SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date earliest event reported) January 11, 1999
Worksafe Industries Inc. f/k/a
Eastco Industrial Safety Corp.
(Exact name of registrant as specified in charter)
New York 0-8027 11-1874010
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
130 West 10th Street, Huntington Station, New York 11746
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 428-1802
Eastco Industrial Safety Corp.
(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets
1. On January 11, 1999, effective the close of business on December 31,
1998, the registrant sold certain of its assets ("Acquired Assets") of its
distribution business and the Eastco name to Arbill Industries, Inc. ("Arbill").
Included in the Acquired Assets sold amongst various items were the following,
excluding certain specified Excluded Assets.
(a) Office and warehouse equipment, furniture, fixtures and catalogs.
(b) Lists of all customers and suppliers of goods and services of the
Distribution Division.
(c) Intellectual Property used in the operation of the Distribution
Division.
(d) Specified leases and licenses.
(e) Inventory.
(f) Open sourcing orders or contracts and open purchase orders or
contracts of the Distribution Division.
(g) Registrant's rights, if any, in and to the names Eastco Industrial
Safety and Puerto Rico Safety.
2. Until the 60th day after January 11, 1999, the registrant will continue
to collect the accounts receivable of the Distribution Division sold and on the
5th day thereafter, Arbill will purchase 90% of primarily all unpaid invoices
subsequent to November 30, 1998.
3. The purchase price for the acquired assets, which was determined by good
faith negotiation between the two parties is $2,493,641.96, exclusive of related
adjustments, payments applicable to rent and payments for open accounts
receivable.
4. Neither the registrant or any of its affiliates, directors, or officers
or associates thereof have any material relationship with Arbill.
5. The sale described above was made pursuant to an asset purchase
agreement between the registrant and Arbill dated December 14, 1998 ("Asset
Purchase Agreement"). A copy of the Asset Purchase Agreement is annexed as
Exhibit 10.14 hereto. Reference is made to this agreement for the full terms of
this transaction, including registrant's covenant not to compete.
Item 5. Other Events.
In connection with the consummation of the Asset Purchase Agreement the
registrant entered into Amendment No. 9 to the
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Company's agreements with Congress Financial Corp. which is annexed hereto as
Exhibit 10.15, allowing Congress to release its lien against the assets sold by
the registrant to Arbill pursuant to the Asset Purchase Agreement.
Item 7. Financial Statements and Exhibits.
(b) Pro Forma Financial Information
WORKSAFE INDUSTRIES INC.
PRO-FORMA CONSOLIDATED BALANCE SHEET AS AT
SEPTEMBER 30, 1998
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PRO-FORMA
SEPTEMBER 30, DISTRIB. DIV. SEPTEMBER 30,
1998 ADJUSTMENTS 1998
------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
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ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 58,395 $ 58,395
ACCOUNTS RECEIVABLE - NET 5,804,763 5,804,763
INVENTORIES 7,363,853 ($1,594,146) B 5,769,707
OTHER 570,458 570,458
NOTES RECEIVABLE- CURRENT 210,000 C 210,000
TOTAL CURRENT ASSETS 13,797,469 ($1,384,146) 12,413,323
PROPERTY, PLANT AND EQUIPMENT, NET 2,240,767 (36,218) D 2,204,549
EXCESS OF COST OVER NET ASSETS ACQUIRED 420,529 420,529
OTHER ASSETS 15,427 15,427
NOTES RECEIVABLE, LESS CURRENT MATURITIES 105,000 C 105,000
TOTAL ASSETS $ 16,474,192 ($1,315,364) $ 15,158,828
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
LOANS PAYABLE $ 8,027,254 ($1,848,336) A $ 6,178,918
CURRENT MATURITIES OF LONG-TERM DEBT 278,463 278,463
ACCOUNTS PAYABLE 3,790,612 3,790,612
ACCRUED EXPENSES 294,532 294,532
TOTAL CURRENT LIABILITIES 12,390,861 (1,848,336) 10,542,525
LONG-TERM DEBT, LESS CURRENT MATURITIES 468,346 468,346
TOTAL LIABILITIES 12,859,207 (1,848,336) 11,010,871
SHAREHOLDERS' EQUITY (DEFICIENCY)
PREFERRED STOCK --
COMMON STOCK 201,970 201,970
ADDITIONAL PAID IN CAPITAL 9,807,708 9,807,708
(DEFICIT) (6,394,693) 532,972 E (5,861,721)
TOTAL SHAREHOLDERS' EQUITY 3,614,985 532,972 4,147,957
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,474,192 ($1,315,364) $ 15,158,828
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WORKSAFE INDUSTRIES INC.
PRO FORMA - CONSOLIDATED STATEMENT OF OPERATIONS
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ACTUAL OPERATIONS PRO-FORMA
YEAR OF YEAR
ENDED DISTRIBUTION ENDED
JUNE 30,1998 DIVISION JUNE 30,1998
------------ ------------ ------------
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NET SALES $34,339,038 $9,571,559 $24,767,479
COST OF SALES 28,622,886 8,030,538 20,592,348
GROSS PROFIT 5,716,152 1,541,021 4,175,131
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 5,369,397 1,925,893 3,443,504
INCOME(LOSS) FROM OPERATIONS 346,755 (384,872) 731,627
INTEREST EXPENSE, NET 879,406 319,800 559,606
OTHER (INCOME) NET (44,166) 0 (44,166)
NET(LOSS)/INCOME ($488,485) ($704,672) $216,187
INCOME/(LOSS) PER COMMON SHARE
BASIC ($0.29) $0.13
DILUTED ($0.29) $0.13
AVERAGE NUMBER OF SHARES USED IN
COMPUTING PER SHARE AMOUNTS
BASIC 1,683,079 1,683,079
DILUTED 1,683,079 1,683,079
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WORKSAFE INDUSTRIES INC.
PRO FORMA - CONSOLIDATED STATEMENT OF OPERATIONS
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ACTUAL OPERATIONS PRO-FORMA
THREE-MONTHS OF THREE-MONTHS
ENDED DISTRIBUTION ENDED
SEPTEMBER 30,1998 DIVISION SEPTEMBER 30,1998
----------------- ------------ -----------------
(UNAUDITED) (UNAUDITED)
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NET SALES $8,000,263 $2,332,327 $5,667,936
COST OF SALES 6,714,718 1,933,964 4,780,754
GROSS PROFIT 1,285,545 398,363 887,182
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 1,304,395 504,858 799,537
INTEREST EXPENSE, NET 277,624 146,900 130,724
OTHER (INCOME) NET (12,651) 0 (12,651)
NET INCOME (LOSS) ($283,823) ($253,395) ($30,428)
INCOME/(LOSS) PER COMMON SHARE
BASIC ($0.17) ($0.02)
DILUTED ($0.17) ($0.02)
AVERAGE NUMBER OF SHARES USED IN
COMPUTING PER SHARE AMOUNTS
BASIC 1,683,079 1,683,079
DILUTED 1,683,079 1,683,079
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NOTES TO THE PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentaion
Reference is made to Item 2. of this filing for a description of the
Distribution Division (as defined in Item 2) for which the following pro forma
financial statements are provided.
The unaudited pro forma balance sheet eliminates the assets of the Distribution
Division as of September 30,1998 that were sold and further includes the
transaction assuming the disposition had been completed as of the respective
balance sheet date. The pro forma statements of operations are the manufacturing
operations of Worksafe Industries Inc. for the year ended June 30, 1998 and for
the three months ended September 30, 1998 assuming that the Distribution
Division sale occurred at the beginning of the periods presented.
The historical balance sheet used in preparation of the pro forma financial
statements has been derived from Worksafe Industries Inc.'s unaudited financial
statements as of September 30, 1998. The historical statement of operations for
the year ended June 30, 1998 has been derived from the audited statements of
operations for such period. The historical statement of operations for the three
months ended September 30, 1998 has been derived from the Company's unaudited
financial statements for such period.
2. Unaudited Pro Forma Adjustments
A description of the adjustments included in the unaudited pro forma financial
statements are as follows:
A) Amount of cash received in the transaction less estimated transaction costs
of $245,000 used to pay down debt
B) Cost of inventories sold to acquiror plus additional inventory reserve of
$100,000 for merchandise not sold based on agreement formula
C) Total of $315,000 note received from acquiror
D) Book value of Property, Plant & Equipment purchased by the acquiror
E) Reflects the estimated gain on the sale of the Distribution Division
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(c) Exhibit Number
10.14 Asset Purchase Agreement between the registrant and Arbill
Industries Inc. dated December 14, 1998 (without exhibits and
schedules)
10.15 Amendment Number 9 to line of credit agreement with Congress
Financial Corp.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: January 26, 1999
WORKSAFE INDUSTRIES INC.
By: /s/ Arthur Wasserspring
---------------------------
ARTHUR WASSERSPRING
Vice-President of
Finance, Treasurer
and Chief Financial
Officer
ASSET PURCHASE AGREEMENT
Between
ARBILL INDUSTRIES, INC.
And
EASTCO INDUSTRIAL SAFETY CORP.
December 14, 1998
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TABLE OF CONTENTS
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Page(s)
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ARTICLE I
DEFINITIONS
1.1. Defined Terms...................................................................................1
ARTICLE II
BASIC TRANSACTION
2.1 Purchase and Sale of Assets....................................................................13
2.2 Retention and Assumption of Liabilities........................................................13
2.3 Purchase Price.................................................................................14
2.4 The Closings...................................................................................19
2.5 Deliveries at the First Closing................................................................20
2.6 Delivery at the Account Receivable Closing.....................................................22
2.7 Allocation.....................................................................................23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1 Organization of the Seller and the Manufacturing Subsidiaries..................................23
3.2 Authorization of Transaction...................................................................23
3.3 Noncontravention...............................................................................24
3.4 Brokers' Fees..................................................................................24
3.5 Title to Assets................................................................................24
3.6 Financial Statements...........................................................................24
3.7 Events Subsequent to Most Recent Fiscal Year End...............................................25
3.8 Undisclosed Liabilities........................................................................26
3.9 Legal Compliance...............................................................................26
3.10 Tax Matters....................................................................................26
3.11 Real Estate Leases.............................................................................27
3.12 Intellectual Property..........................................................................28
3.13 Tangible Assets................................................................................29
3.14 Inventory......................................................................................29
3.15 Open Sourcing Orders or Contracts, Open Purchase Orders or Contracts,
Agreements, Leases and Licenses................................................................29
3.16 Accounts Receivable............................................................................30
3.17 Conduct of Business............................................................................30
3.18 No Pending Litigation or Proceedings...........................................................30
3.19 Environmental Matters..........................................................................30
3.20 Consents.......................................................................................31
3.21 Insurance......................................................................................31
3.22 Products Liability.............................................................................31
3.23 Arm's Length Transactions......................................................................32
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3.24 Supplies.......................................................................................32
3.25 Records........................................................................................32
3.26 Customers......................................................................................32
3.27 Employees and Employee Benefits................................................................32
3.28 Business of Seller.............................................................................32
3.29 Solvency.......................................................................................32
3.30 Completeness...................................................................................32
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
4.1 Organization of the Buyer......................................................................33
4.2 Authorization of Transaction...................................................................33
4.3 Noncontravention...............................................................................33
4.4 Brokers' Fees..................................................................................33
4.5 Financial Statements...........................................................................33
4.6 Tax Matters....................................................................................34
4.7 No Pending Litigation or Proceedings...........................................................34
4.8 Solvency.......................................................................................34
4.9 Completeness...................................................................................34
ARTICLE V
PRE-CLOSING COVENANTS
5.1 General........................................................................................35
5.2 Notices and Consents...........................................................................35
5.3 Preservation of Business.......................................................................35
5.4 Full Access....................................................................................36
5.5 Notice of Developments.........................................................................36
5.6 Exclusivity....................................................................................36
5.7 Right of the Buyer to Purchase Products Prior to First Closing Date............................36
5.8 Payment of Accounts Payable of the Distribution Division.......................................36
5.9 Corporate Examinations and Investigations......................................................37
ARTICLE VI
POST-CLOSING COVENANTS
6.1 General........................................................................................37
6.2 Litigation Support.............................................................................37
6.3 Transition.....................................................................................38
6.4 Confidentiality................................................................................38
6.5 Covenant Not to Compete........................................................................39
6.6 Buyer's Note...................................................................................40
6.7 Payment of Accounts Payable Arising in Connection with the Operation of the
Distribution Division..........................................................................41
6.8 Distributorship................................................................................41
6.9 Interference with Parties' Employees...........................................................41
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6.10 Use of Name Puerto Rico Safety Equipment.......................................................42
6.11 Unassignable Open Purchase Orders or Contracts and
Open Sourcing Orders or Contracts..............................................................42
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
7.1 Conditions to Obligation of Buyer..............................................................42
7.2 Conditions to Obligation of the Seller.........................................................44
ARTICLE VIII
REMEDIES FOR BREACHES OF THIS AGREEMENT
8.1 Survival of Representations and Warranties.....................................................45
8.2 Indemnification Provisions for Benefit of the Buyer............................................45
8.3 Indemnification Provisions for Benefit of the Seller...........................................45
8.4 Matters Involving Third Parties................................................................46
8.5 Determination of Adverse Consequences..........................................................47
8.6 Recoupment Under Buyer's Note and Other Obligations of the Buyer...............................47
8.7 Other Indemnification Provisions...............................................................47
ARTICLE IX
TERMINATION
9.1 Termination of Agreement.......................................................................48
9.2 Effect of Termination..........................................................................48
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Public Announcements........................................................49
10.2 No Third-Party Beneficiaries...................................................................49
10.3 Entire Agreement...............................................................................49
10.4 Succession and Assignment......................................................................49
10.5 Risk of Loss...................................................................................49
10.6 Counterparts...................................................................................50
10.7 Headings.......................................................................................50
10.8 Notices........................................................................................50
10.9 Governing Law..................................................................................51
10.10 Amendments and Waivers.........................................................................51
10.11 Non-Waiver of Rights...........................................................................52
10.12 Severability...................................................................................52
10.13 Expenses.......................................................................................52
10.14 Construction...................................................................................52
10.15 Incorporation of Exhibits and Schedules........................................................52
10.16 Specific Performance...........................................................................52
10.17 Arbitration and Submission to Jurisdiction.....................................................53
10.18 Tax Matters....................................................................................53
10.19 Access to Information..........................................................................53
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EXHIBITS
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Exhibit A - Form of Buyer's Note
Exhibit B - Form of Bill of Sale and Assignment
Exhibit C - Form of Assignment and Assumption Agreement
Exhibit D - Form of Opinion of Counsel to the Seller
Exhibit E - Form of Opinion of Counsel to the Buyer
Exhibit F - Allocation Schedule of Sale Price
Exhibit G - From of Lease for 130 West 10th Street, Huntington Station, NY
Exhibit H - Form of License Agreement for 3523 Avenue K, Riviera Beach,
FL, 33404
Exhibit I - Form of License Agreement for Parcel of Land located at
Aquadilla
Industrial Area, Aquadilla, Puerto Rico.
SCHEDULES
Schedule 1.1 - Excluded Customers
Schedule 3.1 - Manufacturing Subsidiaries
Schedule 3.3 - Contravention
Schedule 3.6 - Financial Statements
Schedule 3.7 - Events Subsequent to Most Recent Fiscal Year End
Schedule 3.8 - Undisclosed Liabilities
Schedule 3.10(c) - List of Filed Tax Returns
Schedule 3.11 - List of Real Estate and Leases and Licenses Governing Same
Schedule 3.12 - Intellectual Property
Schedule 3.13 - Tangible Assets
Schedule 3.15 - List of Open Sourcing Orders or Contracts, Open Purchase Orders
or Contracts, Agreements, Leases and Licenses
Schedule 3.18 - Pending Litigation
Schedule 3.19 - Environmental Matters
Schedule 3.20 - Third Party Consents and Governmental Filings
Schedule 3.21(a) - Insurance Covering Acquired Assets
Schedule 3.21(b) - Product Liability Insurance
Schedule 3.24 - Suppliers since January 1, 1998
Schedule 3.26(a)&(b) - Customers of the Distribution Division since January 1, 1998
Schedule 3.27 - Employees and Employee Benefits
Schedule 4.5 - Financial Statements
Schedule 4.7 - Pending Litigation and Proceedings
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ASSET PURCHASE AGREEMENT
Agreement entered into as of December 14, 1998, (the "Agreement") by and
between ARBILL INDUSTRIES, INC., a Pennsylvania corporation (the "Buyer"), and
EASTCO INDUSTRIAL SAFETY CORP., a New York corporation (the "Seller"). The Buyer
and the Seller may be individually referred to herein as a "Party" and
collectively as the "Parties".
The Buyer desires to purchase and the Seller desires to sell certain of the
assets used or useful in the operation of Seller's Distribution Division (as
defined) in consideration for the Purchase Price (as defined) and on the terms
and subject to the conditions as set forth in this Agreement.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Account Debtor" shall mean with respect to any Account Receivable, any
Person that is obligated on such account.
"Account Payable and Accounts Payable" shall mean monies payable for goods
sold by or services rendered by a third party or third parties for the benefit
of the Distribution Division and shall exclude any monies claimed to be due that
are the subject of any litigation against the Seller, other than for goods sold
or services rendered to the Distribution Division.
