SECURITIES AND EXCHANGE COMMISSSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 24, 1997
----------------
FRANKLIN ELECTRIC CO., INC.
---------------------------
(Exact name of registrant as specified in its charter)
Indiana 0-362 35-0827455
- --------------------------- ------------- -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
400 East Spring Street 46714
Bluffton, Indiana ----------
- ---------------------------------------- (Zip Code)
(Address of Principal Executive Offices)
(219) 824-2900
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(Registrant's telephone number, including area code)
Page 1 of 2
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 24, 1997, Franklin Electric Co., Inc. sold Oil Dynamics Inc.
(ODI), previously a wholly-owned subsidiary, to Baker Hughes Incorporated, an
unrelated entity. The common stock of ODI was sold for $31.5 million, subject
to post-closing adjustments. The Company estimates that it will recognize a
gain, net of tax effect, of approximately $2 million from the sale of ODI.
However, the final selling price is subject to post closing adjustments and
the total amount of expenses resulting from the sale of ODI have not been
finalized as of this time.
ITEM 7. FINANCIAL STATEMENTS
(b) Pro Forma Financial Information
Unaudited pro forma condensed consolidated financial information
reflecting the sale of ODI.
(c) Exhibits
EXHIBIT INDEX
The Exhibits are indexed in accordance with the Exhibit Table of Item 601 of
Regulation S-K. Exhibits not listed are omitted due to the absence of
conditions under which they are required.
Number Description
- ------ -----------
(2) Plan of acquisition, reorganization, arrangements,
liquidation or succession
(99) Unaudited condensed consolidated pro forma financial
information of the Company with respect to the disposition of ODI
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.
Franklin Electric Co., Inc.
---------------------------
(Registrant)
Date November 10, 1997 By Jess B. Ford
------------------------- ----------------------------
(Signature)
Jess B. Ford
Vice President and
Chief Financial Officer
Page 2
Exhibit (2) to Form 8-K
STOCK PURCHASE AGREEMENT
DATED AS OF JUNE 23, 1997
BY AND BETWEEN
FRANKLIN ELECTRIC CO., INC.
AND
BAKER HUGHES INCORPORATED
<PAGE>(i)
TABLE OF CONTENTS
ARTICLE 1 - SALE AND TRANSFER OF SHARES; CLOSING.....................1
1.1 Shares......................................................1
1.2 Purchase Price..............................................1
1.3 Closing.....................................................2
1.4 Closing Statement; Purchase Price Adjustment................2
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF SELLER.................3
2.1 Organization and Good Standing..............................3
2.2 Authority; No Conflict; No Consents.........................4
2.3 Capitalization and Ownership of the Shares..................5
2.4 Financial Statements........................................5
2.5 Title to Properties; Encumbrances...........................5
2.6 Accounts Receivable.........................................6
2.7 No Undisclosed Liabilities..................................6
2.8 Taxes.......................................................6
2.9 No Material Adverse Change..................................8
2.10 Employee Benefits...........................................8
2.11 Compliance with Law; Governmental Authorizations...........11
2.12 Legal Proceedings; Orders..................................11
2.13 Absence of Certain Changes and Events......................11
2.14 Contracts; No Defaults.....................................13
2.15 Environmental Matters......................................13
2.16 Employees..................................................13
2.17 Labor Relations; Compliance................................14
2.18 Intellectual Property......................................14
2.19 Condition of Fixed Assets and Inventory....................14
2.20 Insurance..................................................14
2.21 Brokers or Finders.........................................15
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BUYER.................15
3.1 Organization and Good Standing.............................15
3.2 Authority; No Conflict; No Consents........................15
3.3 Investment Intent..........................................16
3.4 Legal Proceedings..........................................16
3.5 Brokers or Finders.........................................16
ARTICLE 4 - COVENANTS...............................................16
4.1 Access and Investigation...................................16
4.2 Operation of the Businesses of the Company.................17
<PAGE>(ii)
4.3 Exclusivity................................................18
4.4 HSR Act Filing.............................................18
4.5 Allocation Schedule........................................19
4.6 Environmental Audits.......................................19
4.7 Employees and Employee Benefits............................19
4.8 Technology and Asset Transfers.............................20
4.9 Option Shares..............................................20
4.10 Collection of Receivables..................................21
4.11 Reasonable Efforts.........................................21
ARTICLE 5 - CONDITIONS TO EACH PARTY'S OBLIGATIONS..................21
5.1 No Proceedings.............................................21
5.2 HSR Act....................................................21
ARTICLE 6 - CONDITIONS TO THE OBLIGATIONS OF BUYER..................22
6.1 Accuracy of Representations................................22
6.2 Performance................................................22
6.3 Delivery of Shares.........................................22
6.4 Closing Documents..........................................22
6.5 Resignation of Directors and Officers......................23
ARTICLE 7 - CONDITIONS TO THE OBLIGATIONS OF SELLER.................23
7.1 Accuracy of Representations................................23
7.2 Buyer's Performance........................................23
7.3 Payment of Purchase Price..................................23
7.4 Closing Documents..........................................23
ARTICLE 8 - TERMINATION.............................................24
8.1 Termination Events.........................................24
8.2 Effect of Termination......................................25
ARTICLE 9 - TAX MATTERS.............................................25
9.1 Section 338(h)(10) Election................................25
9.2 Liability for Taxes........................................26
9.3 Tax Proceedings............................................27
9.4 Payment of Taxes...........................................28
9.5 Returns....................................................28
9.6 Tax Allocation Arrangements................................28
9.7 Cooperation and Exchange of Information....................28
9.8 Survival of Obligations....................................29
9.9 Conflict...................................................29
<PAGE>(iii)
ARTICLE 10 - INDEMNIFICATION; REMEDIES..............................29
10.1 Survival...................................................29
10.2 Indemnification and Payment of Damages by Seller...........29
10.3 Indemnification and Payment of Damages by Buyer............30
10.4 Time Limitations...........................................30
10.5 Limitations on Amount--Seller..............................30
10.6 Procedure for Indemnification--Third Party Claims..........30
10.7 Procedure for Indemnification -- Other Claims..............31
10.8 General....................................................31
10.9 Release....................................................32
ARTICLE 11 - GENERAL PROVISIONS.....................................32
11.1 Expenses...................................................32
11.2 Public Announcements.......................................32
11.3 Confidentiality............................................32
11.4 Non-Solicitation...........................................33
11.5 Covenant Not To Compete....................................33
11.6 Notices....................................................33
11.7 Arbitration................................................34
11.8 Further Assurances.........................................35
11.9 Waiver.....................................................35
11.10 Entire Agreement and Modification..........................35
11.11 Assignments, Successors, and No Third-Party Rights.........35
11.12 Severability...............................................36
11.13 Headings, Construction.....................................36
11.14 Governing Law..............................................36
11.15 Counterparts...............................................36
<PAGE>1
STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement ("Agreement") is made as of June 23, 1997,
by and between Franklin Electric Co., Inc., an Indiana corporation ("Seller"),
and Baker Hughes Incorporated, a Delaware corporation ("Buyer").
WHEREAS, Seller owns all of the issued and outstanding shares of capital
stock of Oil Dynamics, Inc., an Oklahoma corporation (the "Company"); and
WHEREAS, Seller desires to sell, and Buyer desires to purchase, all of
the issued and outstanding shares of capital stock of the Company for the
consideration and upon the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of these premises and the mutual
representations, warranties and covenants contained herein, the parties agree
as follows:
ARTICLE 1
SALE AND TRANSFER OF SHARES; CLOSING
------------------------------------
1.1 Shares
In accordance with the terms and subject to the conditions of this
Agreement, at the Closing (as defined in Section 1.3), Seller will sell and
transfer to Buyer, and Buyer will purchase from Seller, all of the issued and
outstanding shares of capital stock of the Company (the "Shares").
1.2 Purchase Price
The purchase price (the "Purchase Price") for the Shares will be
$31,500,000, subject to adjustment as set forth in Section 1.4. Buyer will
deliver the Purchase Price to Seller as follows: (a) on the date hereof, Buyer
will deliver $250,000 to Seller which, subject to Section 8.2, shall be non-
refundable and shall be applied at the Closing to the Purchase Price or, if
applicable, to the Termination Payment provided for in Section 8.2(b), and (b)
at the Closing, Buyer will deliver $31,250,000 to Seller. Each of the
foregoing deliveries by Buyer will be made by bank cashier's or certified
check payable to the order of Seller or by wire transfer of immediately
available funds to Seller's account as designated in writing by Seller to
Buyer at least one (1) business day prior to the respective payment date.
<PAGE>2
1.3 Closing
The Closing of the purchase and sale provided for in this Agreement (the
"Closing") will take place at the offices of Baker & Botts, L.L.P., Houston,
Texas 77002-4995 at 10:00 a.m. (local time) on the second business day
following the date on which the last of the conditions set forth in Articles
5, 6 and 7 have been fulfilled or waived in accordance with this Agreement
(the "Closing Date"), or at such other place and time as Seller and Buyer
shall mutually agree. At the Closing, the parties will deliver the documents
referred to in Articles 6 and 7; Buyer will deliver $31,250,000 to Seller; and
Seller will deliver to Buyer stock certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers), free and clear of any
charge, claim, interest, option, lien, pledge, security interest, or
restriction of any kind ("Encumbrance").
1.4 Closing Statement; Purchase Price Adjustment
(a) As soon as practicable after the Closing Date but in no event
later than thirty (30) days after the Closing Date, Buyer shall cause the
Company to prepare and deliver to Seller a closing statement in the form
attached hereto as Exhibit A (the "Closing Statement"), reflecting the net
book value as of the Closing Date of the Current Assets (including
inventory), Current Liabilities and Property, Plant and Equipment of the
Company and its Subsidiaries on a consolidated basis. The Closing Statement
shall fairly present the items listed thereon as of the Closing Date in
accordance with generally accepted accounting principles ("GAAP") and on a
basis consistent with the accounting principles, practices, procedures and
policies that were used in preparing the Balance Sheet and the Interim Balance
Sheet (each as defined below in Section 2.4). Seller shall have a period of
ten (10) days after delivery of the Closing Statement to review it and make
any objections it may have in writing to Buyer. If written objections to the
Closing Statement are delivered to Buyer by Seller within such ten-day period,
then Seller and Buyer shall attempt to resolve the matter or matters in
dispute. If no written objections are made by Seller within such ten-day
period, then the Closing Statement shall be final and binding on the parties
hereto. If disputes with respect to the Closing Statement cannot be resolved
by Seller and Buyer within thirty (30) days after the delivery of the
objections to the Closing Statement, then, at the request of Buyer or Seller
within ten (10) days after the expiration of the thirty-day period, the
specific matters in dispute shall be submitted to the Tulsa, Oklahoma office
of such Big Six independent accounting firm as may be approved by Seller and
Buyer, which firm shall render its opinion as to such matters as expeditiously
as possible and in any event within thirty (30) days of submission. Based on
such opinion, such independent accounting firm will then send to Seller and
Buyer its determination on the specified matters in dispute, which
determination shall be final and binding on the parties hereto. The fees and
expenses of such independent accounting firm shall be borne one-half by Seller
and one-half by Buyer.
