
ordinary course of business consistent with past
practice;
(h) any alteration in any term of any
outstanding security of KCI;
(i) any (A) incurrence, assumption or
guarantee by KCI of any debt for borrowed money or
other obligation; (B) issuance or sale of any security
convertible into or exchangeable for debt securities of
KCI; or (C) issuance or sale of options or other rights
to acquire from KCI, directly or indirectly, debt
securities of DSO or any securities convertible into or
exchangeable for any such debt securities;
(j) any creation or assumption by KCI of any
mortgage, pledge, security interest, lien or other
encumbrance on any asset, except as would not have a
Material Adverse Effect;
(k) any making of any loan, advance or
capital contribution to or investment in any person (as
defined in Section 3.18) other than (i) travel loans or
advances made in the ordinary course of business of
KCI, (ii) other loans and advances in an aggregate
amount which does not exceed $25,000 outstanding at any
time and (iii) purchases on the open market of liquid,
publicly traded securities;
(l) any entering into or amendment,
relinquishment, termination or non-renewal by KCI of
any contract, lease transaction, commitment or other
right or obligation other than in the ordinary course
of business, except as would not have a Material
Adverse Effect;
(m) any transfer or grant of a right under
KCI's Intellectual Property Rights, other than those
transferred or granted in the ordinary course of
business; or
(n) any agreement or arrangement made by KCI
to take any action which, if taken prior to the date
hereof, would have made any representation or warranty
set forth in this Agreement untrue or incorrect as of
the date when made unless otherwise disclosed.
3.12 No Default. Neither KCI nor any of the KCI
Subsidiaries is in default under, and there exists no event,
condition or occurrence which, after notice or lapse of
time, or both, would constitute such a default by KCI or any
of the KCI Subsidiaries under, any contract or agreement to
which KCI or any of the KCI Subsidiaries is a party and
which would, if terminated or modified, have, insofar as can
reasonably be foreseen, a Material Adverse Effect.
3.13 Certain Agreements. Neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of KCI
or any of the KCI Subsidiaries from KCI or any of the KCI
Subsidiaries, under any KCI Employee Plan, KCI Benefit
Arrangement or otherwise, (ii) increase any benefit
otherwise payable under any KCI Employee Plan, KCI Benefit
Arrangement or otherwise or (iii) result in the acceleration
of the time of payment or vesting of any such benefits.
3.14 Taxes. KCI and each of the KCI Subsidiaries have
(i) duly and timely filed with the appropriate governmental
authorities all Tax Returns (as defined in Section 2.14(c))
required to be filed by it, and has not filed for an
extension to file any Tax Returns and such Tax Returns are
true, complete and correct in all material respects, and
(ii) duly paid in full or made adequate provision for the
payment of all Taxes (as defined in Section 2.14(b)) shown
to be due on such Tax Returns. Tax Returns referred to in
clause (i) hereinabove have been examined by the IRS or the
appropriate governmental authority through the returns for
the year ending December 31, 1990 or the period of
assessment of the Taxes in respect of which such Tax Returns
were required to be filed has expired, all deficiencies
asserted or assessments made as a result of such examination
have been paid in full and no proceeding or examination by
or in front of the relevant governmental authority in
connection with the examination of any of the Tax Returns
referred to in clause (i) hereinabove is currently pending.
No claim has been made in writing to them by any authority
in a jurisdiction where they do not file a Tax Return that
they are or may be subject to Tax in such jurisdiction. No
waivers of statutes of limitations have been given by or
requested in writing to them with respect to any Taxes.
They have not agreed to any extension of time with respect
to any Tax deficiency. The liabilities and reserves for
Taxes reflected in the KCI Balance Sheet as of March 31,
1996 will be adequate to cover all Taxes for all periods
ending on or prior to such date, except for the payment of
such Taxes which, alone or in the aggregate, would not have
a Material Adverse Effect on them, and there are no liens
for Taxes upon any property or asset of KCI or KCI
Subsidiaries, except for liens for Taxes not yet due. There
are no unresolved issues of law or fact arising out of a
notice of deficiency, proposed deficiency or assessment from
the IRS or any other governmental taxing authority with
respect to their Taxes which, if decided adversely, singly
or in the aggregate, would have a Material Adverse Effect on
them. They are not parties to any agreement providing for
the allocation or sharing of Taxes with any entity. They
have not, with regard to any asset or property held,
acquired or to be acquired by them, filed a consent to the
application of Section 341(f) of the Code. They have
withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or
other third party, except for such taxes which, alone or in
the aggregate, would not have a Material Adverse Effect on
them. No Tax is required to be withheld by them pursuant to
Section 1445 of the Code as a result of the transfer
contemplated by this Agreement. As a result of the Merger,
they will not be obligated to make a payment to any
individual that would be a "parachute payment" to a
"disqualified individual" as those terms are defined in
Section 280G of the Code without regard to whether such
payment is reasonable compensation for personal services
performed or to be performed in the future.
3.15 Intellectual Property. KCI and the KCI
Subsidiaries own, or have the right to use, sell or license
all material Intellectual Property Rights necessary or
required for the conduct of their respective businesses as
presently conducted and such rights to use, sell or license
are reasonably sufficient for such conduct of their
respective businesses. To KCI's knowledge, neither KCI nor
any KCI Subsidiary is infringing or otherwise violating
Intellectual Property Rights of any person, which
infringement or violation would subject KCI or any KCI
Subsidiary to a liability which, individually or in the
aggregate, would have a Material Adverse Effect. No claim
has been made or to KCI's knowledge, threatened against KCI
or any KCI Subsidiary alleging any such violation which will
have a Material Adverse Effect.
3.16 Fees and Expenses. Except for PaineWebber
Incorporated, neither KCI nor any of the KCI Subsidiaries
has paid or become obligated to pay any fee or commission to
any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement.
3.17 Environmental Matters.
(a) KCI and the KCI Subsidiaries have duly
complied with, and the real property, equipment,
businesses, operations and assets of each are in
compliance with, the Environmental Laws, except where
any such failures to comply, when taken in the
aggregate, will not have a Material Adverse Effect.
(b) To the best of the knowledge of KCI, with
respect to KCI and the KCI Subsidiaries, there are no
conditions presently existing which may reasonably be
expected to lead to: (i) responsibilities or liability,
or an assertion thereunder by any governmental entity
or private person, pursuant to any Environmental Law
the subject of which is the management and disposal of
toxic or hazardous substances or wastes (intended
hereby and hereafter to include any and all such
materials listed in any foreign, federal, state or
local law, statute, code or ordinance and all rules and
regulations promulgated thereunder, as hazardous or
potentially hazardous and, if not so listed, asbestos,
lead and petroleum) or (ii) tort claims based on an
action or inaction of KCI or any of the KCI
Subsidiaries relating to the management and disposal of
toxic or hazardous substances or wastes prior to the
Effective Time, except where any such failures to
comply, when taken in the aggregate, will not have a
Material Adverse Effect.
(c) KCI and the KCI Subsidiaries have been
issued, will maintain until the Effective Time and will
cause to remain in effect immediately thereafter, all
required foreign, federal, state and local permits,
licenses, certificates and approvals relating to (i)
air emissions, (ii) discharges to surface water or
ground water, (iii) noise emissions, (iv) solid or
liquid waste disposal, (v) the use, generation,
storage, transportation or disposal of toxic or
hazardous substances or wastes and (vi) any other
environmental, health or safety matters, except where
any such failures to comply, when taken in the
aggregate, will not have a Material Adverse Effect.
(d) KCI and the KCI Subsidiaries have neither
received notice of, nor know of, nor have any reason to
suspect, any fact(s) which might constitute
violation(s) of any Environmental Laws which remain
uncured or where failure to cure any such violations,
when taken in the aggregate, will not have a Material
Adverse Effect.
(e) To the best of the knowledge of KCI, with
respect to KCI and the KCI Subsidiaries, there has been
no Hazardous Discharge which, when taken in the
aggregate, will have a Material Adverse Effect. To
KCI's knowledge, there is not located on the real
property used by KCI and the KCI Subsidiaries toxic or
hazardous substances or wastes in violation of
Environmental Laws, which, when taken in the aggregate,
will have a Material Adverse Effect. To the best of
the knowledge of KCI, there is not located on the real
property used by KCI and the KCI Subsidiaries toxic or
hazardous substances or wastes in violation of
Environmental Laws, which, when taken in the aggregate,
will have a Material Adverse Effect.
(f) With respect to KCI and the KCI
Subsidiaries, there has been no Environmental
Complaints which, when taken in the aggregate, would
result in a Material Adverse Effect.