"Account Receivable and Accounts Receivable" shall mean each and every
account for goods sold or leased by or for services rendered by the Distribution
Division which account is owned by the Seller and arose from the sale of goods
or services by the Distribution Division in its Ordinary Course of Business and
that meets the following conditions:
(a) such Account Receivable arose in an arms-length transaction with an
unrelated third party during the period commencing on December 1, 1998 and
ending on December 31, 1998;
(b) despite the actions of the Seller pursuant to Section 2.3(e) hereof,
all or any part of such Accounts Receivable remains outstanding on the 60th day
after the First Closing Date;
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(c) the amount of such Account Receivable is not, as of the Accounts
Receivable Closing Date, subject to set off, charges, credits or defenses of any
nature whatsoever;
(d) the Account Debtor for such Account Receivable is not an Excluded
Customer;
(e) such Account Receivable is subject to no Liens other than any Lien
created by this Agreement;
(f) such Account Receivable is based on an enforceable order or contract
for goods shipped or services rendered that contains selling terms of not more
than thirty (30) days past the original invoice date;
(g) such Account Receivable is unconditionally owned by the Seller;
(h) the property giving rise to such Account Receivable shall have been
shipped to the Account Debtor or delivered to an agent of an Account Debtor for
shipment to an Account Debtor, provided that any property returned or refused by
an Account Debtor shall not give rise to an Account Receivable from and after
the date of such return or refusal;
(i) the Account Receivable arose from the sale of goods that were not
placed on consignment, bill and hold, sale and return, sale on approval, or
other terms by reason of which the payment by an Account Debtor may be
conditional (except from and after the time such condition no longer applies);
(j) such Account Receivable is denominated in United States Dollars unless
otherwise consented to by the Buyer in writing;
(k) such Account Receivable arose under a contract that has been duly
authorized and is in full force and effect and constitutes the legal, valid and
binding obligation of an Account Debtor, enforceable against such Account Debtor
in accordance with its terms;
(l) the Account Debtor for such Account Receivable is not any government or
any department, agency or instrumentality of any government, any state, city,
town or municipality or division thereof;
(m) the Account Debtor for such Account Receivable is not a subsidiary or
an affiliate of the Seller; and
(n) neither the Seller nor any of its subsidiaries or affiliates shall have
knowledge of (i) the death of the Account Debtor for such Account Receivable, or
(ii) the dissolution, termination of existence of, or the insolvency, business
failure or cessation of, or the filing of a petition in bankruptcy or
reorganization for, or the appointment of a receiver or custodian for, or
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any similar event with respect to, such Account Debtor
"Accounts Receivable Closing Date" has the meaning set forth in Section
2.4(b) hereof.
"Accounts Receivable Purchase Price" has the meaning set forth in Section
2.3(a)(v). hereof.
"Acquired Assets" shall mean all of Seller's right, title and interest in
and to all of the assets, tangible or intangible, located within or without the
United States or its territory, used in the business of the Distribution
Division, excluding, all Excluded Assets and including, but not limited to:
(a) all office and warehouse equipment, furniture, fixtures and catalogs of
or relating to the Distribution Division wherever located, but only those items
listed on Schedule 3.13;
(b) the list of all customers of and suppliers of goods and services to the
Distribution Division as well as the end-users (including, manufacturing
companies and service businesses, public utilities, fisheries, pharmaceutical
plants, the transportation industry and companies engaged in hazardous materials
abatement) of all safety products sold by the Seller or any other division,
subsidiary or affiliate of the Seller other than the Distribution Division,
including the customers identified on Schedules 3.26(a) and (b) and suppliers
identified on Schedule 3.24, but excluding all customers of the Manufacturing
Subsidiaries, who are not end-users of the goods manufactured by the
Manufacturing Subsidiaries;
(c) Intellectual Property used in the operation of the Distribution
Division, but only the Intellectual Property listed in Schedule 3.12;
(d) Those leases and licenses identified in Schedule 3.11;
(e) Accounts Receivable;
(f) Inventory;
(g) all Open Sourcing Orders or Contracts and Open Purchase Orders or
Contracts of the Distribution Division identified on Schedule 3.15, existing as
of the First Closing Date and not otherwise constituting Excluded Assets;
(h) all of the Seller's rights under and pursuant to all warranties,
representations and guarantees made by suppliers in connection with the
Inventory and the Open Sourcing Orders or Contracts identified in subclause (g)
of this definition of Acquired Assets;
(i) all of the Seller's rights, claims and interests to and with respect to
any pending or
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executory contracts relating exclusively to the Inventory, Open Sourcing Orders
or Contracts, Open Purchase Orders or Contracts identified in subclause (g) of
this definition of Acquired Assets and Accounts Receivable;
(j) all of Seller's rights, if any, in and to the name Eastco Industrial
Safety and Puerto Rico Safety;
(k) any and all significant records, files and papers (or copies or
computer print outs thereof) relating to the Acquired Assets wherever
located, including without limitation, Inventory records, catalogs,
slogans, sales and advertising materials, sales and purchase
correspondence, lists of former customers and suppliers, customer credit
information and customer pricing information relating to the Acquired
Assets when purchased by the Buyer hereunder, including tax records related
to the Acquired Assets, provided that with respect to such tax records,
files and papers (or copies or computer print outs thereof), the Seller
need only grant Buyer reasonable access to same during Seller's regular
business hours; and
(l) all of Seller's rights in and to any 800 telephone numbers used in
connection with the Distribution Division, but not the telephone equipment
or system used in connection with the Distribution Division.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Agreement" shall mean this Asset Purchase Agreement.
"Annual Minimum Purchases" has meaning set forth in Section 6.5(b).
"Annual Period" shall have the meaning set forth in Section 6.5(b).
"Assumed Liabilities" shall mean only:
(a) all Liabilities arising after the Effective Date under any leases for
any of the office and warehouse equipment, furniture and fixtures which are
identified on Schedule 3.13 and constitute Acquired Assets to the extent that
such leases are binding upon the lessor thereof upon the assignment of such
leases to the Buyer in accordance with the terms hereof;
(b) all Liabilities arising after the Effective Date under each license or
sublicense relating to Third Party Intellectual Property listed on Schedule 3.12
to the extent that such license or sublicense is binding upon the licensor or
sublicensor thereof upon the assignment or grant
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thereof to the Buyer in accordance with the terms hereof.
"Authority" shall mean any federal, state or local governmental authority
or regulatory agency or authority.
"Balance" has meaning set forth in Section 2.3(f) (ii).
"Basis" shall mean any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Buyer's Financial Statements" shall have the meaning set forth in Section
4.5 hereof.
"Buyer's Most Recent Fiscal Month End" shall have the meaning as defined in
Section 4.5 hereof.
"Buyer's Most Recent Fiscal Year End" shall have the meaning as defined in
Section 4.5 hereof.
"Buyer's Note" shall mean the Buyer's promissory note described in Section
2.3(b)(i)(B) and attached hereto as Exhibit A.
"Cash" shall mean the legal tender of the United States of America.
"Catalog Valuation Amount" has the meaning set forth in Section 2.3(a)
hereof.
"Closing Date" shall mean either the First Closing Date or the Accounts
Receivable Closing Date, as the case may be.
"Confidential Information" shall mean any information concerning the
business and affairs of the Seller, the Distribution Division or the Buyer, that
is not already generally available to the public and that is designated as such
by either the Seller or the Buyer pursuant to Section 6.4.
"Disclosure Schedule" shall mean all Schedules annexed hereto under
Articles I, III and IV. "Disputed Accounts Payable" shall mean those accounts
payable of the Seller or any of its subsidiaries or affiliates relating to the
Distribution Division with respect to which the Seller or its subsidiary or
affiliates, as the case may be, in good faith, contests the validity or the
amount thereof; provided that the Seller, subsidiary or affiliate, as the case
may be, is diligently pursuing
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a resolution of such dispute and has set aside on its books reserves adequate
with respect thereto if reserves shall be deemed necessary in accordance with
GAAP.
"Distribution Division" shall mean that division of the Seller's business
involving the sale of industrial protective clothing, including gloves, glasses,
ear muffs, ear plugs, respirators, goggles, face shields, rainwear, protective
footwear, first aid kits, monitoring devices, signs and related industrial
safety products to end users (as opposed to distributors), including,
manufacturing companies and service businesses, public utilities, fisheries,
pharmaceutical plants, the transportation industry and companies engaged in
hazardous materials abatement.
"Down Payment" has the meaning set forth in Section 2.3(b)(i)(A) hereof.
"Due Date" shall mean with respect to any account payable of or relating to
the Distribution Division, the date on which such account must be paid in full
as such date is set forth on the invoice or other agreement, including any
verbal understandings, giving rise to such account payable or, the last day of
such longer period (but no longer than 120 days from the date of the applicable
invoice), which period is consistent with the past practices of the applicable
payor and payee.
"Effective Date" has the meaning set forth in Section 2.3(d).
"Environmental, Health, and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"Escrow Accounts" has the meaning set forth in Section 2.3(b).
"Escrow Agents" has the meaning set forth in Section 2.3(b).
"Excess Inventory Amount" has the meaning set forth in Section
2.3(b)(i)(B).
"Excess Payment Date" shall have the meaning as set forth in Section
2.3(b)(i)(B).
"Excluded Assets" shall mean:
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(a) the Seller's cash on hand;
(b) the Seller's bank accounts;
(c) the Seller's computer hardware and software systems (other than the
software associated with Website www.Eastco);
(d) the Seller's accounts receivable, including the Accounts Receivable
until the Accounts Receivable Closing Date when such Accounts Receivable shall
be sold by the Seller and purchased by the Buyer in accordance with the terms
hereof; and
(e) any Open Source Orders or Contracts, Open Purchase Orders or Contracts
or tangible assets (other than Inventory) or intangible assets (other than
Account Receivable as of the Accounts Receivable Closing Date) that would
otherwise be included in the term Acquired Assets, which the Buyer shall have
identified as Excluded Assets in a written notice delivered to the Seller on or
before the First Closing Date.
(f) all assets of the Manufacturing Subsidiaries and the Manufacturing
Business of the seller; and
(g) any and all pre-paid insurance, prepaid deposits and similar items of
the Seller.
"Excluded Customer" shall mean the end-users of safety products designated
by the Buyer as such on or before the execution and delivery of this Agreement
by the Parties and listed on Schedule 1.1 attached hereto and made a part
hereof, together with any other end-users of safety products as the Parties
shall mutually agree.
"Fair Market Value" shall mean with respect to each product constituting
Inventory, the then current price paid by a distributor of similar products
comparable to the Buyer to a supplier or manufacturer of such products.
"Financial Statement" has the meaning set forth in Section 3.6 hereof.
"First Closing" has the meaning set forth in Section 2.4(a) hereof.
"First Closing Date" has the meaning set forth in Section 2.4(a) hereof.
"GAAP" shall mean United States generally accepted accounting principles as
in effect from time to time.
"Hart-Scott-Rodino Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
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"Hazardous Substances" shall mean and include any hazardous substance as
defined in the United States Comprehensive Environmental Response, Compensation
and Liability Act, as amended ("CERCLA"), any hazardous material as defined in
the United States Hazardous Materials Transportation Act, any hazardous waste as
defined in the United States Resource Conservation and Recovery Act ("RCRA"),
any toxic substance as defined in the Toxic Substances and Control Act, any
pollutant or contaminant as defined in the United States Clean Water Act and as
the terms hazardous substance, hazardous waste, hazardous materials, toxic
substance or pollutants or contaminants are defined in corresponding state and
local laws, ordinances and regulations and including petroleum products and
radioactive materials.
"Huntington Property" has the meaning set forth in Section 3.11(a).
"Indemnified Party" has the meaning set forth in Section 8.4 hereof.
"Indemnifying Party" has the meaning set forth in Section 8.4 hereof.
"Initial Purchase Price" has the meaning set forth in Section 2.3(b)(i)
hereof.
"Initial Catalog Valuation" shall have the meaning set forth in Section
2.3(c) herein.
"Initial Inventory Valuation" shall have the meaning set forth in Section
2.3(c) herein.
"Initial Valuation Statement" shall have the meaning set forth in Section
2.3(c) herein.
"Intellectual Property" shall mean the right, title and interest of the
Seller, if any, with respect to the Distribution Division and with respect to:
(a) all inventions (whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof;
(b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, including the name Eastco Industrial Safety and Puerto Rico
Safety, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, together with
all license agreement relating to any of the foregoing;
(c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith;
(d) all mask works and all applications, registrations, and renewals in
connection
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therewith;
(e) all trade secrets and confidential business information (including
ideas, research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals);
(f) all computer software (including data and related documentation),
including any license agreement relating to the foregoing;
(g) the website, www.Eastco.com, ;
(h) all other proprietary rights of or relating to any of the foregoing;
and
(i) all copies and tangible embodiments of or relating to any of the
foregoing (in whatever form or medium);
"Inventory" shall mean industrial protective clothing, including, gloves,
glasses, ear muffs, ear plugs, respirators, goggles, face shields, rain wear,
protective footwear, first aid kits, monitoring devices, signs and other safety
products which are recorded on the books and records of the Distribution
Division and held by the Distribution Division, or are deliverable to the
Distribution Division, on the Valuation Date for sale to end users of such
safety products (as distinguished from distributors of such safety products),
which Inventory shall meet all of the following criteria:
(a) such Inventory consists solely of finished goods;
(b) no Account Receivable or document of title in favor of any purchaser of
such Inventory has been created or issued with respect to such Inventory;
(c) such Inventory is readily saleable in a bona fide arm's length
transaction, or is usable in the Ordinary Course of the Business of the
Distribution Division and no portion of such Inventory represents returned,
rejected, lost, obsolete, damaged or defective goods;
(d) if such Inventory is located on leased premises, a valid lease,
sublease or license agreement for such premises, in form and substance
satisfactory to the Buyer has been delivered to the Buyer for such premises,
except that if such Inventory is located on the premises of Castleton or Photo
Circuits, such Inventory shall be segregated from other products of such
companies, marked as the property of the Seller;
(e) such Inventory is not subject to any Liens;
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(f) such Inventory is not on consignment or located in a public warehouse;
(g) such Inventory has been manufactured or acquired in compliance with the
Fair Labor Standards Act, 29 U.S.C. ss.201 et seq;
(h) such Inventory conforms to all Environmental, Health and Safety
Requirements and any other applicable laws as the same exist as of the First
Closing Date;
(i) such Inventory is packaged in standard packaging cases;
(j) the quantity as to each SKU of Inventory shall not exceed the aggregate
quantity sold by the Seller during the 12 month period immediately preceding the
Valuation Date to Persons other than Excluded Customers;
(k) with respect to any SKU of Inventory that was not sold by the Seller
during the 12 month period immediately preceding the Closing Date to Persons
other than Excluded Customers, such Inventory was purchased by the Seller after
August 31, 1998 to fill Open Purchase Orders or Contracts of Persons other than
Excluded Customers; and
(l) such obsolete damaged or defective goods as the Buyer may reasonably
specify in writing as of the First Closing Date.
"Inventory Valuation Amount" shall mean the lesser of (A) the sum of the
actual cost paid by the Distribution Division for Inventory and, the Vendor
Average Freight Expense related thereto or (B) the Fair Market Value thereof, in
each case as determined in accordance with Section 2.3(c) hereof.
"Last Year's Sales" shall have the meaning set forth in Section 2.3(c)
hereof.
"Knowledge" shall mean actual knowledge after reasonable investigation.
"Liability" shall mean any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Lien" shall mean with respect to any asset or property of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien (statutory or other), charge, easement,
encumbrance, or other security agreement or arrangement of any kind or nature
whatsoever on or with respect to such asset or property (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under any uniform commercial code
(or equivalent statutes) of any jurisdiction or any other similar recording or
notice statute, and any lease or other arrangement
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having substantially the same effect as any of the foregoing).
"Manufacturing Business" shall mean with respect to the Seller or any
division of the Seller and with respect to the Manufacturing Subsidiaries and
any other direct or indirect subsidiaries of the Seller, the acquisition of raw
materials and finished goods for and the manufacturing, marketing and sale to
distributors (as distinguished from end-users) of disposable and reusable
industrial protective apparel, including, but not limited to, products such as
gloves, coveralls, shirts, pants, hats, hoods, aprons, smocks, lab coats,
hazardous material handler suits, examination gloves, sleeves, shoe covers and
related items.
"Manufacturing Subsidiary" or "Manufacturing Subsidiaries" shall mean each
and all, respectively of the following, Disposable Safety Wear, Inc., a Delaware
corporation, Safety Wear Corp., a Delaware corporation, Eastco Glove
Technologies, Inc., a Minnesota corporation, Puerto Rico Safety Equipment
Corporation, a Delaware corporation.
"Most Recent Balance Sheet" shall mean the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section 3.6
hereof.
"Most Recent Fiscal Month End" has the meaning set forth in Section 3.6
hereof.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3.6
hereof.
"Noncompetition Period" shall have the meaning set forth in Section 6.5(b).
"Open Sourcing Order or Contract" shall mean the rights of the Seller under
all outstanding contracts and all servicing orders placed by the Distribution
Division for new industrial protective clothing and other safety products of the
type constituting the Inventory being acquired by the Buyer on the Closing Date.
"Open Purchase Order or Contract" shall mean all outstanding contracts of
the Distribution Division for and all outstanding servicing orders placed by
customers of the Distribution Division for new industrial protective clothing
and other safety products of the type of inventory being acquired by the Buyer
on the Closing Date or inventories that are customarily carried by the Buyer.
"Order" shall have the meaning as set forth in Section 6.11 hereof.
"Ordinary Course of Business" shall mean the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
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"Overstated Amount" shall have the meaning as set forth in Section
2.3(c)(iii).
"Party" and "Parties" have the meanings set forth in the preface above.
"Person" shall mean any individual, partnership, corporation, company,
limited liability company, business trust, unincorporated association,
association, joint stock company, trust, joint venture, unincorporated
organization, or governmental entity (or any department, agency, or political
subdivision thereof) of whatever nature.
"Representatives" shall have the meaning as set forth in Section 5.9
hereof.
"Real Estate Lease and Licenses" shall have the meaning as set forth in
Section 2.5(a)(ix).
"Sales Tax Checks" shall have the meaning as set forth in Section
2.5(b)(vii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" has the meaning set forth in the preface above.
"Seller's Safety Products" has the meaning set forth in Section 6.8 hereof.
"SKU" shall mean the number designated by the manufacturer of a product as
such product's shelf keeping unit.
"State Sales Tax Return" has meaning set forth in Section 2.5(a)(xvi).
"Tax" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8.4 hereof.
"Third Party Intellectual Property" has the meaning set forth in Section
3.12(c).
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"Threshold Amount" shall have the meaning as set forth in Section 6.5(b).
"Underlying Leases" shall have the meaning as set forth in Section 3.11.
"Valuation Date" has the meaning set forth in Section 2.3(c).
"Valuation Statement" has the meaning set forth in Section 2.3(c).
"Vendor Average Freight Expenses" shall mean the average freight expense
actually paid by the Seller during the 12 month period preceding the Valuation
Date to a particular vendor for a standard packaging case of an SKU of Inventory
shipped to Seller's facilities.
"Wall Street Journal Prime Rate" shall mean the rate per annum quoted in
the Wall Street Journal as the prime rate in the money rates section of the Wall
Street Journal.