(b) Within five (5) days of Buyer's and Seller's agreement on the
Closing Statement (or the decision of the independent firm referred to in
Section 1.4(a) above):
(i) If the net book value of Current Assets plus the net book
value of Property, Plant and Equipment, less the net book value of
Current Liabilities, in each case as reflected on the Closing Statement,
<PAGE>3
exceeds $23,307,000, Buyer shall pay the amount of such excess to
Seller, together with interest on such amount from the Closing Date to
the date of such payment at a rate per annum equal to 7%.
(ii) If the net book value of Current Assets plus the net book
value of Property, Plant and Equipment, less the net book value of
Current Liabilities, in each case as reflected on the Closing Statement,
is less than $23,307,000, Seller shall pay the amount of such difference
to Buyer, together with interest on such amount from the Closing Date to
the date of such payment at a rate per annum equal to 7%.
(c) For purposes of this Section 1.4, the calculation of the net book
value of Current Assets plus the net book value of Property, Plant and
Equipment, less the net book value of Current Liabilities shall exclude (i)
any intercompany payables or receivables to or from (a) Seller or any
affiliate of Seller (other than the Company or any Subsidiary), on the one
hand, and (b) the Company or any Subsidiary, on the other hand, and (ii) items
of the types and kinds eliminated as adjustments as reflected in the form of
the Closing Statement attached hereto as Disclosure Schedule 1.4, including,
but not limited to, items recorded as assets or liabilities arising from Taxes
(as defined in Section 2.8(g)). All intercompany payables and receivables
referred to in the first sentence of this Section 1.4(c) shall be canceled or
recharacterized as capital of the Company at or prior to the Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
2.1 Organization and Good Standing
(a) Each of the Company and the Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of, in the
case of the Company, the state of Oklahoma, and in the case of each
Subsidiary, the jurisdiction indicated on Disclosure Schedule 2.3, with full
corporate power and authority to conduct its business as it is now being
conducted and to own or use the properties and assets that it purports to own
or use. Each of the Company and its Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing under the laws of
each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by
it, requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, assets, liabilities,
results of operations or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole (a "Material Adverse Effect").
<PAGE>4
(b) Seller has delivered to Buyer true and complete copies of the
charter and by-laws of each of the Company and the Subsidiaries, as currently
in effect.
2.2 Authority; No Conflict; No Consents
(a) Seller has the requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations under this Agreement
and to consummate the transactions contemplated herein. The execution,
delivery and performance of this Agreement have been duly authorized by the
Board of Directors of Seller, and this Agreement constitutes the valid and
binding obligation of Seller, enforceable against Seller in accordance with
its terms, subject to applicable laws relating to bankruptcy, insolvency,
fraudulent transfer, moratorium or other similar laws affecting creditors'
rights generally and to general principles of equity.
(b) Except as set forth in Disclosure Schedule 2.2(b) and except for
conflicts or violations which would not have a Material Adverse Effect,
neither the execution and delivery of this Agreement by Seller nor the
consummation of any of the transactions contemplated herein by Seller will,
directly or indirectly (with or without notice or lapse of time):
(i) conflict with, or result in a violation of any provision of
the charter or by-laws of the Company, any Subsidiary or Seller;
(ii) except as set forth in Section 2.2(c), conflict with, or
result in a violation of, any law, order, decision, judgment, ruling or
verdict entered or issued by any court, administrative agency or other
governmental body to which the Company or any Subsidiary, or any of the
assets owned or used by the Company or any Subsidiary, may be subject;
or
(iii) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by the Company or any
Subsidiary; or
(iv) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or give
rise to a right of purchase under, or accelerate the performance
required by, or result in being declared void, voidable, or without
further binding effect, or otherwise result in a detriment to the
Company or any Subsidiary under, any of the terms, conditions or
provisions of, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, lease, contract, agreement, joint venture or
other instrument or obligation to which the Company or any Subsidiary
is a party, or by which the Company or any Subsidiary or any of its
respective properties is bound or affected.
(c) Except as required by the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") or as set forth in Disclosure Schedule
2.2(c), neither Seller nor the Company nor any Subsidiary is or will be
required to give any notice to, or obtain any approval, consent or
<PAGE>5
authorization from, any person or governmental body ("Governmental
Authorization") in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated herein.
2.3 Capitalization and Ownership of the Shares
The authorized capitalization of the Company consists of 1,700,000
shares of Class A common stock, par value $.10 per share, and 3,627 shares of
Class B common stock, par value $12.00 per share, of which 850,000 shares of
Class A common stock are issued and outstanding and 3,333 shares of Class B
common stock shares are issued and held as treasury shares. Seller is and
will be on the Closing Date the record and beneficial owner and holder of the
Shares, free and clear of all Encumbrances. All of the outstanding equity
securities of the Company and of each Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable. Disclosure Schedule 2.3
sets forth the name, jurisdiction of incorporation and capitalization of each
subsidiary of the Company (each, a "Subsidiary"). Except as set forth on
Disclosure Schedule 2.3, there are no contracts, subscriptions, options or
other agreements relating to the issuance, sale, or transfer of any equity
securities or other securities of the Company or any of its Subsidiaries. The
Company and its Subsidiaries own no capital stock or other interest in any
person other than the stock of the Subsidiaries. The Company owns all of the
outstanding capital stock of each Subsidiary.
2.4 Financial Statements
Seller has delivered to Buyer: (a) the consolidated balance sheet of the
Company and its Subsidiaries as at December 28, 1996 (the "Balance Sheet") and
the related statement of income for the fiscal year then ended, (b) an interim
consolidated balance sheet of the Company and its Subsidiaries as at April 30,
1997 (the "Interim Balance Sheet") and the related statement of income for the
four months then ended. These financial statements have not been separately
audited but fairly present the financial condition and the results of
operations of the Company and its Subsidiaries as at the respective dates of
and for the periods referred to in such financial statements, all in
accordance with GAAP, subject, in the case of the interim financial
statements, to normal recurring year-end adjustments, none of which are
expected to be material.
2.5 Title to Properties; Encumbrances
Disclosure Schedule 2.5 contains a complete and accurate list of all
real property, leaseholds, or other interests therein owned by the Company or
any Subsidiary. Each of the Company and its Subsidiaries owns (with good and
marketable title in the case of real property, subject only to the matters
permitted by the following sentence) all the properties and assets (whether
real, personal, or mixed and whether tangible or intangible) that it purports
to own, including all of the properties and assets reflected in the Balance
Sheet and the Interim Balance Sheet (except for personal property sold since
the date of the Balance Sheet and the Interim Balance Sheet, as the case may
be, in the ordinary course of business and consistent with past practice), and
all of the properties and assets purchased or otherwise acquired by the
Company or any Subsidiary since the date of the Balance Sheet and the Interim
<PAGE>6
Balance Sheet (except for personal property acquired and sold since the date
of the Balance Sheet and the Interim Balance Sheet, as the case may be, in the
ordinary course of business and consistent with past practice). All
properties and assets, owned by the Company or any Subsidiary are free and
clear of all Encumbrances and are not, in the case of real property, subject
to any rights of way, building use restrictions, exceptions, variances,
reservations, or limitations of any nature except, with respect to all such
properties and assets, (a) liens for current taxes not yet due, and (b) with
respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company or any Subsidiary , (ii) liens, mortgages or deeds of trust that are
set forth in Disclosure Schedule 2.5, and (iii) zoning laws and other land use
restrictions that do not impair the present or anticipated use of the property
subject thereto (each, a "Permitted Lien").
2.6 Accounts Receivable
All accounts receivable of the Company and the Subsidiaries that are
reflected on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the ordinary course
of business. Unless paid prior to the Closing Date, the Accounts Receivable
are or will be as of the Closing Date collectible (in United States dollars or
United States dollar equivalents on the date of payment) net of the respective
reserves shown on the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Company and the Subsidiaries as of the Closing Date
(which reserves are adequate in accordance with GAAP and calculated consistent
with past practice).
2.7 No Undisclosed Liabilities
Except as set forth in Disclosure Schedule 2.7, neither the Company nor
any Subsidiary has any liabilities or obligations of any nature (whether known
or unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet
or the Interim Balance Sheet and current liabilities incurred in the ordinary
course of business since the respective dates thereof.
2.8 Taxes
(a) Except as set forth in Disclosure Schedule 2.8, the Company,
Seller, the Subsidiaries and any affiliated, consolidated, combined, unitary
or similar group ("Group") of which the Company or any of the Subsidiaries is
or has been a member have (i) caused to be duly filed on a timely basis
(taking into account any extensions) with the appropriate governmental
authorities all returns, declarations, reports, estimates, elections,
information returns, forms and statements ("Returns") in respect of Taxes (as
hereinafter defined) required to be filed or sent by or with respect to the
Company or any Subsidiary, (ii) caused to be duly paid or deposited on a
timely basis or made adequate provisions in accordance with GAAP for the
payment of all Taxes for which the Company or any Subsidiary may be liable and
<PAGE>7
(iii) complied in all material respects with all applicable laws, rules and
regulations relating to the reporting, payment, collection and withholding of
Taxes with respect to the Company or any Subsidiary.
(b) Disclosure Schedule 2.8 sets forth any Group in which the Company
or any Subsidiary is or has been a member or in whose Returns the Company or
any Subsidiary joins or has joined in the filing, and the taxable periods for
which the Company or any Subsidiary has been such a member or has so joined.
(c) Except as set forth in Disclosure Schedule 2.8, (i) there are no
tax liens upon any assets of the Company or any Subsidiary, (ii) there are no
outstanding agreements, waivers or other documents by or with respect to the
Company or any Subsidiary extending or having the effect of extending the
period for assessment or collection of any Taxes, (iii) there are no closing
agreements in effect pursuant to Section 7121 of the Code (as hereinafter
defined), or any predecessor provision thereof, or any comparable provision of
state, local, foreign or other income tax law that relates to the assets or
operations of the Company or any Subsidiary, (iv) there is no pending action,
proceeding or investigation, and, to the best knowledge of Seller, no action,
proceeding or investigation has been threatened by any governmental authority
for the assessment or collection of Taxes with respect to the Company or any
Subsidiary, (v) no claim for assessment or collection of Taxes has been
asserted and no actual or proposed assessment has been made against the
Company, the Subsidiaries, Seller or any Group of which the Company or any
Subsidiary is or was a member with respect to the Taxes of the Company or any
Subsidiary, (vi) no extension of time is in effect with respect to the date on
which any Return is to be filed by or with respect to the Company or any
Subsidiary, (vii) no power of attorney with respect to Taxes of the Company or
any Subsidiary is currently in effect and (viii) neither the Company nor any
Subsidiary has an interest in any unincorporated organization that is treated
as a partnership for United States federal income tax purposes.