(g) With respect to KCI and the KCI
Subsidiaries, there has been no lien asserted or
created by any foreign, federal, state or local
authority upon any or all of the assets, equipment,
real property or other facilities of KCI and the KCI
Subsidiaries by reason of a Hazardous Discharge or
Environmental Complaint initiated or occurring prior to
the Effective Time, except any which, when taken in the
aggregate, would not have a Material Adverse Effect.
(h) For the purposes of this Section 3.17,
the term "KCI and KCI Subsidiaries" shall also mean
subsidiaries or other properties previously owned or
operated by KCI or a KCI Subsidiary, either directly or
indirectly, which would create liability for KCI or the
KCI Subsidiary by virtue of their prior ownership.
(i) KCI has made available to DSO all
environmental studies and reports pertaining or
relating in any way to the real property or equipment
owned, occupied or leased by KCI or the KCI
Subsidiaries or otherwise relating or pertaining to the
business, operations or assets of KCI and the KCI
Subsidiaries.
3.18 Interested Party Transactions.
(a) As of the date hereof, neither KCI nor
any of the KCI Subsidiaries is a party to any oral or
written (i) consulting or similar agreement with any
present or former director, officer or employee or any
entity controlled by any such person not terminable on
thirty days' or less notice involving the payment of
more than $100,000 per annum, (ii) agreement with any
executive officer or other key employee, the benefits
of which are contingent or the terms of which are
materially altered, upon the occurrence of a
transaction involving it of the nature contemplated by
this Agreement, (iii) agreement with respect to any
executive officer or other key employee of it providing
any term of employment or compensation guarantee
extending for a period longer than one year or for the
payment in excess of $100,000 per annum, or (iv) except
for the KCI Options, agreement or plan, including any
stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of
which will be calculated on the basis of the
transactions contemplated by this Agreement.
(b) Neither KCI nor any of the KCI
Subsidiaries is indebted for money borrowed, either
directly or indirectly from any of its officers,
directors, or any Affiliate in any amount whatsoever,
nor are any of its officers, directors, or Affiliates
indebted for money borrowed from it; nor are there any
transactions of a continuing nature between it and any
of its officers, directors, or Affiliates (other than
the regular employment of such persons) which will
continue beyond the Effective Time, including, without
limitation, use of its assets for personal benefit with
or without adequate compensation.
3.19 Contracts.
(a) Neither KCI nor any of the KCI
Subsidiaries is a party to any contracts, agreements,
commitments and other instruments (whether oral or
written) that (i) involve an expenditure by such party
or require the performance of services or delivery of
goods to, by, through, on behalf of or for the benefit
of such party, which in each case, relates to a
contract, commitment or instrument that requires
payments in excess of $25,000 per year and (ii) involve
an obligation for the performance of services or
delivery of goods by such party that cannot, or in
reasonable probability will not be performed within
thirty days from the dates as of which these
representations are made, except for arrangements for
the manufacture or supply of products and for the
purchase or sale of merchandise or services entered
into the ordinary course of business.
(b) All of the material contracts,
agreements, commitments and other instruments that
either KCI or any of the KCI Subsidiaries is a party
to, or by which any of them is bound, are valid and
binding upon such party and the other parties thereto
and are in full force and effect and enforceable in
accordance with their terms, and neither such party nor
any other party to any such contract, agreement,
commitment or other instrument has breached any
provision of, and no event has occurred, in each case,
which, with the lapse of time or action by a third
party, could result in a default under the terms
thereof which, alone or in the aggregate, would have a
Material Adverse Effect, and, there are no existing
facts or circumstances which would prevent such party's
contracts and agreements for the sale of goods from
maturing in due course into fully collectible accounts
receivable, except where failure to do so would have a
Material Adverse Effect.
3.20 Title to Properties. KCI and the KCI
Subsidiaries have good title to all of their real and other
properties and assets, tangible and intangible, as reflected
in the KCI Balance Sheet, except as since sold or otherwise
disposed of in the ordinary course of business, free and
clear of all claims and encumbrances other than (i)
specifically disclosed in the KCI Balance Sheet, (ii) any
liens for taxes not yet due and payable or being contested,
and (iii) such imperfections of title, covenants,
restrictions, easements and encumbrances, if any, as do not
materially detract from the value or materially interfere
with the present use of any of the properties or otherwise
materially impair the business operations or the financial
condition of KCI and the KCI Subsidiaries taken as a whole.
3.21 Insurance. KCI and the KCI Subsidiaries have
insurance covering casualty, fire, liability, worker's
compensation and disability (the "KCI Policies") providing
coverage and having limitations and deductibles that are
customary for a business of the type operated by them and
sufficient for compliance in all material respects with all
requirements of law and of all agreements to which KCI and
the KCI Subsidiaries are a party, and such KCI Policies will
be in full force and effect for all periods up to and
including the Effective Time, and no notice of cancellation
or termination has been received with respect to any of the
KCI Policies. There are no pending claims under or relating
to any of the KCI Policies which individually or in the
aggregate, have a Material Adverse Effect.
3.22 Board Approval. The Board of Directors of KCI
has, as of the date hereof, unanimously (i) approved this
Agreement and the Merger, (ii) approved the Voting Agreement
among KCI, Coatings Group, Inc., Anders U. Schroeder, Asgard
Ltd., Parkway M & A Capital Corporation and M&A Investment
Pte Ltd., (iii) determined that the Merger is in the best
interests of the stockholders of KCI and is on terms that
are fair to such stockholders and (iv) resolved to recommend
that the stockholders of KCI approve this Agreement and the
Merger.
3.23 Vote Required. The affirmative vote of holders of
a majority of the outstanding shares of KCI Common Stock is
the only vote of the holders of any class or series of KCI's
capital stock necessary to approve this Agreement and the
Merger.
3.24 Disclosure. No representation or warranty made by
KCI in this Agreement, nor any document, written
information, statement, financial statement, certificate or
exhibit prepared and furnished or to be prepared and
furnished by KCI or its representatives pursuant hereto or
in connection with the transactions contemplated hereby,
when taken together, contains any untrue statement of a
material fact, or omits to state a material fact necessary
to make the statements or facts contained herein or therein,
not misleading in light of the circumstances under which
they are furnished.
3.25 Fairness Opinion. KCI's Board of Directors has
received a written opinion from PaineWebber Incorporated
that as of the date hereof the Exchange Ratio is fair to
KCI's stockholders from a financial point of view.
3.26 Restrictions on Business Activities. There is no
agreement, judgment, injunction, order or decree binding
upon KCI or any of the KCI Subsidiaries that has or could
reasonably be expected to have the effect of prohibiting or
impairing any business practice of KCI or any of the KCI
Subsidiaries, any acquisition of property by KCI or any of
the KCI Subsidiaries or the conduct of business by KCI or
any of the KCI Subsidiaries as currently conducted, which
would have a Material Adverse Effect.
3.27 Propriety of Past Payments. No funds or assets of
KCI or any of the KCI Subsidiaries have been used for an
illegal purpose, nor have any unrecorded funds or assets of
KCI or the KCI Subsidiaries been established for any
purposes. No accumulation or use of KCI's or the KCI
Subsidiaries' corporate funds or assets has been made
without being properly accounted for in their respective
books and records and all payments by or on behalf of KCI or
the KCI Subsidiaries have been duly and properly recorded
and accounted for in their respective books and records. No
false or artificial entry has been made in the books and
records of KCI or the KCI Subsidiaries for any reason
(except in the case of unaudited financial statements, for
year-ended adjustments). No payment has been made by or on
behalf of KCI or the KCI Subsidiaries with the understanding
that any part of such payment is to be used for any purpose
other than that described in the document supporting such
payment, and neither KCI nor any of the KCI Subsidiaries has
made, directly or indirectly, any illegal contributions to
any political party or candidate, either domestic or
foreign. Neither the IRS nor any other federal, state,
local or foreign government agency or entity has initiated
or threatened any investigation of any payment made by KCI
or the KCI Subsidiaries of, or alleged to be of, the type
described in this Section 3.27.
4. DSO COVENANTS
4.1 Advice of Changes. During the period from the
date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement in accordance with
its terms, DSO will as soon as possible advise KCI in
writing (a) of any event occurring subsequent to the date of
this Agreement that would render any representation or
warranty of DSO contained in this Agreement, if made on or
as of the date of such event or the Effective Time, untrue
or inaccurate in any material respect, (b) of any event or
occurrence resulting in or which may reasonably be expected
to result in, a Material Adverse Effect on DSO or (c) of any
breach by DSO of any covenant or agreement contained in this
Agreement. To ensure compliance with this Section 4.1, DSO
shall deliver to KCI as soon as reasonably practicable after
the end of each monthly accounting period ending after the
date of this Agreement and before the earlier of the
Effective Time or the termination of this Agreement in
accordance with its terms, an unaudited consolidated balance
sheet, statement of operations and statement of cash flows
for DSO, which financial statements shall be prepared in the
ordinary course of business, in accordance with DSO's books
and records and generally accepted accounting principles and
shall fairly present the consolidated financial position of
DSO as of their respective dates and the results of DSO's
operations for the periods then ended.