ARTICLE II
THE TRANSACTION
2.1 Purchase and Sale of Assets. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller
agrees to sell, transfer, convey, and deliver to the Buyer, all of the Acquired
Assets (other than the Accounts Receivable) at the First Closing Date and all of
the Accounts Receivable on the Accounts Receivable Closing Date for the
consideration specified below in Section 2.3.
2.2 Retention and Assumption of Liabilities. (a) The Seller shall retain
and continue to be responsible for all of its Liabilities (including any
Liability arising in connection with the Distribution Division) or any of the
Seller's subsidiaries or affiliates, other than the Assumed Liabilities,
notwithstanding the transactions contemplated herein. The Liabilities to be
retained by the Seller shall include, but not be limited to the following:
(i) all Accounts Payable of the Seller howsoever and whenever arising,
including any Accounts Payable of or relating to the Distribution Division
operated by the Seller;
(ii) all accrued expenses of the Seller howsoever and whenever
arising, including any accrued expenses of or relating to the Distribution
Division operated by Seller;
(iii) all Liabilities of the Seller in connection with the Seller's
ownership of or the Seller's operation of the Distribution Division
howsoever and whenever arising;
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(iv) all Liabilities of the Seller for any environmental or product
warranty, (whether express or implied), or product liability claims
(including without limitation any claims relating to the use by the Seller
or any of its predecessors or successors of Hazardous Substances, including
asbestos, in the operation of the Seller's business) with respect to the
manufacture of any Inventory or any other products by the Seller or any of
its subsidiaries or affiliates, or the sale of any products by the Seller
or any of its subsidiaries or affiliates, howsoever and whenever such
Liabilities arise;
(v) all Liabilities of the Seller of or relating to any employee of
the Seller, including any employee of the Distribution Division howsoever
and whenever arising; however, it is the understanding of the Parties that
at the First Closing, the Buyer shall assume responsibilities for the
wages, salaries, bonuses or overtime, sick, vacation or holiday pay or
other employee benefits or other employee benefit plan accruing from and
after the Effective Date for any former employee(s) of the Distribution
Division who have, as of the First Closing Date, agreed to be employed by
the Buyer on terms acceptable to the Buyer, in its sole discretion.
(b) On and subject to the terms and conditions of this Agreement, the Buyer
agrees to assume and become responsible for the Assumed Liabilities on the
Effective Date. The Buyer will not assume or have any responsibility with
respect to any Liability of the Seller (including any Liability arising in
connection with the Distribution Division) or any of the Seller's subsidiaries
or affiliates that is not expressly set forth in the definition Assumed
Liabilities.
2.3 Purchase Price.
(a) Amount. In full consideration for the transfer of the Acquired Assets,
the Seller's agreement not-to-compete provided in Section 6.5 hereof and the
other rights and benefits accruing to the Buyer pursuant to the terms hereof,
the Buyer shall pay to the Seller an aggregate purchase price (the "Purchase
Price") calculated as follows:
(i) $915,000;
(ii) an amount equal to the Inventory Valuation Amount;
(iii) an amount equal to the lesser of (A) the actual cost of the catalogs
included as part of the Acquired Assets or (B) $5,000 (the "Catalog
Valuation Amount");
(iv) an amount equal to the lesser of (A) 50% of any cash payment made by
the Seller to the lessor of the premises occupied by the Distribution
Division in Newington, Connecticut in connection with the termination
on or before the First Closing Date of the lease relating to such
premises or (B)
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$11,000.00; and
(v) ninety percent (90%) of the unpaid amount of the Accounts Receivable
(without recourse but subject to Section 3.14 and Section 8.1) on the
sixtieth (60th) day after the First Closing Date (the "Accounts
Receivable Purchase Price").
(b) Payment. The Purchase Price shall be paid as follows:
(i) That portion of the Purchase Price described in Section 2.3(a)(i),
(ii), (iii) and (iv) above (the "Initial Purchase Price") shall be
paid as set forth below.
(A) Simultaneously with the execution and delivery hereof by the
Parties, the Buyer shall deliver $100,000 (the "Down Payment") to
the Buyer's counsel and the Seller's counsel (collectively, the
"Escrow Agents") who shall hold such amount in escrow at an
account established for this purpose at Progress Bank, having
offices at Blue Bell, PA (the "Escrow Account"), which account
shall require the signatures of both the Buyer's counsel and the
Seller's counsel for any withdrawals from such account, except as
otherwise provided in the penultimate sentence of this Section
2.3(b)(i)(A). The Down Payment shall be paid to the Seller on the
First Closing Date and credited against the Purchase Price or
delivered to the Buyer or the Seller, as applicable, in the event
this Agreement is terminated pursuant to Article IX hereof.
Neither of the Escrow Agents shall be precluded from representing
any of its client in any litigation concerning this Agreement.
In performing any of the services as set forth in this Section
2.3(b)(i)(A) and Section 2.3 (c)(iii), neither of the Escrow
Agents shall incur any liability to anyone for damages, loss or
expenses, except for damages, loss or expenses resulting from its
willful misconduct or gross negligence. If a dispute arises
between or among any of the parties to this Agreement then
notwithstanding anything to the contrary herein, either Escrow
Agent shall be entitled, at its option and upon giving notice to
the Buyer and the Seller and the other Escrow Agent, to tender
into the custody of any court of competent jurisdiction in
Philadelphia, Pennsylvania all funds and all materials that the
Escrow Agents may be holding under this Agreement and to begin
such legal proceedings as such Escrow Agent deems appropriate.
After taking such actions, the Escrow Agent shall then be
discharged from any further duties and liability under this
Agreement except to the extent of any prior
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willful misconduct or gross negligence of the Escrow Agent.
(B) At the First Closing, in addition to any amounts delivered to the
Seller pursuant to Section 2.3(b)(i)(A) hereof, the Buyer shall
pay the Seller the Initial Purchase Price by delivery of (I) the
Buyer's eighteen month promissory note in the principal of
$315,000 repayable in eighteen consecutive equal monthly
installments of principal together with interest at a rate per
annum of one percent (1%) in excess of the Wall Street Journal
Prime Rate on the first day of each month following the First
Closing Date in the form attached hereto as Exhibit A (the
"Buyer's Note"); (II) cash for the balance of the Initial
Purchase Price (with the Inventory Valuation Amount and the
Catalog Valuation Amount being based upon the Initial Valuation
Statement as provided in Section 2.3(c) below), payable by wire
transfer or delivery of other immediately available funds;
provided, however, if the Initial Inventory Valuation exceeds
$1,600,000.00, the amount of such excess (the "Excess Inventory
Amounts") shall be paid as provided in Section 2.3(b) (ii) below.
(ii) The Accounts Receivable Purchase Price plus the Excess Inventory
Amount less any purchase price adjustments determined as provided in
Section 2.3(c) below, shall be paid to the Seller in cash by wire
transfer or delivery of other immediately available funds on the
Accounts Receivable Closing Date.
(c) Procedures Regarding the Determination of the Inventory Valuation
Amount and Catalog Valuation Amount.
(i) On December 31, 1998 (the "Valuation Date"), the Seller shall take
a physical count of the Inventory and catalogs of the Seller's Distribution
Division. The Buyer shall have the right to have its authorized
representatives observe the physical count of Inventory and catalogs at
each location where Inventory or catalogs are located.
No later than January 6, 1999, the Seller shall prepare and deliver to the
Buyer a valuation statement as of December 31, 1998, (the "Initial
Valuation Statement") setting forth (A) the initial Inventory Valuation
Amount (the "Initial Inventory Valuation"), (B) the initial Catalog
Valuation Amount (the "Initial Catalog Valuation") and the calculations
made to determine the foregoing amount, including, (I) the number of units
of each item of Inventory counted in the physical inventory located on
Seller's premises and the premises of Castelton and Photocircuits; (II) the
quantity of each SKU of Inventory sold by the Seller during the 12 month
period immediately preceding the Valuation Date; (III) the actual cost paid
by the Seller or the Distribution Division, as the case may be, for the
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Inventory and catalogs counted in the physical inventory; (IV) the Vendor
Average Freight Expenses applicable to the items of Inventory counted in
the physical inventory; (V) the Fair Market Value of the Inventory counted
in the physical Inventory; and (VI) the actual amounts sold by the Seller
(excluding Vendor Average Freight Expenses related thereto) for those
products of the type included in subclauses (a), (g), (h), (j) and (k) of
the definition Inventory, which products were sold by the Seller or the
Manufacturing Subsidiaries, as a group, to persons listed on the customer
list attached hereto as Schedule 3.26(b) during the 12 month period
immediately proceeding the Valuation Date (the "Last Year's Sales")
specifying in reasonable detail the basis for the calculation of the Latest
Year's Sales.
(ii) Promptly following the execution and delivery of this Agreement,
the Seller will give the Buyer access to the Financial Statements as
identified in Schedule 3.6 and such other financial information of the
Distribution Division (including any work papers relating to the Financial
Statements) and such other books and records of the Seller and the
Distribution Division as the Buyer shall reasonably request to determine
(A) the quantity of each SKU of Inventory sold by the Seller during the 12
month period immediately preceding the Valuation Date and any additional
SKU's of Inventory acquired after August 31, 1998; (B) the actual cost paid
by the Seller or the Distribution Division, as the case maybe, for the
items of Inventory included in the physical count thereof and any catalogs
relating thereto to be included in the Acquired Assets; (C) the Vendor
Average Freight Expenses of the Inventory expected to be included in the
physical count of the Inventory; (D) the Inventory Valuation Amount; and
(E) Last Year's Sales.
(iii) If the Buyer has any objections to the Initial Inventory
Valuation or the Initial Catalog Valuation as set forth in the Initial
Valuation Statement, the Buyer shall deliver a detailed statement
describing its objections to the Seller within 20 days after receiving the
Initial Valuation Statement (including the basis for calculation of the
dispute). Notwithstanding the foregoing, if the Buyer reasonably believes
that the Initial Valuation Statement overstates the Inventory Valuation
Amount by $50,000 or more (the "Overstated Amount"), the Buyer shall have
the right to deduct the Overstated Amount from the Inventory Valuation
Amount to be paid to the Seller at the First Closing and deposit the
Overstated Amount in the Escrow Account, to be disposed in accordance with
the written determination of Arthur Andersen LLP or a written agreement
signed by both Parties as provided herein. None of the objections by the
Buyer as to any of the foregoing valuations shall constitute a reason to
delay or cause a postponement of either the First Closing or the Accounts
Receivable Closing or constitute an offset at the First Closing. The Buyer
and the Seller will use reasonable efforts to resolve any such objections
themselves. If the Parties are unable to resolve any objections within 10
days after the Seller has received the Buyer's statement of objections, the
Parties shall request Arthur Andersen LLP to
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resolve any remaining objections on or before the tenth (10th) day
preceding the Accounts Receivable Closing Date. The determination of the
accounting firm so selected will be set forth in writing and will be
conclusive and binding upon the Parties. The total expenses incurred by the
Parties in connection with the services rendered by Arthur Andersen LLP
under this Section 2.3(c)(iii) shall be allocated between the Parties in
such a manner that the percentage of the total expenses to be borne by the
Seller shall equal the same percentage as the amount awarded by Arthur
Andersen LLP to the Buyer bears to the total amount of the objections
submitted to Arthur Andersen LLP for resolution, and the balance of the
total expenses shall be borne by the Buyer. The Buyer will revise the
Initial Valuation Statement as appropriate to reflect the resolution of any
objections thereto pursuant to this Section 2.3(c)(iii). "Valuation
Statement" shall mean the Initial Valuation Statement together with any
revisions thereto pursuant to this Section 2.3(c)(iii). The Catalog
Valuation Amount and the Inventory Valuation Amount shall be the amounts
set forth in the Valuation Statement.
(d) Shipments between the Valuation Date and the First Closing Date. The
Parties acknowledge and agree that as a result of the review procedure set forth
in Section 2.3(c), beginning as of the close of business on the Valuation Date
and continuing through the First Closing Date, any and all shipments of
Inventory to or from the Seller on behalf of the Distribution Division shall be
for the account of the Buyer, rather than the Seller, and in connection
therewith the Seller shall maintain records for such shipments in a manner
consistent with the Distribution Division's Ordinary Course of Business prior to
the Valuation Date. The Seller agrees that any shipment of Inventory between the
Valuation Date and the First Closing Date shall be made in the Ordinary Course
of Business of the Distribution Division in quantities and at prices which
produce a gross profit margin substantially the same as that which is
customarily obtained in the Ordinary Course of Business of the Distribution
Division prior to the Valuation Date. In addition, at the First Closing, the
Parties agree to make any and all appropriate adjustments and prorations of
prepaid expenses with respect to any rent or electricity of or relating to the
leased or licensed premises identified on Schedule 3.11 and any performance bond
premium, telephone supplies, drinking water, and any other ordinary and
necessary expenses to reflect the fact that the effective date of the First
Closing shall be deemed to occur on January 4, 1999 (the "Effective Date").
(e) Procedures Relating to the Collection of Accounts Receivable Prior to
the Accounts Receivable Closing Date. All accounts receivable from the operation
of the Distribution Division resulting from goods delivered and/or services
actually rendered after the Valuation Date shall be for the account of the
Buyer.
From the date of their creation until the sixtieth (60th) day after the
First Closing Date, the Seller shall undertake to collect the Accounts
Receivable in a manner consistent with the Ordinary Course of Business of the
Distribution Division prior to the Valuation Date; provided, however, the Seller
shall not bring suit to collect any Accounts Receivable prior to the Accounts
Receivable Closing Date without the prior written consent of the Buyer. The
Seller agrees to
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provide the Buyer with copies of all invoices and other documentation evidencing
the Seller's efforts to collect such Accounts Receivable during the period from
the date such receivables were created through the Accounts Receivable Closing
Date. Actual collections shall be reconciled and deposited on a daily basis.
Payments received by the Seller from the Account Debtors of any Accounts
Receivable shall be applied in the manner specified and identified by such
Account Debtor with such payment and in the absence of such specification or
identification, the payment received by the Seller from an Account Debtor of an
Account Receivable shall be applied to the oldest Account Receivable of such
Account Debtor. Every seven (7) days during the period commencing on December 1,
1998 and ending on the Accounts Receivable Closing Date, the Seller shall
provide the Buyer with a reconciliation of the Accounts Receivable and actual
collections relating thereto.
(f) Adjustment to the Initial Purchase Price. The Initial Purchase Price
shall be adjusted as follows:
(i) If the sum of the Catalog Valuation Amount and the Inventory
Valuation Amount as set forth on the Valuation Statement exceeds the sum of
such amounts as set forth on the Initial Valuation Statement, the Buyer
will pay to the Seller an amount equal to such excess in cash at the
Accounts Receivable Closing.
(ii) If the sum of the Initial Catalog Valuation and the Initial
Inventory Valuation as set forth on the Initial Valuation Statement
exceeds, the sum of the Catalog Valuation Amount and Inventory Valuation
Amount as set forth on the Valuation Statement, the Buyer will first debit
such deficiency from the amount payable to the Seller in cash on the
Accounts Receivable Closing Date and second, the balance, if any, (the
"Balance") shall be paid by the Seller to the Buyer in cash, on the
Accounts Receivable Closing Date.
2.4 The Closings.
(a) The closing of the Buyer's purchase of Acquired Assets (other than
Accounts Receivable) (the "First Closing") contemplated by this Agreement shall
take place on January 11, 1999 at the offices of Wolf, Block, Schorr and
Solis-Cohen LLP, 250 Park Avenue, Suite 1000, New York, NY 10177, commencing at
10:00 a.m. local time or at such other place, time and date as the Parties may
mutually agree (the "First Closing Date"); provided, that all conditions
precedent to the First Closing Date shall have been satisfied or waived as of
the First Closing Date. At the First Closing, the Seller shall deliver to the
Buyer physical possession of the Acquired Assets (other than Accounts
Receivable), together with such instruments of transfer as the Buyer shall
request to vest in the Buyer title to the Acquired Assets (other than Accounts
Receivable) free and clear of all Liens and all of the right, title and interest
of the Seller in and to such Acquired Assets (other than Accounts Receivable.)
Notwithstanding the foregoing, the Effective Date of the First Closing for
purposes of Section 2.3(d) and (e) shall be January 4, 1999.
(b) Subject to the second sentence in this Section 2.4(b), the closing of
the Buyer's
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purchase of Accounts Receivable (the "Accounts Receivable Closing") shall occur
on the 65th day after the First Closing Date at the offices of Wolf, Block,
Schorr and Solis-Cohen LLP, 250 Park Avenue, Suite 1000, New York, New York
10177, commencing at 10:00 a.m. local time or at such other place, time and date
as the Parties may mutually agree (the "Accounts Receivable Closing Date");
provided that all conditions precedent to the Accounts Receivable Closing shall
have been satisfied or waived as of the Accounts Receivable Closing Date. If
such 65th day falls on a Saturday, Sunday or other day that national banks in
the Commonwealth of Pennsylvania are closed, then the Accounts Receivable
Closing Date shall be on the next succeeding business day.) At the Accounts
Receivable Closing, the Seller shall deliver to the Buyer such instruments of
transfer of the Accounts Receivable as the Buyer shall reasonably request to
vest in the Buyer title to the Accounts Receivable free and clear of all Liens
and all of the right, title and interest of the Seller in such Accounts
Receivable.
2.5 Deliveries at the First Closing. (a) At or before the First Closing the
Seller shall deliver to Buyer:
(i) a Bill of Sale and Assignment covering the Acquired Assets other
than the Accounts Receivable, in the form attached hereto as Exhibit
B;
(ii) an Assignment and Assumption Agreement covering the Assumed
Liabilities, in the form attached hereto as Exhibit C.