(d) Neither the Company nor any Subsidiary is a party to an agreement
that provides for the payment of any amount that would constitute a "parachute
payment" within the meaning of Section 280G of the Code.
(e)Except as set forth in Disclosure Schedule 2.8, neither the
Company nor any Subsidiary is a party to, is bound by or has any obligation
under any tax sharing, indemnity or allocation agreement or similar agreement
or arrangement.
(f)None of the Subsidiaries which is organized outside the United
States (the "Foreign Subsidiaries") (i) is or has been a passive foreign
investment company within the meaning of Section 1296 of the Code, (ii) owns
or has owned a United States real property interest within the meaning of
Section 897(c) of the Code, (iii) holds or has held any United States property
within the meaning of Section 956 of the Code, (iv) is participating in or
cooperating with, or has participated in or cooperated with, an international
boycott within the meaning of Section 999 of the Code or (v) has or has had
<PAGE>8
any income which is or is considered to be effectively connected with a trade
or business within the United States for purposes of the Code.
(g) For purposes of this Agreement, "Taxes" means all federal, state,
county, local, foreign or other taxes, charges, fees, levies, imposts, duties,
licenses or other governmental assessments, together with any interest,
penalties, additions to tax or additional amounts imposed with respect
thereto.
2.9 No Material Adverse Change
Other than as disclosed in this Agreement or the Disclosure Schedules,
since the date of the Balance Sheet, there has not been any change in the
business, assets or financial condition of the Company or any Subsidiary which
has had or which could reasonable be expected to have a Material Adverse
Effect.
2.10 Employee Benefits
(a) The following terms shall have the meanings set forth below:
(i) The term "Plan" means any employee benefit plan, as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), that currently is maintained by the Company or a
Subsidiary for employees of the Company or its Subsidiaries or has been
so maintained within six (6) years prior to the Closing.
(ii) The term "Qualified Plan" means any Plan that is an employee
pension benefit plan as defined in Section 3(2) of ERISA and that is
intended to meet the qualification requirements of the Internal Revenue
Code of 1986, as amended ("Code").
(iii) The term "Title IV Plan" means any Qualified Plan that is a
defined benefit plan (as defined in Section 3 (35) of ERISA) and is
subject to Title IV of ERISA.
(iv) The term "Multiemployer Plan" means any Plan that is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(v) The term "Control Group" means a controlled group of
corporations of which the Company is a member within the meaning of
Section 414(b) of the Code, any group of corporations or entities under
common control with the Company within the meaning of Section 414(c) of
the Code or any affiliated service group of which the Company is a
member within the meaning of Section 414(m) of the Code.
(vi) The term "Benefit Program or Agreement" means each personnel
policy, stock option plan, bonus arrangement, incentive award
arrangement, vacation policy, deferred compensation arrangement,
supplemental income arrangement, employment agreement, collective
<PAGE>9
bargaining agreement, consulting agreement and each other employee
benefit plan, program, agreement, policy or arrangement that is not a
Plan that currently is maintained by the Company or a Subsidiary for
employees of the Company or its Subsidiaries.
(vii) The term "ESOP" means the Franklin Electric Co., Inc.
Employee Stock Ownership Plan.
(b) All Plans, Benefit Programs and Agreements are set forth in
Disclosure Schedule 2.10(b). True and correct copies of each of the Plans,
Benefit Programs and Agreements have been or will be furnished to Buyer,
including the most recent annual report and actuarial valuation where
applicable.
(c) Except as set forth in Disclosure Schedule 2.10(c), Seller
represents and warrants as follows:
(i) Each Plan, Benefit Program and Agreement, and the ESOP have
been administered in compliance in all material respects with its terms
and in material compliance with the requirements of all applicable
statutes (including but not limited to ERISA and the Code) and all
required material reports and disclosures have been properly filed or
forwarded to governmental agencies and participants.
(ii) To Seller's knowledge, no reportable event (as defined in
Section 4043 of ERISA) that has a Material Adverse Effect on the
Company, and that is not subject to an administrative or statutory
waiver from reporting requirements, has occurred with respect to any
Title IV Plan.
(iii) To Seller's knowledge, (x) neither the Company nor any other
member of the Control Group has engaged in any transaction respecting
the Plans in violation of Section 406(a) or (b) of ERISA, or that is a
"prohibited transaction" (as defined in Section 4975(c)(1) of the Code),
for which no exemption exists under Section 408(b) of ERISA or Section
4975(d) of the Code, or for which no administrative exemption has been
granted under Section 408(a) of ERISA, and (y) no act, omission or
transaction has occurred respecting the Plans which would result in
imposition on the Company of damages under Section 409 of ERISA, a civil
penalty under Section 502 of ERISA or a tax pursuant to Chapter 43 of
Subtitle D of the Code, that would have a Material Adverse Effect.
(iv) No liability to the Pension Benefit Guaranty Corporation
("PBGC") has been incurred by the Company or any other member of the
Control Group with respect to any Title IV Plan. PBGC has not
instituted any proceedings to terminate any Title IV Plan under Section
4042 of ERISA and, to Seller's knowledge, there is no event or condition
which presents a material risk of termination of any Title IV Plan.
<PAGE>10
(v) Each Qualified Plan and the ESOP is the subject of a
favorable Internal Revenue Service determination with respect to its tax
qualification, and is qualified and, to Seller's knowledge, no matter
exists which would adversely affect such qualified status.
(vi) No matter is pending relating to any Plan, Benefit Program
or Agreement before any court or governmental agency and, to Seller's
knowledge, no such matter is threatened.
(vii) No Title IV Plan had an accumulated funding deficiency (as
such term is defined in Section 302 of ERISA) as of the last day of the
most recent plan year of such Plan ended prior to the date hereof.
(viii)All contributions payable to each Plan for all
benefits earned and other liabilities accrued through April 30, 1997,
other than PBGC premiums that are not currently due and payable,
determined in accordance with the terms and conditions of such Plan,
ERISA and the Code, have been paid or otherwise provided for, or to the
extent unpaid are reflected in the Interim Balance Sheet.
(ix) No waiver from the minimum funding standard requirements of
Section 302 of ERISA and Section 412 of the Code has been obtained or
applied for with respect to any Title IV Plan.
(x) Neither the Company nor any other member of the Control
Group contributes to currently or has within six (6) years prior to the
Closing contributed to any Multiemployer Plan.
(xi) The assets of each Title IV Plan equal or exceed the
actuarial present value of the benefit liabilities on an ongoing plan
basis based upon reasonable actuarial assumptions and the asset
valuation principles established by the PBGC.
(xii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not require
the Company to make a larger contribution to, or pay greater benefits
under, any Plan, Benefit Program or Agreement than it otherwise would or
create or give rise to any additional rights or service credits
thereunder, except as otherwise specifically provided in this Agreement.
(xiii)With respect to any employee benefit plan, within the
meaning of Section 3(3) of ERISA, that is not a Plan but which is
currently maintained, or has been maintained, within six (6) years
prior to the Closing by a Control Group member, no withdrawal liability,
within the meaning of Section 4201 of ERISA, has been incurred, which
liability has not been satisfied and would have a Material Adverse
Effect, no liability to the PBGC has been incurred that has not been
satisfied, no accumulated funding deficiency has been incurred, and all
<PAGE>11
contributions required by Section 302 of ERISA and Section 412 of the
Code have been timely made.
(xiv) In connection with the consummation of the transactions
contemplated by this Agreement, no payments have or will be made under
the Plans, Benefit Programs and Agreements that, in the aggregate, would
result in imposition of the sanctions imposed under Sections 280G and
4999 of the Code.
(xv) Other than the ESOP, no employee benefit plan or program
covering employees of the Company or its Subsidiaries is sponsored by
Seller or any entity other than the Company or its Subsidiaries.
2.11 Compliance with Law; Governmental Authorizations
(a) Except as set forth in Disclosure Schedule 2.11(a), to Seller's
knowledge, each of the Company and the Subsidiaries is in compliance in all
material respects with all laws applicable to it or to the conduct or
operation of its businesses or the ownership or use of its assets.
(b) Except as set forth in Disclosure Schedule 2.11(b), each of the
Company and the Subsidiaries does not maintain, nor is it required to
maintain, any Governmental Authorization to lawfully conduct and operate its
businesses in the manner it currently conducts and operates such businesses
and to own and use its assets in the manner in which it currently owns and
uses such assets.
2.12 Legal Proceedings; Orders
Except as set forth in Disclosure Schedule 2.12, there are no claims,
actions, suits or proceedings pending, or to Seller's knowledge, threatened
against or involving the Company or any Subsidiary which have or could
reasonably be expected to have a Material Adverse Effect.
2.13 Absence of Certain Changes and Events
Except as set forth in Disclosure Schedule 2.13, since the date of the
Balance Sheet, each of the Company and the Subsidiaries has conducted its
businesses only in the ordinary course of business and there has not been any:
(a) change in the authorized or issued capital stock of the Company or
any Subsidiary; grant of any stock option or right to purchase shares of
capital stock of the Company or any Subsidiary; issuance of any security
convertible into such capital stock; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by the Company or any
Subsidiary of any shares of any such capital stock; or declaration or payment
of any dividend or other distribution or payment in respect of shares of
capital stock;
<PAGE>12
(b) increase in the salary of, or the rate of commissions payable to,
or payment of any bonus or other compensation to, any director, officer or
employee of the Company or any Subsidiary, or entry into any employment,
severance, or similar contract with any director, officer, or employee of the
Company or any Subsidiary;
(c) damage to or destruction or loss of any asset or property of the
Company or any Subsidiary, whether or not covered by insurance, which has or
could reasonably be expected to have a Material Adverse Effect;
(d) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any contract or transaction involving a
total remaining commitment by or to the Company or any Subsidiary of at least
$300,000;
(e) material change in the accounting methods or principles or tax
methods, elections or principles used by the Company or any Subsidiary;
(f) sale, lease, distribution, transfer, mortgage, pledge or
subjection to lien of assets, except sales of inventory and obsolete or
surplus equipment in the ordinary and usual course of business and the
creation of Permitted Liens;
(g) material transaction by the Company or any Subsidiary not in the
ordinary and usual course of business;
(h) termination, or a threatened termination, or material
modification, in each case not in the ordinary course of business, of any
material contract or the relationship of the Company or any Subsidiary with
any customer or supplier, who in the aggregate accounted for in excess of
$300,000 of sales or purchases during the last full fiscal year;
(i) delay or reduction in capital expenditures in contemplation of
this Agreement or otherwise, or any failure to continue to make capital
expenditures in the ordinary course of business consistent with past practice;
(j) acceleration of shipments, sales or orders or other similar action
in contemplation of this Agreement or otherwise not in the ordinary course of
business consistent with past practice;
(k) waiver of any rights that, singly or in the aggregate, are
material to the Company or the Subsidiaries or the financial condition or
results of operation of the Company and the Subsidiaries;
(l) labor strikes, union organizational activities or other similar
occurrence; or
<PAGE>13
(m) agreement, whether oral or written, by the Company or any
Subsidiary to do any of the foregoing.