4.2 Maintenance of Business. During the period from
the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in
accordance with its terms, DSO will use its diligent
commercial efforts to carry on and preserve its business and
its relationships with customers, suppliers, employees and
others in substantially the same manner as it has prior to
the date hereof. If DSO becomes aware of any material
deterioration in the relationship with any material
customer, material supplier or key employee, it will
promptly bring such information to the attention of KCI.
4.3 Conduct of Business. Except as may be necessary
to consummate the transactions contemplated hereby, during
the period from the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement
in accordance with its terms, DSO will continue to conduct
its business and maintain its business relationships in the
ordinary and usual course and neither DSO nor any DSO
Subsidiary will, without the prior written consent of KCI:
(a) borrow any money except for amounts that
are not in the aggregate material to the financial
condition of DSO and the DSO Subsidiaries, taken as a
whole;
(b) enter into any material transaction not
in the ordinary course of its business;
(c) encumber or permit to be encumbered any
of its assets except in the ordinary course of its
business or with respect to liens which are not
material or relate to unpaid taxes;
(d) dispose of any of its assets except in
the ordinary course of business;
(e) enter into any material lease or contract
for the purchase or sale or license of any property,
real or personal, except in the ordinary course of
business;
(f) fail to maintain its equipment and other
assets in good working condition and repair, and in all
material respects, in accordance with the standards it
has maintained to the date of this Agreement, subject
only to ordinary wear and tear;
(g) pay (or make any oral or written
commitments or representations to pay) any bonus,
increased salary or special remuneration to any
officer, employee or consultant (except for normal
salary increases consistent with past practices, not to
exceed ten percent (10%) per year pursuant to existing
arrangements previously disclosed to KCI on the DSO
Disclosure Schedule) or enter into or vary the terms of
any employment, consulting or severance agreement with
any such person, pay any severance or termination pay
(other than payments made in accordance with plans or
agreements existing on the date hereof), grant any
stock option (except for normal grants to newly hired
or current employees consistent with past practices and
annual grants of options granted to non-employee
directors required by the terms of the DSO 1992 Stock
Plan) or issue any restricted stock, or enter into or
modify any agreement or plan or increase benefits of
the type described in Section 2.8; provided that DSO
shall be entitled to pay annual bonuses and to make
changes to compensation (i) in the ordinary course of
business consistent with past practices or (ii) with
prior written notice to KCI in the event that such
changes are required, in the good faith judgment of DSO
and after consultation with KCI, to retain its key
employees following the Effective Time;
(h) change accounting methods;
(i) declare, set aside or pay any cash or
stock dividend or other distribution in respect of
capital stock, or redeem or otherwise acquire any of
its capital stock (other than pursuant to arrangements
with terminated employees or consultants in the
ordinary course of business consistent with past
practice);
(j) amend or terminate any contract,
agreement or license to which it is a party except
those amended or terminated in the ordinary course of
its business, consistent with past practice, and which
are not material in amount or effect;
(k) lend any amount to any person or entity,
other than (i) advances for travel and expenses which
are incurred in the ordinary course of business
consistent with past practice, not material in amount
and documented by receipts for the claimed amounts, or
(ii) any loans pursuant to any DSO Section 401(a) Plan;
(l) guarantee or act as a surety for any
obligation except for obligations in amounts that are
not material;
(m) issue or sell any shares of its capital
stock of any class (except upon the exercise of a bona
fide option or warrant currently outstanding or
permitted to be granted under Section 4.3(g)), or any
other of its securities, or issue or create any
warrants, obligations, subscriptions, options (except
as expressly permitted under Section 4.3(g)),
convertible securities or other commitments to issue
shares of capital stock, or accelerate the vesting of
any outstanding option or other security;
(n) split or combine the outstanding shares
of its capital stock of any class or enter into any
recapitalization or agreement affecting the number of
rights of outstanding shares of its capital stock of
any class or affecting any other of its securities;
(o) merge, consolidate or reorganize with, or
acquire any entity (other than such transaction that
would not be material and that would not impair or
affect the timing of the Merger) or adopt a plan of
liquidation or dissolution;
(p) amend its Certificate of Incorporation or
Bylaws;
(q) license any DSO Intellectual Property
Rights except in the ordinary course of business;
(r) agree to any audit assessment by any tax
authority;
(s) change any insurance coverage,
voluntarily allow any insurance coverage to lapse, or
issue any certificates of insurance; or
(t) agree to do, or permit any DSO Subsidiary
to do or agree to do, or enter into negotiations with
respect to any of the things described in the preceding
clauses in this Section 4.3.
4.4 Stockholder Approval. Without regard to the
recommendation contemplated by this Section 4.4, DSO will
call the DSO Stockholders Meeting to be held as soon as
possible after the Form S-4 shall have been declared
effective by the SEC to submit this Agreement, the Merger
and related matters for the consideration and approval of
the DSO stockholders. Such approval will be recommended by
DSO's Board of Directors subject to the fiduciary
obligations of its directors. Such meeting will be called,
held and conducted, and any proxies will be solicited, in
compliance with applicable securities laws.
4.5 Prospectus/Proxy Statement. DSO will mail to its
stockholders in a timely manner at least twenty (20)
business days prior to the meeting, for the purpose of
considering and voting upon the Merger at the DSO
Stockholders Meeting, the Prospectus/Proxy Statement in the
Form S-4. DSO will as soon as possible provide all
information relating to DSO, its business or operations
necessary for inclusion in the Prospectus/Proxy Statement to
satisfy all requirements of applicable state and federal
securities laws. DSO shall be solely responsible for any
statement, information or omission in the Prospectus/Proxy
Statement relating to it or its Affiliates based upon
written information furnished by it. DSO will not provide
or publish to its stockholders any material concerning it or
its Affiliates that violates the Securities Act or the
Exchange Act with respect to the transactions contemplated
hereby.
4.6 Regulatory Approvals. DSO will promptly execute
and file or join in the execution and filing of, any
application or other document that may be necessary in order
to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which
may be reasonably required, or which KCI may reasonably
request, in connection with the consummation of the
transactions contemplated by this Agreement. DSO will use
its best efforts to obtain promptly all such authorizations,
approvals and consents. Without limiting the generality of
the foregoing, as promptly as practicable after the
execution of this Agreement, DSO shall file with the Federal
Trade Commission (the "FTC") and the Antitrust Division of
the Department of Justice (the "DOJ"), a pre-merger
notification report under the HSR Act.
4.7 Necessary Consents. During the term of this
Agreement, DSO will use its best efforts to obtain such
written consents and take such other actions as may be
necessary or appropriate in addition to those set forth in
Section 4.6 to allow the consummation of the transactions
contemplated hereby and to allow the Surviving Corporation
to carry on DSO's business after the Effective Time.
4.8 Access to Information. DSO will allow KCI and its
agents reasonable access to the files, books, records and
offices of DSO and each DSO Subsidiary, including, without
limitation, any and all information relating to DSO's taxes,
commitments, contracts, leases, licenses and real, personal
and intangible property and financial condition. DSO will
cause its accountants to cooperate with KCI and its agents
in making available to KCI all financial information
reasonably requested, including, without limitation, the
right to examine all working papers pertaining to all tax
returns and financial statements prepared or audited by such
accountants.
4.9 Satisfaction of Conditions Precedent. During the
term of this Agreement, DSO will use its best efforts to
satisfy or cause to be satisfied all the conditions
precedent that are set forth in Article 8, and DSO will use
its best efforts to cause the Merger and the other
transactions contemplated by this Agreement to be
consummated.
4.10 No Other Negotiations. From and after the date of
this Agreement until the earlier of the Effective Time or
the termination of this Agreement in accordance with its
terms, DSO and the DSO Subsidiaries shall not, and shall
direct and use its best efforts to cause its officers,
directors and agents not to (a) solicit, engage in
discussions or negotiate with any person (whether such
discussions or negotiations are initiated by DSO or
otherwise) or take any other action intended or designed to
facilitate the efforts of any person, other than KCI,
relating to a possible Alternative Acquisition (as defined
below), (b) provide information with respect to DSO or any
of the DSO Subsidiaries to any person, other than KCI,
relating to a possible Alternative Acquisition by any
person, other than KCI, (c) enter into an agreement with any
person, other than KCI, providing for a possible Alternative
Acquisition or (d) except as contemplated by this Section
4.10 or as required by applicable law (including the
exercise of the fiduciary duties of the DSO Board of
Directors), make or authorize any statement, recommendation
or solicitation in support of any possible Alternative
Acquisition by any person, other than by KCI.