(iii) all titles, registrations and other evidence of ownership and
keys for any equipment, including vehicles, constituting part of the
Acquired Assets;
(iv) all customer and supplier lists, price lists, together with
copies of the files, books and records maintained by the Seller in
connection with the operation of the Distribution Division and
constituting Acquired Assets where located, which lists shall be or
have been delivered to the Buyer at the First Closing and which files,
books and records shall be located at the Seller's addresses listed on
a supplemental schedule delivered by the Seller to the Buyer at the
First Closing;
(v) all written Open Sourcing Orders or Contracts and Open Purchase
Orders or Contracts constituting Acquired Assets;
(vi) copies of all consents and approvals of third parties required in
connection with the transactions contemplated hereunder;
(vii) duly executed releases of any Person that may have a Lien on any
of the Acquired Assets other than the Accounts Receivable;
(viii) a certified copy of corporate resolutions of the Board of
Directors of the Seller, authorizing the transactions contemplated
under, and the consummation of, this Agreement;
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(ix) the lease and licenses for premises identified on Schedule 3.11 ,
in the forms attached hereto as Exhibit G, H, and I, respectively (the
"Real Estate Lease and Licenses") (the Buyer hereby acknowledges that
consents of landlords for the premises located in Florida and Puerto
Rico listed on Schedule 3.11 shall not be sought by the Seller);
(x) a certificate of the Chief Financial Officer of the Seller showing
that all Accounts Payable of or relating to the Distribution Division
(other than Disputed Accounts Payable) are within 60 days of their
respective Due Dates and a true, correct and complete record
reflecting the current aging of all Accounts Payable of or relating to
the Distribution Division, including all Disputed Accounts Payable,
the nature of the dispute relating thereto and the actions taken and
proposed to be taken by the Seller or its respective subsidiary or
affiliate in its effort to resolve the applicable dispute;
(xi) a certificate of the Chief Financial Officer of the Seller
setting forth each Account Receivable as of the First Closing Date and
the status as of such date of efforts made by the Seller to collect
such Account Receivable;
(xii) an opinion of Seller's counsel in the form attached hereto as
Exhibit D;
(xiii) evidence satisfactory to the Buyer of the Seller's change of
name from Eastco Industrial Safety Corp. to a name that does not
include the word "Eastco";
(xiv) evidence satisfactory to the Buyer of the change of name of
Puerto Rico Safety Corp. to a name that does not include the words
"Puerto Rico Safety";
(xv) the actual Acquired Assets (other than the Accounts Receivable),
which deliveries shall be made at the applicable locations set forth
on Schedule 3.13;
(xvi) state sale tax returns ("State Sales Tax Returns") for sales
taxes due on the Acquired Assets identified on Schedule 3.13 hereof
which returns shall have valued such assets in accordance with the
allocation of the Purchase Price as provided in Section 2.7; and
(xvii) such other certificates, instruments and documents as the Buyer
may reasonably request.
(b) At the First Closing, the Buyer shall deliver to the Seller:
(i) that portion of the Initial Purchase Price due and payable in cash
on the First Closing Date;
(ii) the Buyer's Note in the form of Exhibit A;
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(iii) an opinion of the Buyer's counsel in the form attached hereto as
Exhibit E;
(iv) a corporate resolution of the Buyer authorizing the transaction
described herein;
(v) a certificate of the Buyer setting forth those Excluded Assets
referred to in subclause (e) of the definition Excluded Assets; and
(vi) such other certificates, instruments and documents as the Seller
may reasonably require;
(vii) a check (s) in the appropriate amounts for each of New York,
Florida and Puerto Rico as applicable (the "Sales Tax Checks"), made
payable to the appropriate taxing authority of the foregoing
jurisdictions, as payments in full of sales taxes in connection with
the sale of the tangible assets listed on Schedule 3.13 hereof and in
conformity with amounts due as indicated on the State Sales Tax
Returns.
(viii) Real Estate Lease and Licenses.
2.6 Deliveries at the Accounts Receivable Closing.
(a) At the Accounts Receivable Closing, the Seller shall deliver to the
Buyer:
(i) a Bill of Sale and Assignment covering the Accounts Receivable in
the form attached hereto as Exhibit B;
(ii) the complete and accurate books and other records reflecting all
significant aspects of each account included in the Accounts
Receivable;
(iii) a certificate of the Chief Financial Officer of the Seller
showing all Accounts Receivable as of the Accounts Receivable Closing
Date and the status as of such date of the efforts made by the Seller
to collect such Accounts Receivable.
(iv) a certificate of the Chief Financial Officer of the Seller
showing that all Accounts Payable of or relating to the Distribution
Division (other than Disputed Accounts Payable) are within 60 days of
their respective Due Dates and a true, correct and complete record
reflecting the current aging of all Accounts Payable of or relating to
the Distribution Division, including all Disputed Accounts Payable,
the nature of the dispute relating thereto and the actions taken and
proposed to be taken by the Seller or its respective subsidiary or
affiliate in its effort to resolve the applicable dispute;
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(v) a true and correct copy of the Valuation Statement, as the same
may have been adjusted in accordance with Section 2.3(f) hereof;
(vi) the Balance as defined in Section 2.3(f) (ii), if any in cash;
and
(vii) such other certificates, instruments and documents as the Buyer
may reasonably require.
(b) At the Accounts Receivable Closing, the Buyer shall deliver to the
Seller:
(i) the Accounts Receivable Purchase Price, the Excess Inventory
Amount, if any, plus or minus any adjustment pursuant to the Purchase
Price determined in accordance with Section 2.3(f) hereof in cash
(including distributions by the Escrow Agents of any amounts held in
the Escrow Account pursuant to Section 2.3(c)(iii); and
(ii) such certificates, instruments and documents as the Seller may
reasonably require.
2.7 Allocation. The Parties agree to allocate the Purchase Price among the
Acquired Assets and the non-competition agreement set forth in Section 6.5
hereof, for all purposes including IRS Form 8594 (including financial accounting
and tax purposes) in accordance with the allocation schedule attached hereto as
Exhibit F.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer that the statements
contained in this Article III are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article III), except as set forth in the disclosure
schedule accompanying this Agreement (the "Disclosure Schedule").
3.1 Organization of the Seller and the Manufacturing Subsidiaries. The
Seller is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. Each of the
Manufacturing Subsidiaries is directly or indirectly a wholly owned subsidiary
of the Seller. The Seller and each of the Manufacturing Subsidiaries is engaged
primarily in the line(s) of business set forth next to the name of such Person
on Schedule 3.1. The Seller does not have any subsidiary other than the
Manufacturing Subsidiaries and Puerto Rico Safety Corp.
3.2 Authorization of Transaction. The Seller has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its
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obligations hereunder. Without limiting the generality of the foregoing, the
board of directors of the Seller have duly authorized the execution, delivery,
and performance of this Agreement by the Seller. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions.
3.3 Noncontravention. Except as set forth in Schedule 3.3, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (a) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the Seller
or the Distribution Division is subject or any provision of the charter or
by-laws of the Seller; or (b) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Seller or the Distribution Division is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Lien upon
any of its assets). Neither the Seller nor the Distribution Division needs to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
3.4 Brokers' Fees. The Seller has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
3.5 Title to Assets. The Seller has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by the Distribution
Division, and all tangible properties and assets used by the Distribution
Division are located on the premises occupied or used by the Distribution
Division and listed on Schedule 3.11. The Seller owns all of the Acquired Assets
and on the First Closing Date, the Seller will have good and marketable title to
all of the Acquired Assets (other than the Accounts Receivable), free and clear
of any Liens or restrictions on transfer and on the Accounts Receivable Closing
Date, the Seller will have good and marketable title to the Accounts Receivable,
free and clear of any Liens or restrictions on transfer.
3.6 Financial Statements. Attached hereto as Schedule 3.6 is a list of
financial statements (collectively the "Financial Statements") delivered to the
Buyer on or prior to the date hereof: (i) audited consolidated balance sheets
and statements of income, changes in shareholders' equity and cash flow as of
and for the fiscal years ended June 30, 1996, June 30, 1997 and June 30, 1998
(the "Most Recent Fiscal Year End") for the Seller and (ii) unaudited
consolidated balance sheets and statements of income, changes in shareholders'
equity, and cash flow (the "Most Recent Financial Statements") as of and for the
three months ended September 30, 1998 (the "Most Recent Fiscal Month End") of
the Seller. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Seller
(and of the Distribution Division to the extent such Financial Statements
contain
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applicable industry segment information) as of such dates and the results of
operations of the Seller (and the Distribution Division to the extent such
Financial Statement contain applicable industry segment information) for such
periods, are correct and complete, and are consistent with the books and records
of the Seller and the Distribution Division, which books and records are correct
and complete; provided, however, that the Most Recent Financial Statements are
subject to normal year-end adjustments (which will not be material individually
or in the aggregate) and lack footnotes and other presentation items.
3.7 Events Subsequent to Most Recent Fiscal Year End. Except as set forth
on Schedule 3.7, since the Most Recent Fiscal Year End, there has not been any
material adverse change in the business, financial condition, operations,
results of operations, or, to the Knowledge of the Seller, in the future
prospects, of the Distribution Division. Without limiting the generality of the
foregoing, since that date:
(a) the Distribution Division has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(b) the Distribution Division has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $35,000 or outside the Ordinary Course of
Business;
(c) the Distribution Division has not accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than $25,000 to
which the Distribution Division is a party or by which any of them is bound;
(d) neither the Seller nor the Distribution Division has permitted any Lien
to be imposed upon any of the Acquired Assets, tangible or intangible;
(e) neither the Seller nor the Distribution Division has delayed or
postponed the payment of Accounts Payable or any other Liabilities applicable to
the Distribution Division;
(f) neither the Seller nor the Distribution Division has granted any
license or sublicense of any rights under or with respect to any Intellectual
Property used or useful in the conduct of the business of the Distribution
Division;
(g) the Distribution Division has not experienced any damage, destruction,
or loss (whether or not covered by insurance) to any property used or useful in
the conduct of the business of the Distribution Division; and
(h) there has not been any other material occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of Business
involving the Distribution Division or any Acquired Asset.
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3.8 Undisclosed Liabilities. Except as set forth on Schedule 3.8 since
January 1, 1999, none of the Seller and the Distribution Division has any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (i) Liabilities set forth
in the Most Recent Balance Sheet of the Seller (including in any notes thereto)
and (ii) Liabilities which have arisen after the Most Recent Fiscal Month End in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law).
3.9 Legal Compliance. Each of the Seller and the Distribution Division and
each of their predecessors has complied with all applicable laws (including
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
3.10 Tax Matters.
(a) The Seller has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed by
the Seller (whether or not shown on any Tax Return) have been paid. No claim has
ever been made by an Authority in a jurisdiction where the Seller does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no Liens on any of the Acquired Assets that arose in connection with any
failure (or alleged failure) to pay any Tax.
(b) The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) The Seller does not expect any authority to assess any additional Taxes
with respect to the business conducted by the Distribution Division for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of or arising in connection with the business
conducted by the Distribution Division either claimed or raised by any authority
in writing or based upon formal communications with any agent of such authority.
Schedule 3.10(c) lists, all federal, state, local, and foreign income Tax
Returns filed with respect to the Seller for the taxable periods ended on or
after June 30, 1997 indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The Seller
has delivered to the Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Seller since June 30, 1997 that relate to the business
conducted by the Distribution Division or the Acquired Assets.
(d) The Seller has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
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3.11 Real Estate.
(a) Schedule 3.11 identifies all real estate that is the subject of the
Real Estate Lease and Licenses. For purposes hereof the real property identified
as item A on Schedule 3.11 is referred to as the "Huntington Property." For
purposes of the following the leases between the Seller and the landlords of the
real property in Florida and Puerto Rico identified as items B and C on Schedule
3.11 are referred to herein as the "Underlying Leases". The Seller has delivered
to the Buyer correct and complete copies of the Underlying Leases. With respect
to the Real Estate Lease and Licenses and the Underlying Leases.
(i) The Seller owns the Huntington Property, has the right to use the
property as its is currently used and has all necessary power, rights
and authority to execute, deliver and consummate the Real Property
Lease;
(ii) Except as disclosed in Schedule 3.11, the Seller has all the
necessary power, rights, authority and consents to execute, deliver
and consummate the licenses, except that the execution and delivery of
the Real Property Licenses will not be with the consent of the
landlords of the applicable premises;
(iii) The Underlying Lease for the Puerto Rico premises is legal,
valid, binding, enforceable, and in full force and effect;
(iv) Neither the Seller nor Disposable Safety Wear Corp. with respect
to the facility in Puerto Rico is, and to the Seller's Knowledge no
other party to the Underlying Leases covering prior to the First
Closing Date, is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(v) Neither the Seller, nor Disposable Safety Wear Corp. with respect
to the facility in Puerto Rico has, and to the Seller's Knowledge no
other party to the Underlying Lease covering such facility has
repudiated any provision thereof;
(vi) There are no disputes, oral agreements, or forbearance programs
in effect as to any Underlying Lease;
(vii) Neither the Seller nor Disposable Safety Wear Corp. with respect
to the facility in Puerto Rico has and to the Seller's Knowledge no
other party has assigned, transferred, conveyed, mortgaged, deeded in
trust, or encumbered any interest in the leasehold;
(viii) All facilities of the Distribution Division located on the real
estate identified on Schedule 3.11 have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the operation thereof and have been operated and
maintained in accordance with
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applicable laws, rules, and regulations; and
(ix) All facilities of the Distribution Division located on the real
estate identified on Schedule 3.11 are supplied with utilities and
other services necessary for the operation of said facilities.
3.12 Intellectual Property.
(a) The Seller has taken actions necessary to maintain and protect its
intellectual property right in the website www.eastco.com.
(b) With respect to the Intellectual Properties identified in Schedule
3.12:
(i) the Seller possess all right, title, and interest in and to the
website www.eastco.com, free and clear of any Lien, license, or other
restriction;
(ii) none of the Intellectual Properties is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the Intellectual Property; and
(iv) the Seller has been using the name Eastco Industrial Safety and
Puerto Rico Safety Corp. has been using the name Puerto Rico Safety
since the respective dates of their incorporation and for the four (4)
years prior to the date hereof, to the Knowledge of the Seller, no
Person has objected the Seller's use of the foregoing names or
attempted by any means to stop or prevent the Seller from using the
foregoing names.
(c) Schedule 3.12 identifies each item of Intellectual Property that is
owned by a third party (the "Third Party Intellectual Property") and that the
Distribution Division uses pursuant to license, sublicense, agreement, or
permission. The Seller has delivered to the Buyer correct and complete copies of
all such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Third Party Intellectual Property identified
in Schedule 3.12:
(i) the license, sublicense, agreement, or permission covering the
item is legal, valid, binding, enforceable, and in full force and
effect;
(ii) the license, sublicense, agreement, or permission will continue
to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions
contemplated hereby;
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(iii) no party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true
and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject to
any outstanding injunction, judgment, order, decree, ruling, or
charge;
(vii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
(viii) no sublicense or similar right with respect to the license,
sublicense, agreement, or permission has been granted.
3.13 Tangible Assets. To the Seller's Knowledge, every tangible Acquired
Asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used and presently is proposed to be used. Set forth on
Schedule 3.13 is a complete list of all office and warehouse equipment,
furniture, fixtures and catalogs of or relating to the Distribution Division,
including the location of same and any leases or other agreements with respect
thereto.
3.14 Inventory. All of the Inventory is merchantable and fit for the
purpose for which it was procured or manufactured, and none of it is
slow-moving, obsolete, damaged, or defective. All of the Inventory meets the
criteria set forth in subclauses (a) through (i) and subclause (k) of the
definition Inventory set forth in Section 1.1 hereof, except for the Inventory
to be acquired by the Buyer pursuant to subclause (e) of the definition
Inventory set forth in Section 1.1 hereof.
3.15 Open Sourcing Orders or Contracts, Open Purchase Orders or Contracts,
Agreements, Leases and Licenses. Set forth on Schedule 3.15 is a complete list
of all Open Sourcing Orders or Contracts, all Open Purchase Orders or Contracts,
and any other agreements or leases relating to the Acquired Assets. The Seller
agrees to update such list as of the First Closing Date. The Seller has
delivered to the Buyer a correct and complete copy of each written agreement
constituting any lease, license, order, contract or other agreements described
on Schedules 3.11, 3.12, 3.13 and 3.15 and will deliver to the Seller a true and
correct copy of any Open Sourcing Order or Contract and any Open Purchase Order
or Contract arising from the date
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hereof until the Closing Date. With respect to each such order, contract,
agreement, license or lease, (a) the order, contract, agreement, license or
lease is legal, valid, binding, enforceable, and in full force and effect in
accordance with their terms; (b) the order, contract, agreement, license or
lease will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the transactions
contemplated hereby; (c) no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the order,
contract, agreement, license or lease; and (d) no party has repudiated any
provision of the order, contract, agreement, license or lease. Notwithstanding
the foregoing, no representation is given regarding the need to obtain the
consent of the other party to any Open Sourcing Order or Contract or Open
Purchase Order or Contract and Buyer agrees to complete each such agreement
specified in Schedule 3.15 without the consent of the other party thereto to the
extent that such Open Sourcing Order or Contract or Open Purchase Order or
Contract constitutes an Acquired Asset and the other party thereto does not
object to Buyer's completion.
3.16 Accounts Receivable. All Accounts Receivable are reflected properly on
the Seller's books and records, are valid receivables subject to no setoffs,
changes, credits or defenses of any nature, are current and are expected to be
collected in accordance with their terms at their recorded amounts.
3.17 Conduct of Business. Between January 1, 1998 and the First Closing
Date, the Seller has conducted the business of the Distribution Division in a
manner identical to that with which the Seller customarily conducted the
Distribution Division's business prior to January 1, 1998 and there has been no
disposition of assets of the Distribution Division other than sales of inventory
in the Ordinary Course of Business of the Distribution Division.
3.18. No Pending Litigation or Proceedings. Except as disclosed in the
Seller's Annual Report on Form 10-K for the year ended June 30, 1998 or the
Seller's Quarterly Report on Form 10-Q for the three months ended September 30,
1998, or as set forth on Schedule 3.18 or claims or suits for monies due to the
Seller, there are no actions, suits, investigations or proceedings pending or,
to the best of Sellers' knowledge, threatened against or affecting, the
Distribution Division or any of the Acquired Assets before any court, arbitrator
or Authority.
3.19 Environmental Matters.
(a) To the Seller's knowledge the business of the Distribution Division has
been conducted in compliance with all, and the conduct thereof is not in
violation of any, applicable environmental laws, rules, regulations, ordinances
and orders of any Authority, including those relating to Hazardous Substances.