2.14 Contracts; No Defaults
(a) Disclosure Schedule 2.14(a) contains a complete and accurate list
of (i) each contract that involves expenditures by or receipts of the Company
and the Subsidiaries (in the aggregate) in excess of $300,000 and that is not
terminable by the Company or any Subsidiary or its successors or assigns
without liability, penalty or premium upon 30 days' notice or less; (ii) each
contract that involves expenditures by or receipts of the Company or any
Subsidiary in excess of $500,000 (without regard to the ability to terminate);
(iii) each other contract which is material to the business, assets,
liabilities, results of operations or financial condition of the Company and
the Subsidiaries (in the aggregate); (iv) each employment, severance or change
in control agreement between the Company or the Subsidiary on the one hand and
any employee of the Company or the Subsidiary on the other hand; and (v) each
contract that is subject to termination as a result of the consummation of the
transactions contemplated herein.
(b) Except as set forth in Disclosure Schedule 2.14(b), each contract
identified or required to be identified in Disclosure Schedule 2.14(a) is in
full force and effect and is valid and enforceable in accordance with its
terms.
2.15 Environmental Matters
Except as set forth in Disclosure Schedule 2.15, to Seller's knowledge,
each of the Company and the Subsidiaries is in compliance in all material
respects with all applicable federal, state, and local laws and regulations
relating to air, water, soil, solid waste management, hazardous or toxic
substances, or the protection of health or the environment (collectively, the
"Environmental Laws"). There are no claims, actions, suits or proceedings
pending or, to Seller's knowledge, threatened against, or involving, the
Company or any Subsidiary or any assets of the Company or any Subsidiary under
any of the Environmental Laws (whether by reason of any failure to comply with
any of the Environmental Laws or otherwise). No decree, judgment or order of
any kind under any of the Environmental Laws has been entered against the
Company or any Subsidiary.
2.16 Employees
Disclosure Schedule 2.16(a) contains a complete and accurate list of the
following information for each employee or director of each of the Company and
the Subsidiaries, including each employee on leave of absence or layoff
status: name; job title; current base and bonus compensation paid or payable;
any commissions or other compensation paid or payable; vacation earned or
accrued; and service credited for purposes of vesting and eligibility to
participate under the employee benefit plans of the Company, the Subsidiaries
or Seller.
<PAGE>14
2.17 Labor Relations; Compliance
Each of the Company and the Subsidiaries has complied in all material
respects with all laws relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes and occupational safety and
health. Except as set forth in Disclosure Schedule 2.17, there are no
collective bargaining agreements covering employees of the Company or any
Subsidiary, and neither the Company nor any Subsidiary has had or, to the
knowledge of Seller, been threatened with any work stoppages or other labor
disputes or controversies with respect to its employees which had a Material
Adverse Effect.
2.18 Intellectual Property
Disclosure Schedule 2.18 sets forth a complete and correct list of all
licenses, trademarks (whether registered or unregistered), service marks,
trade names, and applications for registration of the foregoing, patents,
patent applications and copyrights, owned or used by the Company or any
Subsidiary in the conduct of their business (all such property required to be
so set forth, whether or not actually listed, is referred to herein as the
"Intellectual Property"). Each of the Company and the Subsidiaries has good
title to and the right to use the Intellectual Property required to be
designated as owned by it in Disclosure Schedule 2.18, free and clear of all
licenses, sub-licenses or Encumbrances except as set forth in Disclosure
Schedule 2.18. Neither the Company nor any Subsidiary has received notice or
claim that its title to or use of the Intellectual Property, as well as any
material trade secrets or confidential information, is impaired, encumbered or
invalid or is unenforceable by the Company or any Subsidiary. To Seller's
knowledge, the use of any of the Intellectual Property by the Company or any
Subsidiary, as well as any material trade secrets or confidential information,
does not infringe upon any intellectual property owned by any other party, and
there is no claim or action pending or, threatened with respect thereto.
2.19 Condition of Fixed Assets and Inventory
Except as set forth in Disclosure Schedule 2.19, the fixed assets of the
Company and any Subsidiary are in serviceable condition, subject only to
normal maintenance requirements and normal wear and tear reasonably expected
in the ordinary course of business. Except as set forth in Disclosure
Schedule 2.19, the inventory of the Company and any Subsidiary is merchantable
and consists of a quality and quantity usable and saleable in the ordinary
course of business, except for items of obsolete materials and materials of
below-standard quality, all of which have been written down in the Company's
accounting records to net realizable value.
2.20 Insurance
Disclosure Schedule 2.20 contains a true and correct list and
description of all insurance policies which are owned by the Company or any
<PAGE>15
Subsidiary or which name the Company or any Subsidiary as insured and which
pertain to the employees or business of the Company or any Subsidiary.
2.21 Brokers or Finders
Neither the Company nor any Subsidiary nor Seller has incurred any
obligation or liability, contingent or otherwise, to any party for brokerage
or finders' fees or agents' commissions or other similar payment in connection
with this Agreement, except with respect to Simmons & Company, the fees of
which will be paid by Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1 Organization and Good Standing
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
3.2 Authority; No Conflict; No Consents
(a) Buyer has the requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations under this Agreement
and to consummate the transactions contemplated herein. The execution,
delivery and performance of this Agreement have been duly authorized by the
Board of Directors of Buyer, and this Agreement constitutes the valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, subject to applicable laws relating to bankruptcy, insolvency,
fraudulent transfer, moratorium or other similar laws affecting creditors'
rights generally and to general principles of equity.
(b) Neither the execution and delivery of this Agreement by Buyer nor
the consummation or performance of any of the transactions contemplated herein
by Buyer will give any person the right to prevent, delay, or otherwise
interfere with any of the transactions contemplated herein pursuant to (i) any
provision of Buyer's charter and by-laws or, to Buyer's knowledge, any
contract to which Buyer is a party or (ii) except as set forth in Section
3.2(c), any law or order to which Buyer may be subject.
(c) Except as required by the HSR Act or as set forth in Disclosure
Schedule 3.2(c), Buyer is not and will not be required to give any notice to,
or obtain any approval, consent or authorization (including any Governmental
Authorization) from any person in connection with the execution and delivery
<PAGE>16
of this Agreement or the consummation of the transactions contemplated herein.
3.3 Investment Intent
Buyer is acquiring the Shares for its own account and not with a view to
their distribution within the meaning of Section 2(11) of the Securities Act.
3.4 Legal Proceedings
There is no pending, or to Buyer's knowledge, threatened claim, action,
litigation or suit against Buyer that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of
the transactions contemplated herein.
3.5 Brokers or Finders
Buyer has not incurred any obligation or liability, contingent or
otherwise, to any party for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
ARTICLE 4
COVENANTS
4.1 Access and Investigation
(a) Seller shall, and shall cause the Company to, give Buyer and (i)
Buyer's employees, (ii) the persons listed in Disclosure Schedule 4.1, (iii)
any other person specifically approved by Seller, and (iv) Buyer's outside
advisers (for purposes of this Section 4.1, all such persons are referred to
as "Buyer's Approved Representatives"), access to information reasonably
requested by Buyer with respect to the Company and its Subsidiaries for a
period of ten (10) business days beginning June 25, 1997 and ending at the
close of business on July 9, 1997 (the "Inspection Period").
(b) Between the date of this Agreement and the Closing Date, Seller
shall, and shall cause the Company to, give Buyer and Buyer's Approved
Representatives access, during reasonable business hours and in such a manner
as not to disrupt the normal business activities of the Company and any
Subsidiary, to the personnel, properties, books and records of the Company and
any Subsidiary as Buyer shall from time to time reasonably request; provided
that Seller shall have the right to accompany any of Buyer's Approved
Representatives while such person is on site at any of the properties of the
Company or any Subsidiary. Buyer and Buyer's Approved Representatives shall
have the right to observe the physical inventory conducted by the Company and
its Subsidiaries at the end of June 1997.
<PAGE>17
4.2 Operation of the Businesses of the Company
Until the Closing, Seller shall, and shall cause the Company to, comply
with the provisions set forth below:
(a) The Company and its Subsidiaries shall operate their respective
businesses in the ordinary course;
(b) Seller shall promptly notify Buyer of, and furnish to Buyer any
information that Buyer may reasonably request with respect to, the occurrence
of any event or the existence of any state of facts that may result in the
representations and warranties of Seller not being true if they were made at
any time prior to or as of the date of the Closing;
(c) Neither the Company nor any of its Subsidiaries shall (i) grant or
agree to grant any bonuses to any employee, (ii) grant any general increase in
the rates of salaries or compensation of its or their employees or any
specific increase to any employee, (iii) provide for any new pension,
retirement or other employment benefits to any of its or their employees or
any increase in any existing benefits or (iv) terminate or amend in any
respect or provide for any material increase in benefits under any Plan or any
other employee benefit plan of the Company or any Subsidiary (except as
contemplated by Sections 4.7(d) and 4.9);
(d) Neither the Company nor any of its Subsidiaries shall amend its
certificate of incorporation or by-laws or enter into any merger or
consolidation agreement;
(e) Neither the Company nor any of its Subsidiaries shall authorize
for issuance, issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any capital stock
of any class or any other securities or equity equivalents or amend any of the
terms of any such securities or agreements;
(f) Seller and the Company shall use reasonable efforts to maintain
and preserve the business of the Company and its Subsidiaries intact, to
retain their present employees so that they will be available after the
Closing and to maintain existing relationships with customers, suppliers,
landlords, creditors, agents and others so that those relationships will be
preserved after the Closing;
(g) Neither the Company nor any of its Subsidiaries shall sell, assign
or dispose of any of its material assets or properties, tangible or
intangible, or incur or assume any liabilities or enter into any
sale/leaseback or similar transaction, except for sales and dispositions made,
or liabilities incurred, in the ordinary course of business consistent with
past practices;
(h) Neither the Company nor any of its Subsidiaries shall assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
<PAGE>18
or entity or make any loans, advances or capital contributions to or
investments in any other person or entity;
(i) The Company and its Subsidiaries shall maintain in full force and
effect all insurance currently maintained;
(j) Neither the Company nor any of its Subsidiaries shall take, or
agree in writing or otherwise to take, any of the actions described in this
Section 4.2 or any action that would make any representation or warranty
inaccurate or untrue or that would result in any of the conditions set forth
in Articles 5 or 6 hereof not being satisfied;
(k) The Company and its Subsidiaries shall comply with all applicable
local, state and federal laws, rules and regulations, judgments, decrees,
orders, governmental permits, certificates and licenses, including, without
limitation, Environmental Laws;
(l) The Company and its Subsidiaries shall maintain the books of
account and records in the usual, regular and customary manner consistent with
practices employed prior to the date hereof; and
(m) Neither the Company nor any Subsidiary shall implement or adopt
(i) any change in its accounting methods or principles or the application
thereof (including depreciation lives ) or (ii) any material change in its tax
methods, elections or principles or the application thereof (including
depreciation lives).