Notwithstanding the foregoing, the restrictions set
forth in this Agreement shall not prevent the Board of
Directors of DSO (or its agents pursuant to its
instructions) from taking the following actions: (a)
furnishing information concerning DSO and its business,
properties and assets to any third party and (b) entering
into discussions with such third party concerning an
Alternative Acquisition, provided that all of the following
events shall have occurred: (i) such third party has made a
written proposal to the Board of Directors of DSO to
consummate an Alternative Acquisition which proposal
identifies a price or range of values to be paid for the
outstanding securities or substantially all of the assets of
DSO, and if consummated, based on the advice of DSO's
investment bankers, the Board of Directors of DSO has
determined such Alternative Acquisition to be financially
more favorable to the stockholders of DSO than the terms of
the Merger (a "Superior Proposal"); (ii) DSO's Board of
Directors has determined, based on the advice of its
investment bankers, that such third party is financially
capable of consummating such Superior Proposal; (iii) the
Board of Directors of DSO shall have determined, after
consultation with its outside legal counsel, that the
fiduciary duties of the Board of Directors require DSO to
furnish information to and negotiate with such third party;
and (iv) at least two (2) business days prior thereto, KCI
shall have been notified in writing of such Superior
Proposal, including all of its terms and conditions, and
shall have been given copies of such proposal and KCI shall
have been notified of the determinations made by the DSO
Board of Directors pursuant to clauses (i), (ii) and (iii)
of this paragraph. Notwithstanding the foregoing, DSO shall
not provide any non-public information to such third party
unless (A) it provides such information to KCI
simultaneously or as promptly as practicable thereafter and
(B) DSO has notified KCI in advance of any such proposed
disclosure of non-public information to any such third
party, with a description of the information proposed to be
disclosed.
In addition to the foregoing, DSO shall not accept or
enter into any agreement concerning an Alternative
Acquisition for a period of not less than forty-eight (48)
hours after KCI's receipt of a copy of such proposal of an
Alternative Acquisition. Upon compliance with the
foregoing, DSO shall be entitled to enter into an agreement
with such third-party concerning an Alternative Acquisition
provided that DSO shall immediately make or cause to be made
payment in full to KCI of the Breakup Fee as defined in
Section 9.4 below.
If DSO or any of the DSO Subsidiaries receives any
unsolicited offer, inquiry or proposal to enter into
discussions or negotiations relating to an Alternative
Acquisition, DSO shall immediately notify KCI thereof,
including information as to the identity of the party making
any such offer, inquiry or proposal and the specific terms
of such offer, inquiry or proposal, as the case may be.
DSO shall be entitled to provide copies of this Section
4.10 to third parties who, on an entirely unsolicited basis
after the date hereof, contact DSO concerning an Alternative
Acquisition; provided that KCI shall concurrently be
notified of such contact and the delivery of such copy.
For purposes of this Agreement, "Alternative
Acquisition" shall mean any of the following (other than
transactions between KCI and DSO contemplated hereby): (i)
any merger, consolidation, share exchange, business
combination, or other similar transaction involving DSO or
the DSO Subsidiaries; (ii) any sale, exchange, transfer or
other disposition of 20% or more of the assets of DSO or the
DSO Subsidiaries, taken as a whole, in a single transaction
or series of related transactions, (iii) any sale of or
tender offer or exchange offer for 20% or more of the
outstanding shares of capital stock of DSO or the filing of
a registration statement under the Securities Act in
connection therewith; (iv) any person acquiring beneficial
ownership or the right to acquire beneficial ownership of,
or any "group" (as such term is defined under Section 13(d)
of the Exchange Act and the rules and regulations
promulgated thereunder) having been formed for the purpose
of effecting an Alternative Acquisition which beneficially
owns, or has the right to acquire beneficial ownership of,
20% or more of the then outstanding shares of capital stock
of DSO; or (v) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to
engage in any of the foregoing with respect to DSO or the
DSO Subsidiaries.
5. KCI COVENANTS
5.1 Advice of Changes. During the period from the
date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement in accordance with
its terms, KCI will as soon as possible advise DSO in
writing (a) of any event occurring subsequent to the date of
this Agreement that would render any representation or
warranty of KCI contained in this Agreement, if made on or
as of the date of such event or the Effective Time, untrue
or inaccurate in any material respect, (b) of any Material
Adverse Effect on KCI or (c) of any breach by KCI of any
covenant or agreement contained in this Agreement. To
ensure compliance with this Section 5.1, KCI shall deliver
to DSO as soon as reasonably practicable after the end of
each monthly accounting period ending after the date of this
Agreement and before the earlier of the Effective Time or
the termination of this Agreement in accordance with its
terms, an unaudited consolidated balance sheet, statement of
operations and statement of cash flows for KCI, which
financial statements shall be prepared in the ordinary
course of business, in accordance with KCI's books and
records and generally accepted accounting principles and
shall fairly present the consolidated financial position of
KCI as of their respective dates and the results of KCI's
operations for the periods then ended.
5.2 Maintenance of Business. During the period from
the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in
accordance with its terms, KCI will use its diligent
commercial efforts to carry on and preserve its business and
its relationships with customers, suppliers, employees and
others in substantially the same manner as it has prior to
the date hereof. If KCI becomes aware of any material
deterioration in the relationship with any material
customer, material supplier or key employee, it will
promptly bring such information to the attention of DSO.
5.3 Conduct of Business. Except as may be necessary
to consummate the transactions contemplated hereby, during
the period from the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement
in accordance with its terms, KCI will continue to conduct
its business and maintain its business relationships in the
ordinary and usual course and neither KCI nor any KCI
Subsidiary will, without the prior written consent of DSO:
(a) borrow any money except for amounts that
are not in the aggregate material to the financial
condition of KCI and the KCI Subsidiaries, taken as a
whole;
(b) enter into any material transaction not
in the ordinary course of its business;
(c) encumber or permit to be encumbered any
of its assets except in the ordinary course of its
business or with respect to liens which are not
material or relate to unpaid taxes;
(d) dispose of any of its assets except in
the ordinary course of business;
(e) enter into any material lease or contract
for the purchase or sale or license of any property,
real or personal, except in the ordinary course of
business;
(f) fail to maintain its equipment and other
assets in good working condition and repair, and
accordingly, in all material respects, to the standards
it has maintained to the date of this Agreement,
subject only to ordinary wear and tear;
(g) pay (or make any oral or written
commitments or representations to pay) any bonus,
increased salary or special remuneration to any
officer, employee or consultant (except for normal
salary increases consistent with past practices and not
to exceed ten percent (10%) per year pursuant to
existing arrangements previously disclosed to DSO on
the KCI Disclosure Schedule) or enter into or vary the
terms of any employment, consulting or severance
agreement with any such person, pay any severance or
termination pay (other than payments made in accordance
with plans or agreements existing on the date hereof),
grant any stock option (except for normal grants to
newly hired or current employees consistent with past
practices and grants of options granted to non-employee
directors required by the terms of the KCI 1992
Incentive Compensation Plan) or issue any restricted
stock, or enter into or modify any agreement or plan or
increase benefits of the type described in Section 3.8;
provided that KCI shall be entitled to pay annual
bonuses and to make changes to compensation (i) in the
ordinary course of business consistent with past
practices or (ii) with prior written notice to DSO in
the event that such changes are required, in the good
faith judgment of KCI and after consultation with DSO,
to retain its key employees following the Effective
Time;
(h) change accounting methods;
(i) declare, set aside or pay any cash or
stock dividend or other distribution in respect of
capital stock, or redeem or otherwise acquire any of
its capital stock (other than pursuant to arrangements
with terminated employees or consultants in the
ordinary course of business consistent with past
practice);
(j) amend or terminate any contract,
agreement or license to which it is a party except
those amended or terminated in the ordinary course of
its business, consistent with past practice, and which
are not material in amount or effect;
(k) lend any amount to any person or entity,
other than (i) advances for travel and expenses which
are incurred in the ordinary course of business
consistent with past practice, not material in amount
and documented by receipts for the claimed amounts, or
(ii) any loans pursuant to any KCI Section 401(a) Plan;
(l) guarantee or act as a surety for any
obligation except for obligations in amounts that are
not material;
(m) issue or sell any shares of its capital
stock of any class (except upon the exercise of a bona
fide option or warrant currently outstanding or
permitted to be granted under Section 5.3(g)), or any
other of its securities, or issue or create any
warrants, obligations, subscriptions, options (except
as expressly permitted under Section 5.3(g)),
convertible securities or other commitments to issue
shares of capital stock, or accelerate the vesting of
any outstanding option or other security;
(n) split or combine the outstanding shares
of its capital stock of any class or enter into any
recapitalization or agreement affecting the number of
rights of outstanding shares of its capital stock of
any class or affecting any other of its securities;
(o) merge, consolidate or reorganize with, or
acquire any entity (other than such transaction that
would not be material and that would not impair or
affect the timing of the Merger) or adopt a plan of
liquidation or dissolution;
(p) amend its Certificate of Incorporation or
Bylaws;
(q) license any KCI Intellectual Property
Rights except in the ordinary course of business;
(r) agree to any audit assessment by any tax
authority;
(s) change any insurance coverage,
voluntarily allow any insurance coverage to lapse, or
issue any certificates of insurance; or
(t) agree to do, or permit any KCI Subsidiary
to do or agree to do, or enter into negotiations with
respect to any of the things described in the preceding
clauses in this Section 5.3.