(b) No notice, citation, summons or order has been issued, no complaint has
been filed, no penalty has been assessed and no investigation or review is
pending or, to the Seller's knowledge, threatened by any Authority or other
person with respect to (i) any alleged violation by the Seller in the conduct of
the business of the Distribution Division of any environmental
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statute, ordinance, rule, regulation or order of any Authority; (ii) any alleged
failure by the Seller to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with the conduct
of the business of the Distribution Division; or (iii) any generation,
treatment, storage, recycling, transportation or disposal of any Hazardous
Substances by the Seller in connection with the conduct of the business of the
Distribution Division.
(c) The Seller has not received any request for information, notice of
claim, demand or other notification that it is or may be potentially responsible
with respect to any investigation or clean-up of any threatened or actual
release of any Hazardous Substances of or in connection with the operation of
the Distribution Division.
(d) No Hazardous Substances generated in the conduct of the business of the
Distribution Division have been recycled, treated, stored, disposed of or
transported by any Person except in full compliance with all applicable laws.
(e) Except as described in Schedule 3.19 hereto and, to the best of
Seller's knowledge, there have been no environmental inspections,
investigations, studies, audits, tests, reviews or other analyses conducted in
relation to either of the business of the Distribution Division.
(f) To the best of Sellers' knowledge, there are no facts or circumstances
related to environmental matters concerning the conduct of the business of the
Distribution Division that could lead to any future environmental claims,
liabilities or responsibilities against Seller's, insofar as such claims relate
to the business of the Distribution Division or the Acquired Assets.
3.20 Consents. Except as described on Schedule 3.20 hereto, no consent,
approval or authorization of, or registration or filing with, any Person, is
required in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, and the Buyer expressly
waives the consents of landlords for licenses to access and use the Florida and
Puerto Rico premises identified in Schedule 3.11.
3.21 Insurance. Attached hereto as Schedule 3.21 (a) is a complete and
correct list of all policies of insurance covering any of the Acquired Assets,
indicating for each policy the carrier, risks insured, the amounts of coverage,
deductible, premium rate, expiration date and any pending claims thereunder. All
such policies are outstanding and in full force and effect and will remain so
until the First Closing Date. Attached hereto as Schedule 3.21(b) is a complete
and correct list of all product liability insurance maintained by the Seller or
any of its subsidiaries and affiliates since April 23, 1993 covering any
products manufactured and shipped by the Seller or any of the Manufacturing
Subsidiaries on or prior to the First Closing Date and such insurance as
identified in items B, C, D and E of Schedule 3.21(b) is believed to be
applicable for asbestos coverage.
3.22 Products Liability. Except as set forth on Schedule 3.18, there are no
(a) Liabilities of the Seller, fixed or contingent, asserted or, to the Seller's
knowledge, unasserted,
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with respect to any product or service sold by the Seller through the
Distribution Division, or (b) Liabilities of the Seller, fixed or contingent,
asserted or to the Seller's knowledge unasserted, with respect to any claim for
the breach of any express or implied product or service warranty or any other
similar claim with respect to any product or service sold by the Seller through
the Distribution Division to others.
3.23 Arm's Length Transactions. All transactions by the Seller with
suppliers, customers and other parties of or relating to the Distribution
Division are and have been conducted on an arm's length basis.
3.24 Suppliers. Schedule 3.24 sets forth a complete and accurate list of
all suppliers with which the Seller has transacted business since January 1,
1998. The Seller has not received any notice or communication which would
reasonably lead it to believe that there is a substantial probability that any
of such suppliers will refuse to do business with the Buyer after the
consummation of the transactions contemplated by this Agreement.
3.25 Records. The books and records of the Seller related to the
Distribution Division are true and complete in all material respects.
3.26 Customers. Schedule 3.26(a) sets forth a complete and accurate list of
all customers of the Distribution Division since January 1, 1998 and Schedule
3.26(b) sets forth a complete and accurate list of all end-users of safety
products sold by the Seller and any other division, subsidiary or affiliate of
the Seller since January 1, 1998.
3.27 Employees and Employee Benefits. Set forth on Schedule 3.27 is a true
and correct list of all Persons employed by the Seller in the Distribution
Division on the date hereof setting forth the name and title of such Person, the
annual compensation of such Person, the Seller's vacation and personal day
policy with respect to such Person, any health or life insurance benefits or any
pension benefits or plan in which such Person participates and any accrued and
unpaid benefits of such Person.
3.28 Business of Seller. In addition to owning and operating the
Distribution Division, the Seller engages in the business of sourcing and buying
raw materials for and selling such raw materials to the Manufacturing
Subsidiaries and the Seller has no present intention of ceasing its business
activities or dissolving or otherwise terminating or curtailing its activities,
except as provided in Section 6.5 hereof.
3.29 Solvency. The Seller and each of the Manufacturing Subsidiaries is and
after giving effect to the transactions contemplated herein, each of them will
be solvent and able to pay its debts when due.
3.30 Completeness. This Agreement, the Exhibits, Schedules and all other
materials and information supplied to the Buyer by or on behalf of the Seller
relating to the Distribution Division and the Acquired Assets, do not contain
any untrue statements of material fact or omit
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to state a material fact necessary to make the statements herein contained not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller that the statements
contained in this Article IV are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article IV), except as set forth in the Disclosure
Schedule.
4.1 Organization of the Buyer. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation.
4.2 Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement, the Buyer's Note and to perform its obligations hereunder and
thereunder. Without limiting the generality of the foregoing, the Board of
Directors of the Buyer has duly authorized the execution and delivery and
performance of this Agreement and the Buyer's Note, by the Buyer. This Agreement
constitutes and the Buyer's Note, when executed and delivered in accordance with
the terms hereof, will constitute the valid and legally binding obligations of
the Buyer, enforceable in accordance with their respective terms and conditions.
4.3 Noncontravention. Except for the consent of the Buyer's principal
lender, which consent have been obtained on or prior to the First Closing,
neither the execution and the delivery of this Agreement, the Buyer's Note nor
the consummation of the transactions contemplated hereby, will (a) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of its charter or bylaws or
(b) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject. The Buyer does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement.
4.4 Brokers' Fees. The Buyer has no Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which the Seller could become liable or
obligated.
4.5 Financial Statements. Attached hereto as Schedule 4.5 is a list of
financial statements (collectively the "Buyer's Financial Statements") delivered
to the Seller on or prior to
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the date hereof: (i) audited balance sheets and statements of income, changes in
control account and cash flow as of and for the fiscal year ended December 31,
1997 (the "Buyer's Most Recent Fiscal Year End") for the Buyer; and (ii) an
internally prepared balance sheet and an internally prepared total company
income statement for the ten (10) months ended October 31, 1998 (the "Buyer's
Most Recent Fiscal Month End") for the Buyer. The Buyer's Financial Statements
(including any notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Buyer, as of such dates and the results of operations
of the Buyer, for such periods, are correct and complete, and are consistent
with the books and records of the Buyer which books and records are correct and
complete; provided, however, that the Buyer's Most Recent Financial Statements
are subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack footnotes and other presentation
items. Since the date of the Buyer's Most Recent Fiscal Month End, there have
been no adverse changes that will materially adversely affect the financial
condition of the Buyer.
4.6 Tax Matters.
(a) The Buyer has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed by
the Seller (whether or not shown on any Tax Return) have been paid. No claim has
ever been made by an Authority in a jurisdiction where the Seller does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction. There
are no Liens on any of the Acquired Assets that arose in connection with any
failure (or alleged failure) to pay any Tax.
(b) The Buyer has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) The Buyer has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
4.7. No Pending Litigation or Proceedings. Except as disclosed in Schedule
4.7, there are no actions, suits, investigations or proceedings pending or, to
the best of Buyer's knowledge, threatened against or affecting, the Buyer or any
of its assets before any court, arbitrator or Authority.
4.8 Solvency. The Buyer is and after giving effect to the transactions
contemplated herein will be solvent and able to pay its debts when due.
4.9 Completeness. This Agreement, the Exhibits, Schedules and all other
materials and information supplied to the Seller by or on behalf of the Buyer
relating to the Buyer, do not contain any untrue statements of material fact or
omit to state a material fact necessary to make the statements herein contained
not misleading.
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ARTICLE V
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Accounts Receivable Closing.
5.1 General. Each of the Parties will use its best efforts to take all
action and to do all things necessary or advisable in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article VII
below).
5.2 Notices and Consents. The Seller will give (and will cause the
Distribution Division to give) any notices to third parties, and the Seller will
use its best efforts (and will cause the Distribution Division to use its best
efforts) to obtain any third party consents, that the Buyer reasonably may
request in connection with the transactions contemplated herein and the matters
referred to in Article III above. Each of the Parties will (and the Seller will
cause the Distribution Division to) give any notices to, make any filings with,
and use its best efforts to obtain any authorizations, consents, and approvals
of any Authority in connection with the matters referred to in Article III and
Article IV above. Without limiting the generality of the foregoing, each of the
Parties will file (and the Seller will cause the Distribution Division to file)
any notification and report forms and related material that it may be required
to file with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the Hart-Scott-Rodino Act, will use
its best efforts to obtain (and the Seller will cause the Distribution Division
to use its best efforts to obtain) an early termination of the applicable
waiting period, and will make (and the Seller will cause the Distribution
Division to make) any further filings pursuant thereto that may be necessary,
proper, or advisable in connection therewith.
5.3 Preservation of Business.
(a) The Seller will cause the Distribution Division to keep its business
and properties substantially intact, including its present operations, physical
facilities, Intellectual Property, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees, except that the Seller
may close its facility in Newington, Connecticut and consolidate the tangible
assets of such facility with the Seller's facility in Huntington Station, New
York.
(b) The Seller will conduct the businesses of the Distribution Division in
a manner
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consistent with the Distribution Division's past custom and practice.
5.4 Full Access. The Seller will permit (and will cause the Distribution
Division to permit) representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Distribution Division, to all premises, properties,
personnel, books, records (including Tax records), contracts, licenses, leases,
applications and documents of or pertaining to the Distribution Division.
5.5 Notice of Developments. Each Party will give prompt written notice to
the other Party of any material adverse development causing a breach of any of
its own representations and warranties as contained in this Agreement. No
disclosure by any Party pursuant to this Section 5.5, however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
5.6 Exclusivity. The Seller will not (i) solicit, initiate, or encourage
the submission of any proposal or offer from any Person relating to the
acquisition of any substantial portion of the assets or business of the
Distribution Division or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Seller will notify the Buyer immediately if any Person
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
5.7 Right of the Buyer to Purchase Products Prior to First Closing Date.
Prior to the First Closing Date, the Buyer shall have the right to purchase from
the Seller, and the Seller shall have the obligation to sell to the Buyer, all
of the Buyer's requirements for products carried in the inventory of the
Distribution Division, except inventory manufactured by the Seller or its
Manufacturing Subsidiaries, to the extent the Seller is reasonably able to
supply same bearing in mind the Seller's commitments to others, and the Buyer
shall be obligated to pay for such products on the sooner to occur of the tenth
(10th) day after the applicable invoice therefor or the First Closing Date, and
the price of such products purchased by the Buyer shall be equal to the Seller's
actual cost of such products plus Vendor Average Freight Expenses incurred in
connection with each such product plus any applicable sales taxes therefor, and
freight charges to a facility designated by the Buyer; provided that if the
transactions contemplated herein are not consummated, the Buyer shall pay the
Seller an amount equal to 20% of the aggregate actual cost of the products
purchased pursuant to this Section 5.7.
5.8 Payment of Accounts Payable of the Distribution Division. From and
after the date hereof, the Seller will cause all payments to be made on all
Accounts Payable arising in connection with the operation of the business of the
Distribution Division so that all such Accounts Payable shall be paid in full
within 60 days of their respective Due Dates except for any Disputed Accounts
Payable. To the extent that on the First Closing Date, any such account payable
other than a Disputed Account Payable has not been paid within 60 days of its
Due Date, the Buyer may make such payments directly to the applicable payee and
debit the amounts so paid from the cash portion of the Initial Purchase Price.
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5.9 Corporate Examinations and Investigations. Prior to the First Closing
Date, the Seller agrees that the Buyer shall be entitled, by itself and through
its representatives ("Representatives"), to make such investigation of the
properties, businesses and operations of the Seller (other than its
Manufacturing Business and other than the properties, business and operations of
the Manufacturing Subsidiaries) and the Distribution Division, and such
examination of the books, records and financial condition of the Seller and the
Distribution Division, as the Buyer may reasonably request. Any such
investigation and examination shall be conducted under reasonable circumstances,
and the Seller shall cooperate fully therein. No investigation by the Buyer
shall diminish or obviate any of the representations, warranties, covenants or
agreements of the Seller contained in this Agreement. In order for the Buyer to
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Seller and the Distribution Division, the Seller and the Distribution
Division shall make available to the Buyer or the Representatives during such
period all such information and copies of documents concerning the affairs of
the Seller and the Distribution Division as the Buyer or the Representatives may
reasonably request, shall permit the Buyer or the Representatives access to the
properties of the Seller and all parts thereof and shall cause their officers,
employees, consultants, agents, accountants and attorneys to cooperate fully
with the Buyer or the Representatives in connection with such review and
examination. The Seller shall make available to the Buyer and the
Representatives during such period all reports, assessments, audits, review,
analysis and other documents or correspondence in the possession or control of
the Seller relating to the Acquired Assets.
ARTICLE VI
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the First
Closing Date.
6.1 General. In case at any time after the First Closing Date, any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other Party may
reasonably request, on the sole cost and expense of the requesting Party (unless
the requesting Party is entitled to indemnification therefor under Article VIII
below).
6.2 Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the First
Closing Date involving the Distribution Division, the other Party will cooperate
with the contesting or defending Party and its counsel in the contest or
defense, make available its personnel, and provide such testimony
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and access to its books and records as shall be necessary in connection with the
contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Article VIII below).
6.3 Transition. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Distribution Division from
maintaining the same business relationships with the Buyer after the First
Closing Date as it maintained with the Distribution Division prior to the First
Closing. The Seller will refer all customer inquiries relating to the business
of the Distribution Division to the Buyer from and after the First Closing Date.
6.4 Confidentiality. (a) The Seller will treat and hold as such all of the
Confidential Information designated as such by Buyer, whether such information
is disclosed to the Seller or such information is obtained from sources other
than the Buyer, provided such information is related to businesses currently
carried on by the Buyer or proposed to be engaged in by the Buyer immediately
after the First Closing Date, including the businesses of the Distribution
Division and refrain from using any of such Confidential Information except in
connection with this Agreement, and deliver promptly to the Buyer or destroy, at
the request and option of the Buyer, all tangible embodiments (and all copies)
of the Confidential Information which are in its possession. In the event that
the Seller is requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 6.4. If, in the absence of a
protective order or the receipt of a waiver hereunder, the Seller is, on the
advice of counsel reasonably acceptable to the Buyer's counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, the Seller may disclose the Confidential Information to the tribunal;
provided, however, that the Seller shall use its best efforts to obtain, at the
reasonable request and reasonable expense of the Buyer, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Buyer shall designate.
(b) The Buyer will treat and hold as such all of the Confidential
Information designated as such by Seller, other than that of the Distribution
Division, concerning the business and affair of the Seller, which is not already
generally available to the public, whether such information is disclosed to the
Buyer or such information is obtained from sources other than the Seller,
provided such information is related to businesses carried on immediately after
the First Closing Date by the Seller or proposed to be engaged in by the Seller,
other than the business of the Distribution Division and the Buyer shall refrain
from using any of such information except in connection with this Agreement, and
deliver promptly to the Seller or destroy, at the request and option of the
Seller, all tangible embodiments (and all copies) of such information which are
in its possession. In the event that the Buyer is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose such information, the Buyer will notify the Seller
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promptly of the request or requirement so that the Seller may seek an
appropriate protective order or waive compliance with the provisions of this
Section 6.4. If, in the absence of a protective order or the receipt of a waiver
hereunder, the Buyer is, on the advice of counsel reasonably acceptable to the
Seller's counsel, compelled to disclose any such information to any tribunal or
else stand liable for contempt, the Buyer may disclose such information to the
tribunal; provided, however, that the Buyer shall use its best efforts to
obtain, at the reasonable request and reasonable expenses of the Seller, an
order or other assurance that confidential treatment will be accorded to such
portion of such information required to be disclosed as the Seller shall
designate.
6.5 Covenant Not to Compete.
(a) Subject to Section 6.5(b), (c) and (d) below, for a period of five(5)
years from and after the First Closing Date, the Seller: (i) will not engage,
directly or indirectly through any subsidiary, affiliate or any Person in which
the Seller, directly or indirectly, has an interest (A) in the business
conducted by the Distribution Division prior to the First Closing Date or (B) in
the business of selling products marketed under the trade names Worksafe,
Charkate, Charkate/Worksafe or Puerto Rico Safety, or any similar tradenames or
any products similar to the safety products now or hereafter bearing such trade
names whether or not such products are manufactured by the Seller, the
Manufacturing Subsidiaries or Persons in which the Seller, directly or
indirectly has an interest, to the end-users of such products (as distinguished
from distributors of such products), including manufacturing companies and
service businesses, public utilities, fisheries, pharmaceutical plants, the
transportation industry and companies engaged in hazardous materials abatement;
provided that subject to Section 6.5(a) the Seller may use the trade names
Worksafe, Charkate, Charkate/Worksafe or Puerto Rico Safety in connection with
the Manufacturing Business and permissible sales under Section 6.5(b)(i)(ii) and
(iii); or (ii) advise, provide consulting services to, manage or otherwise
invest or have an interest in any Person in any of the businesses described in
subclause (i) of this Section 6.5(a).