4.3 Exclusivity
Until this Agreement has been terminated pursuant to Article 8, Seller
will not, and will cause the Company and each of its representatives not to,
directly or indirectly solicit, initiate, discuss or negotiate with, or
provide any non-public information to, any party (other than Buyer) relating
to any transaction involving the sale of the business or assets (other than in
the ordinary course of business) of the Company and its Subsidiaries, or any
of the capital stock of the Company or its Subsidiaries, or any merger,
consolidation, business combination, or similar transaction involving the
Company or any Subsidiary.
4.4 HSR Act Filing
As promptly as practicable, Seller and Buyer shall make all filings and
submissions under the HSR Act, shall provide each other with copies of
correspondence, filings or communications with any governmental entity with
respect thereto, and shall use their reasonable efforts to obtain clearance
under the HSR Act; provided that neither party shall be required to take any
action that could have an adverse effect on its business, assets, operations,
liabilities, prospects, results of operations or condition (financial or
otherwise).
<PAGE>19
4.5 Allocation Schedule
Within ninety (90) days after the Closing Date, Seller and Buyer shall
prepare a schedule setting forth the following items (which shall have been
agreed to by the parties): (i) the Purchase Price, (ii) the liabilities of the
Company as of the Closing and (iii) an allocation of the sum of the Purchase
Price and the aggregate amount of such liabilities among the assets of the
Company as of the Closing, which allocation shall be based upon an appraisal
obtained by Buyer, at Buyer's expense, and made in accordance with the
principles of Section 338(b)(5) and (h)(10) of the Code and the Treasury
Regulations thereunder. Such amounts will be used by Seller, Buyer and the
Company as the basis for reporting asset values and other items for purposes
of all Returns, including, without limitation, the determination of the deemed
sale price and the adjusted grossed-up basis of the assets of the Company in
accordance with Treasury Regulations 1.338(h)(10)-1(f) and (e)(5). Buyer
and Seller agree not to assert, in connection with any audit or other
proceeding with respect to Taxes, any asset values or other items inconsistent
with the amounts set forth in the schedule described in this Section 4.5.
4.6 Environmental Audits
Buyer, at its sole expense and upon prior notice to Seller, may conduct
environmental audits or tests or take any action with respect to its due
diligence investigation of any real property owned or leased by the Company or
any Subsidiary. Any environmental audits or tests shall be performed by any
of Buyer's Approved Representatives (as such term is defined in Section 4.1)
who works primarily in the area of environmental affairs, or an independent
environmental engineering firm, and Seller and its representatives shall be
entitled to observe such audits or tests. The findings and recommendations,
if any, of such audits or tests shall be communicated to Seller promptly after
completion. Buyer agrees that it will repair or restore any physical damage
to any property directly caused by such audits or tests or other action of
Buyer taken pursuant to this Section 4.6.
4.7 Employees and Employee Benefits
(a) Unless otherwise agreed to by the parties, all employees of the
Company and any Subsidiary prior to the Closing Date shall continue as
employees of the Company or such Subsidiary, as the case may be, from and
after the Closing Date; provided, however, that nothing contained in this
Agreement shall be construed to require Buyer to retain in employment any
employee of the Company or any Subsidiary for any length of time; provided,
further, that Seller shall have the right, but not the obligation, to transfer
the employees of the Company and any Subsidiary listed in Disclosure Schedule
4.7(a) from employment by the Company or such Subsidiary to employment by
Seller at any time prior to the Closing Date. Seller shall agree to abide by
and pay any costs associated with its agreements with Joseph Liu and Larry C.
Wimmer.
(b) Any employee of the Company whose employment is terminated by
action of Buyer from and after the Closing Date shall receive severance
benefits in accordance with the terms of Buyer's severance plan or policy as
then in effect. An employee's period of employment with the Company prior to
<PAGE>20
and following the Closing Date shall be credited and treated for all purposes,
including the determination of benefits, under Buyer's severance plan or
policy as then in effect as if it were employment with Buyer.
(c) For each Plan, Benefit Program or Arrangement, including but not
limited to the Company's pension plan, 401(k) plan and health plan, Buyer
agrees that an employee's period of employment with the Company or any
Subsidiary prior to and following the Closing Date shall be credited and
treated for eligibility and vesting purposes as if it were employment with
Buyer; provided, however, that nothing contained in this Agreement shall be
construed to require Buyer to maintain any such Plan, Benefit Program or
Arrangement for any length of time.
(d) Seller shall, or shall cause the Company to, amend the Company's
401(k) plan prior to the Closing Date to eliminate the Seller's common stock
fund as an investment alternative for employees of the Company.
(e) Seller shall cause the ESOP to provide, to the extent not already
allocated, a pro rata allocation of "company benefits" and of "matching
benefits" for the 1997 calendar plan year to the accounts of members employed
by the Company as of the Closing Date as if the Closing Date were the year-end
allocation date for such plan year and as if such members had met the
eligibility requirements for such allocation for such plan year; provided,
however, to the extent the foregoing violates the tax qualification
requirements of the ESOP, in lieu of compliance with such covenant, Seller
shall provide cash payments to the affected members having equivalent economic
value as soon as practicable following the Closing Date. Seller shall cause
the Company to withdraw from the ESOP prior to, but effective as of, the
Closing Date.
(f) As soon as practicable after the Closing Date, Seller shall cause
a transfer of assets from the trustee of Seller's Master Trust attributable to
the Retirement Plan for Employees of Oil Dynamics, Inc. to the trustee of
Baker Hughes Incorporated Retirement Plan Master Trust Agreement or to another
trustee designated by Buyer.
4.8 Technology and Asset Transfers
Notwithstanding anything to the contrary elsewhere in this Agreement,
the parties agree that Seller shall have the right to purchase from the
Company or otherwise cause the Company to transfer to Seller prior to the
Closing Date certain technology and assets identified in Disclosure Schedule
4.8 for consideration equal to the aggregate book value of such items. Seller
represents that such technology and assets are used exclusively for the items
listed in Disclosure Schedule 4.8.
4.9 Option Shares
Seller shall, and shall cause the Company to, use its reasonable efforts
to purchase, redeem or cancel, at Seller's expense, all stock options
currently outstanding with respect to the Company's Class B common stock, but
in no event shall Seller be required to pay in excess of $997 per share to any
<PAGE>21
Class B common stock optionee. Seller and Buyer agree that Seller's failure
to consummate such action by the expiration of the Inspection Period may be
considered by Buyer in connection with its decision to terminate this
Agreement as permitted by Section 8.1(c) and in connection with the
calculation under Section 1.4.
4.10 Collection of Receivables
From and after the Closing Date, Buyer shall cause the Company to use
its reasonable efforts to collect the Accounts Receivable. If an obligor on
an Accounts Receivable incurs further indebtedness to the Company or any
Subsidiary after the Closing Date, all payments received from such obligor
after the close of business on the Closing Date shall be credited to the
earliest indebtedness still outstanding, unless the obligor denies or disputes
its obligation with respect to such indebtedness or otherwise directs
allocation of the payment to later indebtedness. In the event that Accounts
Receivable in excess of the aggregate amount of (a) the reserve on the Interim
Balance Sheet for uncollectible Accounts Receivable and (b) any remaining
balance of the $500,000 indemnification threshold referred to in Section 10.5
are not collected in full by the date eighteen (18) months after the Closing
Date, then within thirty (30) days after Buyer gives notice thereof to Seller,
Seller shall purchase without recourse such excess Accounts Receivable from
the Company or a Subsidiary for the amount thereof.
4.11 Reasonable Efforts
Subject to the other provisions of this Agreement, between the date of
this Agreement and the Closing Date, each of Seller and Buyer will use its
reasonable efforts to cause the conditions provided for in this Agreement be
satisfied.
ARTICLE 5
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligation of each party to take the actions required to
be taken at the Closing is subject to the satisfaction or waiver at or prior
to the Closing, of each of the following conditions:
5.1 No Proceedings
There shall be no binding injunction or order of any court or agency
prohibiting or preventing the consummation of the transactions contemplated
herein.
5.2 HSR Act
The waiting period (and any extension thereof) applicable to the
transactions contemplated herein under the HSR Act shall have been terminated
or shall have otherwise expired.
<PAGE>22
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF BUYER
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Buyer, in whole or in part):
6.1 Accuracy of Representations
Seller's representations and warranties contained in this Agreement
shall be complete and correct in all material respects of the date of this
Agreement and at and as of the Closing Date as if repeated and made to speak
at and as of such Closing Date.
6.2 Performance
All of the covenants and obligations that Seller is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must
have been duly performed and complied with in all material respects.
6.3 Delivery of Shares
Seller shall have delivered to Buyer stock certificates representing the
Shares, duly endorsed (or accompanied by duly executed stock powers), free and
clear of all Encumbrances, as contemplated by Section 1.3.
6.4 Closing Documents
Each of the following documents must have been delivered to Buyer:
(a) a certificate, dated the Closing Date, executed by Seller and
stating that each of Seller's representations and warranties contained in this
Agreement was complete and correct in all material respects as of the date of
this Agreement and is complete and correct in all material respects at and as
of the Closing Date as if repeated and made to speak at and as of the Closing
Date;
(b) a certificate, issued by the appropriate government official dated
as of a date within five days of the Closing Date, as to the good standing of
the Company in the state of Oklahoma;
(c) a certified copy of resolutions of Seller's board of directors
authorizing the execution, delivery and performance of this Agreement and all
other agreements and documents to be executed and delivered by Seller at the
Closing;
(d) all books and records of the Company and each Subsidiary; and
<PAGE>23
(e) such other documents as Buyer may reasonably request for the
purpose of facilitating the consummation of the transactions contemplated by
this Agreement.
6.5 Resignation of Directors and Officers
Each director and officer of the Company and each Subsidiary shall have
tendered his or her written resignation from office effective not later than
the Closing Date.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF SELLER
Seller's obligation to sell the Shares and to take the other actions
required to be taken by Seller at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Seller, in whole or in part):
7.1 Accuracy of Representations
Buyer's representations and warranties contained in this Agreement shall
be complete and correct in all material respects as of the date of this
Agreement and at and as of the Closing Date as if repeated and made to speak
at and as of such Closing Date.