5.4 Stockholder Approval. Without regard to the
recommendation contemplated by this Section 5.4, KCI will
call the KCI Stockholders Meeting to be held as soon as
possible after the Form S-4 shall have been declared
effective by the SEC to submit this Agreement, the Merger
and related matters for the consideration and approval of
the KCI stockholders. Such approval will be recommended by
KCI's Board of Directors subject to the fiduciary
obligations of its directors. Such meeting will be called,
held and conducted, and any proxies will be solicited, in
compliance with applicable securities laws.
5.5 Prospectus/Proxy Statement. KCI will mail to its
stockholders in a timely manner at least twenty (20)
business days prior to the meeting, for the purpose of
considering and voting upon the Merger at the KCI
Stockholders Meeting, the Prospectus/Proxy Statement in the
Form S-4. KCI will as promptly as soon as possible provide
all information relating to KCI, its business or operations
necessary for inclusion in the Prospectus/Proxy Statement to
satisfy all requirements of applicable state and federal
securities laws. KCI shall be solely responsible for any
statement, information or omission in the Prospectus/Proxy
Statement relating to it or its Affiliates based upon
written information furnished by it. KCI will not provide
or publish to its stockholders any material concerning it or
its Affiliates that violates the Securities Act or the
Exchange Act with respect to the transactions contemplated
hereby.
5.6 Regulatory Approvals. KCI will promptly execute
and file or join in the execution and filing, of any
application or other document that may be necessary in order
to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which
may be reasonably required, or which DSO may reasonably
request, in connection with the consummation of the
transactions contemplated by this Agreement. KCI will use
its best efforts to promptly obtain all such authorizations,
approvals and consents. Without limiting the generality of
the foregoing, as promptly as practicable after the
execution of this Agreement, KCI shall file with the FTC and
the Antitrust Division of the DOJ a pre-merger notification
report under the HSR Act.
5.7 Necessary Consents. During the term of this
Agreement, KCI will use its best efforts to obtain such
written consents and take such other actions as may be
necessary or appropriate in addition to those set forth in
Section 5.6 to allow the consummation of the transactions
contemplated hereby and to allow the Surviving Corporation
to carry on KCI's business after the Effective Time.
5.8 Access to Information. KCI will allow DSO and its
agents reasonable access to the files, books, records and
offices of KCI and each KCI Subsidiary, including, without
limitation, any and all information relating to KCI's taxes,
commitments, contracts, leases, licenses and real, personal
and intangible property and financial condition. KCI will
cause its accountants to cooperate with DSO and its agents
in making available to DSO all financial information
reasonably requested, including, without limitation, the
right to examine all working papers pertaining to all tax
returns and financial statements prepared or audited by such
accountants.
5.9 Satisfaction of Conditions Precedent. During the
term of this Agreement, KCI will use its best efforts to
satisfy or cause to be satisfied all the conditions
precedent that are set forth in Article 7, and KCI will use
its best efforts to cause the Merger and the other
transactions contemplated by this Agreement to be
consummated.
5.10 Listing. KCI will use its best efforts to cause
as promptly as reasonably practicable the shares of KCI
Common Stock to be issued pursuant to the Merger to be
listed upon the Effective Time with the NYSE, subject to
official notice of issuance.
5.11 Nomination of Directors. The Board of Directors
of KCI shall take all necessary action to increase the KCI
Board of Directors to nine members as of the Effective Time
and to cause the two persons named by DSO at the Effective
Time to be appointed to the Board of Directors of KCI with
one DSO designee to be appointed to the class of directors
serving until the KCI Annual Meeting of Shareholders in 1999
and the other in the class serving until the KCI Annual
Meeting in 1997, at which KCI agrees to use its best efforts
to renominate such person to serve until the KCI Annual
Meeting in 2000.
5.12 Executive Committee. The Board of Directors of
KCI shall take all necessary steps as of the Effective Time,
to create an Executive Committee of the Board of Directors
with three members, and to cause one director, named by DSO
at the Effective Time, to be appointed to such committee.
5.13 Director and Officer Indemnification. From and
after the Effective Time, KCI shall indemnify, defend and
hold harmless the current officers and directors of DSO and
DSO Subsidiaries against all losses, claims, damages and
liability in respect of acts or omissions occurring at or
prior to the Effective Time to the fullest extent that DSO
or such DSO Subsidiary would have been permitted under
applicable law and the Certificates or Articles of
Incorporation and Bylaws of DSO or DSO Subsidiary in effect
on the date hereof to indemnify such person. For at least
six years after the Effective Time, KCI shall cause the
Surviving Corporation to keep in effect provisions in its
Certificate or Article of Incorporation and Bylaws providing
for limitation of director and officer liability and
indemnification of such persons to the fullest extent. KCI
shall reimburse all expenses including reasonable attorney's
fees, incurred by any person to enforce successfully the
obligations of KCI under this Section. The provisions of
this Section 5.13 shall survive consummation of the Merger
and are expressly intended to benefit current directors and
officers of DSO. After the Effective Time, KCI shall cause
the Surviving Corporation to purchase insurance covering the
directors and officers of DSO for claims made within one
year after the Effective Time against such directors and
officers relating to claims arising prior to the Effective
Time. KCI shall not be obligated to pay more than $150,000
for such insurance. From and after the Effective Time, KCI
shall purchase insurance covering the directors and officers
of KCI, with coverage limits comparable to such insurance
carried by DSO prior to the Effective Time, if in the sole
discretion of KCI, such insurance may be purchased at prices
comparable to that paid by DSO.
5.14 DSO Trade Debt. KCI shall cause the Surviving
Corporation to provide for the approximately $9,922,017
(plus interest accruing after July 1, 1996) owing as of the
date hereof by DeSoto to its trade creditors pursuant to the
Trade Composition Agreement and related Security Agreement
(the "Trade Debt"), in the following amounts: (i) eighty
percent (80%) of the Trade Debt as promptly as reasonably
practicable after the Effective Time, and (ii) twenty
percent (20%) of the Trade Debt no later than one (1) year
after the Effective Time.
6. CLOSING MATTERS
6.1 The Closing. Subject to the termination of this
Agreement as provided in Article 9 below, the Closing of the
transactions contemplated by this Agreement (the "Closing")
will take place at the offices of Godwin & Carlton, P.C.,
901 Main Street, Suite 2500, Dallas, Texas 75202 on a date
(the "Closing Date") and at a time to be mutually agreed
upon by the parties, which date shall be no later than the
third business day after all conditions to Closing set forth
herein shall have been satisfied or waived, unless another
place, time and date is mutually selected by DSO and KCI.
Concurrently with the Closing, the Certificate of Merger
will be filed in the office of Secretary of State of the
State of Delaware. As soon as practicable thereafter, the
Certificate of Merger will be recorded in the Office of
Recorder of the Delaware county or counties in which the
parties to the Certificate of Merger maintain their
respective registered offices.
6.2 Exchange of Certificates.
(a) Exchange Agent. Prior to the Closing
Date, KCI shall select a bank or trust company
reasonably acceptable to DSO to act as exchange agent
(the "Exchange Agent") in the Merger. Promptly after
the Effective Time, KCI shall deposit with the Exchange
Agent, for the benefit of the holders of shares of DSO
Common Stock, for exchange in accordance with this
Agreement and the Certificate of Merger, certificates
representing the shares of KCI Common Stock (such
shares of KCI Common Stock, together with any dividends
or distributions with respect thereto pursuant to
Section 6.2(c), being hereinafter referred to as the
"Exchange Fund") issuable pursuant to this Agreement
and the Certificate of Merger in exchange for
outstanding shares of DSO Common Stock. The Exchange
Agent shall not be entitled to vote or exercise any
right of ownership with respect to the KCI Common Stock
held by it from time to time hereunder.