(b) Notwithstanding the foregoing, the Seller may: (i) sell any safety
products to Excluded Customers and to the third party of any Open Purchase Order
or Contract that does not constitute an Acquired Asset or which constitutes an
Acquired Asset but cannot be completed by the Buyer; (ii) sell safety products
manufactured by the Seller or any of its subsidiaries and affiliates directly to
the U.S. government or any agency thereof, provided that the Seller advises the
Buyer in writing at least five (5) days in advance of the first to occur of (A)
the response of the Seller or any of its subsidiaries or affiliates to a request
for a proposal for such safety products issued by the U.S. Government or agency
thereof, or (B) the sale of such safety products by the Seller or any of its
subsidiaries or affiliates to the U. S. Government or agency thereof; provided
however that the Seller's obligations to give the Buyer advanced notice under
this Section 6.5(b)(ii) shall be reduced to fewer than five (5) days if the
Seller is required to respond to such request for proposal or the government's
offer to purchase safety products within a shorter period of time) and (iii)
sell to end-users safety products manufactured by the Manufacturing
Subsidiaries, but only if during each consecutive 12 month period (each an
"Annual Period") in the period beginning on the First Closing Date and ending on
the fifth (5th)
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anniversary of the First Closing Date, the Buyer has not purchased from the
Seller or the Manufacturing Subsidiaries safety products manufactured by any of
such Persons in an aggregate amount (the "Annual Minimum Purchases") equal to
not less than 90% of Last Year's Sales as such term is defined in Section
2.3(c)(i) hereof and as such amount is set forth on the Valuation Statement,
unless the Buyer's failure is occasioned by the Seller's and the Manufacturing
Subsidiaries' failure to have available for sale to the Buyer sufficient
quantities of those products of the type included in subclauses (a), (g), (h),
(i) and (k) of the definition Inventory. In making its purchase from the Seller
as and the Manufacturing Subsidiaries' provided in the preceding sentence, with
respect to each Annual Period the Buyer will endeavor to purchase not less than
40% of the Annual Minimum Purchases during the first six months of each Annual
Period and 60% of the Annual Minimum Purchases during the first nine months of
each Annual Period; provided that any safety products manufactured by the Seller
or the Manufacturing Subsidiaries which the Buyer purchases from the Seller or
the Manufacturing Subsidiaries on or after December 10, 1998, shall be credited
towards the satisfaction of the foregoing conditions for the first Annual
Period.
(c) Notwithstanding anything herein to the contrary, in addition to any
other remedy of the Seller under this Agreement, if the Buyer fails to purchase
the Accounts Receivable as provided herein or to pay the Excess Inventory
Amount, the obligations of the Seller and the Manufacturing Business under this
Section 6.5 shall terminate; provided that prior to the termination of the
obligations of the Seller and the Manufacturing Business under this Section 6.5,
the Seller shall notify the Buyer in writing and the Buyer shall have a period
of 30 days from and after the receipt of such notice to cure. Any good faith
dispute among the Parties regarding the amount of the Accounts Receivable to be
purchased by the Buyer pursuant to the terms of this Agreement shall be resolved
by the Parties hereto prior to the termination of the obligations under this
Section 6.5.
(d) If the final judgment of a court of competent jurisdiction declares
that any term or provision of this Section 6.5 is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
6.6 Buyer's Note. The Buyer's Note will be imprinted with a legend
substantially in the following form:
The payment of principal and interest on this Note is subject to certain
recoupment provisions set forth in an Asset Purchase Agreement dated as of
December ___, 1998 (the "Agreement") between the issuer of this Note and
the person to which this Note originally was issued. This Note was
originally issued on January ___, 1999, and has not been registered under
the Securities Act of 1933, as amended. The issuer of this Note will
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furnish a copy of the Asset Purchase Agreement to the holder hereof without
charge upon written request.
6.7 Payment of Accounts Payable Arising in Connection with the Operation of
the Distribution Division. From and after the First Closing Date, the Seller
agrees to make all payments on account of any Accounts Payable of the
Distribution Division other than Disputed Accounts Payable so that all such
Accounts Payable shall be paid in full within 60 days of their respective Due
Dates. After the First Closing Date on a monthly basis, the Seller shall furnish
the Buyer with written evidence showing that all such Accounts Payable have been
paid no later than 60 days after their respective Due Dates, together with a
current aging of such Accounts Payables and the amount and status of each
Disputed Accounts Payable and the actions being taken to resolve such dispute.
If the Seller fails to pay any Account Payable as required hereby other than a
Disputed Account Payable, the Buyer shall have the right to make payments
directly to the applicable payee and to deduct such payments from any amounts
then owed to the Seller, including under the Buyer Note; provided, however, that
the Buyer shall have notified the Seller of its intention to make such
payment(s) thirty (30) days in advance of the making thereof.
6.8 Distributorship. From and after the First Closing Date, the Seller will
cause the Buyer to be an authorized distributor of safety products manufactured
by the Seller and its subsidiaries and affiliates under the tradenames Charkate,
Worksafe or Charkate/Worksafe or any similar tradenames or any safety products
similar to the safety products now or hereafter bearing such tradenames (the
"Seller's Safety Products"). For a period of one (1) year following the First
Closing Date, when the Buyer is sourcing safety products similar to the Seller's
Safety Products for one or more of the Buyer's customers or potential customers,
the Buyer shall request the Seller to provide it with a quotation of the cost
and timing of filling such customer's order for safety products comparable to
the Seller's Safety Products. If the Seller timely responds to such request and
if the Seller's Safety Products are priced competitively and if the terms of
such sale are otherwise acceptable to the Buyer's customer, the Buyer shall
purchase Seller's Safety Products from the Seller or its subsidiaries or
affiliates, as the case may be. For a period of one (1) year following the First
Closing Date, upon the Seller's request and to the extent the Buyer is not
otherwise legally or contractually restricted, the Buyer shall at Seller's
reasonable request, supply the Seller with copies of quotes or invoices and/or
abstracts and any other means of addressing costs of goods therefrom for safety
products that compete with the safety products manufactured by the Seller or its
subsidiaries and affiliates under the tradenames Charkate, Worksafe or
Charkate/Worksafe or any similar tradenames. If the Buyer believes that it is
legally or contractual restricted from making the disclosures referred to in the
foregoing sentence, the Buyer shall so advise the Seller in reasonable detail.
6.9 Interference with Parties' Employees. In the event that the
transactions contemplated by this Agreement are not consummated prior to January
29, 2000, neither Party shall employ, directly or indirectly, any Person who was
an employee of the other Party at any time during the eighteen (18) month period
ending on January 29, 2000, without prior written consent of the other Party.
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6.10 Use of Name Puerto Rico Safety Equipment. From and after the First
Closing, the Buyer grants to Puerto Rico Safety Equipment Corporation the right
to use the name Puerto Rico Safety solely as part of its corporate name and such
right shall continue only so long as Puerto Rico Safety Equipment Corporation is
a direct or indirect wholly owned subsidiary of the Seller.
6.11 Unassignable Open Purchase Orders or Contracts and Open Sourcing
Orders or Contracts. The Buyer acknowledges that the Seller may not be able to
obtain consents with respect to the assignment of certain Open Purchase Orders
or Contracts and certain Open Sourcing Orders or Contracts identified on
Schedule 3.15. To the extent that any such order or contract is not assignable
but constitutes an Acquired Asset (an "Order"), the Buyer hereby agrees to
assume and complete such Order. To the extent that the Buyer is precluded from
completing the five (5) Orders, which are identified in Schedule 3.15 by an "x"
next to their names, solely on the basis that such Orders are not assignable,
the Buyer shall have the right to reduce up to an aggregate of $50,000 from the
principal amount then outstanding under the Buyer's Note and shall debit such
amount equally over the remaining installments due under such Buyer's Note;
provided, however, the Buyer may exercise such right only within the one (1)
year period immediately following the First Closing Date. Payments may only be
deducted to the extent that the Buyer has an identifiable loss of profits on
such Orders. The loss of profits with respect to an Order shall consist solely
of the difference between the price at which the goods would have been sold had
the Buyer completed such Order and the direct cost of such goods. Buyer shall
not be entitled to any other damage with respect to the situation contemplated
in this Section 6.11, other than as above provided.
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
7.1 Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the First
Closing and the Accounts Receivable Closing is subject to satisfaction of the
following conditions:
(a) the representations and warranties set forth in Article III above shall
be true and correct in all material respects at and as of the First Closing Date
and the Accounts Receivable Closing Date to the extent such representations and
warranties are related to the Accounts Receivable;
(b) the Seller shall have performed and complied with all of its covenants
hereunder in all material respects through the First Closing and the Accounts
Receivable Closing Date, as the case may be;
(c) the Seller and, if necessary, the Distribution Division shall have
procured all of the third party consents specified in Article V above;
(d) no action, suit, or proceeding shall be pending or threatened before
any court or
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quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (i) prevent consummation of any
of the transactions contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded or rescindable
following consummation, (iii) affect adversely the right of the Buyer to own the
Acquired Assets or to operate the former businesses of the Distribution Division
(and no such injunction, judgment, order, decree, ruling or change shall be in
effect);
(e) the Seller shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Article VII(a)-(d) is
satisfied in all respects;
(f) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the
Seller, the Distribution Division, and the Buyer shall have received all other
authorizations, consents, and approvals of governments and governmental agencies
referred to in Article III and Article IV above;
(g) the Buyer shall have received from counsel to the Seller an opinion in
form and substance as set forth in Exhibit D attached hereto, addressed to the
Buyer, and dated as of the First Closing Date;
(h) all actions to be taken by the Seller in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be satisfactory in form and substance to the Buyer;
(i) prior to the Accounts Receivable Closing, the Buyer shall have
completed the review of the status of the Accounts Receivable and shall have
identified such Accounts Receivable that it reasonably believes have suffered a
material adverse change, and any specific account so identified by the Buyer
shall not constitute a part of the Accounts Receivable; provided that the Buyer
shall notify the Seller in writing of the reasons it believes such account
receivable has suffered a material adverse change;
(j) No material adverse change shall have occurred to any of the Acquired
Assets or the business of the Distribution Division as of the First Closing Date
and the Accounts Receivable as of the Accounts Receivable Closing Date, as the
case may be;
(k) The Seller shall have changed its name from Eastco Industrial Safety
Corp. to Worksafe Industries, Inc.; and
(l) Puerto Rico Safety Corp. shall have changed its name to a name that
does not contain the words "Puerto Rico Safety".
The Buyer may waive any condition specified in this Section 7.1 if it executes a
writing so
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stating at or prior to the Closing Date.
7.2 Conditions to Obligation of the Seller. The obligation of the Seller to
consummate the transactions to be performed by it in connection with the First
Closing or the Accounts Receivable Closing, as the case may be, is subject to
satisfaction of the following conditions:
(a) the representations and warranties set forth in Article IV above shall
be true and correct in all material respects at and as of the First Closing Date
and the Accounts Receivable Closing Date to the extent such representations and
warranties are related to the Accounts Receivable;
(b) the Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the First Closing or the Accounts
Receivable Closing, as the case may be;
(c) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by this Agreement or (ii)
cause any of the transactions contemplated by this Agreement to be rescinded or
rescindable following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(d) the Buyer shall have delivered to the Seller a certificate to the
effect that each of the conditions specified above in Section (a)-(c) is
satisfied in all respects;
(e) all applicable waiting periods (and any extensions thereof) under the
Hart-Scott-Rodino Act shall have expired or otherwise been terminated and the
Seller and the Buyer shall have received all other authorizations, consents, and
approvals of governments and governmental agencies referred to in Article III
and Article IV above;
(f) the Seller shall have received from counsel to the Buyer an opinion in
form and substance as set forth in Exhibit E attached hereto, addressed to the
Seller, and dated as of the First Closing Date; and
(g) all actions to be taken by the Buyer in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Seller.
The Seller may waive any condition specified in this Section 7.2 if it executes
a writing so stating at or prior to the Closing Date.
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ARTICLE VIII
REMEDIES FOR BREACHES OF THIS AGREEMENT
8.1 Survival of Representations and Warranties. All of the representations
and warranties of the Buyer and the Seller contained in this Agreement shall
survive the First Closing Date (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of First Closing
Date) and continue in full force and effect for a period of five years
thereafter (subject to any applicable statutes of limitations); except that any
claim by the Buyer that the Seller breached its representation in Section 3.13
hereof shall be made no later than sixty (60) days after the First Closing Date
and any claims by the Buyer that the Seller breached its representation under
section 3.14 hereof shall be made no later than sixty (60) days after the First
Closing Date.
8.2 Indemnification Provisions for Benefit of the Buyer.
(a) In the event the Seller breaches (or in the event any third party
alleges facts that, if true, would mean the Seller has breached) any of its
representations, warranties, and covenants contained in this Agreement, and, if
there is an applicable survival period pursuant to Section 8.1 above, provided
that the Buyer makes a written claim for indemnification against the Seller
pursuant to Section 10.8 below within such survival period, then the Seller
agrees to indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer may suffer after
the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).
Notwithstanding the foregoing, the Buyer agrees not to make any claim for
indemnification hereunder until the aggregate amount of all such Adverse
Consequences equals or exceeds $25,000.
(b) The Seller agrees to indemnify the Buyer from and against the entirety
of any Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by:
(i) any Liability of the Seller, including any Liability of the Seller
that becomes a Liability of the Buyer under any bulk transfer law of
any jurisdiction, under any common law doctrine of de facto merger or
successor liability, under Environmental, Health, and Safety
Requirements, or otherwise by operation of law;
(ii) any Liability of the Seller for unpaid Taxes with respect to any
Tax year or portion thereof ending on or before the First Closing Date
(or for any Tax year beginning before and ending after the Closing
Date to the extent allocable to the portion of such period beginning
before and ending on the First Closing Date).
8.3 Indemnification Provisions for Benefit of the Seller. In the event the
Buyer breaches any of its representations, warranties, and covenants contained
in this Agreement, and,
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if there is an applicable survival period pursuant to Section 8.1 above,
provided that the Seller makes a written claim for indemnification against the
Buyer pursuant to Section 10.8 below within such survival period, then the Buyer
agrees to indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Seller may suffer after
the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).
8.4 Matters Involving Third Parties.
(a) If any third party shall notify any Party (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against the other Party (the "Indemnifying Party")
under this Article VIII, then the Indemnified Party shall promptly notify the
Indemnifying Party thereof in writing; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is prejudiced.
(b) The Indemnifying Party will have the right to defend the Indemnified
Party against the Third Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as (i) the Indemnifying Party
notifies the Indemnified Party in writing within 60 days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (iii) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (iv)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (v) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 8.4(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified Party
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld, and (iii)
the Indemnifying Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld.
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(d) In the event any of the conditions in Section 8.4(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment, or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Article VIII.
8.5 Determination of Adverse Consequences. The Parties shall take into
account the time cost of money (using the rate of interest charged under the
Buyer's Note as the discount rate) in determining Adverse Consequences for
purposes of this Article VIII. All indemnification payments under this Article
VIII shall be deemed adjustments to the Purchase Price.
8.6 Recoupment Under the Buyer's Note and Other Obligations of the Buyer.
The Buyer shall have the option of recouping all or any part of any Adverse
Consequences it may suffer (in lieu of seeking any indemnification to which it
is entitled under this Article VIII) and all or any part of any payment made by
the Buyer on account of Seller's Accounts Payable as permitted pursuant to
Section 6.7 hereof, by notifying the Seller in writing that the Buyer intends to
reduce the principal amount outstanding under the Buyer's Note and specifying
the nature of the Adverse Consequences and the matter giving rise thereto.
During the thirty (30) day period after the Buyer sends such written notice to
the Seller, the Buyer and Seller shall endeavor in good faith to resolve any
dispute relating thereto. In the absence of a resolution of such dispute
satisfactory to the Buyer, upon the expiration of such thirty (30) day period,
the Buyer may reduce the principal amount then outstanding under the Buyer's
Note and shall debit such amount from the next ensuing installments due under
such Buyer's Note. This shall affect the timing and amount of payments required
under the Buyer's Note in the same manner as if the Buyer had made a permitted
prepayment (without premium or penalty) thereunder. In addition to the
foregoing, the Buyer shall have the right to recoup all or any part of any
Adverse Consequence it may suffer (in lieu of seeking any indemnification to
which it is entitled under this Article VIII) and all or any part of any payment
made by the Buyer on account of the Seller's Account Payable, which are not
Disputed Accounts Payable, by offsetting from any other monetary obligation of
the Buyer to the Seller that arises out of transactions between the Buyer and
the Seller after the First Closing Date, provided that the Buyer shall follow
the procedures as above provided in this Section 8.6 in making such offsets.
8.7 Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant (including without limitation any such remedy arising
under Environmental, Health, and Safety Requirements) any Party may
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have made with respect to the Distribution Division, the Seller or the
transactions contemplated by this Agreement.
ARTICLE IX
TERMINATION
9.1 Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(a) the Buyer and the Seller may terminate this Agreement by mutual written
consent at any time prior to the First Closing;
(b) the Buyer may terminate this Agreement by giving written notice to the
Seller at any time prior to the First Closing (i) in the event the Seller has
breached any representation, warranty, or covenant contained in this Agreement
in any material respect, the Buyer has notified the Seller of the breach, and
the breach has continued without cure for a period of ten (10) days after the
notice of breach, (ii) if the First Closing Date shall not have occurred on or
before January 18, 1999, by reason of the failure of any condition precedent
under Article VII hereof (unless the failure results primarily from the Buyer
itself breaching any representation, warranty, or covenant contained in this
Agreement) or the failure of the Seller to make the deliveries required pursuant
to Section 2.5(a), or (iii) under the circumstances described in Section 10.5
hereof ; and
(c) the Seller may terminate this Agreement by giving written notice to the
Buyer at any time prior to the First Closing (i) in the event the Buyer has
breached any representation, warranty, or covenant contained in this Agreement
in any material respect, the Seller has notified the Buyer of the breach, and
the breach has continued without cure for a period of ten (10) days after the
notice of breach or (ii) if the First Closing Date shall not have occurred on or
before January 18, 1998, by reason of the failure of any condition precedent
under Article VII hereof (unless the failure results primarily from the Seller
itself breaching any representation, warranty, or covenant contained in this
Agreement) or the failure of the Buyer to make the deliveries required by
Section 2.5(b), or (iii) under the circumstances described in Section 10.5(b)
hereof.
(d) The Buyer may terminate this Agreement if the Buyer determines upon its
review of the status of the Accounts Receivable prior to the First Closing Date,
that there has been a material adverse change in the likelihood of the
collectibility of the Accounts Receivable as a result of the financial condition
of any material Account Debtor and the Seller refuses to designate such Account
Debtor as an Excluded Customer; provided that the aggregate amount subject to
the foregoing Accounts Receivable shall exceed $50,000.
9.2 Effect of Termination. If any Party terminates this Agreement pursuant
to Section 9.1 above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to the other Party (except for any
Liability of any Party then in breach). If the Buyer
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and Seller terminate this Agreement pursuant to Section 9.1(a) or if the Buyer
terminates this Agreement pursuant to Section 9.1(b) or 9.1(d) or if the Seller
terminates this Agreement pursuant to Section 9.1(c)(iii), the Buyer shall be
entitled to the return of the Down Payment. If the Seller terminates this
Agreement pursuant to Section 9.1(c)(i) or 9.1(c)(ii), the Seller shall be
entitled to the Down Payment.