7.2 Buyer's Performance
All of the covenants and obligations that Buyer is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing must
have been performed and complied with in all material respects.
7.3 Payment of Purchase Price
Buyer shall have paid $31,250,000 to Seller as contemplated by Section
1.2.
7.4 Closing Documents
Each of the following documents must have been delivered to Seller:
(a) a certificate, dated the Closing Date, executed by Buyer and
stating that each of Buyer's representations and warranties contained in this
Agreement was complete and correct in all material respects as of the date of
this Agreement and is complete and correct in all material respects at and as
of the Closing Date as if repeated and made to speak at and as of the Closing
Date;
<PAGE>24
(b) a certificate, issued by the appropriate government official dated
as of a date within five days of the Closing Date, as to the good standing of
Buyer in the state of Delaware;
(c) a certified copy of resolutions of Buyer's board of directors
authorizing the execution, delivery and performance of this Agreement and all
other agreements and documents to be executed and delivered by Buyer at the
Closing; and
(d) such other documents as Seller may reasonably request for the
purpose of facilitating the consummation of the transactions contemplated by
this Agreement.
ARTICLE 8
TERMINATION
8.1 Termination Events
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or Seller if a material breach of any provision of
this Agreement has been committed by the other party and such breach has not
been waived;
(b) (i) by Buyer if any of the conditions in Article 5 or 6 has not
been satisfied as of the Closing or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition at
or before the Closing; or (ii) by Seller, if any of the conditions in Article
5 or 7 has not been satisfied as of the Closing or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Seller
to comply with its obligations under this Agreement) and Seller has not waived
such condition at or before the Closing;
(c) by Buyer upon written notice to Seller (i) at any time on or prior
to the expiration of the Inspection Period specified in Section 4.1 herein
solely on the basis of the results of Buyer's due diligence investigation
showing a materially significant discrepancy (defined for purposes of this
clause only as an amount in excess of $1,000,000 in the aggregate) with
respect to the valuation of the assets, liabilities or contingencies
(including any items, conditions or other matters that Buyer believes could
adversely affect the business of the Company and the Subsidiaries or its
future results, based on Buyer's sole judgment of the amount of the potential
impact on the valuation, including, without limitation, loss or cancellation
of a significant customer, supplier, license, location, agreement or project,
a possible liability or other exposure, or a possible decline in activity of
the business) of the Company and its Subsidiaries, or the failure of Seller to
provide Buyer with information reasonably requested by Buyer pursuant to
Section 4.1, or (ii) at any time on or before the sixtieth day from the date
of this Agreement solely on the basis of the results of Buyer's due diligence
investigation showing an environmental problem with respect to the real
property owned or leased by the Company or any Subsidiary which in Buyer's
<PAGE>25
good faith judgment makes it inadvisable to proceed with the transactions
contemplated herein; provided, however, that Buyer's termination rights under
Section 8.1(c)(ii) with respect to an environmental problem shall be subject
to Seller's right to remedy such environmental problem to Buyer's satisfaction
based upon its good faith judgment; or
(d) by mutual consent of Seller and Buyer.
8.2 Effect of Termination
(a) Each party's right of termination under Section 8.1 is in addition
to any other rights it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies. If
this Agreement is terminated pursuant to Section 8.1, all further obligations
of the parties under this Agreement will terminate, except that (i) Seller
shall refund to Buyer the $250,000 of the Purchase Price delivered pursuant to
Section 1.2, plus 7% interest per annum, and (ii) the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the breach of the Agreement by the other
party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
(b) In the event of the termination of this Agreement by Buyer other
than as permitted by Section 8.1, or the termination of this Agreement by
Seller if Buyer is in material breach of this Agreement, Buyer shall pay
Seller $2,000,000 in cash (against which the $250,000 of the Purchase Price
delivered pursuant to Section 1.2 shall be credited), as liquidated damages
and not as a penalty (the "Termination Payment") within ten (10) days of such
termination, provided that Seller shall not be in material breach of this
Agreement. The parties further agree that Buyer shall pay the Termination
Payment if this Agreement is terminated pursuant to Section 8.1(b) due to the
failure to satisfy the condition set forth in Section 5.2 of this Agreement,
provided that Seller shall not be in material breach of this Agreement. The
Termination Payment shall be Seller's sole and exclusive remedy for the
termination of this Agreement under the circumstances in which the Termination
Payment is paid.
ARTICLE 9
TAX MATTERS
9.1 Section 338(h)(10) Election
Buyer and Seller are eligible to and shall make a joint election under
Section 338(h)(10) of the Code and any comparable provision of applicable
state or local income tax law (collectively, the "Section 338(h)(10)
<PAGE>26
Election") with respect to the purchase by Buyer of the Shares no later than
sixty (60) days after the Closing Date. Buyer shall be responsible for the
preparation and timely filing of Internal Revenue Service Form 8023-A (or any
successor form) and any required schedules thereto, and any comparable forms
and schedules under applicable state or local income tax law (collectively,
the "Form"), providing for the Section 338(h)(10) Election. Seller shall
provide such information as Buyer may request from Seller and shall otherwise
cooperate with Buyer to enable Buyer to prepare and file on a timely basis the
Form and any required supplements thereto (including, without limitation, by
properly executing the Form when requested by Buyer).
9.2 Liability for Taxes
(a) Seller shall be liable for, and shall indemnify and hold Buyer,
the Company, the Subsidiaries and their affiliates harmless from, (1) any
Taxes caused by or resulting from the sale of the Shares (including, without
limitation, all Taxes arising from the Section 338(h)(10) Election), (2) any
Taxes imposed on or incurred by the Company or any Subsidiary arising out of
the inclusion of the Company or any Subsidiary in any Group of which the
Company or any Subsidiary is or was a member on or before the Closing Date
(even if such Taxes relate to income arising after the Closing Date), (3) any
Taxes imposed on or incurred by the Company or any Subsidiary (or any Group
with respect to the taxable items of the Company or any Subsidiary) for any
taxable period ending on or before the Closing Date (or the portion,
determined as described in paragraph (c) of this Section 9.2, of any such
Taxes for any taxable period beginning on or before and ending after the
Closing Date which is allocable to the portion of such period occurring on or
before the Closing Date (the "Pre-Closing Period")), (4) any Taxes payable as
a result of a breach by Seller of any representation or covenant set forth in
Section 2.8 or 4.5, (5) any sales, use, value added, transfer, real property
transfer or gain, gross receipts, excise, stamp, documentary or similar Taxes
arising from the transactions contemplated in this Agreement and (6) any
attorneys' fees or other costs incurred by Buyer, the Company, the
Subsidiaries or any affiliate thereof in connection with any payment from
Seller under this paragraph (a) of Section 9.2.
(b) Buyer shall be liable for, and shall indemnify and hold Seller and
its affiliates harmless from, (1) any Taxes imposed on or incurred by the
Company or any Subsidiary for which Seller is not liable under paragraph (a)
of this Section 9.2 and (2) any attorneys' fees or other costs incurred by
Seller or any affiliate thereof in connection with any payment from Buyer
under this paragraph (b) of Section 9.2.
(c) Whenever it is necessary for purposes of paragraph (a) or (b) of
this Section 9.2 to determine the portion of any Taxes imposed on or incurred
by the Company or any Subsidiary (or any Group) for a taxable period beginning
on or before and ending after the Closing Date which is allocable to the Pre-
Closing Period, the determination shall be made, in the case of property, ad
valorem or similar Taxes (which are not measured by, or based upon,
production) or franchise or capital Taxes (which are not measured by, or based
upon, net income), on a per diem basis, except any consequences of the Section
338(h)(10) Election shall be excluded, and, in the case of other Taxes, by
assuming that the Pre-Closing Period constitutes a separate taxable period of
<PAGE>27
the Company or the Subsidiary and by taking into account the actual taxable
events occurring during such period (except that exemptions, allowances and
deductions for a taxable period beginning on or before and ending after the
Closing Date that are calculated on an annual or periodic basis, such as the
deduction for depreciation, shall be apportioned to the Pre-Closing Period
ratably on a per diem basis and any consequences of the Section 338(h)(10)
Election shall be excluded).
(d) Seller and Buyer will, to the extent permitted by applicable law,
elect with the relevant taxing authorities to close all taxable periods of the
Company or any Subsidiary as of the close of business on the Closing Date.
(e) Buyer agrees to pay to Seller any refund received after the
Closing Date by Buyer or its affiliates, including the Company or any
Subsidiary, in respect of any Taxes for which Seller is liable under paragraph
(a) of this Section 9.2, but only to the extent such refund has not been
reflected as a receivable on the Closing Statement. Seller agrees to pay to
Buyer any refund received by Seller or its affiliates in respect of any Taxes
for which Buyer is liable under paragraph (b) of this Section 9.2. The
parties shall cooperate in order to take all necessary steps to claim any such
refund. Any such refund received by a party or its affiliate for the account
of the other party shall be paid to such other party within thirty (30) days
after such refund is received.
(f) Seller and Buyer agree that any payment made with respect to Taxes
pursuant to this Section 9.2 shall be treated by the parties on their Returns
as an adjustment to the Purchase Price for the Shares.
(g) At or prior to the Closing, Seller will provide to Buyer a
schedule which sets forth the following information with respect to each of
the Foreign Subsidiaries as of the date which is as close to the Closing Date
as is reasonably practicable: (i) the adjusted basis for United States federal
income tax purposes of the assets of the Foreign Subsidiary, (ii) the
accumulated earnings and profits for United States federal income tax purposes
of the Foreign Subsidiary, (iii) the post-1986 foreign income taxes of the
Foreign Subsidiary within the meaning of Section 902(c)(2) of the Code, (iv)
the previously taxed earnings of the Foreign Subsidiary for purposes of
Section 959 of the Code, (v) the amount of distributions made by the Foreign
Subsidiary during the taxable year which includes the Closing Date and (vi)
the subpart F income within the meaning of Section 952 of the Code of the
Foreign Subsidiary for the taxable year which includes the Closing Date.
9.3 Tax Proceedings
In the event Buyer, the Company, the Subsidiaries or any of their
affiliates receive notice (the "Proceeding Notice") of any examination, claim,
adjustment or other proceeding with respect to the liability of the Company or
any Subsidiary for Taxes for any period for which Seller is or may be liable
under paragraph (a) of Section 9.2, Buyer shall notify Seller in writing
thereof (the "Buyer Notice") no later than the earlier of (i) thirty (30) days
after the receipt by Buyer, the Company, the Subsidiaries or any of their
affiliates of the Proceeding Notice or (ii) ten (10) days prior to the
deadline for responding to the Proceeding Notice. As to any such Taxes for
which Seller is solely liable under paragraph (a) of Section 9.2, Seller shall
<PAGE>28
be entitled at its expense to control or settle the contest of such
examination, claim, adjustment or other proceeding, provided Seller notifies
Buyer in writing that it desires to do so no later than the earlier of (i)
thirty (30) days after receipt of the Buyer Notice or (ii) five (5) days prior
to the deadline for responding to the Proceeding Notice. The parties shall
cooperate with each other and with their respective affiliates, and will
consult with each other, in the negotiation and settlement of any proceeding
described in this Section 9.3.