(b) Exchange Procedures. As soon as
practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to
the Effective Time represented issued and outstanding
shares of DSO Common Stock (collectively, the
"Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, upon
delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as
DSO and KCI may reasonably specify) and (ii)
instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing
KCI Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with a
duly executed letter of transmittal and such other
documents as may be reasonably required by the Exchange
Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate
representing the number of whole shares of KCI Common
Stock which such holder has the right to receive
pursuant to the provisions of this Agreement and the
Certificate of Merger, and the Certificate so
surrendered shall forthwith be cancelled. In the event
of a transfer of ownership of shares of DSO Common
Stock which is not registered on the transfer records
of DSO, a certificate representing the proper number of
shares of KCI Common Stock may be issued to a
transferee if the Certificate representing such KCI
Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and
effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 6.2 and the
Certificate of Merger, each Certificate shall be
deemed, on and after the Effective Time, to represent
only the right to receive upon such surrender the
certificate representing shares of KCI Common Stock and
cash in lieu of any fractional shares of KCI Common
Stock as contemplated by Section 1.2, the Certificate
of Merger and the Delaware Law.
(c) Distributions with Respect to
Unsurrendered Certificates. No dividends or other
distributions declared or made after the Effective Time
with respect to KCI Common Stock with a record date
after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the
shares of KCI Common Stock represented thereby and no
cash payment in lieu of fractional shares shall be paid
to any such holder pursuant to Section 1.2 or the
Certificate of Merger until a new certificate for KCI
Common Stock is issued in exchange for such
Certificate. Subject to the effect of applicable laws,
after the issuance of a certificate for KCI Common
Stock in exchange for a Certificate, there shall be
paid to the record holder of such new certificate
representing whole shares of KCI Common Stock issued in
exchange therefor, without interest, (i) at the time of
such issuance, the amount of any cash payable in lieu
of a fractional share of KCI Common Stock to which such
holder is entitled pursuant to Section 1.2 and the
Certificate of Merger and the amount of dividends or
other distributions with a record date after the
Effective Time theretofore paid with respect to such
whole shares of KCI Common Stock and (ii) at the
appropriate payment date, the amount of dividends or
other distributions with a record date after the
Effective Time but prior to surrender and a payment
date subsequent to surrender payable with respect to
such whole shares of KCI Common Stock.
(d) No Further Ownership Rights to DSO Stock.
All shares of KCI Stock issued upon the surrender for
exchange of shares of DSO Stock in accordance with the
terms of this Agreement and the Certificate of Merger
(including any cash paid pursuant to Section 1.2) shall
be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of DSO Stock, and
after the Effective Time there shall be no further
registration of any transfer on the stock transfer
books of the Surviving Corporation of the shares of DSO
Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time,
Certificates are presented to KCI for any reason, they
shall be cancelled and exchanged as provided in this
Section 6.2 and the Certificate of Merger.
(e) Termination of Exchange Fund. Any
portion of the Exchange Fund which remains
undistributed to the former stockholders of DSO for six
(6) months after the Effective Time shall be delivered
to KCI, upon demand, and any former stockholders of DSO
who have not theretofore complied with this Section 6.2
and the Certificate of Merger shall thereafter look
only to KCI for payment of their claim for KCI Stock,
any cash in lieu of fractional shares of KCI Stock and
any dividends or distributions with respect to KCI
Stock.
(f) No Liability. Neither the Exchange
Agent, KCI nor DSO shall be liable to any holder of
shares of DSO Stock or KCI Stock, as the case may be,
for Exchange Funds or stock delivered to a public
official pursuant to any applicable abandoned property,
escheat or similar law.
6.3 Assumption of Options. Promptly after the
Effective Time, KCI will notify in writing each holder of a
KCI Converted Option of the assumption of such option by
KCI, the number of shares of KCI Common Stock that are then
subject to such option, and the exercise price of such
option, as determined pursuant to this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF DSO
The obligations of DSO hereunder are subject to the
fulfillment or satisfaction on or before the Closing Date,
of each of the following conditions (any one or more of
which may be waived by DSO, but only in a writing signed by
DSO):
7.1 Accuracy of Representations and Warranties. The
representations and warranties of KCI set forth in Article 3
(as qualified by the KCI Disclosure Schedule and the Recent
KCI SEC Documents) shall be true and accurate in every
respect on and as of the Closing Date with the same force
and effect as if they had been made at the Closing except to
the extent the failure of such representations and
warranties to be true and accurate in such respects has not
had and could not reasonably be expected to have a Material
Adverse Effect, and DSO shall receive a certificate to such
effect executed by KCI's Chief Financial Officer.
7.2 Covenants. KCI shall have performed and complied
in all material respects with all of its covenants required
to be performed by it under this Agreement on or before the
Closing, and DSO shall receive a certificate to such effect
signed by KCI's Chief Financial Officer.
7.3 Absence of Material Adverse Change. From the date
of this Agreement through the Effective Time, there shall
not have been any material adverse change in the condition
(financial or otherwise), properties, assets, liabilities,
businesses, operations or results of operations of KCI and
the KCI Subsidiaries, taken as a whole (a "KCI Material
Adverse Change").
7.4 Compliance with Law. There shall be no order,
decree or ruling by any governmental agency or written
threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the
Merger, which would prohibit or render illegal the
transactions contemplated by this Agreement.
7.5 Government Consents. There shall have been
obtained on or before the Closing such material permits or
authorizations, and there shall have been taken such other
action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties
and the actions herein proposed to be taken, including but
not limited to requirements under applicable federal and
state securities laws and the compliance with, and
expiration of any applicable waiting period under, the HSR
Act.
7.6 The Form S-4. The Form S-4 shall have become
effective under the Securities Act and shall not be the
subject of any stop-order or proceedings seeking a stop-
order and the Prospectus/Proxy Statement shall on the
Closing not be subject to any proceedings commenced or
threatened by the SEC.
7.7 Documents. DSO shall have received all written
consents, assignments, waivers, authorizations or other
certificates reasonably deemed necessary by DSO's legal
counsel to provide for the continuation in full force and
effect of any and all material contracts and leases of KCI
and for KCI to consummate the transactions contemplated
hereby except when the failure to receive such consents,
assignments, waivers, authorizations or certificates would
not constitute a KCI Material Adverse Change.
7.8 Stockholder Approval. This Agreement and the
Merger shall have been approved and adopted by the DSO
stockholders in accordance with the rules of the NYSE,
applicable law and DSO's Certificate of Incorporation and
Bylaws.
7.9 KCI Approval. This Agreement, the Merger and the
issuance of KCI Common Stock in connection with the Merger
shall have been approved by the KCI stockholders in
accordance with the rules of the NYSE, applicable law and
KCI's Certificate of Incorporation and Bylaws.
7.10 No Legal Action. No temporary restraining order,
preliminary injunction or permanent injunction or other
order preventing the consummation of the Merger shall have
been issued by any federal or state court and remain in
effect, nor shall any proceeding initiated by the U.S.
Government seeking any of the foregoing be pending.
7.11 Election of DSO Designees to Board of Directors of
KCI. The Board of Directors of KCI shall have taken
appropriate action to cause the number of directors
comprising the full Board of Directors of KCI at the
Effective Time to be increased from seven to nine persons,
and the two persons named by DSO at the Effective Time shall
be added as additional Directors effective upon the
Effective Time.
7.12 Tax Opinions. DSO shall have received two
opinions of Fried, Frank, Harris, Shriver & Jacobson (or
such other counsel selected by DSO) in form and substance
reasonably satisfactory to it, based, in each case, upon
representation letters dated on or about the dates of such
opinions from persons reasonably requested to provide such
letters and such other facts and representations as counsel
may reasonably deem relevant, to the effect that the Merger
will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section
368 of the Code, the first of which shall be dated on or
about the date that is two business days prior to the date
of the Joint Proxy Statement/Prospectus and the second of
which shall be dated as of the Effective Time.
7.13 Legal Opinion. DSO shall have received from
counsel to KCI an opinion reasonably acceptable to DSO.
7.14 Listing. The shares of KCI Common Stock to be
issued in the Merger and upon exercise of the Warrants shall
have been approved for listing on the NYSE, subject to
official notice of issuance.
7.15 PBGC. Prior to the Effective Time (i) KCI shall
have discussed with the PBGC the merger of the DSO
Retirement Plans and the KCI Retirement Plans, and the
assets thereof, and (ii) the PBGC will have raised KCI's
borrowing restrictions to an amount reasonably expected to
enable KCI to perform its obligations under this Agreement.
7.16 Financing. KCI shall have available reasonably
sufficient sources of financing in order to effect the
Merger and to satisfy its obligations and those of the
Surviving Corporation.