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing Date without the prior written approval of
the other Party, such approvals shall not be unreasonably withheld; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its best
efforts to advise the other Party prior to making the disclosure).
10.2 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
10.3 Entire Agreement. This Agreement constitutes the entire agreement
between the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the extent they
have related in any way to the subject matter hereof.
10.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided, however, that the Buyer may (i) assign any or all
of its rights and interests hereunder to one or more of its affiliates and (ii)
designate one or more of its affiliates to perform its obligations hereunder (in
any or all of which cases the Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
10.5 Risk of Loss The risk of loss, damage, taking or destruction to the
Acquired Assets from fire, condemnation proceeding or other casualty or cause
shall be borne by the Seller at all times up to the close of business on the
First Closing Date. The Seller shall notify the Buyer immediately in writing
upon any such loss, damage, taking or destruction occurring prior to the First
Closing Date. Such notice shall specify with particularity the loss, taking or
damage incurred, the cause thereof, if known or reasonably ascertainable, and
the insurance coverage, if any. In the event of such loss, damage, taking or
destruction, the proceeds of any claim for any such loss payable under any
insurance policy with respect thereto shall be used to repair, replace or
restore any such property to its former condition subject to the conditions
stated below. If the
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Acquired Assets cannot be repaired, replaced or restored prior to the First
Closing Date, (a) the Buyer, at its sole option upon prior written notice to
Seller; (i) may elect to postpone the First Closing Date until such time as the
property has been repaired, replaced or restored or (ii) may elect to consummate
the First Closing Date and accept the property in its then condition, in which
event Buyer shall have the right to all proceeds of insurance theretofore and
thereafter received covering the property involved and/or appropriate deductions
from the Purchase Price shall be made; or (b) either the Buyer or the Seller may
terminate this Agreement and declare it of no further force and effect, in which
event except for the obligations of the Parties under Section 6.4, Section 9.2
and Section 10.13, this Agreement and all the terms and provisions hereof shall
thereupon be deemed null and void without liability of either party hereto.
10.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument, and signatures obtained by
facsimile shall have the same effect of originals.
10.7 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.8 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Eastco Industrial Safety Corp.
130 West 10th Street
Huntington Station, NY 11746
Attn: Larry Densen
Arthur Wasserspring
Telephone No.: (516) 427-1802
Fax No.: (516) 427-1886
Copy to: Hollenberg Levin Solomon Ross Belsky & Daniels LLP
585 Stewart Avenue
Suite 700
Garden City, NY 11530
Attn: Herbert Solomon, Esq.
Telephone No.: (516) 745-6000
Fax No.: (516) 745-6642
If to the Buyer: Arbill Industries, Inc.
10450 Drummond Road
Philadelphia, PA 19154
Attn: Sanford Pearl
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Telephone No.: (215) 501-8280
Fax. No.: (215) 501-8121
Copy to: Wolf, Block, Schorr and Solis-Cohen LLP
350 Sentry Parkway
Building 640
P.O. Box 3036
Blue Bell, PA 19422-0757
Attn: Bruce R. Lesser, Esq.
Telephone No.: (610) 941-2450
Fax No.: (610) 238-0305/0374
and to
Wolf, Block, Schorr and Solis-Cohen LLP
250 Park Avenue
New York, New York 10177
Attn: Martha J. Flanders, Esq.
Telephone No.: (212) 883-4915
Fax No.: (212) 986-0604
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
10.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) and without regard to any rule or canon of
construction which interprets agreements against the draftsman.
10.10 Amendments and Waivers. The Parties may, by mutual agreement, amend
this Agreement in any respect, and any Party, as to such Party, may (a) extend
the time for the performance of any of the obligations of the other Party; (b)
waive any inaccuracies in representations and warranties by the other Party; (c)
waive compliance by the other Party with any of the agreements contained herein
and performance of any obligations by the other Party; and (d) waive the
fulfillment of any condition that is precedent to the performance by such Party
of any of its obligations under this Agreement. To be effective, any such
amendment or waiver must be in writing and be signed by the Party against whom
enforcement of the same is sought.
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10.11 Non-Waiver of Rights. By completing the First Closing and/or the
Accounts Receivable Closing hereunder, the Buyer does not waive any breach of
any warranty, representation or covenant made by the Seller hereunder or under
any agreement, document, or instrument delivered to the Buyer by the Seller or
otherwise referred to herein, and any claims and rights of the Buyer resulting
from any such breach are specifically reserved by the Buyer.
10.12 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.13 Expenses. The Buyer and the Seller each will bear their own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby; provided that the Buyer will
pay one half of the aggregate expenses incurred in document production, calender
and Christmas gifts, up to $5,000.00.
10.14 Construction. Any reference to any federal, state, local, or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein unless the Disclosure Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
10.15 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
10.16 Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which it may be
entitled, at law or in equity.
52
<PAGE>
10.17 Arbitration and Submission to Jurisdiction. (a) Any dispute of
controversy arising out of or relating to this Agreement, the Buyer's Note, or
any breach of this Agreement or the Buyer's Note shall be settled by arbitration
to be held in the City of Philadelphia in the Commonwealth of Pennsylvania in
accordance with the rules then in effect of the American Arbitration Association
or any successor thereto. The arbitrator may grant injunction or other relief in
such dispute or controversy. The decision of the arbitrator shall be final,
conclusive, and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction, and the
parties irrevocably consent to the jurisdiction of the New York State and the
Commonwealth of Pennsylvania courts for this purpose. In any such arbitration,
the Parties waive personal service of any process or other papers and agree that
service thereof may be made in accordance with Section 10.8.
(b) Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. In any state or federal court proceeding, the Parties waive personal
service of any process or other papers and agree that service thereof may be
made in accordance with Section 10.8.
10.18 Tax Matters.
(a) Any agreement between the Seller and the Distribution Division
regarding allocation or payment of Taxes or amounts in lieu of Taxes shall be
deemed terminated at and as of the Closing Date.
(b) The Seller will be responsible for the preparation and filing of all
Tax Returns for the Seller for all periods as to which Tax Returns are due after
the Closing Date (including the consolidated, unitary, and combined Tax Returns
for the Seller which include the operations of the Distribution Division for any
period ending on or before the Closing Date). The Seller will make all payments
required with respect to any such Tax Return.
(c) The Buyer will be responsible for the preparation and filing of all Tax
Returns for the Distribution Division for all periods as to which Tax Returns
are due after the Closing Date (other than for Taxes with respect to periods for
which the consolidated, unitary, and combined Tax Returns of the Seller will
include the operations of the Distribution Division). The Buyer will make all
payments required with respect to any such Tax Return; provided, however, that
the Seller will reimburse the Buyer concurrently therewith to the extent any
payment the Buyer is making relates to the operations of the Distribution
Division for any period ending on or before the Closing Date.
10.19 Access to Information, The Seller shall cooperate fully with the
Buyer after the First Closing Date and the Accounts Receivable Closing Date to
provide the Buyer with access to the business records, contracts and other
information of Seller existing as at the First Closing Date and the Accounts
Receivable Closing Date and relating to any manner to any of the Acquired Assets
or the conduct of the business of the Distribution Division. No files, books or
53
<PAGE>
records existing at the First Closing Date and the Accounts Receivable Closing
Date and relating in any manner to the Acquired Assets or the conduct of the
business of the Distribution Division shall be destroyed by the Seller for a
period of six (6) years after the First Closing Date and the Accounts Receivable
Closing Date without giving at least thirty (30) business days prior written
notice, during which time the Buyer shall have the right to examine and to
remove any such files, books and records prior to their destruction. The Buyer
shall have reasonable access during the Seller's regular business hours to such
books and records of the Seller of or relating to the Acquired Assets to the
extent the Seller maintains such business records, contracts and other
information as required hereby.
10.20 Confidentiality. Notwithstanding anything to the contrary in this
Agreement, the Confidentiality and Non-Disclosure Agreement date August 5, 1998
shall survive until the consummation of the First Closing and with respect to
Accounts Receivable, until the Accounts Receivable Closing. All Disclosure
Schedules provided by the Seller and the Buyer shall be deemed to contain
Confidential Information (except for the information set forth on Schedule 3.6
contained in reports filed with the Securities and Exchange Commission.)
54
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
ARBILL INDUSTRIES, INC.
By: /s/ Sanford K. Pearl
----------------------------
Name: Sanford K. Pearl
Title: VP/CFO
EASTCO INDUSTRIAL SAFETY CORP.
By: /s/ Lawrence Densen
----------------------------
Name: Lawrence Densen
Title: President
Agreed to Section 2.3(b)(i)(A) and Section 2.3(c)(iii)
HOLLENBERG LEVIN SOLOMON ROSS
BELSKY & DANIELS LLP
By: /s/ Herbert Solomon
----------------------------
Herbert Solomon
Agreed to Section 2.3(b)(i)(A) and Section 2.3(c)(iii)
WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP
By: /s/ Bruce R. Lesser
----------------------------
Bruce R. Lesser
55
AMENDMENT NO. 9 TO FINANCING AGREEMENTS
January 11, 1999
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Ladies and Gentlemen:
Congress Financial Corporation (together with its successors and assigns,
"Lender") and Worksafe Industries Inc., formerly known as Eastco Industrial
Safety Corp. ("Worksafe") and Eastco Glove Technologies, Inc. ("Eastco Glove",
and together with Worksafe and their respective successors and assigns, each
individually a "Borrower", and collectively, "Borrowers") and Puerto Rico Safety
Equipment Corporation ("PR Equipment"), Worksafe Industries of Puerto Rico Inc.,
formerly known as Puerto Rico Safety Corporation ("PR Safety"), Disposable
Safety Wear Inc. ("Disposable"), Safety Wear Corp. ("Safety") and Protective
Knitting Inc. ("PKI", and together with PR Equipment, PR Safety, Disposable and
Safety, each individually a "Guarantor", and collectively, "Guarantors") have
entered into financing arrangements pursuant to which Lender may make loans and
provide other financial accommodations to Borrowers as set forth in the Accounts
Financing Agreement [Security Agreement], dated as of October 1, 1991, by and
among Lender and Borrowers, as amended (and together with all supplements
thereto and as amended hereby and as the same may hereafter be further amended,
modified, supplemented, extended, renewed, restated or replaced, the "Loan
Agreement") and other agreements, documents and instruments referred to therein
or at any time executed and/or delivered in connection therewith or related
thereto, including this Amendment (all of the foregoing, together with the Loan
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements"). All capitalized terms used
herein shall have the meaning assigned thereto in the Loan Agreement, unless
otherwise defined herein.
Worksafe has entered into an agreement to sell substantially all of the
assets of the Distribution Division of Worksafe listed on Exhibit A hereto
(collectively, the "Sale Assets") pursuant to the Asset Purchase Agreement,
dated December 14, 1998, between Arbill Industries, Inc. ("Arbill") and Worksafe
(the "Sale Agreement").
Borrowers and Guarantors have requested that Lender consent to such sale
and agree to certain amendments to the Loan Agreement in connection therewith,
and Lender is willing to so consent and agree to such amendments, subject to the
terms and conditions contained herein. By this Amendment, Lender and Borrower
desire and intend to evidence such amendment.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Consent. Subject to the terms and conditions contained herein, Lender
hereby consents to the sale by Worksafe of the Sale Assets in accordance with
the terms of the Sale Agreement as in
<PAGE>
effect on the date hereof, provided, that, (a) the sale of the Sale Assets other
than the Distribution Division Accounts (as hereinafter defined) pursuant to the
Sale Agreement shall have occurred by no later than January 19, 1999 and (b) the
sale of the Sale Assets consisting of the Distribution Division Accounts
pursuant to the Sale Agreement shall have occurred by no later than March 31,
1999.
2. Additional Representations, Warranties and Covenants. Borrowers and
Guarantors hereby jointly and severally represent, warrant and covenant with and
to Lender as follows, which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof, and the truth
and accuracy of, or compliance with each, together with the representations,
warranties and covenants in the other Financing Agreements, being a continuing
condition of the making of loans and providing other financial accommodations by
Lender to Borrowers:
(a) On or about the date hereof, Worksafe has sold to Arbill all of
the Sale Assets pursuant to the Sale Agreement other than the Sale Assets
consisting of the Distribution Division Accounts (as hereinafter defined)
and on or about January 12, 1999 all of the proceeds thereof have been or
shall be remitted to Lender for application to the Obligations (other than
the principal amount of the Term Loan) in such order and manner as Lender
determines. The net cash proceeds from the sale of such Sale Assets are not
less than the amount equal to: $2,450,000 plus the amount equal to ninety
(90%) percent of the Distribution Division Accounts, minus $315,000 which
is represented by the Promissory Note issued by Arbill payable to Worksafe.
By no later than March 31, 1999, (i) Worksafe shall sell the Distribution
Division Accounts to Arbill in accordance with the terms of the Sale
Agreement (as in effect on the date hereof), (ii) Borrowers shall deliver
to Lender a true, correct and complete list of the Distribution Division
Accounts which are being sold to Arbill and a true, correct and complete
list of the Distribution Division Accounts which are being retained by
Worksafe, and (iii) Borrowers shall cause all proceeds of such sale to be
paid by Arbill directly to Lender for application to the Obligations in
such order and manner as Lender determines (other than the principal amount
of the Term Loan, so long as no Event of Default exists or has occurred).
In respect of the purchase price for the Distribution Division Accounts,
Worksafe shall receive not less than the amount equal to ninety (90%)
percent of the Distribution Division Accounts. Exhibit A hereto contains a
true, correct and complete list of all of the assets and properties of
Worksafe sold to Arbill pursuant to the Sale Agreement as of the date
hereof. No assets or properties of Borrowers or Guarantors other than those
listed on Exhibit A hereto have been sold to Arbill as of the date hereof.
(b) Exhibit B hereto is a true, correct and complete copy of the Sale
Agreement, together with all exhibits and schedules thereto, as executed by
the parties thereto (other than Schedules 3.15, 3.24 and 3.26 to the Sale
Agreement, true, correct and complete copies of which shall be delivered to
Lender by no later than January 15, 1999).
(c) The security interests in and liens upon the Collateral of Lender
are and shall continue to be in full force and effect (including, but not
limited to, all of the Distribution Division Accounts and all amounts at
any time payable to any Borrower, Guarantor or any of its affiliates
pursuant to the Sale Agreement (and all related agreements, documents and
instruments), and all rights, benefits and remedies of any Borrower or
Guarantor pursuant to the Sale Agreement and all related agreements,
documents and instruments), except for the Sale Assets sold to Arbill as of
the date hereof (which do not include the Distribution Division Accounts).
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<PAGE>
(d) Borrowers and Guarantors shall cause all amounts at any time
payable to any Borrower, Guarantor or any of its affiliates pursuant to the
Sale Agreement or any related agreements, documents and instruments to be
paid by Arbill directly to Lender for application to the Obligations in
such order and manner as Lender shall determine (other than the principal
amount of the Term Loan, so long as no Event of Default exists or has
occurred). The net amount payable by Arbill to Worksafe in cash or other
immediately available funds pursuant to the Sale Agreement shall be not
less than $2,450,000 (minus $315,000 paid pursuant to the Promissory Note
issued by Arbill payable to Worksafe) in respect of all Sale Assets other
than the Distribution Division Accounts and not less than ninety (90%)
percent of the Distribution Division Accounts in respect of the Sale Assets
consisting of the Distribution Division Accounts.
(e) In the event any Borrower or Guarantor receives any amounts at any
time pursuant to the Sale Agreement or any related agreement, document or
instrument, such amounts shall be collected by such Borrower or Guarantor
as the property of Lender and held by it in trust for Lender and shall on
the day received be remitted to Lender in the form received, with any
necessary assignments or endorsements, for application to the Obligations
in such order and manner as Lender shall determine (other than the
principal amount of the Term Loan, so long as no Event of Default exists or
has occurred).
(f) On or about December 17, 1998, Eastco Industrial Safety Corp.
changed its name to Worksafe Industries Inc. and all references to Eastco
Industrial Safety Corp. in any of the Financing Agreements shall be deemed
to refer to Worksafe and its successors and assigns. Borrowers and
Guarantors have delivered to Lender a true, correct and complete copy of
the amendment to the certificate of incorporation effectuating such name
change as certified by the New York Secretary of State. On or about
December 24, 1998, Puerto Rico Safety Corporation changed its name to
Worksafe Industries of Puerto Rico Inc. and all references to Puerto Rico
Safety Corporation in any of the Financing Agreements shall be deemed to
refer to PR Safety and its successors and assigns. Borrowers and Guarantors
have delivered to Lender a true, correct and complete copy of the amendment
to the certificate of incorporation to effectuate such name change as
certified by the New York Secretary of State.
(g) Borrowers and Guarantors shall physically segregate and clearly
and conspicuously mark and label all goods of any Borrower or Guarantor at
any time located at any premises owned or leased by Arbill.
(h) By no later than February 5, 1999, (i) Lender shall have received,
in form and substance satisfactory to Lender, UCC-3 Amendments with respect
to each UCC-1 financing statement between Worksafe, as debtor, and Lender,
as secured party, amending such financing statements to change the name of
Worksafe from Eastco Industrial Safety Corporation to Worksafe Industries
Inc., duly authorized, executed and delivered by Worksafe, and (ii) Lender
shall have received, in form and substance satisfactory to Lender, UCC-3
Amendments with respect to each UCC-1 financing statement between PR
Safety, as debtor, and Lender, as secured party, amending such financing
statements to change the name of PR Safety from Puerto Rico Safety Corp. to
Worksafe Industries of Puerto Rico Inc., duly authorized, executed and
delivered by PR Safety.
-3-
<PAGE>
(i) No Event of Default or act, condition or event which with notice
or passage of time or both would constitute an Event of Default exists or
has occurred as of the date of this Amendment (after giving effect to the
amendments to the Financing Agreements made by this Amendment).
(j) This Amendment has been duly executed and delivered by Borrowers
and Guarantors and is in full force and effect as of the date hereof and
the agreements and obligations of Borrowers and Guarantors contained herein
constitute legal, valid and binding obligations of Borrowers and Guarantors
enforceable against each of them in accordance with its terms.