9.4 Payment of Taxes
All Taxes with respect to the Company or the Subsidiaries shall be paid
by the party that is legally responsible therefor. Except as otherwise
provided in this Article 9, any amount to which a party is entitled under this
Article 9 shall be promptly paid to such party by the party obligated to make
such payment following written notice to the party so obligated stating that
the Taxes to which such amount relates are due and providing details
supporting the calculation of such amount.
9.5 Returns
All Returns which relate to any Taxes of the Company or the Subsidiaries
shall be prepared and filed by the party that is legally responsible therefor.
All taxable items of the Company for the period beginning on January 1, 1997
and extending through the close of business on the Closing Date will be
included in the consolidated United States federal income tax Return of the
Group of which Seller is the common parent and will be reported on a basis
consistent with previously filed Returns. Buyer and its affiliates, including
the Company and the Subsidiaries, shall cooperate with Seller and shall make
available all necessary records and timely take all action necessary to allow
Seller and its affiliates to prepare and file the Returns which they are
responsible for preparing and filing under this Section 9.5.
9.6 Tax Allocation Arrangements
Effective as of the Closing, all liabilities and obligations between the
Company or any Subsidiary, on one hand, and Seller and any affiliates thereof,
on the other hand, under any tax indemnity, sharing, allocation or similar
agreement or arrangement in effect prior to the Closing shall be extinguished
in full, and any liabilities or rights existing under any such agreement or
arrangement shall cease to exist and shall no longer be enforceable. Seller
and its affiliates shall execute any documents necessary to effectuate the
provisions of this Section 9.6.
9.7 Cooperation and Exchange of Information
Each party will provide, or cause to be provided, to the other party
copies of all correspondence received from any taxing authority by such party
or any of its affiliates in connection with the liability of the Company or
the Subsidiaries for Taxes for any period for which such other party is or may
be liable under paragraph (a) or (b) of Section 9.2. The parties will provide
each other with such cooperation and information as they may reasonably
request of each other in preparing or filing any Return or claim for refund,
<PAGE>29
in determining a liability or a right of refund or in conducting any audit or
other proceeding in respect of Taxes imposed on the parties or their
respective affiliates. The parties and their affiliates will preserve and
retain all Returns, schedules, work papers and all material records or other
documents relating to any such Returns, claims, audits or other proceedings
until the expiration of the statutory period of limitations (including
extensions) of taxable periods to which such documents relate and until the
final determination of any payments which may be required with respect to such
periods under this Agreement and shall make such documents available to the
other party or any affiliate thereof, and their respective officers, employees
and agents, upon reasonable notice and at reasonable times, it being
understood that such representatives shall be entitled to make copies of any
such books and records relating to the Company or the Subsidiaries as they
shall deem necessary. Any information obtained pursuant to this Section 9.7
shall be kept confidential, except as may be otherwise necessary in connection
with the filing of Returns or claims for refund or in conducting any audit or
other proceeding. Each party shall provide the cooperation and information
required by this Section 9.7 at its own expense.
9.8 Survival of Obligations
The obligations of the parties set forth in this Article 9 shall be
unconditional and absolute and shall remain in effect without limitation as to
time.
9.9 Conflict
In the event of a conflict between the provisions of this Article 9 and
any other provisions of this Agreement, the provisions of this Article 9 shall
control. In particular, the provisions of Section 10.5 shall not apply to any
amounts for which any party is liable under this Article 9.
ARTICLE 10
INDEMNIFICATION; REMEDIES
10.1 Survival
All representations and warranties contained in this Agreement shall
survive for a period of eighteen (18) months after the Closing Date, at which
time they shall terminate.
10.2 Indemnification and Payment of Damages by Seller
Seller will indemnify and hold harmless Buyer and its representatives,
stockholders, controlling persons, and affiliates (collectively, the
"Indemnified Persons") for, and will pay to the Indemnified Persons the amount
of, any loss, liability, claim, damage or expense (including reasonable
attorneys' fees) (collectively, "Damages"), arising, directly or indirectly,
from or in connection with (a) any breach of any representation, warranty,
covenant or obligation of Seller in this Agreement (without giving effect to
<PAGE>30
the individual materiality or knowledge qualifications otherwise contained in
Article 2 hereof) and (b) any warranty, product liability or other claim
relating to any product sold by the Company or any Subsidiary prior to the
Closing Date to the extent not reserved for under the Company's consolidated
financial statements, except that Buyer shall not in any case be entitled to
indemnification under this Section 10.2 for any environmental matter involving
the Company or any Subsidiary.
10.3 Indemnification and Payment of Damages by Buyer
Buyer will indemnify and hold harmless Seller, and will pay to Seller
the amount of any Damages arising, directly or indirectly, from or in
connection with any breach of any representation, warranty, covenant or
obligation of Buyer in this Agreement.
10.4 Time Limitations
If the Closing occurs, Seller will have no liability (for
indemnification or otherwise) with respect to any representation, warranty,
covenant or obligation to be performed and complied with prior to the Closing
Date, unless within eighteen (18) months from the Closing Date Buyer notifies
Seller of a claim specifying the factual basis of that claim in reasonable
detail to the extent then known by Buyer. If the Closing occurs, Buyer will
have no liability (for indemnification or otherwise) with respect to any
representation, warranty, covenant or obligation to be performed and complied
with prior to the Closing Date, unless within eighteen (18) months from the
Closing Date Seller notifies Buyer of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by Seller.
10.5 Limitations on Amount--Seller
Seller will have no liability (for indemnification or otherwise) with
respect to the matters described in Section 10.2 until the total of all
Damages with respect to all such matters exceeds $500,000, and then only for
the amount by which such Damages exceed $500,000, up to a maximum aggregate
liability for Damages of $5,000,000. Under no circumstances shall Seller have
liability for Damages exceeding $5,000,000 in the aggregate. However, this
Section 10.5 will not apply to any breach of any of Seller's representations
and warranties of which Seller had knowledge at any time prior to the date on
which such representation and warranty is made or any intentional breach by
Seller of any covenant or obligation, and Seller will be liable for all
Damages with respect to such breaches.
10.6 Procedure for Indemnification--Third Party Claims
(a) Promptly after receipt by an indemnified party under Section 10.2
or 10.3, of notice of the commencement of any proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement
of such claim.
<PAGE>31
(b) If any proceeding referred to in Section 10.6(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such proceeding, the indemnifying party will be entitled
to participate in such proceeding and, to the extent that it wishes (unless
the indemnifying party is also a party to such proceeding and the indemnified
party determines in good faith that joint representation would be
inappropriate), to assume the defense of such proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Article 10 for any
fees of other counsel or any other expenses with respect to the defense of
such proceeding, in each case subsequently incurred by the indemnified party
in connection with the defense of such proceeding, other than reasonable costs
of investigation. If the indemnifying party assumes the defense of a
proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims
may be effected by the indemnifying party without the indemnified party's
consent unless (A) there is no finding or admission of any violation of law or
any violation of the rights of any person and no effect on any other claims
that may be made against the indemnified party, and (B) the sole relief
provided is monetary damages that are paid in full by the indemnifying party;
and (iii) the indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of any proceeding
and the indemnifying party does not, within ten (10) days after the
indemnified party's notice is given, give notice to the indemnified party of
its election to assume the defense of such proceeding, the indemnifying party
will be bound by any determination made in such proceeding or any compromise
or settlement effected by the indemnified party.
10.7 Procedure for Indemnification -- Other Claims
A claim for indemnification for any matter not involving a third-party
claim may be asserted by notice to the party from whom indemnification is
sought.
10.8 General
The covenants and agreements entered into pursuant to this Agreement to
be performed after the Closing shall survive the Closing without limitation.
The indemnification obligations under this Article 10 shall apply regardless
of whether any suit or action results solely or in part from the active,
passive or concurrent negligence of the Indemnified Person. The rights of the
parties to indemnification under this Article shall not be limited due to any
investigations heretofore or hereafter made by such parties or their
representatives, regardless of negligence in the conduct of any such
investigations. All representations, warranties and covenants and agreements
made by the parties shall not be deemed merged into any instruments or
agreements delivered in connection with the Closing or otherwise in connection
with the transactions contemplated hereby.
<PAGE>32
10.9 Release
Effective as of the Closing, Seller does hereby remise, release, acquit
and forever discharge each of the Company and the Subsidiaries and their
respective affiliates, partners, officers, directors, controlling persons or
entities, employees, attorneys and successors and assigns of and from any and
all claims, demands, liabilities, responsibilities, disputes, causes of action
and obligations of every nature whatsoever, liquidated or unliquidated, known
or unknown, matured or unmatured, fixed or contingent, which Seller now has,
owns or holds or has at any time previously had, owned or held against the
Company or any Subsidiary. This release is expressly intended to apply
notwithstanding any act or omission by the Company or any of such persons,
including any negligent acts or omissions by the Company or any of such
persons.
ARTICLE 11
GENERAL PROVISIONS
11.1 Expenses
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with
the preparation, execution, and performance of this Agreement and the
transactions contemplated herein, including all fees and expenses of agents,
representatives, counsel, and accountants; provided, however, that Buyer shall
bear the costs of any environmental audit reports and tests contemplated
hereunder. In the event of termination of this Agreement, the obligation of
each party to pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by another party.
11.2 Public Announcements
Any public announcement or similar publicity with respect to this
Agreement or the transactions contemplated herein will be issued, if at all,
at such time and in such manner as Seller and Buyer shall mutually determine.
Unless consented to by the other party in advance or required by law, prior to
the Closing, each party shall keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any person. Seller and Buyer
will consult with each other concerning the means by which the employees,
customers, and suppliers of the Company or any Subsidiary and others having
dealings with the Company or any Subsidiary will be informed of the
transactions contemplated by this Agreement.