7.17 Fairness Opinion. DSO shall have received an
opinion of Salomon Brothers, Inc. confirming, as of one
business day before the Effective Time, that the Exchange
Ratio is fair to the holders of DSO Common Stock from a
financial point of view.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF KCI
The obligations of KCI hereunder are subject to the
fulfillment or satisfaction on or before the Closing, of
each of the following conditions (any one or more of which
may be waived by KCI, but only in a writing signed by KCI):
8.1 Accuracy of Representations and Warranties. The
representations and warranties of DSO set forth in Article 2
(as qualified by the DSO Disclosure Schedule and the Recent
DSO SEC Documents) shall be true and accurate in every
respect on and as of the Closing Date with the same force
and effect as if they had been made at the Closing except to
the extent the failure of such representations and
warranties to be true and accurate in such respects had not
had and could not reasonably be expected to have a Material
Adverse Effect (except that any breach of this Section 8.1
shall be deemed to have a Material Adverse Effect with
respect to any untruth or inaccuracy contained in Section
2.8(i)), and KCI shall receive a certificate to such effect
executed by DSO's Chief Financial Officer.
8.2 Covenants. DSO shall have performed and complied
in all material respects with all of its covenants required
to be performed by it under this Agreement on or before the
Closing, and KCI shall receive a certificate to such effect
signed by DSO's Chief Financial Officer.
8.3 Absence of Material Adverse Change. From the date
of this Agreement through the Effective Time, there shall
not have been any material adverse change in the condition
(financial or otherwise), properties, assets, liabilities,
businesses, operations or results of operations of DSO and
DSO Subsidiaries, taken as a whole (a "DSO Material Adverse
Change").
8.4 Compliance with Law. There shall be no order,
decree or ruling by any governmental agency or written
threat thereof, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the
Merger, which would prohibit or render illegal the
transactions contemplated by this Agreement.
8.5 Government Consents. There shall have been
obtained on or before the Closing such material permits or
authorizations, and there shall have been taken such other
action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties
and the actions herein proposed to be taken, including but
not limited to requirements under applicable federal and
state securities laws and the compliance with, and
expiration of any applicable waiting period under, the HSR
Act.
8.6 Form S-4. The Form S-4 shall have become
effective under the Securities Act and shall not be the
subject of any stop-order or proceedings seeking a stop-
order and the Prospectus/Proxy Statement shall on the
Closing not be subject to any proceedings commenced or
threatened by the SEC.
8.7 Documents. KCI shall have received all written
consents, assignments, waivers, authorizations or other
certificates reasonably deemed necessary by KCI's legal
counsel to provide for the continuation in full force and
effect of any and all material contracts and leases of DSO
and for DSO to consummate the transactions contemplated
hereby except when the failure to receive such consents,
assignments, waivers, authorizations, or certificates would
not constitute a DSO Material Adverse Change.
8.8 Stockholder Approval. This Agreement, the Merger
and the issuance of KCI Common Stock in connection with the
Merger shall have been approved by the KCI stockholders in
accordance with the rules of the NYSE, applicable law and
KCI's Certificate of Incorporation and Bylaws.
8.9 DSO Approval. This Agreement and the Merger shall
have been approved and adopted by the DSO stockholders in
accordance with the rules of the NYSE, applicable law and
DSO's Certificate of Incorporation and Bylaws.
8.10 No Legal Action. No temporary restraining order,
preliminary injunction or permanent injunction or other
order preventing the consummation of the Merger shall have
been issued by any federal or state court and remain in
effect, nor shall any proceeding initiated by the U.S.
Government seeking any of the foregoing be pending.
8.11 Tax Opinions. KCI shall have received two
opinions of Godwin & Carlton, P.C. (or such other counsel
selected by KCI) in form and substance reasonably
satisfactory to it, based, in each case, upon representation
letters dated on or about the dates of such opinions from
persons reasonably requested to provide such letters and
such other facts and representations as counsel may
reasonably deem relevant, to the effect that the Merger will
be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section
368 of the Code, the first of which shall be dated on or
about the date that is two business days prior to the date
of the Joint Proxy Statement/Prospectus and the second of
which shall be dated as of the Effective Time.
8.12 Legal Opinion. KCI shall have received from
counsel to DSO, an opinion reasonably acceptable to KCI.
8.13 Agreement of Warrantholders. The Warrant
Conversion Agreement of even date herewith between each
holder of DSO Warrants and KCI shall be in full force and
effect and the holders of the DSO Warrants shall have
complied with all of their obligations under such Warrant
Conversion Agreement.
8.14 Financing. KCI shall have available reasonably
sufficient sources of financing in order to effect the
Merger and to satisfy its obligations and those of the
Surviving Corporation.
8.15 Amendment of DSO Retirement Plan. DSO shall have
amended the DSO Retirement Plan effective immediately prior
to the Effective Time to the reasonable satisfaction of KCI,
in order to remove all restrictions in the DSO Retirement
Plan, other than those required by ERISA, regarding (a)
reductions or changes in benefit formulas thereunder, (b)
the merger of the DSO Retirement Plan into another plan or
the merger of another plan into the DSO Retirement Plan, (c)
the reversion of plan assets thereof, and (d) the allocation
of plan assets upon plan termination, including without
limitation, any such restrictions in Section 10.3(e),
Section 10.4 or Section 11.4 of the DSO Retirement Plan.
8.16 No Pending Termination. The DSO Retirement Plan
shall not have been terminated.
8.17 PBGC. Prior to the Effective Time (i) KCI shall
have discussed with the PBGC the merger of the DSO
Retirement Plans and the KCI Retirement Plans, and the
assets thereof, and (ii) the PBGC will have raised KCI's
borrowing restrictions to an amount reasonably expected to
enable KCI to perform its obligations under this Agreement.
8.18 Approval of Change of Control. Prior to the
Effective Time, DSO and its Board of Directors shall make
the approval and nomination described in Section 10.4 of the
DSO Retirement Plan.
8.19 Preferred Stockholders Consents. The Preferred
Stockholder Waiver and Consent Agreement of even date
herewith between KCI and the holders of the DSO Preferred
Stock shall be in full force and effect and the holders of
the DSO Preferred Stock shall have complied with all of
their obligations under such Preferred Stockholder Waiver
and Consent Agreement.
8.20 Prescott Obligation. DSO's payment obligation in
respect of its purchase of J.L. Prescott Company shall be
resolved on terms satisfactory to KCI in its sole
discretion.
8.21 Fairness Opinion. KCI shall have received an
opinion of PaineWebber Incorporated confirming, as of one
business day before the Effective Time, that the Exchange
Ratio is fair to the holders of KCI Common Stock from a
financial point of view.
8.22 Lender Consent. KCI shall have received a consent
of its secured lender to the transactions contemplated by
this Agreement.
8.23 Trade Creditor Agreement. DSO's trade creditors
shall have consented to the terms of repayment contemplated
by Section 5.14 hereof.
8.24 Merger of Pension Plans. All regulatory action
shall have been taken in order to effect, and no impediments
shall exist to prohibit, the merger of the DSO Pension Plans
and the KCI Pension Plans, in a manner satisfactory to KCI,
at the Effective Time.
9. TERMINATION OF AGREEMENT; BREAK UP FEES
9.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time, whether before or
after approval of the Merger by the stockholders of KCI or
DSO:
(a) by mutual agreement of DSO and KCI;
(b) by DSO, if (i) there has been a breach by
KCI of any representation, warranty, covenant or
agreement set forth in this Agreement on the part of
KCI, or if any representation or warranty of KCI shall
have become untrue, in either case which has or can
reasonably be expected to have a Material Adverse
Effect and which KCI fails to cure prior to the Closing
(except that no cure period shall be provided for a
breach by KCI which by its nature cannot be cured),(ii)
DSO shall have received a Superior Proposal and DSO's
Board of Directors believes, after consultation with
legal counsel, that its fiduciary duties require
termination of this Agreement, or (iii) KCI shall not
have received a non-binding commitment letter from a
lending institution with respect to the matters
contemplated by Sections 7.16 and 8.14 hereof, before
the Form S-4 shall be declared effective by the SEC.
(c) by KCI, if (i) there has been a breach by
DSO of any representation, warranty, covenant or
agreement set forth in this Agreement on the part of
DSO, or if any representation or warranty of DSO shall
have become untrue, in either case which has or can
reasonably be expected to have a Material Adverse
Effect and which DSO fails to cure prior to the Closing
(except that no cure period shall be provided for a
breach by DSO which by its nature cannot be cured) or
(ii) DSO shall have entered into an agreement with
respect to an Alternative Acquisition;
(d) by either party if the required approvals
of the stockholders of DSO or KCI shall not have been
obtained by reason of the failure to obtain the
required vote;
(e) by either party, if all the conditions to
its obligations for Closing the Merger shall not have
been satisfied or waived on or before the Final Date
(as defined below) other than as a result of a breach
of this Agreement by the terminating party; or
(f) by either party, if a permanent
injunction or other order by any federal or state court
which would make illegal or otherwise restrain or
prohibit the consummation of the Merger shall have been
issued and shall have become final and nonappealable.