3. Conditions Precedent. The effectiveness of the consent of Lender
contained in Section 1 hereof is subject to the satisfaction of each of the
following conditions precedent in a manner satisfactory to Lender:
(a) all representations and warranties contained herein shall be true
and correct;
(b) Lender shall have received, in form and substance satisfactory to
Lender, evidence that Worksafe has received on the date hereof not less
than $2,600,000 as proceeds from the sale of the Sale Assets pursuant to
the Sale Agreement (as in effect on the date hereof), other than the
Distribution Division Accounts and other amounts related thereto minus
$315,000 represented by the Arbill Note (as defined below), of which not
less than $2,000,000 is being remitted by wire transfer directly to Lender
(representing the inventory valuation amount of $1,562,641 plus the
$915,000 portion of the purchase price provided for in the Asset Purchase
Agreement as reduced by the $315,000 being paid with the Arbill Note and
$100,000 being paid from the escrow arrangements provided for in the Asset
Purchase Agreement) and the balance of which is being paid by checks issued
by Arbill payable to Worksafe, approximately $98,000 of which shall be
promptly deposited in the blocked account of Worksafe used for the
remittance of collection of receivables to Lender;
(c) Lender shall have received, in form and substance satisfactory to
Lender, the Collateral Assignment of Note by Worksafe in favor of Lender
with respect to the Promissory Note, dated on or about the date hereof,
issued by Arbill payable to Worksafe in the original principal amount of
$315,000 (the "Arbill Note"), duly authorized, executed and delivered by
Worksafe (which note shall be in form and substance satisfactory to
Lender), together with the original of the Arbill Note as endorsed and
assigned by Worksafe to Lender in a manner satisfactory to Lender;
(d) Lender shall have received, in form and substance satisfactory to
Lender, the Collateral Assignment of Sale Agreements by Worksafe in favor
of Lender, duly authorized, executed and delivered by Worksafe in favor of
Lender;
(e) Lender shall have received, in form and substance satisfactory to
Lender, the agreement by Arbill in favor of Lender providing for, inter
alia, the waiver of any claims by Arbill to inventory of Borrowers located
at premises owned or leased by Arbill, the waiver of, or limitation on,
certain rights of setoff against accounts receivable of Borrowers and the
waiver of any claims to funds received by Lender and related matters, duly
authorized, executed and delivered by Arbill;
-4-
<PAGE>
(f) Lender shall have received, in form and substance satisfactory to
Lender, the agreement of Arbill acknowledging the collateral assignment by
Worksafe to Lender of all of its rights and remedies, and claims for
damages and other relief under the Sale Agreement and such other rights as
Lender may require, duly authorized, executed and delivered by Arbill;
(g) Lender shall have received, in form and substance satisfactory to
Lender, the acknowledgment by Arbill in favor of Lender to the collateral
assignment by Worksafe to Lender of the Arbill Note, duly authorized,
executed and delivered by Arbill;
(h) the sale by Worksafe of the Sale Assets to Arbill pursuant to the
Sale Agreement shall have occurred by no later than January 18, 1999 and
the sale by Worksafe of the Distribution Division Accounts to Arbill
pursuant to the Sale Agreement shall have occurred by no later than March
31, 1999;
(i) as of the date hereof and after giving effect to the transactions
contemplated by the Sale Agreement, no Event of Default, or event, act or
condition which with notice or passage of time or both would constitute an
Event of Default, shall exist or have occurred; and
(j) Lender shall have received an original of this Amendment, duly
authorized, executed and delivered by Borrowers and Guarantors.
4. Arbill Receivables. Notwithstanding anything to the contrary contained
in any of the other Financing Agreements, except in Lender's discretion, Lender
shall only make advances to Worksafe based on Eligible Accounts due from Arbill,
up to the amount equal to seventy (70%) percent of the Net Amount of Eligible
Accounts due from Arbill.
5. Additional Defaults. The failure of any Borrower or Guarantor to comply
with the representations, warranties, covenants, conditions and agreements
contained herein or in any other agreement, document or instrument at any time
executed and/or delivered by any Borrower or Guarantor with, to or in favor of
Lender shall constitute an Event of Default under the Financing Agreements.
6. Additional Definitions. As used herein, the following terms shall have
the respective meanings given to them below:
(a) "Account Debtor" shall mean with respect to any Distribution
Division Accounts, any Person that is obligated on such account.
(b) "Distribution Division Accounts" shall mean each and every account
for goods sold or leased by or for services rendered by the Distribution
Division which account is owned by Worksafe and arose from the sale of
goods or services by the Distribution Division in its ordinary course of
business and that meets the following conditions:
(i) such Distribution Division Account arose in an arms-length
transaction with an unrelated third party during the period commencing
on December 1, 1998 and ending on December 31, 1998;
-5-
<PAGE>
(ii) all or any part of such Distribution Division Account
remains outstanding on the sixtieth (60th) day after January 11, 1999;
(iii) the amount of such Distribution Division Account is not, as
of March 16, 1999, subject to setoff, charges, credits or defenses of
any nature whatsoever;
(iv) the Account Debtor for such Distribution Division Account is
not an Excluded Customer (as such term is defined in the Sale
Agreement as in effect on the date hereof);
(v) such Distribution Division Account is subject to no liens;
(vi) such Distribution Division Account is based on an
enforceable order or contract for goods shipped or services rendered
that contains selling terms of not more than thirty (30) days past the
original invoice date;
(vii) the property giving rise to such Distribution Division
Account shall have been shipped to the Account Debtor or delivered to
an agent of an Account Debtor for shipment to an Account Debtor,
provided that any property returned or refused by an Account Debtor
shall not give rise to a Distribution Division Account from and after
the date of such return or refusal;
(viii) the Distribution Division Account arose from the sale of
goods that were not placed on consignment, bill and hold, sale and
return, sale on approval, or other terms by reason of which the
payment by an Account Debtor may be conditional (except from and after
the time such condition no longer applies);
(ix) such Distribution Division Account is denominated in United
States Dollars;
(x) such Distribution Division Account arose under a contract
that has been duly authorized and is in full force and effect and
constitutes the legal, valid and binding obligations of an Account
Debtor, enforceable against such Account Debtor in accordance with its
terms;
(xi) the Account Debtor for such Distribution Division Account is
not any government or any department, agency or instrumentality of any
government, any state, city town or municipality or division thereof;
(xii) the Account Debtor for such Distribution Division Account
is not a subsidiary or an affiliate of Worksafe; and
(xiii) neither Worksafe nor any of its subsidiaries or affiliates
shall have knowledge of (A) the death of the Account Debtor for such
Distribution Division Account, or (B) the dissolution, termination of
existence of, or the insolvency, business failure or cessation of, or
the filing of a petition in bankruptcy or reorganization for, or the
appointment of a receiver or custodian for, or any similar event with
respect to, such Account Debtor.
-6-
<PAGE>
(c) "Distribution Division" shall mean that division of Worksafe's
business involving the sale of industrial protective clothing, including
gloves, glasses, earmuffs, earplugs, respirators, goggles, face shields,
rainwear, protective footwear, first aid kits, monitoring devices, signs
and related industrial safety products to end-users (as opposed to
distributors), including, manufacturing companies and service businesses,
public utilities, fisheries, pharmaceutical plants, the transportation
industry and companies engaged in hazardous materials abatement.
7. Effect of this Amendment. Except as modified pursuant hereto, no other
changes or modifications to the Financing Agreements are intended or implied,
and in all other respects the Financing Agreements are hereby specifically
ratified, restated and confirmed by all parties hereto as of the effective date
hereof. Any acknowledgment or consent contained herein shall not be construed to
constitute a consent to any other or further action by any Borrower or Guarantor
or to entitle any Borrower or Guarantor to any other consent. To the extent of
conflict between the terms of this Amendment and the other Financing Agreements,
the terms of this Amendment shall control. The Loan Agreement and this Amendment
shall be read and construed as one agreement.
8. Further Assurances. The parties hereto shall execute and deliver such
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Amendment.
9. Governing Law. The validity, interpretation and enforcement of this
Amendment and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of laws).
10. Headings. The headings listed herein are for convenience only and do
not constitute matters to be construed in interpreting this Amendment.
11. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be necessary
to produce or account for more than one counterpart thereof signed by each of
the parties hereto.
12. Binding Effect. This letter agreement shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns.
-7-
<PAGE>
The parties hereto have caused this letter agreement to be duly executed
and delivered by their authorized officers as of the day and year first above
written.
Very truly yours,
WORKSAFE INDUSTRIES INC.,
formerly known as Eastco
Industrial Safety Corp.
By: /s/ Arthur J. Wasserspring
----------------------------
Title: Vice President
EASTCO GLOVE TECHNOLOGIES, INC.
By: /s/ Arthur J. Wasserspring
----------------------------
Title: Vice President
AGREED:
PUERTO RICO SAFETY EQUIPMENT
CORPORATION
By: /s/ Arthur J. Wasserspring
-----------------------------
Title: Vice President
WORKSAFE INDUSTRIES OF PUERTO RICO INC., formerly known as Puerto Rico Safety
Corporation
By: /s/ Arthur J. Wasserspring
-----------------------------
Title: Vice President
DISPOSABLE SAFETY WEAR INC.
By: /s/ Arthur J. Wasserspring
-----------------------------
Title: Vice President
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<PAGE>
[SIGNATURES CONTINUE ON NEXT PAGE]
-9-
<PAGE>
[SIGNATURES CONTINUE FROM PRIOR PAGE]
SAFETY WEAR CORP.
By: /s/ Arthur J. Wasserspring
-----------------------------
Title: Vice President
PROTECTIVE KNITTING, INC.
By: /s/ Arthur J. Wasserspring
-----------------------------
Title: Vice President
CONGRESS FINANCIAL CORPORATION
By: /s/ Cindy B. Denbaum
-----------------------------
Title: Vice President
-10-
<PAGE>
EXHIBIT A
TO
AMENDMENT NO. 9
For purposes of this Amendment, the term "Sale Assets" shall mean the
following assets owned by Worksafe used exclusively and directly in the
Distribution Division (as defined below) of Worksafe, to the extent such assets
exist on January 11, 1999 and are sold and transferred by Worksafe to Arbill
Industries, Inc. pursuant to the Asset Purchase Agreement, dated as of December
14, 1998, between Worksafe and Arbill Industries, Inc. (but in no event shall
such assets be deemed to include the Excluded Assets as such term is defined
below):
(a) the Distribution Division Accounts (as defined in Amendment No. 9);
(b) all office and warehouse equipment, furniture, fixtures and catalogs of
or relating to the Distribution Division wherever located listed on Schedule 1
hereto;
(c) the list of all customers of, and suppliers of goods and services to,
the Distribution Division as well as the end-users (including manufacturing
companies and service businesses, public utilities, fisheries, pharmaceutical
plants, the transportation industry and companies engaged in hazardous materials
abatement) of all safety products sold by Worksafe or any other division,
subsidiary or affiliate of Worksafe other than the Distribution Division, but
excluding all customers of the Manufacturing Subsidiaries who are not end-users
of the goods manufactured by the Manufacturing Subsidiaries;
(d) the Intellectual Property used in the operation of the Distribution
Division listed on Schedule 2 hereto;
(e) Inventory;
(f) all Open Sourcing Orders or Contracts and Open Purchase Orders or
Contracts of the Distribution Division existing as of January 11, 1999 and not
otherwise constituting Excluded Assets;
(g) all of the Worksafe's rights under and pursuant to all warranties,
representations and guarantees made by suppliers in connection with the
Inventory and the Open Sourcing Orders or Contracts identified in clause (f)
above;
(h) all of Worksafe's rights, claims and interests to and with respect to
any pending or executory contracts relating exclusively to the Inventory, Open
Sourcing Orders or Contracts, Open Purchase Orders or Contracts identified in
clause (f) above;
(i) all of Worksafe's rights, if any, in and to the names Eastco Industrial
Safety and Puerto Rico Safety;
A-1
<PAGE>
(j) any and all significant records, files and papers (or copies or
computer printouts thereof) relating to the other Sale Assets wherever located,
including without limitation, Inventory records, catalogs, slogans, sales and
advertising materials, sales and purchase correspondence, lists of former
customers and suppliers, customer credit information and customer pricing
information relating to the Sale Assets; and
(k) all of Worksafe's rights in and to any 800 telephone numbers used in
connection with the Distribution Division, but not the telephone equipment or
system used in connection with the Distribution Division.
Capitalized terms used herein shall have the following meanings:
(a) "Distribution Division" shall mean that division of Worksafe's business
involving the sale of industrial protective clothing, including gloves, glasses,
earmuffs, earplugs, respirators, goggles, face shields, rain wear, protective
footwear, first aid kits, monitoring devices, signs and related industrial
safety products to end-users (as opposed to distributors), including,
manufacturing companies and service businesses, public utilities, fisheries,
pharmaceutical plants, the transportation industry and companies engaged in
hazardous materials abatement.
(b) "Excluded Assets" shall mean:
(i) Worksafe's cash on hand;
(ii) Worksafe's bank accounts;
(iii) Worksafe's computer hardware and software systems (other than
the software associated with Website www.Eastco);
(iv) any Open Source Orders or Contracts, Open Purchase Orders or
Contracts or tangible assets (other than Inventory) or intangible assets
that would otherwise be included in the term "Sale Assets" which Arbill
Industries, Inc. shall have identified as "Excluded Assets" in a written
notice delivered to Worksafe on or before January 11, 1999;
(v) all assets of the Manufacturing Subsidiaries and the Manufacturing
Business of Worksafe; and
(vi) any and all pre-paid insurance, prepaid deposits and similar
items of Worksafe.
(c) "Intellectual Property" shall mean the right, title and interest of
Worksafe, if any, with respect to the Distribution Division and with respect to:
(i) all inventions (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereto, and all patents, patent
applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof;
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(ii) all trademarks, service marks, trade dress, logos, trade names,
and corporate names, including the name Eastco Industrial Safety and Puerto
Rico Safety, together with all translations, adaptions, derivations and
combinations thereof and including all goodwill associated therewith, and
all applications, registrations and renewals in connection therewith,
together with all license agreements relating to any of the foregoing;
(iii) all copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith;
(iv) all mask works and all applications, registrations and renewals
in connection therewith;
(v) all trade secrets and confidential business information (including
ideas, research and development, know-how formulas, compositions,
manufacturing and production processes and techniques, technical data,
designs, drawings, specifications, customer and supplier lists, pricing and
cost information, and business and marketing plans and proposals);
(vi) all computer software (including data and related documentation),
including any license agreement relating to the foregoing;
(vii) the website, www.Eastco.com.;
(viii) all other proprietary rights of or relating to any of the
foregoing; and
(ix) all copies and tangible embodiments of or relating to any of the
foregoing (in whatever form or medium).
(d) "Inventory" shall mean industrial protective clothing, including
gloves, glasses, earmuffs, earplugs, respirators, goggles, face shields, rain
wear, protective footwear, first aid kits, monitoring devices, signs, and other
safety products which are recorded on the books and records of the Distribution
Division and held by the Distribution Division, or are deliverable to the
Distribution Division, on December 31, 1998 for sale to end-users of such safety
products (as distinguished from distributors of such safety products), which
Inventory shall meet all of the following criteria:
(i) such Inventory consists solely of finished goods;
(ii) no account receivable or document of title in favor of any
purchaser of such Inventory has been created or issued with respect to such
Inventory;
(iii) such Inventory is readily saleable in a bona fide arm's length
termination, or is usable in the ordinary course of the business of the
Distribution Division and no portion of such Inventory represents returned,
rejected, lost, obsolete, damaged or defective goods;
(iv) if such Inventory is located on leased premises, a valid lease,
sublease or license agreement for such premises has been delivered to
Arbill Industries, Inc. for such premises, except that
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if such Inventory is located on the premises of certain specified third
parties, such Inventory shall be segregated from other products of such
companies, marked as the property of Worksafe;
(v) such Inventory is not subject to any liens;
(vi) such Inventory is not on consignment or located in a public
warehouse;
(vii) such Inventory has been manufactured or acquired in compliance
with the Fair Labor Standards Act, 29 U.S.C. ss.201 et seq;
(viii) such Inventory conforms to all environmental, health and safety
laws and regulations and any other applicable laws as the same exist as of
January 11, 1999;
(ix) such Inventory is packaged in standard packaging cases;
(x) the quantity as to each SKU of Inventory shall not exceed the
aggregate quantity sold by Worksafe during the twelve-month period
immediately preceding December 31, 1998, to persons other than Excluded
Customers (as such term is defined in the Asset Purchase Agreement referred
to above); and
(xi) such obsolete, damaged or defective goods as Arbill Industries,
Inc. may reasonably specify in writing as of January 11, 1999.
(e) "Manufacturing Business" shall mean with respect to Worksafe or any
division of the Worksafe or with respect to the Manufacturing Subsidiaries and
any other direct or indirect subsidiaries of Worksafe, the acquisition of raw
materials and finished goods for and the manufacturing, marketing and sale to
distributors (as distinguished from end-users) of disposable and reusable
industrial protective apparel, including, but not limited to, products such as
gloves, coveralls, shirts, pants, hats, hoods, aprons, smocks, lab coats,
hazardous material handler suits, examination gloves, sleeves, shoe covers and
related items.
(f) "Manufacturing Subsidiary" or "Manufacturing Subsidiaries" shall mean
each and all, respectively, of the following: Disposable Safety Wear, Inc., a
Delaware corporation, Safety Wear Corp., a Delaware corporation, Eastco Glove
Technologies, Inc., a Minnesota corporation, Puerto Rico Safety Equipment
Corporation, a Delaware corporation.
(g) "Open Sourcing Order or Contract" shall mean the rights of Worksafe
under all outstanding contracts and all servicing orders placed by the
Distribution Division for new industrial protective clothing and other safety
products of the type constituting the Inventory being acquired by Arbill
Industries, Inc. on January 11, 1999.
(h) "Open Purchase Order or Contract" shall mean all outstanding contracts
of the Distribution Division for and all outstanding servicing orders placed by
customers of the Distribution Division for
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new industrial protective clothing and other safety products of the type of
inventory being acquired by Arbill Industries, Inc., or inventories that are
customarily carried by Arbill Industries, Inc.
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