11.3 Confidentiality
The letter agreement dated June 9, 1997 between Seller and Buyer is
hereby incorporated by reference into this Agreement as though fully set forth
herein. After the Closing, Seller will not, directly or indirectly, disclose
or provide to any other person any non-public information of a confidential
<PAGE>33
nature concerning the Company or any Subsidiary or their business or
operations, except as is required in governmental filings or judicial,
administrative or arbitration proceedings. In the event that Seller or any
affiliate becomes legally required to disclose any such information in any
governmental filings or judicial, administrative or arbitration proceedings,
Seller shall, and shall cause such affiliate to, provide Buyer with prompt
notice of such requirement so that Buyer may seek a protective order or other
appropriate remedy. In the event that such protective order or other remedy
is not obtained, Seller shall, and shall cause such affiliate to, furnish only
that portion of the information that Seller or such affiliate, as the case may
be, is advised by its counsel is legally required and such disclosure shall
not result in any liability hereunder unless such disclosure was caused by or
resulted from a previous disclosure by Seller or any affiliate which was not
permitted by this Agreement.
11.4 Non-Solicitation
Seller agrees that between the date of this Agreement and the Closing
Date, it will not solicit for employment any officer, director or key employee
of the Company or its Subsidiaries. If this Agreement is terminated for any
reason pursuant to Article 8, (a) Buyer agrees that for a period of six (6)
months from the date of termination, Buyer and its subsidiaries will not
solicit for employment any officer, director or key employee of Seller, the
Company or any Subsidiary, and (b) Seller agrees that for a period of six (6)
months from the date of termination, Seller, the Company and any Subsidiary
will not solicit for employment any officer, director or key employee of Buyer
or its subsidiaries. Each of the foregoing prohibitions shall not apply to
solicitations made to the public or the industry generally, and Seller or
Buyer, or their respective subsidiaries, as the case may be, shall not be
prohibited from employing any such person who contacts such party on his or
her own initiative without any prohibited solicitation.
11.5 Covenant Not To Compete
For a period of three (3) years from the Closing Date, Seller shall not
directly or indirectly engage in the manufacture, sale or distribution of
products currently manufactured, sold or distributed by the Company or its
Subsidiaries.
11.6 Notices
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when
(a) delivered by hand (with written confirmation of receipt), (b) sent by
telecopier (with written confirmation of transmission), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received
by the addressee, if sent by a nationally recognized overnight delivery
service (receipt requested), in each case to the appropriate addresses and
telecopier numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):
<PAGE>34
If to Seller, to:
Franklin Electric Co., Inc.
400 E. Spring Street
Bluffton, IN 48714
Attention: Mr. Jess B. Ford
Vice President and Chief Financial Officer
Telephone: (219) 827-5539
Telecopy: (219) 827-5633
with a copy to:
Schiff Hardin & Waite
7200 Sears Tower
Chicago, IL 60606
Attention: Robert J. Regan
Telephone: (312) 258-5606
Telecopy: (312) 258-5600
If to Buyer, to:
Baker Hughes Incorporated
3900 Essex Lane, Suite 1200
Houston, Texas 77027
Attention: Lawrence O'Donnell, III
Telephone: (713) 439-8718
Telecopy: (713) 439-8472
with a copy to:
J. David Kirkland, Jr.
Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, TX 77002
Telephone: (713) 229-1234
Telecopy: (713) 229-1522
11.7 Arbitration
Any dispute between the parties with respect to this Agreement which is
not resolved by good faith negotiations within forty-five (45) days after
written notice of such dispute is given by either Buyer or Seller to the other
party, will be settled exclusively by arbitration before a single arbitrator
appointed by JAMS/Endispute. If the total amount (not including interest) of
the dispute exceeds $100,000, the arbitration will be conducted in accordance
<PAGE>35
with the Comprehensive Arbitration Rules and Procedures of JAMS/Endispute; any
other arbitration will be conducted in accordance with the Streamlined
Arbitration Rules and Procedures of JAMS/Endispute. Each party shall each
bear its own expense (including without limitation the fees and expenses of
legal counsel and accountants) in connection with such arbitration. The
arbitration award shall allocate the arbitrator's fees and expenses according
to the relative success of the parties in the arbitration, as determined by
the arbitrator.
11.8 Further Assurances
The parties agree to furnish upon request to each other such further
information, to execute and deliver to each other such other documents, and to
do such other acts and things, all as the other party may reasonably request
for the purpose of carrying out the intent of this Agreement and the documents
referred to in this Agreement.
11.9 Waiver
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of such
right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents
referred to in this Agreement.
11.10 Entire Agreement and Modification
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the
party to be charged with the amendment.
11.11 Assignments, Successors, and No Third-Party Rights
No party may assign any of its rights under this Agreement without the
prior consent of the other parties, except that no such consent of Seller
shall be required for an assignment by Buyer to a wholly-owned subsidiary of
<PAGE>36
Buyer which does not relieve Buyer of its obligations under this Agreement.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement
will be construed to give any person other than the parties to this Agreement
and the Company any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement
and all of its provisions and conditions are for the sole and exclusive
benefit of the parties to this Agreement and their successors and assigns.
11.12 Severability
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement
will remain in full force and effect. Any provision of this Agreement held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
11.13 Headings, Construction
The headings in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
11.14 Governing Law
This Agreement will be governed by the laws of the State of Oklahoma
without regard to conflicts of laws principles.
11.15 Counterparts
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
<PAGE>37
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
FRANKLIN ELECTRIC CO., INC.
By: /s/ Jess B. Ford
-----------------------------
Name: Jess B. Ford
Title: Vice President and
Chief Financial Officer
BAKER HUGHES INCORPORATED
By: /s/ Joseph F. Brady
-----------------------------
Name: Joseph F. Brady
Title: Vice President
Exhibit (99) to Form 8-K
PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND BALANCE SHEET
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Statements of Income for the
nine months ended September 27, 1997, and the year ended December 28, 1996 and
the unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 27, 1997, have been prepared giving effect to the elimination of the
results of the operations and balance sheet of Oil Dynamics Inc. (ODI) which
was sold on October 24, 1997. These Pro Forma Condensed Consolidated
Financial Statements are intended to show the impact from the sale of ODI had
the transaction occurred at an earlier time and are not necessarily indicative
of the results which would have been obtained had such transaction been
completed as of the date and for the periods presented.
The unaudited Pro Forma Condensed Consolidated Financial Statements and the
accompanying notes should be read in conjunction with the historical financial
statements of the Company.
<PAGE>
FRANKLIN ELECTRIC CO., INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended September 27, 1997
------------------------------------
Adjustments Pro Forma
for Adjusted
Elimination for Sale
Actual of ODI of ODI
-------- ------- --------
Net sales.............................. $225,745 $31,505 (a) $194,240
Costs and expenses
Costs of sales:...................... 165,964 26,928 (a) 139,036
Selling and administrative expenses.. 36,826 6,474 (a) 30,352
Interest expense..................... 994 - 994
Other income, net.................... (1,225) (444)(a) (781)
-------- ------- --------
202,559 32,958 169,601
Income (loss) before income taxes...... 23,186 (1,453) 24,639
Income taxes........................... 8,599 (517)(c) 9,116
-------- ------- --------
Net income (loss)...................... $ 14,587 $ (936) $ 15,523
======== ======= ========
Per share data:
Weighted average common shares....... 6,371 6,371
======== ========
Net income per common shares......... $ 2.29 $ 2.44
======== ========
Dividends per common share........... $ .42 $ .42
======== ========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
FRANKLIN ELECTRIC CO., INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Year Ended December 28, 1996
----------------------------
Adjustments Pro Forma
for Adjusted
Elimination for Sale
Actual of ODI of ODI
-------- ------- --------
Net sales.............................. $300,689 $35,851 (a) $264,838
Costs and expenses
Costs of sales:...................... 221,636 27,772 (a) 193,864
Selling and administrative expenses.. 45,854 13,408 (a) 32,446
Interest expense..................... 1,308 - 1,308
Other income, net.................... (1,446) 563 (a) (2,009)
-------- ------- --------
267,352 41,743 225,609
Income (loss) before income taxes...... 33,337 (5,892) 39,229
Income taxes........................... 11,827 (2,688)(c) 14,515
-------- ------- --------
Net income (loss)...................... $ 21,510 $(3,204) $ 24,714
======== ======= ========
Per share data:
Weighted average common shares....... 6,676 6,676
======== ========
Net income per common shares......... $ 3.22 $ 3.70
======== ========
Dividends per common share........... $ .46 $ .46
======== ========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
FRANKLIN ELECTRIC CO., INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 27, 1997
------------------
Adjustments Pro Forma
for Adjusted
Elimination for Sale
Actual of ODI of ODI
-------- ------- --------
ASSETS
Current assets:
Cash and equivalents.................... $ 8,298 $31,250 (b) $ 39,817
269 (d)
Marketable securities................... 30,567 - 30,567
Receivables, net........................ 21,601 (8,859)(d) 12,742
Inventories, net........................ 45,396 (12,891)(d) 32,505
Other current assets.................... 9,422 (685)(d) 8,737
-------- ------- --------
Total current assets.................. 115,284 9,084 124,368
Property, plant and equipment, net........ 38,789 (9,186)(d) 29,603
Deferred and other assets................. 1,971 (742)(d) 1,229
-------- ------- --------
Total assets.............................. $156,044 $ (844) $155,200
======== ======= ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Short-term borrowings................... $ 18 $ - $ 18
Accounts payable........................ 8,944 (2,912)(d) 6,032
Accrued expenses........................ 25,241 (1,562)(d) 23,679
Income taxes............................ 2,009 894 (c) 2,903
-------- ------- --------
Total current liabilities............. 36,212 (3,580) 32,632
Long-term debt............................ 20,160 - 20,160
Employee benefit plan obligations......... 7,401 (662)(d) 6,739
Other long-term liabilities............... 3,911 - 3,911
Deferred income taxes..................... 184 - 184
Shareowners' equity:
Common stock............................ 593 - 593
Additional capital...................... 9,032 - 9,032
Retained earnings....................... 84,121 - 84,121
Excess of subsidiary selling price
over book value and estimated post-
closing adjustments and expenses...... - 3,398 (b) 3,398
Stock subscriptions..................... (693) - (693)
Cumulative translation adjustment....... (2,342) - (2,342)
Loan to ESOP Trust...................... (2,292) - (2,292)
Minimum pension liability adjustment,
net of taxes.......................... (243) - (243)
-------- ------- --------
Total shareowners' equity............. 88,176 $ 3,398 $ 91,574
-------- ------- --------
Total liabilities and shareowners' equity. $156,044 $ (844) $155,200
======== ======= ========
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
FRANKLIN ELECTRIC CO., INC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) Pro forma adjustment to eliminate the historical results of operations of
ODI for the respective periods presented.
(b) Pro forma adjustment to record the net difference between the estimated
selling price (before post-closing adjustments) and the September 27, 1997
historical assets, liabilities and shareowners' equity of ODI.
(c) Pro forma adjustment to record the estimated income tax of the
elimination of the historical results of operations described in Note (a) for
the respective periods presented.
(d) Pro forma adjustment to eliminate the historical assets and liabilities
of ODI.