As used herein, the "Final Date" shall be December 31,
1996.
9.2 Notice of Termination. Any termination of this
Agreement under Section 9.1 above will be effective by the
delivery of written notice pursuant to Section 11.9 of the
terminating party to the other party hereto.
9.3 Effect of Termination. In the case of any
termination of this Agreement as provided in this Article 9,
this Agreement shall be of no further force and effect
(except as provided in Section 9.4 and Article 11) and
nothing herein shall relieve any party from liability for
any breach of this Agreement. No termination of this
Agreement shall affect the obligations contained in the pre-
existing confidentiality agreements between DSO and KCI (the
"Confidentiality Agreements") which will survive termination
of this Agreement in accordance with their terms.
9.4 Breakup Fee.
(a) Upon the occurrence of any of the
following events, DSO shall immediately make payment or
cause payment to be made to KCI (by wire transfer or
cashier's check) of a breakup fee in the amount of
$1,000,000 (the "Breakup Fee"): (i) this Agreement is
terminated by KCI pursuant to Section 9.1(c)(ii); (ii)
the Merger shall be submitted to a vote of the DSO
stockholders as required hereunder, and the
stockholders of DSO shall have failed to approve the
Merger by a requisite vote required for such approval
where at the time of such vote there is pending a
proposal with respect to an Alternative Acquisition;
(iii) without the occurrence of a KCI Material Adverse
Change, the Board of Directors of DSO shall have failed
to submit the Merger to its stockholders for approval
as required by, and in accordance with, the terms of
this Agreement; or (iv) DSO shall have terminated this
Agreement pursuant to Section 9.1(b)(ii).
Notwithstanding the foregoing, the fee payable under
this Section 9.4(a) shall not be payable if, prior to
the above-referenced occurrence, there shall be an
event giving rise to KCI's payment obligation under
Section 9.4(b).
(b) If without the occurrence of a DSO
Material Adverse Change, the Board of Directors of KCI
shall fail to submit the Merger to its stockholders for
approval as required by, and in accordance with, the
terms of this Agreement, KCI shall immediately make
payment or cause payment to be made to DSO (by wire
transfer or cashier's check) the Breakup Fee.
Notwithstanding the foregoing, the fee payable under
this Section 9.4(b) shall not be payable if, prior to
the above-referenced occurrence, there shall be an
event giving rise to DSO's payment obligation under
Section 9.4(a).
(c) Neither party shall be entitled to
receive the Breakup Fee hereunder if it shall have
committed a material breach of this Agreement.
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and covenants of the
parties contained in this Agreement will remain operative
and in full force and effect, regardless of any
investigation made by or on behalf of the parties to this
Agreement, until the earlier of the termination of this
Agreement or the Closing Date, whereupon such
representations, warranties and covenants will expire
(except for covenants that by their terms survive for a
longer period).
11. MISCELLANEOUS.
11.1 Governing Law. The internal laws of the State of
Delaware (irrespective of its choice of law principles) will
govern the validity of this Agreement, the construction of
its terms and the interpretation and enforcement of the
rights and duties of the parties hereto.
11.2 Assignment; Binding Upon Successors and Assigns.
Neither party hereto may assign any of its rights or
obligations hereunder without the prior written consent of
the other party hereto. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11.3 Severability. If any provision of this Agreement,
or the application thereof, will for any reason and to any
extent be invalid or unenforceable, the remainder of this
Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to
effect the intent of the parties hereto. The parties
further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable
provision that will achieve, to the greatest extent
possible, the economic, business and other purposes of the
void or unenforceable provisions.
11.4 Counterparts. This Agreement may be executed in
any number of counterparts, each of which will be an
original as regards any party whose signature appears
thereon and all of which together will constitute one and
the same instrument. This Agreement will become binding
when one or more counterparts hereof, individually or taken
together, will bear the signatures of all the parties
reflected hereon as signatories.
11.5 Other Remedies. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon
a party will be deemed cumulative with and not exclusive of
any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the
exercise of any other.
11.6 Amendment and Waivers. Any term or provision of
this Agreement may be amended only in a writing signed by
the party to be bound thereby. The observance of any term
of this Agreement may be waived (either generally or in a
particular instance and either retroactively or
prospectively) only by a writing signed by the party to be
benefitted thereby. The waiver by a party of any breach
hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any
succeeding breach or default. The Agreement may be amended
by the parties hereto at any time before or after approval
of the DSO stockholders or the KCI stockholders, but, after
such approval, no amendment will be made which by applicable
law requires the further approval of the DSO stockholders or
the KCI stockholders without obtaining such further
approval.
11.7 Expenses. Each party will bear its respective
expenses and legal fees incurred with respect to this
Agreement, and the transactions contemplated hereby.
11.8 Attorney's Fees. Should suit be brought to
enforce or interpret any part of this Agreement, the
prevailing party will be entitled to recover, as an element
of the costs of suit and not as damages, reasonable
attorney's fees to be fixed by the court (including without
limitation, costs, expenses and fees on any appeal).
11.9 Notices. All notices and other communications
pursuant to this Agreement shall be in writing and deemed to
be sufficient if contained in a written instrument and shall
be deemed given if delivered personally, telecopied, sent by
nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested),
postage prepaid, to the parties at the following addresses
(or at such other address for a party as shall be specified
by like notice):
If to DSO to: DeSoto, Inc.
2101 E. 52nd St., 11th Floor
New York, NY 10022
Attention: William Spier
Telecopier: (212) 644-0499
With a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Peter Golden
Telecopier: (212) 859-8586
And if to KCI: Keystone Consolidated Industries, Inc.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1740
Dallas, Texas 75240
Attention: Glenn R. Simmons
Telecopier: (214) 458-8108
With a copy to: Godwin & Carlton, P.C.
901 Main Street, Suite 2500
Dallas, Texas 75202
Attention: James G. Vetter, Jr.
Telecopier: (214) 760-7332
All such notices and other communications shall be
deemed to have been received (a) in the case of personal
delivery, on the date of such delivery, (b) in the case of a
telecopy, when the party sending such copy shall have
confirmed receipt of the communication, (c) in the case of
delivery by nationally-recognized overnight courier, on the
business day following dispatch, and (d) in the case of
mailing, on the third business day following such mailing.
11.10 Construction of Agreement. This Agreement
has been negotiated by the respective parties hereto and
their attorneys and the language hereof will not be
construed for or against either party. A reference to a
Section or an Exhibit will mean a Section in, or Exhibit to,
this Agreement unless otherwise explicitly set forth. The
titles and headings herein are for convenience purposes only
and will not in any manner limit the construction of this
Agreement which will be considered as a whole.
11.11 No Joint Venture. Nothing contained in this
Agreement will be deemed or construed as creating a joint
venture or partnership between any of the parties hereto.
No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party.
No party will have the power to control the activities and
operations of any other. The status of the parties hereto
is, and at all times, will continue to be, that of
independent contractors with respect to each other. No
party will have any power or authority to bind or commit any
other. No party will hold itself out as having any
authority or relationship in contravention of this Section.
11.12 Further Assurances. Each party agrees to
cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give
such further written assurances as may be reasonably
requested by any other party to evidence and reflect the
transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this
Agreement.
11.13 Absence of Third Party Beneficiary Rights.
No provisions of this Agreement are intended, nor will be
interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any
client, customer, affiliate, stockholder, partner or any
party hereto or any other person or entity.
11.14 Public Announcement. Upon execution of this
Agreement, KCI and DSO promptly will issue a joint press
release approved by both parties announcing the Merger.
Thereafter, KCI or DSO may issue such press releases, and
make such other disclosure regarding the Merger, after
consultation with the other party, as it determines are
required under applicable securities laws or NYSE rules
after consultation with legal counsel.
11.15 Entire Agreement. This Agreement and the
exhibits hereto constitute the entire understanding and
agreement of the parties hereto with respect to the subject
matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties
with respect hereto other than the Confidentiality
Agreements, which shall remain in full force and effect.
The express terms hereof control and supersede any course of
performance or usage of trade inconsistent with any of the
terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and Plan of Reorganization as of the date first above
written.
KEYSTONE CONSOLIDATED INDUSTRIES, DESOTO, INC.
INC.
By: ______________________________ By: ______________________________
Glenn R. Simmons William Spier
Chief Executive Officer Chief Executive Officer
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